When will Sydney property prices start to cool?

Despite over 25% of home loan lenders increasing interest rates in March and APRA introducing new restrictions for interest only loans, Sydney property prices continue to climb.

New stats by CoreLogic show that Sydney has had its highest yearly property price growth at 18.90% since November 2012. And over the weekend, Sydney auction clearance rates continued to be strong at 81%.

“With all the interest rate increases, and changes in particular to investor loans, you’d expect to see a slowdown in Sydney property prices. But the statistics show that simply isn’t the case,” said Mozo property expert Steve Jovcevski.

Why aren’t prices cooling?

For some time APRA has been concerned about the cost of housing, and just last week announced further lending restrictions, which largely focused on reducing the number of interest only loans - known to be popular amongst investors. ASIC also followed suit, releasing a statement around its plans to examine whether lenders have been appropriately recommending interest only loans to borrowers.

“While APRA is aiming to curb investor lending by limiting interest-only loans to borrowers with LVRs above 90%, the thing is most investors don’t fall into that bracket and generally have loan to value ratios much lower than that.”

Another reason you might expect Sydney prices to drop is due to the rising home loan rates, however Jovcevski explained that incentives like negative gearing are keeping investors in the market.

“Borrowers with negatively geared properties are currently able to claim interest repayments, which ultimately means until we see interest rates rise significantly and affect their bottom lines, the rate hikes won’t be a major deterrent for investors enjoying capital gains and tax incentives.”  

Jovcevski’s property predictions for Sydney:

“As I predicted late last year, Sydney still has room to grow and it will still be some time yet until property prices begin to cool.”

While there has been some talk of an apartment oversupply, which we may see as a large number of off the plan apartments settle, when it comes to houses Jovcevski’s view is “there is still not enough on the market to meet the demand, so we’ll continue to see prices grow over 2017 and into 2018.”

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