Indeed, 2022 has been a remarkable year full of unexpected developments.
As recently as a year ago, the Australian property market was experiencing a nationwide boom, with remarkable increases seen most noticeably in Sydney and Queensland. Interest rates are hovering around 2% since the Reserve Bank of Australia (RBA) retained the cash rate at a record low level of 0.1% despite some mild headwinds.
The RBA boosted the cash rate in May almost two years earlier than they had predicted. This routine continued for the following eight months.
Price drops were seen across the board in the real estate market as investors and some owner-occupants lost interest.
Key property specialists from various fields have already revealed their predictions for the next year of 2023.
Particularly one answer will shock you.
heavily reliant on monetary policy
Property Investors Council of Australia (PICA) Chair Ben Kingsley has said that two possible outcomes must be considered when predicting the performance of the Australian property market in 2023.
The first is if inflation remains high and the RBA maintains its monetary tightening.
The second factor is whether or not the serviceability buffers set by the Australian Prudential and Regulatory Authority (APRA)—used to determine your eligibility for a loan based on your discretionary income and outgoings—are reduced to 2% or 2.5%.
Mr. Kingsley predicted that if borrowers were let back into the market, prices would level off in more places than they are now falling in.
Even if APRA lowers its buffer rate, the market will remain relatively slow, and we’ll see further price corrections if the cash rate rises to the middle of three percent or higher.
If the buffer rate isn’t adjusted in 2023, the property market will have a harder landing than required, resulting in greater hardship for more families than necessary.
Mr. Kingsley has said that rental freezes, among other potential government actions, would “negatively influence the confidence of investors to invest” and are thus a crucial driver alongside inflation, interest rates, a robust labor market, and rising migration.
Even with the expected rise in migration, he believes vacancy rates will stay at record lows. He also believes that roommate sharing will increase in popularity.
He predicted that rents would rise again this year because “investors would pass on the increased lending costs from higher mortgage repayments.”
We have a housing shortage now because of our growing population, and it will only worsen in 2023 because of the restrictions on mortgage financing.
Tenant shortages will intensify.
The quick rise in mortgage repayments is expected to significantly affect families next year, according to Nicola McDougall, author of The Female Investor and chair of the Property Investment Professionals of Australia (PIPA), and writer for The Property Tribune.
Eight rate hikes in as many months seem excessive, particularly considering the lag time before it begins to affect consumer spending, as Ms. McDougall pointed out. “Experienced and competent property investment advisors never anticipated the cash rate to continue at 0.1 until 2024.”
Additionally, Ms. McDougall noted that investment activity has been at its lowest in the last 18 months.
She stated, “The scenario does make me feel like I’ve seen this movie before,” since investors were kept on the sidelines for many years beginning in the mid-2010s due to stringent lending restrictions.
Given the three-percentage-point servicing buffer still in effect, many would-be investors today simply do not qualify for financing. Next year, I anticipate continuing the decline in investment activity, which will devastate the rental market.
Due to this, she believes the rental situation will become much worse.
