Why Melbourne could see housing recovery earlier than Sydney

By Gerv Tacadena

Sydney and Melbourne grew over the past years before the housing downturn, it would seem that the latter may be able to get back to its feet faster than the former.

Looking at how prices in both Sydney and Melbourne grew over the past years before the housing downturn, it would seem that the latter may be able to get back to its feet faster than the former, the latest KPMG housing market update revealed.

KPMG chief economist Brendan Rynne said the housing market overall was heavily affected by the stricter regulatory policies and measures by both the federal and state governments. Furthermore, the depleting number of foreign investors, especially from China, and the ballooning housing supply have driven prices to decline.

"But we believe that process will reach its peak over the next few months and then go into reverse later this year," Rynne said.

This would not be the case, however, for Sydney and Melbourne, which are expected to see a rebound in their respective markets over the next two years.

Rynne said Melbourne's housing market will start to witness price growth again in 2020, a year earlier than Sydney's anticipated recovery in 2021.

"House prices in Sydney were more overvalued in relation to their ‘fair value’ compared to Melbourne, and therefore they were expected to fall by a greater extent. That has proved to be the case," he said.

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Rynne also argued that Sydney dwelling prices are more sensitive to the demand by domestic investors.

"It is predominately this factor that is causing the difference in expected dwelling price growth between the two markets," he said.

The KPMG report also showed that the prudential regulations of the Australian Prudential Regulation Authority (APRA), including capping investor credit growth and limiting interest-only lending, have contributed to slowing residential price growth.

With regards to dwelling construction activity, new construction activity in New South Wales went up by 27.6% over the last two years compared to the previous two-year period. For Victoria, the growth was 15.6%.

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