Houses overpriced in two biggest cities

PROPERTY prices in Melbourne and Sydney are overvalued by 8 per cent and 14 per cent respectively, according to a KPMG report.

But the market is unlikely to fall heavily, analysts at the accountancy heavyweight have forecast, instead sliding gently in Sydney and plateauing in Melbourne.

A report by the firm’s economics team projects that prices will cool in Australia’s two hottest property markets, Mel- bourne and Sydney, in the short term but any breather should only prove temporary.

It will come as a range of curbs on property investment and the expectation of more hikes in mortgage rates take some of the sting out of the market, KPMG says.

Melbourne’s median price is forecast to peak next year, pause for a year or two, and then start climbing again.

The median – sitting at $650,000 as of June 30 last year – should climb in the near term to a peak between $720,000 and $740,000, the analysts say.

From mid 2019, it is forecast to kick up again, to between $775,000 and $825,000 by June 2021. By contrast, Sydney’s median of $880,000 as of June 30, 2016, will peak at about $980,000 by June 2019 before trailing off to between $930,000-$950,000 by June 2021.

KPMG estimates Sydney is Australia’s most overvalued market, at 14 per cent above its long-term equilibrium price.

KPMG chief economist Brendan Rynne said the forecasts indicated a steady, rather than sharp, retreat in the median price.

“Whether or not the current Sydney and Melbourne housing prices constitute a ‘bubble’ is a matter for debate, but we estimate that short-term factors have pushed median dwelling prices above their long-term ‘equilibrium’ prices by about 14 per cent and 8 per cent, respectively,” he said.

Mr Rynne said there was evidence to suggest demand from Chinese property investors had softened in the past few months.

It came as some governments jacked up stamp duty bills for investors and the Federal Government capped at 50 per cent the level of pre-approval sales in new developments to foreign investors.

“Domestic investors will be affected by the APRA (Australian Prudential Regulation Authority) move to curb interest-only mortgages and we believe that monetary policy will start to tighten sooner rather than later,” Mr Rynne said.