Victorian property market recovery could be five years off: BIS Shrapnel

Victoria will miss out on the recovery in the property markets of the other major states, according to BIS Shrapnel.

The forecasting firm told a journalists' lunch in Melbourne it was expecting a recovery in NSW, Western Australia, Queensland and Northern Territory in the next few years, with WA the "first cab off the rank", according to senior manager of residential property Angie Zigomanis.

"It's not a resources story, it's a supply and demand story," says Zigomanis, noting rising population growth in those areas. 

NSW is set to benefit from rising population growth coupled with an "atrocious undersupply in housing in the past 10 years", according to BIS Shrapnel managing director Robert Mellor. 

Despite the undersupply, the NSW market has been constrained by affordability concerns for the past decade, says Zigomanis. But in the new low-interest-rate environment, affordability is back to circa 2001 levels, which will spur on a recovery in housing.

Queensland is also set for a housing market recovery, with the next 12 months set to be a consolidation phase and growth picking up in 2014, according to BIS Shrapnel.

But Victoria will be left behind, facing level growth for at least the next three years, says BIS Shrapnel, which forecasts vacancy rates will rise in the next year due to a big influx of residential developments currently in the pipeline coming online. 

Zigomanis says Victoria could experience falls in capital growth for the next two to three years, and if housing picks up in the other states, as it is forecast to do, the RBA could raise interest rates again by 2015, which would nip Victoria's possible recovery in the bud. In that case, a recovery in the Victorian housing market could be five years off.

The firm is equally bearish on the Victorian economy as a whole, saying unemployment could rise to over 6.5% in the next few years. 

"I don't think people realise how bad it's going to be in Victoria," says BIS Shrapnel chief economist Frank Gelber. 

But at least Victorians be glad they are not living across the Bass Strait.

"Tasmania's a basket case," says Zigomanis.