A SURVEY of Australia's top property professionals believe foreign investors are behind the strong house prices growth in Sydney and Melbourne's residential property market.
The Australian Property Institute’s 33rd Property Directions Survey of valuers, fund managers, financiers and property analysts, pointed the finger at foreign buyers for the current increased demand and prices in the Sydney and Melbourne residential property.
The professionals believe supply, negative gearing and self-managed super fund (SMSFs) are also a factor, but to a lesser extent.
According to the survey, 50% of respondents saw foreign investors as having a very significant impact on Sydney’s residential property market, which is up from 38% in the previous May survey. A further 46% believe they are having a significant impact. Only 4% of analysts were neutral and not one respondent believed foreign buyers were insignificant or very insignificant to the market.
In contrast, only 13% of respondents see negative gearing and SMSF as having a very significant impact, although 58% believe this buyer group have a significant impact, and 25% believe supply is a very significant factor.
Similarly in Melbourne, 41% believe foreign buyers had a very significant impact compared to 27% in the previous survey, and 54% say the group has a significant impact up from 45% in the May survey. Only 9% believe negative gearing SMSF have a very significant contribution whilst 18% thought supply was the cause.
In Perth and Brisbane, the impact of foreign investors are not seeing as very significant drivers.
Only 15% of respondents said foreign investments are ‘very significant’ drivers for demand and prices in Perth and 18% in Brisbane.
Mewanwhile API NSW president Tyrone Hodge said residential property in Sydney, Melbourne and Brisbane are on the upswing of the property cycle, with Sydney and Melbourne nearing the top of the cycle.
By 2015, residential property in the three cities is viewed as moving further along the upswing, with Sydney and Melbourne seen as being at the top of the property cycle.
“In two years’ time, Sydney and Melbourne residential property is seen as commencing the downswing of the property cycle while Brisbane is nearing the top of the cycle,” he added.
The survey also gauges the outlook of the commercial property sector.
Growth forecasts for various types of retail see regional shopping centres and internet retail as having the strongest growth over the next three to five years and beyond. Sub regional retail is forecast by a majority of survey participants as having good to very good growth over the next three to five years but a smaller majority see this level of growth continuing beyond five years. Strip and neighbourhood retail have the lowest growth forecasts over the next three to five years and with a slightly better outlook for beyond five years.
In relation to the forecasts for commercial property in Sydney, Melbourne and Brisbane, commercial property in Sydney is currently seen as being the furthest along the upswing of the property cycle with Melbourne having commenced the upswing and with Brisbane at the bottom of the cycle. In a year’s time, commercial property in Sydney, Melbourne and Brisbane is forecast to advance along the upswing of the property cycle with Sydney being furthest along. In 2016, commercial property in the three cities is expected to be further advanced along the upswing with Sydney and Melbourne closer to the top of the cycle long than Brisbane.
Industrial property in the three cities is seen as being at the same stage of the upswing of the property cycle. In a year’s time, industrial property in Sydney and Melbourne has moved further along the upswing while Brisbane industrial property is seen not having advanced along the property cycle. In two year’s time, industrial property in Sydney and Brisbane has advanced further along the upswing but Melbourne is seen as remaining at the same stage of the cycle as in 2015.
Currently, retail property is seen as on the upswing of the property cycle with retail property in Brisbane being further along the upswing than in Sydney and Melbourne. In 2015, Sydney and Melbourne retail property as seen as moving further along the upswing of the cycle joining Brisbane as Brisbane retail remains at the same stage as in 2014. In 2016, retail property in the three cities is seen as advancing further on the upswing but all are at the same position in the property cycle.
Survey participants were asked to forecast growth projections for “real movement” above CPI for market values and market rents over the next 12 months in Sydney, Melbourne and Brisbane. Market values for Sydney CBD and suburban CBD commercial property, and Sydney industrial and retail property, are predicted to increase at faster rates than predicted in the Institute’s May survey.
Market rents for Sydney CBD commercial property are expected to decline at a slower rate than predicted in May and market rents for Sydney suburban CBD commercial property are viewed as remaining the same. Market rents for Sydney industrial property will increase at a slightly faster rate than six months ago whereas retail market rents are viewed as declining over the next 12 months.
Market values are expected to increase at a faster rate than predicted in May for Melbourne CBD and Suburban CBD commercial, industrial and retail property. Market rents for Melbourne CBD and suburban CBD commercial property are expected to decline but at a slower rate than in May while increasing slowly for industrial and retail property.
For the next 12 months, analysts are uncertain in relation to movements in effective rents for Sydney and Melbourne but there is a leaning to increasing rents. Forecasts remain evenly split between predicting stable and declining effective rents for Brisbane for the next 12 months however there is a slight leaning to declining effective rents.
Leasing incentives are seen as operating in Sydney, Melbourne, Brisbane, Perth, Adelaide, Canberra and Hobart markets. Overall, survey participants have indicated similar levels of incentives for prime, A grade and lower grade commercial property in each of the seven cities.
Sydney CBD prime property has the majority of survey participants reporting leasing incentives between levels of 20-29% and 30%. Half of the respondents see lease incentives of 30% for Sydney A grade property and a majority of respondents see lease incentives of 30% for lower grade property. The majority of respondents see Sydney suburban CBD lease incentives as ranging between 20-29% but with a leaning to 30% levels for lower grade property.
The majority of survey participants see Melbourne CBD and suburban CBD prime, A grade and lower grade property leasing incentive levels in the range of 20-29%. Brisbane CBD prime, A grade and lower grade property is seen as being in the 30% range of lease incentives but there is a leaning to the 20-29% for prime property.
Most survey participants see leasing incentives for prime, A grade and lower grade property in Perth to be in the 20-29% range with leanings to 30%.
A small majority of survey participants see lease incentives for Adelaide prime, A grade and lower grade property as being in the 20 – 29% range but there are leanings to the 10-19% level for prime and A grade property and a leaning to 30% for lower grade property.
A small majority of survey participants see lease incentives for Canberra prime, A grade and lower grade property as being in the 20 – 29% range property but there are leanings to the 10-19% level for prime and A grade property, and evenly split leanings to the 10-19% range and the 30% range for lower grade property.
Survey participants are uncertain about leasing levels in Hobart with respondents fairly evenly split from 10-19% to 30% levels for prime, A grade and lower grade property.
Australian Property Journal
