The month in review: Sydney
By Herron Todd White
September, 2009
The graph is a fair representation of what has occurred in
the Sydney residential market over the last three years,
especially in light of what has occurred post-Global
Financial Crisis (from October 2008).
With historically tight vacancy rates and increasing
rental returns in 2007, investors were being lured
into Sydney property market. As demand for housing
continued to grow whilst supply of new housing stock
remained subdued, house prices and sales were seen
to head upwards. Though family income and national
employment level were at a record high, the cost of
living was also heading north. The rising cost of food and
petrol combined with interest rate rises started to leave
consumers with little spending power thus left pressures
on their mortgage debts.
House sales dropped in the first quarter of 2008 in all three
sub-regions assessed. This was mainly due to inflationary
pressures and the upward movements in interest rates that
were causing consumers to lose confidence in the market
and think again before taking out new loans. The budget
sector of the Western region such as Campbelltown and
Liverpool were beginning to suffer from mortgage stress
and were forced to sell their properties for less than they
paid few a years ago.
To help stimulate the economy after being hit by the
Global Financial Crisis in the second half of 2008, the
government spent a total of $19.7 billion across a range
of packages aimed to keep the economy out of recession,
one being the first home owner stimulus. The introduction
of the stimulus in the first quarter of 2009 and the cut of
interest rates opened doors for housing affordability.
The further first home owner grant boost also provided
renters the additional incentive to become property
owners themselves. This has had an immediate effect on
demand at the lower end of the price range in Sydney (in
price bracket 0-$500,000) and therefore saw an increased
amount of transactions in that sector compared to the
other sectors.
Agents have been reporting between over 100 people and,
in some instances, 150 people going through properties
over the duration of a sales campaign. This is all expected
to end once the incentives are withdrawn and interest
rates begin their inevitable rise. Still, investors and the
more patient first home buyers may fill the breach.
In the inner Sydney sector in the mid-range - $500k to
$1million – the flat line of the graph pretty much says
it all: Steady! Home owners upgrading from units are buying into this market, as are home owners seeking
some financial relief from the upper price bracket. More
stringent lending criteria is helping to keep a lid on
expectations.
The Central West Sub-region middle sector has shown
some exceptional growth in the first quarter of 2009. The
increased first home buyer’s activity has lead through
to stronger demand for people upgrading to their
next property thus increased activity in the upgrading
market.
For properties over $1million, where the line falls away
post Global financial crisis, the number of sales have
fallen from the all-time highs of the mid-2000s. (Sales
over $2 million in inner Sydney would show an even
more dramatic drop.) This also has a lot to do with the
fact that a lot of properties were overpriced to begin with
and vendor expectations were not reduced accordingly.
Those that could afford to hang onto their properties
simply withdrew them from the market. Of those who
had more pressing reasons to sell, like share market falls
and margin calls, valuers reported a higher than usual
number of resales with the prices routinely falling 10%.
Demand also fell away as more stringent lending criteria
would not support purchases.
Sydney, home to 25% of Australia’s financial employees,
has probably felt the Global financial crisis more keenly
due to job losses and the loss of some quite hefty bonuses.
More rigorous lending critieria squeezed potential
purchasers even further, lowering property ambitions
somewhat. Previously, agents always reported that the
bonus season preceded bumper sales in Sydney.
The Prestige residential sector in all the the outer subregions
of Sydney have remained pretty stagnant over
the past 3 years. They were not affected by the recession
and unemployment like the other sectors due to their job
security and high income earnings.
The property market is now performing well and is
showing some healthy signs in these sub-regions mainly
due to low interest rates and home owners grant. It
should be noted that such economic factors will continue
to have an impact on the number of house sales and
any significant change to any of them could impact the
property market significantly.
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