Foreigners retreat from residential property market: NAB

The latest NAB Residential Property Survey, released on Friday, shows that overall demand from foreign buyers continues to shrink as buyers retreat from Queensland and re-focus towards Victoria.

NAB found that the market share of foreign buyers in new Australian housing markets fell for the third straight quarter to 10.4 per cent.

However, NAB chief economist Alan Oster said this masks important movements by state.

“A sharp fall in foreign buyer activity in Queensland to 11.2 per cent (21.9 per cent in Q1) was offset by a significantly bigger presence in VIC (21.7 per cent up from 10.7 per cent in Q1) and a modest rise in NSW (11.8 per cent up from 11.1 per cent in Q1),” he said.

“In established markets, the share of foreign buyers was unchanged at 7.2 per cent, with foreign buyers playing a bigger role in VIC (9.6 per cent) and QLD (7 per cent), but less conspicuous in NSW (7.5 per cent) and WA (5.8 per cent).”

The composition of properties bought by foreigners remained unchanged over the quarter, with 53 per cent of foreigners buying apartments, 29 per cent snapping up houses and 18 per cent investing in re-development. However, ratios vary significantly by state. In Queensland, 63 per cent were apartments, but more houses (38 per cent) and land for re-development (23 per cent) sold in Victoria.

NAB found that around three-quarters of all apartment sales to foreigners valued below $1 million (35 per cent less than $500,000 and 39.4 per cent between $500,000 and $1 million. In the house market, two-thirds valued below $1 million (around 30 per cent below $500,000 and 36.4 per cent between $500,000-$1 million).

Despite being the first NAB Residential Property Survey since the RBA cut the official cash rate in May, the results showed that housing market sentiment among property professionals softened over the quarter.

The NAB Residential Property Index fell to +3, from +6 in Q1 2016, to remain below its long-term average of +13.

Sentiment moderated in all states except SA/NT, which rose 19 points, albeit still in negative territory. New South Wales joined Victoria as the best performing state, followed by Queensland.

Confidence has however improved, with the national index rising to +29 next year, and +36 in two years’ time.

The NAB Residential Property Survey for Q2 2016 also found that respondents expect Victoria and Queensland to provide the best capital returns over the next one to two years.

“It’s still a mixed picture across Australia, with house price expectations for the next 12 months holding up well in the eastern states whilst staying flat in SA/NT and continuing to fall sharply in WA,” NAB chief economist Alan Oster said.

NAB Economics has also revised its national house price forecasts for 2016 upwards to 5.1 per cent (from 1.5 per cent). Unit price forecasts were revised up to 3.6 per cent for 2016.

“Our upwards revisions in price forecasts reflects the strength in prices to date. Over the last six months, Sydney and Melbourne prices have increased by an annualised rate of nearly 19 per cent and 12 per cent respectively,” Mr Oster said.

“However, while there is significant amount of uncertainty over the outlook for prices, we expect that this renewed momentum in the housing market is unlikely to be sustained over the longer term.”

Looking out to 2017, NAB forecasts prices to be flat across most capital cities, with falls particularly in Perth, Melbourne and Brisbane.

While the declines in Perth largely reflect economic conditions, the falls in Melbourne and Brisbane can be partly attributed to added supply and weaker investor demand.

“NAB is forecasting a much softer residential property market, with 0.5 per cent growth in house prices and nearly 2 per cent decline in unit prices in 2017,” Mr Oster said.

NAB Economics continues to hold the view that residential property prices are unlikely to experience a sharp ‘correction’ without a trigger from a shock that leaves unemployment or interest rates sharply higher.

Approximately 230 property professionals participated in the NAB Q2 survey.

[Related: Chinese money and Australian real estate]