What's ahead for commercial finance in 2018?
Similar to Australia's recent 4-0 Ashes victory, it's fair to say looking back at 2017 that commercial property markets had a fair run!
So what's ahead in 2018? Well, it's always a bit of fun to make a few predictions at the start of the year and then look back later on to see how they panned out.
below are my four predictions for what's install for commercial markets this year...
1. Property prices to remain stable or slightly decline
Corelogic’s recent quarterly results showed property prices down 1.3% in Sydney and 1.9% in Melbourne. Market sentiment is also down with Westpac’s MI Consumer Sentiment Index falling by 1.7% towards the end of the year as well.
I think this is going to continue in 2018 but rather than a steep drop, markets will soften as has been the case over previous property cycles.
2. Interest rates to remain unchanged
During this recent boom, the RBA has had the stressful predicament of not been in a position to increase interest rates in order to slow property markets as the rest of the economy has been performing below expectations.
AMP’s Chief Economist Shane Oliver notes, “as a result of uncertainties around consumer spending along with low wages growth and inflation, the RBA is unlikely to start raising interest rates until late 2018 at the earliest.”
If property markets flatten out and our economy continues to underperform I can’t see much action from the RBA this year.
3. Lender policy will not get any worse
Since 2015 commercial lenders off the back of pressure from APRA really tightened the screws with their policy. Low LVRs, higher pre-sales requirements and tougher stances on serviceability have all resulted in decreases in overall commercial lending.
However, banks are in the business of making money so if property markets flatten out, usually we start to see relaxes in policy.
I’m not sure if we will start to see this during 2018 but I certainly don’t expect things to get even more difficult.
4. Amazon to have a significant impact on retail sales
Amazon is officially here in Australia and with their 24,000-square-metre warehouse in Dandenong South, they’re going to do some damage in 2018.
How much damage we’re not quite sure but you can bet traditional brick and mortar retail stores are nervous. To give an example, Myer has already noted that they plan to either reduce space or close 19 of their 59 stores by 2020.
I think it’s going to be really interesting to see what the ‘Amazon effect’ will be on Australian retail this year.