New South Wales forecasts 7.5pc fall in housing prices

The NSW housing market will be 7.5pc below its peak by spring, the state’s Treasurer has warned in today’s budget papers.

A dual occupancy house is seen between two new apartment blocks in Sydney. Picture: AAP

The NSW housing market will be 7.5 per cent below its peak by spring as prices follow the decline in auction clearance rates, the state’s treasury warned in today’s budget papers.

The sluggish housing market will cost the state revenues of $5.5 billion over the next three years and drove a $1bn miss in this year’s forecasted revenue.

In a dire warning to homeowners and the development industry, NSW Treasury forecast that in the “near term” the soft auction market meant prices would continue to weaken until the year’s main selling season, when average prices were expected to be well below their peak of last year.

The sector, which is already reeling from the impact of tax slugs on foreign investors and fears of an over supply of apartments, will be hit by a fall in both sale volumes and prices, according to the NSW budget papers.

The government blamed the $1bn miss on transfer duty revenue this financial year on declining volumes in the property market, lower prices, and the drop off in property investors.

However, it pointed to the increase in purchasing by first-home buyers, who have been drawn into the market by incentives, and argued its measures were boosting housing supply.

The dramatic slow down in the state’s housing market will have a lasting impact on the state’s finances over the next three years, with forecasts for transfer duty revenue to 2020-21 slashed by $5.5bn since the half year outlook.

The treasury blamed lower revenue in 2017-18 and lower forecasts for property market transactions and prices.

“While this revision is significant in dollar terms, revenue growth has been strong for an extended period, and the downturn is moderate compared with historic variations in transfer duty,” the budget papers said.

Longer term, they said the state’s property market was supported by strong income and population growth, a robust residential housing pipeline and favourable interest rates.

Prices are forecast to remain stable through 2018-19 and, in a bullish take on the market, positive price growth is expected to resume from early in 2019-20, reaching an annual rate of 3.5 per cent by mid 2020.

The residential property market provides the vast bulk of the state’s transfer duty revenue. Revenue from residential sales is expected to be $6.3bn in 2017-18, providing 72.5 per cent of transfer duty revenue.

Revenue from residential transactions is expected to be just $5.6bn in 2018-19, a drastic 10.9 per cent decline from 2017-18. Residential transfer duty is forecast to return to positive growth in 2019-20, averaging 2.4 per cent per annum in the four years to 2021-22.

The papers said in recent years the number of residential property transactions was significantly higher than the long-run trend, making a return to normal levels likely.

Residential volumes peaked at around 210,000 in 2017 but are expected to slip back to around 183,000 sales in 2018-19. A return to about 200,000 sales is forecast in future years.

The budget also confirmed warnings in The Australian about a fall in foreign investor surcharge transfer duty below previous forecasts, as buyers from China are scared off by tax imposts and bank crack downs.

Revenue from NSW’s foreign investor surcharge transfer duty is expected to provide around $210m in revenue in 2017-18, and around $571m in the four years to 2021-22.

During the boom year of 2016-17, 5,776 purchases were subject to foreign investor surcharge transfer duty, while just 2,000 transactions are now expected to incur the surcharge each year, with the savage fall confirming warnings by property figures including Sydney apartment tsar Harry Triguboff that imposts and red tape were damaging the market.