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Bust or breather???

“Size of construction activities in a region is good indicator of growth of the region…”everyone related to real estate industry would have heard, read or said this more than once. However, with the property prices going over the roof and sales slowing down in some of the prominent markets, does this proverb still hold true in present day context in Australian real estate market? Since 2011, real estate market of Australia is continuously on upward trend, with some cities like Sydney and Melbourne shown exceptional growth rate. However, despite a great run of sales and development of properties, 2016 is observed as damp year for the Aussie real estate market, with most of the real estate stalwarts observing a slow down in demand owing to ever rising property prices. Although the last quarter of 2016 result in high rate of property sales and steady prices in Sydney and Melbourne, and closed the year on a high note, other prominent markets such as Brisbane, Pert and Adelaide could not generate the spark. With unsold inventories are piling up in almost all the regions, the fear of market crash is impending.


However, despite a sluggish 2016 for real estate market in Australia except Sydney and Melbourne, construction of numerous new residential, commercial and industrial projects going on in almost every market of country. Suburbs are extending almost every month and new DA approvals for commercial and mixed use projects, large residential estates, apartments and condos are being obtained at quite a decent rate. The scale of development is quite large and billions of dollars are being pumped in by real estate developers, investors and end users. Huge gatherings in real estate seminars also point towards the fact that almost all stakeholders; developer, investor and buyer, are equally interested to sail together in this wave of real estate growth. Apart from local buyers and investors, large number of off-shore investors and developers are also showing keen interest in Australian real estate, following and analyzing Aussie real estate trends almost on daily basis.


Australia Federal Government as well as all state governments are equally participating in this real estate development phase by playing their respective roles – keeping interest rates low, allowing off-shore investments and providing fast approvals for new as well as redevelopment projects. The government is also investing hugely into development and upgradation of infrastructure and have commissioned various infrastructure and urban planning projects, viz. roads and motorways, development of metro and new train lines, airports expansion, and various new residential precincts, industrial estates and commercial zones. West Connex and Sydney Metro in Sydney, Western Distributor and Melbourne Metro in Melbourne, and Queen Wharf Project and Airport expansion in Brisbane are some of the largeinfrastructure projects taken up by government, looking to change development profile of these cities.


So, if the story is all positive with strong investment trends, then why all major reports and expert analysis are pointing towards slow-down in real estate in Australia?


The answer lies in the scale of development of real estate sector in the country. The increase in demand over past two years has given too much impetus on real estate developments in Australia, resulting in all local and foreign real estate developers investing in huge number of projects across almost all markets. Drastic escalation in real estate prices over past couple of years have boosted investor’s confidence in the market and most of them have over-committed themselves in various real estate projects, resulting in supply of too many projects in short span of time. This spurt of supply may result in oversupply of stock for a short while, but stable economic condition and strong demand for real estate, coupled with high demographic growth rate, in-migration and huge infrastructure development activities would result into upwards growth in the long run.


This so-called slowdown of real estate provides an opportunity to serious buyers to have much needed breather, and they may be able to negotiate better for new investments. According to areal estate expert, “In 2015 it was a pretty aggressive market, if you were going to secure a property you had to be quick – you had just 15 minutes to decide which puts a lot of pressure on people. The market is tipped to “take a breather” in 2017 which should give buyers increased confidence in the property process”. 


However, there is no shortage of demand in real estate sector, especially in the housing market. Barring some of the overpriced regions, rental market in Australia is quite strong, resulting into good long term demand for properties. Prices are holding good and there is no reason that they will go down drastically in near future. It is expected that eventually the pace of demand will overtake the supply, resulting in stronger growth in real estate prices over a period of time.


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