According to BIS Oxford Economics’ Building in Australia 2019-2034 report, house and rent prices are expected to bounce back up from mid-2020 following almost two years of nationwide declines in dwelling values.

Managing director at BIS Oxford Economics, Robert Mellor, said that the 2019-20 financial year “should represent the trough for total building” and anticipates a “strong rebound” for the property market and new construction from mid-2020.

The company’s outlook is more optimistic than last month’s forecast, when it suggested that a meaningful and widespread recovery to the property market would still be “a way off”.

The new report highlights the various factors that are expected to encourage growth in the residential market, such as the recent interest rate cuts announced by lenders after the RBA dropped the official cash rate twice in a row, with a further cut expected in the final quarter of 2019.

Other factors that are expected to stimulate growth include the banks’ cuts to mortgage serviceability assessments, as well as the federal government’s First Home Buyer Deposit Scheme, both of which are aimed at reducing barriers to entry into the property market and boost buyer confidence.

Additionally, the current slowdown in residential building is expected to result in an undersupply of housing by mid-2020, which BIS Oxford said will stimulate growth in housing and rental prices, particularly in the eastern states. 

“From somewhat of a balanced position, Australia’s dwelling stock deficiency will grow once again as rising undersupplies in Victoria, Queensland and Tasmania develop by 2020-21,” Mr Mellor said.

This will cause growth in both the existing market, and demand for increased residential construction by mid 2020, according to Mr Mellor.

“We anticipate this pressure to facilitate growth in house prices and rents, helping create a renewed upswing in residential building starts through the early to mid-2020s,” he said.

The BIS Oxford director stated that NSWs and Victoria might have to wait to see the results of this growth.

“Queensland and Western Australia are well positioned to lead the next residential upturn, ahead of New South Wales and Victoria,” Mr Mellor said.

First home buyers and upgraders are expected to initiate the recovery in residential building commencement, with investor demand to follow once yields are more favourable.

However, according to Mr Mellor, should investors be reluctant to return to the market, sustained recovery will be at risk.

“We could experience a deeper downturn before then, and a delayed recovery, if fundamental drivers of residential activity were to ease more than expected,” Mr Mellor said.

“A crisis of confidence surrounding build quality in the apartment market has the potential to weigh further on apartment construction over the short term, adding downside risk to the outlook.”

 SOURCE:  SMART PROPERTY INVESTMENT