Credit Research

2020 Credit Outlook: Property

Francis Odong, Associate - Fixed Income

Francis Odong

January 21, 2020 - 25 minute read

2020 Credit Outlook: Property

We expect property market conditions to remain sound, stemming from accommodative regulatory, fiscal and monetary policies.

Executive summary

  • We expect the upward momentum in Australian property markets from late 2019 to continue in 2020. We expect conditions in the property market to remain conducive for growth, as policymakers (macroprudential, federal and central bank) implemented measures designed to increase property market activity.
  • During 2020, we expect credit conditions to continue to ease leading to a rebound in property prices. Debt serviceability should continue to improve, as the central bank is expected to cut the cash rate at least once in the first half of 2020. This is expected to induce new participants to enter the property market, as mortgage affordability for residential property purchasers improves, and debt serviceability pressure for commercial borrowers eases.
  • Residential property price growth is expected to be fragmented, with growth strongest in Sydney and Melbourne, followed by Brisbane (stemming from favourable interstate migration). Residential property price growth is expected to be constrained by debt-to-income levels, despite policy easing and availability of credit improving.
  • Overall, we see growth in commercial property prices, despite some headwinds. Continued demand for skilled professional workers, in close proximity to clients, has continued to fuel office price growth (especially in capital cities). Additionally, the growth in warehouse logistic operators and logistics centres will continue to fuel industrial property prices, as consumers shift to the competitive prices and convenience from online shopping. However, we expect retail property prices to soften, as tenants renegotiate lower rents, due to increased competition from international and domestic online retailers.

2019 Review

‘Policy uncertainty’ was the key phrase for the Australian property market, as decisions by the macroprudential regulator, federal government and central bank were a drag on prices in the first half of the year. Policymakers were tasked with cooling an overheating property market fuelled by low interest rates, ease of access to credit from commercial banks, low unemployment and sound wages growth. However, as evidenced in Figure 1, policy decisions had an adverse impact on residential property prices, seen as a key indicator of household wealth (which then drives consumption). Policymakers digested the sharp decline in residential housing prices and the effects on the broader economy (decline in household wealth and consumption). Consequently, in the second-half of the year, policymakers introduced measures designed to stimulate the property market – changes which led to upward momentum in property prices.

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