Fitch: House Price Growth to Slow Significantly in Australia, NZ

House prices in several Asia-Pacific (APAC) markets are likely to slow down or decline in 2016 owing to low affordability, exposure to US rate hikes, and prudential regulations, says Fitch Ratings. The pace of house-price growth should decelerate particularly sharply in Australia and New Zealand this year; while the decrease should continue in Singapore, with prices dropping by a further 5% from last year.

Of the five APAC economies assessed in Fitch's latest Global Housing and Mortgage Outlook, published on 13 January 2016, only Japan is unlikely to see house-price growth decelerate or decline from 2015.

Fitch forecasts nominal house-price growth to decline to 2% in Australia and 4% in New Zealand. In Australia, this is down from an average of 8% annual growth in 2013-2015 across the eight capital cities, according to CoreLogic RP data.

Stretched affordability and further compression of rental yields are likely to be key factors driving down price growth in Australia. This is especially the case in Sydney and Melbourne, where price appreciation in recent years has outpaced wage growth - leading to decreasing levels of affordability. Weaker demand from investors has also already begun to affect mortgage demand, as falling rental yields and new prudential measures restrict the growth of investment loan portfolios.

In New Zealand, a supply shortage will continue to drive growth in Auckland, but this will be offset by recent restrictions on low-deposit lending by the central bank and rising unaffordability for owner occupiers. In regions outside Auckland, Fitch expects low-to-static growth in house prices.

Yet our outlook for housing and mortgages in most markets in APAC is stable despite the slowdown in house-price growth. Low mortgage rates and steady mortgage performance should support markets in Australia, New Zealand, Japan and South Korea.

One exception is Singapore where our outlook has dimmed from 2015 to stable/negative. Singapore is among the markets most exposed to US rate hikes; and an influx of new supply, a soft economy and ongoing measures designed to cool the property market are likely to continue to dampen sentiment. However, mortgage delinquencies for the major banks should remain low - in line with the healthy labour market and strong household balance sheets.

Fitch's "Global Housing and Mortgage Outlook", includes forecasts and comparative analysis of house prices, arrears, and mortgage lending volumes for 22 countries around the world including Australia, Japan, Korea, New Zealand, and Singapore in the APAC region. The report is available by clicking the link above or at www.fitchratings.com