By Herron Todd White
At the beginning of 2019 we forecast that the wider market would continue to weaken up until the state and federal elections, with a plateau post-election if other economic indicators remained the same. As it turned out, our predictions were accurate regarding the elections being a line in the sand. What we didn’t predict however was the outcome of the federal election, which meant the well-publicised changes to negative gearing and capital gains tax didn’t eventuate. It is likely that the market had already factored in these taxation changes, which meant that the election result kick-started a more positive sentiment. Agents anecdotally reported to us that within weeks of the election, their phones were once again ringing hot with renewed interest from both vendors and purchasers.
Since then, an easing of APRA policy for residential mortgage lending along with three interest rates cuts has prompted a surge in activity in the first home buyer and upgrader markets. This has resulted in a much quicker than anticipated rebound in values in a number of areas, particularly those that experienced larger declines during the downturn.
Given the above, we have marked ourselves a seven out of ten in regard to our start of year predictions.
With interest rates down to record lows in October, the market recovery appears to be in full swing with CoreLogic reporting 5.71 percent growth in the most recent quarter (as at time of writing) across the Sydney metro area. However, it is important to note that year-on-year, RP Data is still recording a 1.58 percent loss to the median value. Interestingly, on a year-on-year basis (across the Sydney metro area) units are outperforming houses at +1.29 percent and -2.45 percent respectively.
The new unit market is probably seeing more of a mixed recovery with pockets of oversupply along with well-publicised issues around significant building defects and flammable cladding concerns. It is almost twelve months since the Opal Tower was evacuated due to significant building issues. Since then a number of other unit complexes, including Mascot Towers, have been identified as having significant building issues. In addition to the building defects, approximately 444 complexes have been identified as having non-compliant cladding. Settlement valuations were still a concern for a number of new unit complexes with values coming in lower than the off the plan prices agreed upon in a stronger market. Many of the units we were valuing in 2019 were purchased off the plan at around the peak of the market.
Inner Sydney/Eastern Suburbs Property Updates
Within the inner city, investor heavy markets have been slow to recover with Hometrack reporting largely stable unit values within areas such as the CBD, Zetland and Waterloo. Conversely, median prices for houses within city fringe suburbs have improved slightly, with Hometrack showing Surry Hills having recovered from a low of $1.49 million in March to $1.635 million in October.
Local agents are reporting that markets, where significant interest was lost throughout early 2019, are now springing back to life, including Redfern, Darlinghurst, Pyrmont and Annandale. Furthermore, it appears that the improved affordability and lower interest rates have spurred first home buyers to enter the market. The ABS reports that “first Mascot Towers Source: Sydney Morning Herald home buyers comprised the largest proportion of national owner-occupier mortgage activity since early 2012…comprising 29.8 percent of owner-occupier loans nationally” which is 4.8 percent above the long term average of 25 percent.
According to ABS data, investor demand still appears to be holding at weaker levels, having decreased from its peak of 43 percent in 2015 to 26 percent in August 2019, well below the long term average of 34 percent.
Generally, the surprise this year has been the resurgence of interest in the inner-city markets. This appears to be largely driven by lower interest rates and post-election confidence.
Some parts of the inner city may be benefiting from the near completion of the light rail through Surry Hills and Centennial Park.
One memorably high result was an attached terrace in Surry Hills which sold for $1.71 million in July. The property comprising three bedrooms, one bathroom and no parking on just 83 square metres of land was initially offered with a buyer’s guide of $1.5 million, with highly comparable nearby sales within the previous month selling at around $1.6 million.
Another notable example of how the market has performed this year is 95 Sturt Street, Kingsford, which sold in October 2018 for $1.7075 million and comprised a completely original 1930s style bungalow on just over 400 square metres.
Since then, the property has been fully refurbished and extended to the rear with an open plan style living area which opens to a large rear deck that can also be used as additional alfresco style living space.
In just over twelve months, the property has undergone extensive works and recently sold at auction for $2.615 million and appears to have captured the recent lift in property prices. The selling agent explained that there was very strong interest in this property as there are limited options for this style of property and price point, which is pushing prices higher. It is also located within walking distance of the last stop on the south-east metro line, which is close to opening.
Northern Beaches Property Updates
Overall, the Northern Beaches market played out reasonably as predicted and consistent with the wider Sydney market. The major exception and biggest surprise was how sharply the housing market rebounded in the second half of the year. We originally anticipated the market to bottom out in 2019 but were not anticipating the level of capital growth and strong buyer activity currently in the market.
This was particularly evident in the sub-$2 million housing bracket due to the amount of investors and first-home buyers who are more sensitive to regulatory and monetary policy changes. It felt as though the spring market started a month early as vendors were encouraged to capitalise on the positive market conditions and to list before the spring influx that never really eventuated. Dwelling stock levels were extremely low in the second half of the year, approximately 23 percent lower year on year in the months of August, September and October as per the table below (source: SQM Research). This was really one of the fundamental drivers of the housing market and resulted in a strong back end of the year.
We also mentioned the potential Mona Vale Road upgrades that fortunately commenced in 2019. It is still premature to assess the impacts the upgrades will have on the proposed Ingleside development, however, it is encouraging to see much-needed infrastructure upgrades commencing and the positive benefits these will have on the local community and future development of the area.
South Property Updates
The year started slowly with a weakening market that appeared to be set in for the year, however, post election and interest rate decreases, the market has started its recovery. Local agents are noticing an increase in the number of buyers currently in the market at open homes and auctions, with dwellings under $1.5 million and units under $1 million seeing the highest demand.
We predicted an oversupply of units from Miranda through to Kirrawee as a large number of complexes were due to for completion. There is still a problem of oversupply as these complexes have only finished construction over the past few months. There has only been a handful of resales within these new complexes and the resale values are generally slightly less than the original purchase price paid two to three years prior.
A one-bedroom, one-bathroom unit with two car spaces at 204/42 Pinnacle Street, Miranda sold off the plan for $574,000 in May 2017 and recently resold for $510,000 in September 2019.
Duplex sites are still experiencing subdued interest as lending criteria is still very tight for a construction loan involving multiple dwellings.
After a long period of strength and buoyancy in the Sydney prestige residential market (above $5 million), we finally experienced some stabilisation, as predicted at the beginning of the year. As with the general residential market, high-quality properties in prime locations continued to achieve good results, but properties in secondary locations and properties which had peculiar characteristics struggled in terms of selling period and sale results. This was most evident in the first half of 2019 as the heat really came out of the market and although we didn’t see any dramatic falls in value, the number of transactions above $5 million decreased substantially.
In the Month in Review edition published at the start of the year, we touched on the number of transactions above $10 million in 2018, with Vaucluse having 18 such sales and Bellevue Hill having 15 sales above $10 million. In comparison, Vaucluse has had three sales and Bellevue Hill has had six sales above $10 million so far in 2019 (pricefinder.com.au), clearly showing the reduced market activity experienced throughout this year in the affluent eastern suburbs.
Sydney’s Lower North Shore prestige market experienced a similar trend throughout 2019, with a clear drop in sales activity. Prices at the prestige level in this area appear to have softened in the first half of 2019, but as with other prestige areas of Sydney, the declines have been subtle.
However, the softened market conditions across the Sydney prestige market seem to have been relatively short-lived. The second half of 2019 is already seeing a greater number of transactions and returning confidence to the market after a relatively short hiatus. Although some of this increased activity may be attributed to seasonal effects, it is clearly evident that a positive trend is emerging in this higher value sector of the market.
Amongst all of the talk around the softening market, particularly in the first half of 2019, we received the news in October that the most expensive residence in Australia has transacted for $140 million. The property comprises a penthouse and sub-penthouse apartment, purchased in one line, to be situated in the yet to be built Tower 1 Development at Barangaroo South. The complex is earmarked for completion in 2023 and the purchasers will reportedly utilise the penthouse as their main residence, with the sub-penthouse to be configured as separate living quarters. This sale is a reminder that the Sydney prestige property market is alive and well and is considered highly desirable both locally and abroad.
Speak with a Sydney Mortgage Broker today.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.