By Herron Todd White
As Australia’s most populous city and the country’s gateway to the world, Sydney has become the epicentre of COVID-19 cases in Australia. The Ruby Princess debacle certainly didn’t help. At the time of writing, New South Wales has had just under 3000 total cases confirmed and tragically has had 31 deaths.
On 27 March, New South Wales had a massive 212 new daily cases, the majority of these being in Sydney, and indications were that these numbers were going to continue to escalate. Significant restrictions were placed on our way of life, affecting the way we work, live and socialise.
Fast forward a month and New South Wales, like the rest of Australia, has seen the rate of new cases drop significantly, with just five new cases on 21 April. It is clear that the lockdowns are working to reduce the spread of the virus, however the economic fallout of these restrictions is only just beginning to be felt.
There does appear to be an improving sentiment as Australia seems to be getting the spread of the virus under control and the focus now turns to when and how restrictions can be eased (and when the footy can start back up again). This week we have seen several beaches in Sydney’s east, including Coogee and Maroubra, reopen for exercise, while Bondi Beach is set to reopen for surfers and swimmers from 28 April.
While valuers spend a significant part of their day out of the office anyway, Herron Todd White in Sydney made the decision in early March that all staff would work from home. The decision was made to ensure that any potential exposure to the virus did not place further risk on other staff or our clients, whose homes and businesses we inspect daily.
This has meant changes to the way we interact with colleagues, including a significant increase in phone calls, messaging and video conferencing. It has also changed the way we conduct our inspections with hand sanitizer, face masks and disposable gloves becoming just as important for valuers as their tablets and laser measurers.
Herron Todd White has also been at the forefront of our industry in developing a contactless inspection tool which allows occupants to take internal photos which feed straight into our valuation system, allowing us to complete valuations in accordance with Australian Property Industry guidelines when a COVID-19 related concern means a property cannot be fully accessed. This has been an important change, allowing mortgage applications to proceed instead of being delayed by weeks or even months until internal access became available.
There have been a number of changes affecting the property market, including restrictions on open for inspections and public auctions and a six month moratorium on evictions where tenants can’t pay their rent.
Auction clearance rates, which often strongly correlate to property price movements, have fallen off a cliff from above 80 percent into the 30 percent range, although this has been exacerbated by the number of properties scheduled for auction which have been withdrawn either to be sold via private treaty or taken off the market altogether.
We have also seen a reduction in the number of new listings, down 20.4 percent on last year according to CoreLogic for the week ending 19 April. Despite this, a slim weekly increase in home value of 0.1 percent is showing for the same week, up by 0.6 percent for the past four weeks, a period when the lockdowns have been at their highest levels.
While these statistics may not yet be showing a decline in values across the Sydney market, evidence we are seeing and hearing from selling agents indicates that values are falling, particularly in some areas and for some price sectors, although not necessarily uniformly within these sub-markets.
The rental market has seen a more immediate impact however, with listings increasing and rents falling. According to an article on 21 April in The Financial Review, Sydney rental listings were up 15 percent over the past 12 months as short-term holiday rentals come on to the market along with properties that vendors have withdrawn from sale and are attempting to rent out. As a result, the article indicates, Sydney houses have seen a 5.7 percent reduction in asking rents for the month to 20 April, while units have suffered a 3.7 percent decrease over the same period.
Northern Beaches Property Update
The Northern Beaches as a whole has appeared to absorb much of the negative sentiment and restrictions surrounding the pandemic. Higher value markets are outperforming entry level markets at this stage. We have seen the most notable decline in the entry level ($1.2 million to $1.7 million) dwelling range, although this level of the market experienced the strongest growth during the recent buoyant market conditions experienced in the second half of 2019. This has resulted in a number of opportunities for first home buyers and upgraders who missed out on a property over the course of the past six to 12 months. There is a strong chance you will be paying less than you would have three months ago for the same product.
A recent example in this price range is 16 Carawa Road Cromer, NSW, 2099 that sold on 19 April 2020 for $1.475 million after an initial price guide of $1.59 million.
We are also seeing a greater disparity between secondary products and quality stock in a similar location. This variance began to close during the buoyant market conditions experienced prior to the pandemic, but as demand slows and buyers have more opportunities, we are seeing stock sit for longer and sell for a greater discount.
Agents have adapted very quickly in their responses to marketing a property during the restrictions. Novak Real Estate in Dee Why has a strong social media selling platform that will thrive in this type of environment. There is no doubt a general reduction in buyer enquiry has been noticed, but from all reports this has effectively led to only qualified buyers making enquiries. Vendors should not only be realistic about their asking price but anticipate longer selling periods
Vacancy rates as at March 2020 were noted at 1.9 percent for the Northern Beaches (sqmresearch. com.au), however this statistic does not factor in short-term rental and holiday homes that are vacant, unable to be let on a short-term basis and currently listed on the market for more traditional residential lease terms. This has resulted in a notable increase in rental stock and is placing downward pressure on asking prices. Notably impacted areas include suburbs such as Manly, where there is generally strong demand and supply for short-term accommodation. A current example reflecting this trend includes 5/15 Wood Street, Manly, currently advertised for rent for $1100 per week, $100 lower than the previous listing in 2018.
Inner Sydney/Eastern Suburbs Property Update
It is still fairly early in the crisis to see a pattern emerging, particularly due to the slowdown in volumes of transactions. In previous downturns, the inner city market segment most vulnerable to volatility is the upsizer price bracket, typically from $2 million to $3 million and consisting of mid to large sized terrace and detached dwellings.
This is largely due to the demographic purchasing these homes leveraging heavily, something which may become more difficult during times of job insecurity. Furthermore, upsizing is typically about nice to have features and less about essentials. This demographic typically could live a little longer in their existing circumstances and defer upgrading for the meantime.
Properties falling into Airbnb and long term lease (serviced apartment) sectors are being impacted, for obvious reasons. These include studio apartments within CBD and city fringe locations, such as 507/243 Pyrmont Street, Pyrmont, a studio within a long term letting pool in a heritage building, which sold under the asking price after a month long marketing period.
Another example is 11/31-33 Elizabeth Bay Road, Elizabeth Bay, a studio style apartment in an Art Deco complex with updated interiors and partial bay views. This unit sold on 10 April for $551,000, previously transacting for $580,000 in March 2018.
The inner city is an in demand part of Sydney and the market is typically more resilient than some further flung parts of town, however reduced competition and low interest rates are allowing first time buyers to enter the market. Whilst overall volumes are down, there are still plenty of transactions occurring under $800,000 with value levels holding in most areas.
Recently, 211/18 Bayswater Road, Potts Point, a one-bedroom, circa 50 square metre, modern unit within a period conversion complex sold via an out of area agent for $766,000, a result above its previous (almost) peak of market sale price of $720,000 in February 2017.
Most good quality agents are conducting virtual appraisals, inspections by appointment only and online auctions or private treaty sales. On 18 April, 138 people logged in to watch the auction of 2/44 Ramsgate Avenue, Bondi Beach, a one-bedroom Art Deco deceased estate in poor condition, which was advertised with a guide of $700,000. After 31 bids, the property sold for $865,000 (source: Domain).
Whilst overall transactional volumes are down, agents are advising that many savvy investors are utilising the current downturn to add to their portfolios. The primary concern in the investment market at the current time is finding a tenant.
As always, look for something unique with potential for improvement in an in demand area serviced by local amenities such as rail and shops. These properties have broad market appeal and will resell well in any market.
Rents are falling sharply with discounts of ten percent not uncommon, even in better quality areas. 153/71 Victoria Street, Potts Point, a twobedroom, two-bathroom unit with a two-car garage, initially advertised for $750 per week, dropped to $690 per week after a week on the rental market (as per RP Data).
On a positive note, there still appears to be demand for certain good quality properties that have good appeal in the particular market. An example of this is a two level townhouse style apartment at 35/3 Victoria Park Parade, Zetland, which was on the market for approximately 40 days and sold on 4 April for $1.171 million which was above the price guide of $1.05 million.
A lot, however, can hinge on how motivated the vendor is. A recent example is 3/53 Sir Thomas Mitchell Road, Bondi Beach, comprising a renovated two-level, three-bedroom, two-bathroom, Art Deco unit with no parking, just 400 metres from the sand, which sold in early April. The vendor had purchased elsewhere, so despite expectations of $1.95 million plus, the property sold for a tick under $1.82 million.
Provided that the current flattening of the virus infection curve continues over the next few weeks and the situation continues to improve in the coming months, it is likely that the inner city market will make a relatively quick recovery. This will be particularly so once auctions and open houses are able to resume. The primary drivers of this recovery will be the record low interest rates, eventual lowering unemployment and desirable nature of the area due to its proximity to infrastructure and amenities.
Sutherland Shire Property Update
As at 20 April, the Sutherland Shire LGA has had the fourth highest number of COVID-19 cases behind Waverley, Sydney, and the Northern Beaches according to NSW Health statistics.
Local agents are telling us that the Coronavirus pandemic has not yet significantly affected prices that properties are achieving at either online auction or via private treaty. Many agents in the Sutherland Shire had already started virtual auctions a week before they become mandatory. Agents have also noted that there are less people looking to buy and only serious buyers are making private appointments to view properties, so while agents sometimes have to conduct an increased number of inspections, they are typically only doing so for parties who are genuinely interested in the property.
On the flip side, a significant number of vendors have pulled their properties off the market and are now waiting until life returns to normal. This appears to be the general consensus in all value levels and property types as supply levels have dropped off significantly over the past month.
In Sylvania, the sale of two new adjoining duplex properties a month apart indicates only a slight decline in values from early March to early April. 56B Easton Avenue sold for $1.45 million on 9 March, while 56A sold on 9 April for $1.41 million, representing a decline of just under three percent.
In Engadine, two local agents have said they have listed many more properties than they expected, with one reporting they have listed seven properties for sale in the past week. Agents across the board however are seeing many tenants in their rental properties stop rental payments which is affecting real estate agencies along with property investors.
A number of owners have told us that they are refinancing so that they are ready to buy should the market drop significantly, however the general sentiment talking to local agents and owners is that they remain cautiously optimistic about the property market, with most predicting a quick recovery.
Speak with a Sutherland Shire Mortgage Broker today.
Western Sydney Property Update
We are still seeing reasonably strong activity in the west, particularly at the entry level. A property at 24 Berg Street, Blacktown sold for $670,000 on 7 April after being listed on 20 March, right in the thick of the escalating COVID-19 crisis in Australia. According to the selling agent from Starr Partners, the three-bedroom, one-bathroom, one-car garage single level dwelling, on 577 square metres of land had a few cheeky offers below market but also had four or five genuine buyers and in his opinion sold at a similar price to what he would have expected a couple of months ago.
There appears to be many first home buyers still looking to purchase which is helping the lower end of the market. While there are some sharks out there looking for desperate sellers, agents are doing their best to avoid them by being selective about genuine buyers for inspections by appointment. Listings are becoming increasingly difficult to source as many owners are adopting a wait and see approach until we emerge on the other side of the restrictions.
Another recent sale that attracted plenty of interested buyers due to the low price point was 47/13-19 Robert Street, Penrith, which sold for $305,000. The top floor, one-bedroom plus study, one-bathroom unit with single basement carspace in a 2007 built complex sold on 9 April through Jim Aitken & Partners on its first day on the market. The agent advised that while most properties are taking a little longer to sell, particularly given the need for inspection by appointment, they are still getting plenty of buyer enquiries.
The Lower and Upper North Shore prestige markets, above $5 million, often live in their own sub-market bubble and often are immune from volatility in the general market. The current situation is different however, with the same issues currently impacting on the prestige sector in these areas.
The number of listings in these areas has certainly decreased, as seen in most areas and at most price points. There also does seem to be an increased trend in off-market sales, which is not a foreign concept for the prestige market. These off-market selling campaigns remove the current detrimental issues around open homes and auctions. We would expect off-market campaigns to become increasingly popular over the coming months.
We have become aware of flexibility in settlement terms, more through conversations with selling agents rather seeing real life evidence at this stage. Extended settlement periods are becoming a technique utilised to entice purchasers. This appears to be based on the assumption that the current situation will pass in the medium-term and also to align with lenders offering up to six months mortgage relief in certain situations. Settlements occurring after this six month period may seem more attractive to any potential purchaser who would be factoring in a more settled environment at that point. It also allows purchasers the luxury of time in getting their own affairs lined up during a period when most services are delayed to some extent. If lending ratios are tight however, there may be a potential issue when it comes time to value the property closer to settlement should values decline in the interim.
We are still seeing some good results considering the current unprecedented conditions and this example in Killara is clear proof. 23 Elva Avenue, Killara reportedly sold on 15 April 2020 for $6.3 million (as per Realestate.com.au). This property had only been on the market for approximately eight days and was scheduled to be sold through an online auction on 16 May with a price guide of $5.8 million to $6.3 million. A very short selling period, sale before auction and sale at the higher end of the price guide is usually an indication of very strong market conditions, so it is pleasing to see such a result during this period. Interestingly, the purchaser is an ex-pat who did not physically inspect the property and instead relied upon a 30 minute virtual inspection via FaceTime.
Like the North Shore, the eastern suburbs prestige market is more accustomed to offmarket transactions and inspections by appointment only, so recent restrictions around open for inspections and public auctions have not impacted this part of the market as much as lower price points.
Despite this, agents have reported a noticeable difference in interest for some properties that were first listed just prior to the lockdowns. An example is 32B Suttie Road, Bellevue Hill, a newly built four-level duplex adjoining Cooper Park. The property sold for $5.05 million on 3 April after the vendor has previously purchased off the plan two years earlier for $5.125 million. The property was first listed on 10 March and one of the selling agents from Ray White Double Bay noted a marked difference in interest before and after the restrictions were put in place, however in their opinion the property would have achieved only slightly more had it sold back in February.
The long term outcome of the COVID-19 pandemic for the property market is uncertain. The Sydney property market is resilient, as seen by the recovery from the 2017 to 2019 downturn. Restrictions around public auctions and open for inspections should hopefully be some of the first of the restrictions to be wound back, which will at least help return the selling process to a more normal state.
However, a slower than anticipated return to normal, where unemployment numbers end up and the extent of a decrease in short term immigration numbers will all play a significant role in how quickly the Sydney residential property market recovers.
There is also the question of what tax reform implications will come into play as we come out the other side and governments look to work out how they can begin to pay off debt. Will federal Labor revisit CGT and negative gearing reform for the next election? Will the New South Wales state government look at stamp duty and land tax changes? These could have longer term implications for the property market in the years to come.
Whilst the share market has been quick to react to the pandemic crisis, the property market by its nature moves a lot slower. We are only at the beginning of the impact on the property market, so it is more difficult to see how long and how deep that impact might be. Should restrictions begin to ease over the next few months, we would expect the property market to start its recovery fairly quickly afterwards.
Speak with a Sydney Mortgage Broker today.