NSW property predicted to be calm in eye of the storm

Writing exclusively for Australian Property Investor Magazine, Real Estate Institute of New South Wales (REINSW) Chief Executive Officer, Tim McKibbin, says the signs are that New South Wales will experience a steadier, more predictable real estate market over the course of the next financial year.

We have a new Federal Government, the market disruption caused by the election is behind us, and winter is here. The real estate market in New South Wales is in a stable, strong position as we draw the curtains on the financial year.

What a year it has been.

It’s a generalisation, but property investors (and owner-occupiers) are today in a much stronger position than they were at the end of the 2021 financial year, and even more so than at the end of the 2020 financial year. The value growth over this period was unprecedented.

And unsustainable.

In the 2022 financial year, we saw prices peak at an historical high as interest rates for the most part remained at a historical low. Then, as all cycles invariably do, the price heat came out of the market.

While the market witnessed what property is capable of as an investment over the course of the year, we have also seen the stabilising impact underlying demand can have once the price peak passed.

The signs point to a steadier, more predictable real estate market in the state throughout the next financial year. We can expect flatter prices, value for buyers and vendors, tight rental markets and ongoing challenges for first-home buyers looking to get onto the property ladder.

But nothing in real estate and property investment stays stagnant for too long.

Rates watch

It could change again next week when the Reserve Bank meets. It would not be unexpected if they were raised again.

The market has had some time to factor in another rate increase but the size of the next increase will be interesting. Traditionally rates have moved in 25 basis point increments but from a current level of 0.35 per cent, a 40 basis point rise has been speculated by some.

It’s accepted that it’s a matter of when, not if, rates will rise again but what we don’t know is how high they might rise in this cycle. Inflation, low unemployment, global concerns and other factors will play a part.

Some impacts, however, we can predict with a reasonable degree of certainty.

We’ve seen marginal declines in prices in recent months and the likelihood is for a period of flatter prices in New South Wales. Rate increases mean the amounts people can borrow to invest in property become more limited, which will support this trend.

Don’t be surprised if “bubbleists” again start seeking headlines by declaring that, with the heat now out of the market, a collapse is coming. The reality is much less dramatic.

Let’s not forget that money is still very cheap, even with another rate rise. Serious buyers are unlikely to be deterred and seasoned investors will have already priced higher rates into their investment strategies.

With prices flat, or declining (ever so slightly), there’s reason to expect investors to be active over the winter period.

Reform standstill

Property investors know only too well the impacts of kneejerk policy aimed at treating symptoms and not causes. The rental moratorium through the pandemic succeeded in making property investment less attractive at a time when the market was in real need of more properties to rent.

Lockdowns are thankfully – hopefully – a thing of the past and some of the other reforms with the potential to impact a property investment appear to have stalled.

Remember the NSW Government’s property tax proposal, which would offer people the choice to pay stamp duty up front or a property tax on an ongoing basis? It remains a mystery.

Not through lack of trying, details are elusive. The NSW Government’s website has a Progress Paper available for download. It’s dated June 2021. There’s been barely a peep since.

Elsewhere, there have been murmurs about residential tenancy reform, including in the area of short-term accommodation. This is a delicate area requiring close consideration. Rental vacancy is tight, so making matters more difficult for landlords will only discourage investors at a time when we need more available rentals. Supply is perhaps the most obvious answer.

Of course, proposed reforms to housing are largely focused on affordability. It will be interesting to see if affordability continues to feature as prominently in political discussions now the election is behind us.

Buyers won’t be able to draw from their super to get into the market, for now at least, and instead the new Government’s shared equity proposition comes into play for a limited number of eligible first home buyers.

But the housing supply problem in New South Wales will not be solved by increasing demand. The REINSW will continue to advocate for strategies that focus on the supply side of the equation.