The booming property markets in Sydney and Melbourne are close to peaking, according to real estate chief John McGrath.
“Sydney and Melbourne are about 80 to 90 per cent near its cycle and it’s probably about as hot as I have seen for some time,” Mr McGrath, the chief executive of McGrath Estate Agents, told a conference in Melbourne today.
“I would be concerned if Sydney sees another (year of) double digit growth. I think Sydney is now closer to its peak -- I’m predicting 3 to 5 per cent more before plateauing -- Melbourne is probably about the same.
“The rest of Australia is preparing for its next great cycle, we expect south east Queensland is going to be the hottest market over the next three years.
“There isn’t any need to panic unless we get a rush into the Sydney and Melbourne markets.”
Mr McGrath’s assessment of Australia’s property market comes after figures last week revealed dwelling prices in Melbourne have surged 6.1 per cent in the past three months.
In Sydney, house prices jumped 5.4 per cent in the second quarter to be 18.4 per cent higher from the same period a year earlier.
But outside Sydney and Melbourne, the housing market is flat.
The boom in the Sydney and Melbourne markets comes as the Australian Prudential Regulation Authority ramps up efforts to curb speculation on housing, with major banks responding by asking for bigger deposits on loans.
New lending has been dominated by investor mortgages, which the Reserve Bank has warned is distorting the market, and last year prompted the banking regulator to call for investor lending growth to be limited to 10 per cent.
Westpac chief executive Brian Hartzer today admitted there are “very material pressures” in the banking sector, but he expects Australia’s mortgage market to remain strong.
With APRA working with the banks to reduce investor lending and increase capital ratios, Mr Hartzer warned that the lending environment was changing.
“You cannot assume that the economics and the volumes will continue the way that they are because we have had a significant increase in the amount of capital we have to hold for mortgages and these are material increases — they affect different parts of the business as well as mortgages.
“At the same time APRA is trying to tap the breaks on growth in investment property. They are concerned that consumers don’t take on more debt that they can’t service in a situation where interest rates rise.
“These are very material pressures that are floating through the industry,” Mr Hartzer said.
“But it doesn’t change the fact that the outlook for housing is still pretty positive.
“There are still fundamentally supply and demand imbalances. Interest rates are low, there aren’t as many things for people to invest in out there, and as the baby boomers reach retirement then property investment remains attractive.”
Aussie Home Loans founder John Symond said that the lack of affordability in key markets was because state governments were too slow to release land and approve development.
There was too much tax paid on a home purchase, through measures such as stamp duty, which was making it harder for first home buyers to crack into the market, he said.
This article first appeared in The Australian Business Review