Australia’s housing boom is tipped to fade in the coming year on the back of tighter lending standards.
A national survey of investors, developers, contractors and other key players in the property market shows that while the outlook is still optimistic, the prospects for dwelling construction and price growth is weaker than in previous quarters.
This flattening out of the residential sector is likely to expose the broader economy to sluggish growth and could provide scope for further interest rate cuts in 2016, according to the latest ANZ/Property Council Survey.
Respondents from the majority of states, including NSW and Victoria, the nation's housing hotspots which together contribute more than 50 per cent of Australia's GDP, are less optimistic than 12 months ago.
"(We expect) housing construction to remain elevated due to low interest rates and solid underlying housing demand, but we don't expect further growth," ANZ's co-head of Australian economics Cherelle Murphy said.
While confidence remained strongest in NSW, it was weaker in the mining states, particularly in WA where it had fallen 27 per cent in the past two years.
Ms Murphy said the factors driving strong housing demand and higher prices are starting to unwind.
"In particular, recent data show investor borrowing has slowed in response to (Australian Prudential Regulation Authority's) macro prudential policy requirements," she said.
The financial regulator has forced banks to impose higher investor lending rates and increased mortgage lending capital requirements.
In response to these changes, the experts predict debt finance availability to deteriorate in the next year.
Capital outflow controls out of China may take some heat out of foreign investment, while an increased supply of property coming onto the market is another factor, Ms Murphy said.
"Foreign buyer activity has started to come off a bit, particularly in NSW. There's a slightly smaller proportion in the market," she said.
Based on these projections, the property sector, a vital driver for the economy, won't be as stimulatory as it has been.
The resulting softer growth in the broader economy should force the Reserve Bank to step in again and cut the cash rate to 1.5 per cent, with ANZ forecasting two more cuts in February and May.