Australian property market predicted to ‘overheat’ when borders reopen

Australian property market predicted to ‘overheat’ when borders reopen

Australian property market predicted to ‘overheat’ when borders reopen

As Australia’s property market is rising to record levels, experts warn that a reopening of the international borders could further drive house prices high and overheat the entire market.

Recent data from CoreLogic shows Aussie house prices increased by a huge 2.1 per cent in February 2021 in what was the largest month-on-month growth in 17 years.

Sydney is leading the way with a median house price increase of 4.8 per cent over the last 3 months, followed by Melbourne with its median house price rise by 4.2 per cent.

One way to control the rise of housing demand and curb the rocketing house prices is to slowly and gradually reopen the international borders as advised by AMP Capital chief economist Shane Oliver.

He specified that rather than reopening the borders at a pace of what it was before, a gradual return of immigration would allow the property market to adjust accordingly without it becoming even more overheated.

“If we were to allow a return to normal immigration levels then you’re suddenly doubling demographic demand again at a time when the property market is still hot from low interest rates, then that could cause a real problem in terms of adding pressure on prices and worsening affordability,” Mr Oliver said.

The property market is currently experiencing tremendous demand due to a solid change in market sentiment, which has resulted in a strong buyer activity at a time when supply isn’t enough. A migration influx can make the demand even greater that could further push prices up to unimaginable levels.

Property investment expert Michael Yardney said that there are many factors indicating that 2021 will be an excellent year for property investors. Among these factors include a return on consumer/business confidence; low COVID infection numbers; strong auction clearance rates; the creation of a seller’s market due to low supply of quality properties; falling bank loan deferrals; and record low RBA interest rates.

Pre-covid migration levels could return at least in three years time. In the last full financial year before the pandemic hit, Australia’s net overseas migration was 239,7000.

It fell to 154,100 in the 2020-21 financial year, and is forecast to drop to -71,600 this financial year and to -21,000 in 2021-22, before returning to positive growth of 95,900 in 2022-23 and 201,100 in 2023-24

The bulk of the demand is coming largely from first-time home buyers who believe that this is the perfect time to get into the housing market without facing much competition from moneyed immigrants, which has kicked them out of the competition 30 years before the pandemic struck.

However, Westpac warns that extending border closures could hurt house prices from 2023

According to the bank, if the country prolongs the border closure or slow to restart the migration inflows, this could result in market-wide physical oversupply of properties by 2022. It is still unclear how this could influence market conditions and price growth in the future.

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