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Will oversupply throw cold water on price boom?

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Skyrocketing home price growth could be cut in half during 2022 as pandemic-related building stimulus and stagnant population growth lead to an oversupply in inventory, according to a new study from HSBC.

While low rates are driving an expected 11% to 13% hike in property prices over the calendar year, there are signs that the market is starting to slow, according to a report by The Australian.

HSBC’s latest report, compiled by chief economist for Australia and New Zealand Paul Bloxham, says that closed borders and the spike in housing approvals driven by the HomeBuilder program will cause the price-growth rate to shrink to between 5% and 9% next year.

“Based on our estimates, this combination is set to drive some housing oversupply until population growth is able to catch up,” the report said. “We see borders largely closed until mid-2022, and only gradually reopening after that. Net migration is not expected to return to its pre-pandemic rate until late 2023.”

Median property prices are currently at record highs in all capital cities except Perth, The Australian reported.

HSBC predicted that growth in Sydney will slow significantly from this year to 2022, dropping from a projected 15% to 17% to between 4% and 8%. Melbourne prices are expected to rise between 5% and 10% over the next two calendar years. The two cities are expected to bear the brunt of the slowed overseas migration and lack of international students, which will take at least a year to recover even if borders reopen in 2022, The Australian reported.

Read next: COVID slaps an extra $125,000 on home prices

Queensland, on the other hand, is reaping the benefits of a spike in interstate migration. Prices in Brisbane are expected to rise at least 13% this year and 7% in 2022. Hobart could see the highest growth, with projected price rises of more than 20% this year and 12% in 2022. Prices are not expected to drop in any capital city.

Pandemic housing stimulus from the federal HomeBuilder program and state grants is also driving the projected oversupply. Figures from the Australian Bureau of Statistics show that the number of new properties approved fell only slightly through May after hitting a 40-year peak in February.

HSBC predicted that this would lead to an inventory oversupply of 80,000 properties in New South Wales over 2021 and 2022. It predicted an oversupply of 95,000 in Victoria, 58,000 in Queensland, and 34,000 in Western Australia.

Ryan SmithRyan Smith is currently an executive editor at Key Media, where he started as a journalist in 2013. He has since he worked his way up to managing editor and is now an executive editor. He edits content for several B2B publications across the U.S., Canada, Australia, and New Zealand. He also writes feature content for trade publications for the insurance and mortgage industries.
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