The crystal ball: What are the property predictions for 2016?

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Future Financial is a mortgage manager that offers a large range of home loan options. Through our Accredited Introducer network and an ever-growing database of existing customers, we connect brokers and buyers across the country to realise their mutually beneficial goals.

Future Financial works with a large number of Accredited Introducers in order to get the most effective results. We also act as an intermediary between brokers and lenders, ensuring our brokers have access to a wide array of home loan options. This in turn helps our brokers source great home loan products for their customers. Contact www.futurefinancial.com.au for more information on what they can do for you.

Rental Growth Market:

Customers that want an investment home loan won't just be on the lookout for capital growth, but solid rents and positive cash flow property as well. SQM Research has this topic covered in its Boom and Bust report for 2016, which makes predictions for where rents will go in each of our capital cities:

  • Perth rents forecast to decline by between 4 per cent and 8 per cent
  • Brisbane rents to remain steady, potentially rising by 2 per cent
  • Darwin rents dropping by between 8 per cent and 12 per cent
  • Melbourne rents to rise by between 4 per cent and 7 per cent
  • Sydney to remain stable, potentially increasing by 3 per cent
  • Adelaide rents dropping slightly by 1 per cent, with the possibility of an increase up to 2 per cent
  • Hobart rents rising by between 5 per cent and 8 per cent
  • Canberra rents edging up by 1 per cent to 3 per cent

While this doesn't give an accurate reading for gross rental yields, it does highlight where the rental market is set to boom – and where investors might look to pick up new properties. Interest-only loans (however restricted they might be) and the like could be a good offering for areas with high rental growth.

Interest rates: stable

We haven't had any change to the Reserve Bank of Australia's (RBA) cash rate for about half a year now, and it looks like this will stay the same in 2016 – at least according to Housing Industry Association Chief Economist Harley Dale.

However, fixed and variable home loan rates have started to part ways with the cash rate, as many big banks hiked rates late in 2015 without a prompt from the RBA. That could ignite concern about further rate hikes, but CoreLogic RP Data researcher Tim Lawless thinks they will continue to remain roughly where they are this year.

This is good news for consumers, as interest rates are still astonishingly low on a historic basis. Accredited mortgage brokers can always help consumers find a better deal through their numerous lending channels, as well.

Broker revenue: rising

As the price of property continues to rise, so does revenue for the mortgage broker industry. IBISWorld's Mortgage Brokers in Australia report notes that while the sector is past its growth peak, the current maturation period still includes healthy growth.

For the 2015-2016 financial year, IBISWorld 5.5 per cent growth in total industry revenue. Wages are expected to rise by 7.9 per cent, more or less the same as in 2014-2015. Total revenue is expected to hit $1.95 billion, setting a new record high.

It's also the highest point for industry revenue for a few years, with some contraction expected before further growth in 2018-2019.

Population growth: sluggish

An accredited mortgage broker is nothing without their audience. And according to recent work from Macquarie Research Analyst Aaron Lewis, the growth of this audience is easing.

"Australia's population growth has slowed and is likely to slow further over the coming quarters," he wrote in October 2015.

"While the population growth remains positive, it is insufficient to absorb a surge in housing supply that will be hitting the market in 2016."

Australian Bureau of Statistics figures show that net overseas migration to June 2015 was down 11.4 per cent on the previous year, while overall population growth only sits at 1.4 per cent. This doesn't mean brokers should stop offering non-resident home loans – rather, they should be looking at where people are moving when they come here and target these areas.

Consumer resolutions: promising

While a lot of customers will have made financial resolutions for 2016, they won't all follow through. However, following what people have decided to do can shape your outlook for the coming year. A realestate.com.au survey found that the most popular property resolutions were making a residential property investment, as well as selling the family home and upgrading to a bigger one.

Meanwhile, the Westpac New Year Resolutions Report found that 40 per cent of respondents that had a savings priority were targeting their home or renovations. Construction loans could be popular for those looking to build from scratch.

The results also indicate that a greater proportion of Australians are looking at taking control of their financial situation. With the help of a broker, they can then manage a mortgage effectively and follow through on their resolutions.

Dwelling construction: softening

The Housing Industry Association's (HIA) Performance of Construction Index (PCI) gives a comprehensive overview of how home building is performing across the country. The December result was still positive across the board but is indicative of a weaker 2016 in terms of construction coming to fruition.

The overall index fell to 46.8 (above 50 is expansion, below 50 is contraction)

Houses grew 4.6 points to 52.6

Apartments fell 14.7 points to 54.3

Commercial fell 6.3 points to 40.0

"The Australian PCI result for December 2015 reaffirms the view that conditions for residential building, in both the house and apartment building, look set to soften in 2016," said HIA economist Geordan Murray.

Julie Toth from the Ai Group thinks that apartment construction will reach its peak early in 2016, but agrees with Murray in that overall, construction should slow down across the board in the next 12 years. But remember, we're coming off a strong peak for approvals. This means we're going to see significant supply coming to market throughout 2016 as the green-lit dwellings are completed.

It's a promising sign for brokers and customers, especially in capital cities where large-scale apartment developments are more likely.

Industry regulation: tightening

We've already seen the Australian Prudential and Regulatory Authority tighten its grip on the investment home loan market in 2015, and many lenders also increased interest rates for owner-occupier home loans as well. But will this trend continue through 2016?

Kevin Nixon seems to think so. He is the Financial Services Industry Risk and Regulatory Leader at Deloitte Australia, and predicts the Financial System Inquiry (FSI), released in December, will impact lenders throughout 2016.

"While some of these [FSI recommendations] are aligned with, and dependent on, global policy outcomes (such as mortgage risk weights), there is a significant local body of work through 2016 and beyond," he noted.

The RBA and APRA will take on suggestions regarding the capital held by banks and their payment systems, and potentially enforce further regulation as the year stretches on. Lenders have already stated that capital requirements were behind interest rate rises late in 2015, so there is the potential for more difficult rate situations down the line.

It's yet another situation where accredited mortgage brokers can step to the fore and provide a solution for customers. Whatever the reason for interest rate increases, the result is the same – a more difficult landscape for house hunters calculating their home loan.

However, through the use of a mortgage manager to secure a wide variety of products, brokers can offer Australians an alternative to whatever their lender is providing. It's an advantage that more and more Australians should take advantage of.

With so many variables in the market, it's difficult to plan business growth that accommodates everything. But with these predictions for 2016 under your belt, you have the knowledge and the power to shape education and offerings that can help many people achieve their financial and property goals.

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