The five things on the agenda for Sydney’s property market in 2017

After several years of the property market making headlines for smashing records, yet another year has come to an end - and just like that 2017 is here already.

And industry experts have wasted no time forecasting what’s likely to happen this year.

Here are five predictions that you should know about for 2017.

1) Interest rates going up
After several years of falling interest rates that have pushed us into a record-low rate environment, economists and industry experts are forecasting it could soon come to an end.

While more than half the experts on Finder’s interest rate panel expect at least one cut this year, 26 per cent expect a rate rise. To put this in perspective, there was no talk of an interest rate rise in 2016 until September. If we do have an increase in rates this year, it would be the first since November 2010.

Of those expecting a cut, the majority thought it would occur in the second half of the year, while Mortgage Choice’s Jessica Darnbrough and University of Queensland’s Clement Allan Tisdell expect a rise in March.

Not all experts agree it will happen.

Domain Group chief economist Andrew Wilson said it was “fanciful” to expect rates would rise, with cuts far more likely “due to the very sobering GDP number for the September quarter”.

2) Apartment building to decline
A major feature of the housing market over 2015-16 was the record level of dwelling approvals in Sydney and across Australia. In many capital cities, records tumbled as high rises began construction.

But there has been some softening and this could continue to slip in 2017. Property research forecaster BIS Shrapnel said a 6 per cent fall for 2016-17 in building commencements was on the cards, followed by further national declines in 2017-18.

The latest BIS Shrapnel building forecast report shows that after reaching 230,000 building commencements over the past financial year, the levels have reached “the turning point” with the attached apartment market set to fall 10.6 per cent. On a historical basis, these are still strong numbers.

Urban Taskforce chief executive Chris Johnson noted that Sydney needs an additional 36,300 new homes every year for 20 years.

“In boom times like we have now this should be over 40,000 yet the current yearly figure is only 30,319 new homes,” Mr Johnson said.

“A significant concern with the number of conditions on approvals is that the the banks are not lending on the basis of these extra costs so this is reducing the supply of housing in metro Sydney with the inevitable consequence that housing costs go up making affordability even harder for first home buyers.”

3) Property price trends to continue
It’s hard to expect that the Sydney and Melbourne markets could grow any more in value, but experts are predicting they will continue to grow ?just at a slower rate.

Real estate agency Starr Partners chief executive Doug Driscoll anticipates that “market conditions will not change a great deal from what we’re currently experiencing” with continued rises at a subdued level.

“In the absence of further macro-prudential measures or an unexpected rise in interest rates, investors will continue to be prevalent; leaving scores of first home buyers still on the sidelines,” he said.

Dr Wilson agreed there would be continued growth for Sydney and Melbourne, likely around 5 per cent over the year. Most other markets would be in the 2 to 4 per cent range, he said.

Buyer’s agency Cohen Handler predicted North Sydney’s Crows Nest and Neutral Bay would see growth, as well as areas near the south-east light rail. In Melbourne, suburbs around Carlton and Fitzroy, as well as Brunswick and Coburg would continue to surge.

4) Investors to head interstate
Another trend that could become more pronounced this year is the exodus of Sydney investors from the market, keen to spend their money elsewhere.

“Half of our market is still made up of investors, although I expect some Sydney investors may head north to Brisbane or other areas for ‘perceived’ value,” Mr Driscoll said.

But he warned investors that sometimes homes are cheap “for a reason”.

5) It will be more difficult to get a mortgage
Lending standards will also continue making headlines, with a continued tightening from lenders and regulators on the cards.

“I think we can expect more macro-prudential measures in 2017,” Mr Driscoll said.

“Lenders will absolutely become more prudent and fussy on what they lend on ? even the International Monetary Fund believes property affordability in Australian is an issue and home owners are stretching themselves too far.”

Dr Wilson wasn’t convinced the regulators would step back in, but said interest rates for investors had already started to increase, which could continue. This would make it more expensive for investors.

“They’re raising interest rates because they’ve had to raise their deposit rates to attract local depositors,” he said.

SMH/ Jan 10, 2017