The return to dominance of homebuyers is seen as a major positive for property markets around Australia.

It follows several years in which foreign and local investors have been the major players, but the tide is now starting to turn in favour of owner-occupiers.

We want to see homebuyers driving the market. Lender restrictions in response to the Australian Prudential Regulation Authority (APRA) crackdown have helped to generate a marked drop-off in loans to investors.

At the same time, state governments surcharges and tighter lending criteria for offshore borrowers are likely to curtail the buying by foreign investors, which were at record levels in 2015.

We are likely to see a pullback in foreign investment into Australian residential real estate, which is a positive thing because it has tripled in the last two years. We think this is a good thing for the stability of the market.

Performance Property research indicates that both Sydney and Melbourne have passed their peaks, in terms of the optimum time for investors to buy. However, Adelaide and Brisbane both have positive indicators for investors, while Perth may present possibilities for counter-cyclical buyers.

Our assessment of the five major city markets is as follows. 

Read more:

Owner occupiers dominate housing finance

Lending figures confirm owner-occupiers up

Sydney

It’s clear this market has peaked. The Performance Property affordability index is at 59 per cent for Sydney – historically, the market has pulled back whenever the index has risen beyond 47 per cent. This has happened three times since 1985 and each time the outcome has been that prices post-boom have stagnated or fallen slightly.

The Sydney market has been under-supplied since 2007, with vacancies at their lowest levels since 2008, and both wages and population growth remain strong.

But the affordability equation is negative and typical gross yields are now 2.2 per cent. It’s pretty hard to build a case for strong short-term price growth in Sydney.

Melbourne

Like Sydney, the affordability index for Melbourne has reached a level where prices stagnate - and typical gross yields are down to 2.5 per cent, indicating the market has peaked.

The number of properties listed for sale is low and days on the market are low also, so there’s still strong competition in selected markets and suburbs. Population growth remains strong and we may see some rental growth, which would see yields increase.

However, the Melbourne market is starting to run out of steam. It has the second lowest yields in the nation and is well ahead of its long-term price comparison. 

The Melbourne market has some clear distinctions: there’s an oversupply of innercity apartments causing downward pressure on rental and price growth, but a shortage of quality housing stock in established suburbs placing upward pressure on prices and rents.

Adelaide

Historically Adelaide capital growth rates have been in line with the major capital cities, which surprises a lot of people. The long-term compound growth rate is 8.4 per cent, but in the last five years it’s been under-performing, around 2.4 per cent per year. It’s now showing some real value for investors and there are some positive signs emerging within the local economy to underpin growth.

When the affordability index for Adelaide is around 25 per cent, it generally meansprices will rise. Currently it’s around 27 per cent, making this market very affordable and attractive for first-home buyers and ‘next-time buyers’. It’s a major positive for
the Adelaide market.

The Adelaide market is oversupplied by 3,500 dwellings but again it’s a tale of two markets: a real under-supply of A Grade family accommodation within close proximity of the CBD, particularly in the school belts which will underpin price growth,
but oversupply in other areas.

Brisbane

The affordability index is about 30 per cent - in the past when it’s been in the 25-30 per cent range, there have been price rises in this market. Income growth has been out-pacing price growth in South-East Queensland, which is a positive for the Brisbane market, while recent price growth has been below par.

Brisbane generally has been under-supplied since 2006 but we are starting to see that change, particularly with the looming oversupply in the inner-city apartment markets. Vacancy rates have increased, reflecting the amount of apartment stock being built. But good-quality family homes are in undersupply and in some pockets we are seeing solid price and rental growth.

Perth

This is a wait-and-see market. The affordability equation is quite positive for Perth, at 27 per cent. When it gets down to 25 per cent, historically it leads to price increases so there could be some price growth in Perth in the medium term.

A weakening economy and an oversupply is the biggest issue for the Perth market, with vacancies now over 5 per cent, rents down 15 per cent and prices down 10 per cent over the past three years.

The market hasn’t quite bottomed out, net interstate and net overseas migration is slowing, wage growth has slowed and unemployment is on an upward trend, which is contributing to the fragility in the local economy and confidence in the market. Vendors are continuing to discount and that’s likely to continue.

The Perth market is starting to show some signs of value for investors from a counter-cyclical viewpoint, but we are awaiting more evidence.