Five Things That Could Kickstart Property Prices

Paul Leydin
November 8, 2018


Despite all of the recent talk about softening market conditions, there is still plenty of reason for optimism when it comes to Melbourne real estate.

Price falls in property in Australia historically tend to be a slow and orderly correction. Most owners and investors choose to ride things out, rather than sell and risk locking in capital losses. While we may be seeing a flattening effect at the moment, in the context of the long-term price growth in the Melbourne property market, the falls are minor.

The following factors will help ensure the property market remains strong over time:

Population growth

Melbourne now rates as one of the 10 fastest growing large cities in the developed world, with its population likely to increase by about 10 per cent over the next four years. According to Infrastructure Australia, the projected growth in the population of Australian capital cities to 2031 will be equivalent to a new Melbourne and Brisbane being created. Melbourne’s population is predicted to be six million people by 2031 – an increase of 100,000 people a year. Increases in population lead to greater demand for dwellings, putting upward pressure on rent and property prices, as well as driving demand for continued construction and infrastructure development.

Wage growth

Our economy is slowly but steadily improving, with more jobs are being created, so it’s unlikely that we’ll see crippling levels of unemployment anytime soon. Good business conditions and lower unemployment should in time lead to higher wage growth, which in turn fuels the property sector. Australia’s seasonally adjusted wage price index rose 2.1 percent year-on-year in the second quarter of 2018, the same pace as in the prior two periods, matching market expectations. By state, Victoria and Tasmania led wage growth this year (+2.3 per cent).

Interest rates

Despite our historically long stretch of low-interest rates, few economists are predicting major rate hikes on the horizon. The Reserve Bank has indicated that the next move in interest rates will be up, but this may still not happen in the near future. If anything, the Reserve Bank is likely to face pressure to reduce the official rate in order to protect the banks and the property sector and keep the economy strong. High interest rates could cause a spree of defaults, which would harm the economy – something no one wants.

First home owners

The combination of a softer market and the first home buyer stamp duty concessions introduced in July of last year are seeing a wave of new buyers enter the market. More than 28,000 Victorians benefited from the changes in the 12 months to July, compared with about 16,100 under the old concessions the year prior. The number of loans to first-home buyers in Victoria increased 10.3 per cent over the June quarter of 2018 to an annual increase of 35.5 per cent. The Real Estate Institute of Victoria has said that first-home buyers now represent 19.6 per cent of the state’s residential purchasers.

Changes to bank lending

The Banking Royal Commission has seen a big shake up in the industry and a lot of concern about how banks have been operating. The result has been major reforms into how banks must do business, including tighter lending practices. While this may have dented consumer confidence in financial institutions in the short term, over the long term the reverse ought to prove true, with greater transparency and improved lending practices shoring up confidence in the sector.

Want more?

If you have questions about the current state of the market, talk to our expert team.

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