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How will a return to normalcy scenario play out for the property market? According to the executive of a peak real estate body, it depends on several factors.
Tim McKibbin, the chief executive of the Real Estate Institute of NSW, believes that the real estate market is poised for a ‘return to normal’ and will be characterised by the same conditions observed in late 2022.
“The drivers remain the same: demand is robust, yet buyers remain cautious not to overspend.
“There’s hesitance among consumers owing to the general uncertainty around inflation, interest rates and the potential for more increases, and the impact of the war in Ukraine on energy and food markets,” he explained.
Mr McKibbin pointed out that vendors are now adopting a “wait-and-see” approach as to where property values will be at.
“It has been widely predicted that there will be a lot of distressed sales commencing in April,” he added.
But the question of how a return to normal will unfold will depend on how the Reserve Bank (RBA) and the government reign in inflation and how lenders will support borrowers.
The latest Australian Bureau of Statistics’ (ABS) consumer price index (CPI) data revealed that inflation rose by 1.9 per cent in the December 2022 quarter, pushing annual inflation to 7.8 per cent — its highest level in three decades.
With inflation showing no signs of abating, it is widely forecasted that the RBA — which kicked off its rate rise cycle in May — will continue to hike the country’s official cash rate when it resumes its board policy meetings in February.
Another factor that the executive believes will play a hand in how the coming months will look like for the property market is the 2023 NSW State election on 25 March.
“The upcoming state election is another variable, which could serve to temper market activity as the major parties use the housing crisis as a platform to engage in one-upmanship in a last-minute scramble for votes.
“Rather predictably, announcements designed to appeal to the populace are taking precedence over proper policies with the potential to effect necessary change.
Heading into the election, the Labor party has delivered hefty housing election housing promises in order to get NSW to vote red.
Some of the opposition party’s promises included the allocation of surplus government land to a $30 million pilot build-to-rent scheme on the state’s south coast and the implementation of legislation requiring owners to respond to a tenant’s request to house a pet within their property within 21 days.
Notably, a win for the opposition in the upcoming election could also spell the end of a recently greenlit land tax reform for first home buyers.
If elected into office, opposition Leader Chris Minns has revealed the Labor party’s housing plan to abolish stamp duty for homes under $800,000 and expand concessions to homes worth $1 million.
Investors to practise caution amid housing crisis
Mr McKibbin acknowledged that there has been plenty of speculation about the behaviour of investors this year.
With eight straight RBA cash rate hikes in 2022 and more likely on the way, uncertainty has impacted house prices, which have fallen from their pandemic peaks in capital cities.
But the executive gave his positive outlook that rates will ideally stabilise at some point — hopefully soon — and a return to price growth is a possibility in the short to medium term.
But even with strong buyer demand, he highlighted that the lack of availability on the market will have little chance of being resolved soon, with almost record rates of immigration contributing to the lack of housing.
“Some have suggested these factors will encourage investor activity but the question is, what are they going to buy?” Mr McKibbin asked.
With the scarcity of supply of homes for people to buy and rent being the “crux of the housing market", Mr McKibbin said that “no amount of pro-tenant legislation and anti-landlord rhetoric will address this”.
“Auction season will resume in full in [the] coming weeks and it will be interesting to see if clearance rates pick up where they left off. Last year ended in encouraging fashion with value on offer for buyers and fair prices achieved by vendors,” he remarked.
“But the market is far from healthy. There simply aren’t enough homes for people in NSW. A healthy market is one which offers opportunities for all buyer cohorts as well as choice for tenants,” he concluded.
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