Sydney tipped to lead nationwide recovery

SQM’s Louis Christopher forecasts a range of possible outcomes for the year ahead, with the base scenario being a situation where the cash rate, currently at 3.1 percent, peaks at no higher than four percent. In that case, he says, the property market nationwide could enjoy a seven percent jump, with Sydney leading the rebound, chalking up gains as high as nine percent, followed by Perth with up to eight percent.

Much of those gains would come from units, which Christopher predicts will outperform houses on the back of interest from first homebuyers. The trend would be particularly marked in NSW, where recent reforms now allow such buyers to forgo big upfront transfer duty fees in favour of smaller annual land tax payments: “That’s a meaningful saving. That combined with the tightness of the rental market will mean that we will see many renters turning themselves into first homebuyers in 2023.”

Arjun Paliwal, founder and head of research at investor buyers agency InvestorKit, agrees the rental crisis will play a decisive role in pushing more people toward ownership. “Although rental trends don’t necessarily cause sale prices to grow, they are important indicators, especially vacancy rates,” he said. “Low or lowering vacancy rates and rental growth could be a sign of a recovering economy, which would lead to higher housing demand.”

Property downturn slowing

There are already signs the downturn in property prices is losing momentum, with declines across the country easing to minus 3.2 percent in the three months to January and just minus 1 percent for the month of January itself.

Although the housing value index has declined by 8.9 percent since its peak last April, that fall has to be understood in the context of the explosion in prices that preceded it, said CoreLogic’s Research Director Tim Lawless. “The national HVI was up a stunning 28.6 percent in the space of just 19 months,” he said. “Despite the recent sharp drop in values, every capital city and rest-of-state region is still recording home values above pre-pandemic levels.”

The most important factor in determining the market’s trajectory in the months ahead will be consumer confidence – an ingredient that is still lacking, Lawless said. It’s a claim echoed by Propertyology Head of Research Simon Pressley, who predicts that limited RBA rate rises will help to bolster that sentiment.

“Many of the fundamentals that drove the 20 percent capital growth in the 2021 calendar year are still here right now. The important missing link is buyer confidence,” Pressley said.

“But if global supply pressures ease back to acceptable levels in the first quarter of this year, as anticipated, I think it’s likely that interest rates will flatline from Easter through to the end of the year.

“All things considered, 2023 is likely to see a return to near-normal property market performance.”