Property price rises are on the horizon

Property price rises are on the horizon

Home loan interest rates are at a record low at the moment, but one of the challenges that many buyers are still facing is the threat of rising property prices.

The latest NAB Residential Property Index points to a further increase in home values across the country and suggests the trend may not be about to subside any time soon.

Rises are expected to be more modest than they have been recently, NAB forecasts, which will largely be the result of an increase in unemployment, affordability constraints and struggling household income.

"We are forecasting average house price growth of around 4 per cent through the year to September 2015 and 2 per cent through the year to September 2016," said NAB Group Chief Economist Alan Oster.

Where are property prices at their strongest?

Some parts of the country are performing stronger than others at the moment, although the outlook for all states remains broadly positive.

Predictions suggest house prices are likely to increase 2.9 per cent in Queensland in the near future, followed by 2.4 per cent in Victoria and 2.3 per cent in New South Wales.

Demand for certain property types is also expected to gather pace, with inner-city, low-rise apartment and houses in middle and outer rings likely to be especially strong.

Brisbane and Sydney are expected to lead the pack over the next 12 months, with Melbourne and Adelaide following closely behind. Perth is expected to see its prices struggle.

What difficulties are facing the market?

Despite the property market appearing strong at the moment, there are nevertheless some challenges it's likely to come up against.

Supply and demand
One challenge is that not enough properties are being constructed in order to meet demand, which will become more crucial as the population continues to grow.

New South Wales is bearing the brunt of this trend at present, as NAB reveals how house price gains have replaced credit availability as the main constraint. South Australia and the Northern Territory are experiencing similar problems.

The latest figures from the Australian Bureau of Statistics show construction activity continued to rise across the country in the June quarter, with the value of new residential building work up 3.9 per cent.

Work completed on new houses was up 3.2 per cent in value terms, while other residential construction projects increased 4.9 per cent.

Commenting on the data, Senior Economist at the Housing Industry Association Shane Garrett explained how the building sector is up against various problems of its own.

"These include high taxation, stamp duties, planning restrictions, and delays in making residential land available," Mr Garrett noted. "Failure to tackle these constraints will mean that the ability of the industry to provide for Australia's long-term housing requirements will continue to be seriously undermined."

Overseas buyers

Another headwind is the role overseas buyers are playing in the Australian property market, which the bank found to be particularly prominent during the third quarter of the year.

Mr Oster commented: "Foreign buyers accounted for 16.8 per cent of total demand for new property in quarter three, or about one in six of all buyers, with this share tipped to rise to 17.3 per cent over the next year."

He emphasised how although foreign purchaser activity is evident all over the country, it's especially prominent in Victoria where they account for 24.8 per cent of total demand.

This comes at a time when local investors are in decline, as they represented just 27 per cent of national demand during the third quarter, down from 32.5 per cent in the second.

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