What to expect from the Australian economy and property market in 2018?

What to expect from the Australian economy and property market in 2018?

12 January 2018

As the new year begins, it’s time to engage in the time-honoured tradition of predicting this year’s unfolding economic and property landscape.

The Australian reports that housing markets are tipped to drop as prospective buyers find it harder to get a loan and official interest rates are more likely to rise than fall. Sydney is expected to be hardest hit with values set to fall 5-10 per cent over the next two years.

Singing the same tune in the Property Observer is Mozo property expert Steve Jovcevski. He predicts the Sydney property market to drop 5 per cent in 2018, but to pick up slightly in Autumn, in line with cyclical trends. Other state capitals should enjoy price growth ranging from 2 to 7 per cent, with Hobart the standout performer expecting a 10 per cent increase.

Leading real estate investment bankers who participated in The Australian Financial Review’s 2018 real estate outlook roundtable caution the commercial real estate market is reaching its peak, making deals harder to do and potentially opening the door to cashed-up foreign raiders who have the extra capacity.

Credit Suisse’s head of real estate Angelo Scasserra observes “an atmosphere of caution among the A-REITs” and concludes “the prevailing view is that we are near the top of the current property cycle.”

UBS head of real estate Tim Church expects M&A activity to “be led by taking private the attractive REIT’s that appear good value [and] IPO activity to be more subdued.” He also believes “we could see more REITs taken private than new ones come to market.”

Just how this will happen is most likely to be played out through offshore raiders—both friendly and aggressive—according to Goldman Sachs head of real estate Adrian Sheldon.

In a separate report, the AFR says economists expect a return to healthy wage growth as the economy inches towards full employment. The nation’s top economists believe the boom-time pace of jobs growth and an improving backdrop of growth will narrow the gap.

The typical economic view sees the Reserve Bank of Australia keeping interest rates on hold at 1.5 per cent at June of this year, and one rate hike, to 1.75 per cent, by the end of 2018. By June 2019, further tightening to 2 per cent is forecast.

Fairfax Media expects the following five trends to shape property markets. These include, (1) Mortgage rates will continue to rise, (2) Property prices will continue to cool, particularly in Sydney, (3) First-home buyers will make a comeback, (4) Upgraders will opt to stay put and renovate, and (5) Owner-occupiers will win from competitive lending rates.

Quoting the Australian government’s latest Mid-Year Economic and Fiscal Outlook (MYEFO) forecast, Business Insider reports that GDP is expected to grow by 2.5 per cent, due to an expectation that household consumption will rebound thanks to continued strengthening in Australia’s labour market.

Wages should grow 2.25 per cent, while employment is forecast to grow by 1.75 per cent.

Depending on which expert you ask, the Australian dollar might sink to 65 US cents or surge to 88 US cents by the end of next year, reports ABC News.

Whether the Aussie dollar gets stronger or weaker depends on factors like the speed of US economic recovery, whether commodity prices get higher, and by how much China’s economy slows down.

All in all, cautious optimism best describes expectations for this year’s economic and commercial real estate property outlook.

Let the year begin!