By Herron Todd White
The start of 2020 has been tragic with catastrophic bushfires across the country and New South Wales being particularly hard hit. Time will tell how this will play out both economically and politically for the remainder of the year and what impacts this may have on the wider property market.
After the start of the recovery from the middle of the year, 2019 enjoyed a 5.3 percent increase in Sydney dwelling values over the year. The last quarter of 2019 ended with a bang as Sydney property prices jumped 6.2 percent in the last quarter alone, with prices now only 6.4 percent below the 2017 peak (CoreLogic). We believe this jump was mostly due to an increase in demand after the elections and interest rate cuts, while new listing levels remained fairly subdued in comparison to prior years.
Breaking down the numbers further, the top quartile of property prices saw the quickest recovery in prices in 2019 with a seven percent increase, compared to the bottom quartile only experiencing a 1.4 percent increase (CoreLogic).
Houses (6.1 percent increase) also performed better than units (3.4 percent increase) across 2019 according to CoreLogic. This is not surprising since houses fell at a quicker rate during the downturn and unit prices are still being affected by an oversupply of new units in some areas.
Sydney also had seven of the top 10 performing metro sub-regions across the country, with the inner west and Baulkham Hills and Hawkesbury sub-regions both experiencing 8.8 percent increases over the year (CoreLogic).
Overall, we expect new listings to increase in the first half of 2020 which should see price growth begin to moderate. Despite this we still expect to see prices increase by around 10 percent for the year, which will mean prices should move above the previous peak in the second half of the year.
We expect prices to be fairly strong across most regions and sub-sectors however we expect the lower quartile to begin to improve at a quicker pace while new units in oversupplied suburbs may remain weaker for the first half of the year.
A number of infrastructure developments have recently opened, or will open in 2020, which will continue to strengthen prices in the suburbs benefiting from these links.
Western Sydney Property Updates
When commenting on property price drivers such as infrastructure, the largest of the lot is the Badgerys Creek Airport and surrounding development. This area will be transformed from cow paddocks and market gardens into a bustling metropolis aptly named the Aerotropolis.
One market to keep an eye on is the new unit market in the Parramatta local government area. A significant amount of new units is expected to be completed in the first half of 2020 and this will continue with up to 21,100 dwellings forecast to be constructed by 2023, most of these being residential units. What we do know is that there is a large difference between forecast numbers and actual construction numbers as developers may hold off on construction to ride out lulls in the market, so we will wait and see how things unfold. Traditionally, a large number of completions leads to more stock entering the resale market. Given the negative market sentiment surrounding new units over the past year, vendors must be prepared to meet the market in order to facilitate a sale.
Western Sydney has seen a boom in granny flat construction over the past decade, with property owners taking advantage of larger allotments to build granny flats to add value and create a second income. With interest rates at historic lows and the potential for five percent plus returns, we believe granny flat construction will continue to be a popular choice for investors throughout 2020. A recent example is 24 Duckmallois Avenue, Blacktown, an older three-bedroom dwelling with a new two-bedroom granny flat at the rear, which sold for $757,000 in December, returning $800 per week in rent. This equates to a gross yield of approximately 5.5 percent.
The high growth seen in the last quarter of 2019 is unlikely to continue throughout 2020. Affordability will be a key issue. As household incomes are still under significant pressure, buyers will need to look to the outer suburbs in order to find affordable property. This will benefit the western suburbs of Sydney where there is still property at an affordable price point, relatively speaking. Investors will be prevalent throughout 2020 with yield a big driver. Prudent purchasers should keep an eye out for any infrastructure being built and get in before prices shift again.
Northern Sydney Property Updates
Sydney’s infrastructure boom is rolling on with the North Connex tunnel opening later this year. This tunnel will take five thousand trucks per day off Pennant Hills Road and reduce travel times between the M1 and M2. We believe the big winners will be the more affordable suburbs in the upper North Shore of Mount Colah, Berowra and Mt Ku Ring Gai. These suburbs will have a greatly reduced travel time to the CBD and the M2 motorway. Keep an eye on the median house prices in these areas over the next few years.
The Northern Beaches market as a whole is expected to stabilise, barring any significant political or financial legislative changes. If 2019 taught us anything, it was how these two factors heavily contribute to underlying market conditions and overall market sentiment, particularly in the entry and middle sectors. How the Reserve Bank manages the Australian macro-economic issues will likely have the largest impact on the performance of the housing market, with housing stock levels anticipated to remain fairly low.
We are anticipating blue-chip suburbs along the eastern side of Pittwater Road to outperform their western counterparts. Special areas of interest include Ingleside, Avalon, Warriewood Valley and Frenchs Forest.
The Ingleside Precinct Plan went back to the drawing board in 2019 and it will be interesting to see the revised plans that the council and New South Wales state government re-submit. Still a medium to long term prospect, but the progression of this area is something to keep an eye on in 2020, especially with the Mona Vale Road upgrades currently underway.
There are many commonalities between Avalon and Byron Bay. The suburb has a unique vibe and has become really popular for young families, particularly from the eastern suburbs and lower suburbs of the Northern Beaches. Families are seeing value without compromising on lifestyle. The suburb had one of the highest auction clearance rates and we anticipate the suburb to continue to perform in 2020.
The final land releases in Warriewood Valley, located off Warriewood Road, are currently on the market. The land sizes range mostly between 325 and 450 square metres and are around $3000 to $3500 per square metre. 2020 is likely to be the last year where a large scale land subdivision occurs for quite some time.
Lastly, a key infrastructure milestone was completed in December 2019 with the excavation of the 1.3 kilometre long Warringah Road underpass finished (hurrah!). The underpass will eventually provide more capacity for the thousands of daily motorists, ease current heavy traffic congestion and help reduce travel times. We also expect to see a continuation of investment at both a private and public level around the $1 billion Northern Beaches Hospital.
Inner Sydney/Eastern Suburbs Property Updates
This time last year, we were discussing the reality of being amidst a property downturn, particularly due to tightening credit availability as a result of the banking royal commission along with widespread negative market sentiment. We are now experiencing very different conditions with most inner city agents reporting persistently low levels of listings and this, combined with the renewed interest caused by interest rate declines, is set to cause the market to continue to recover. This is particularly the case for good quality, owneroccupier dwellings. Recovery for investor stock has been patchy and is largely dependent on the supply pipeline in the given area.
The first home loan deposit scheme commenced on 1 January 2020 and is likely to have a direct impact on the lower end of the property market but also flow-on effects to mid-level properties.
The usual possible headwinds for the Sydney property market include affordability constraints, credit availability and wider economic and political matters.
Surry Hills is one to watch this year, particularly since the completion of the light rail, which has improved the public transport servicing the area and implemented traffic calming and management measures to reduce congestion. This combined with the removal of construction and the associated aesthetic improvements should see a price increase in the area. It is then likely that the neighbouring bridesmaid suburbs of Darlinghurst and Redfern will see some value uplift as a flow-on.
Similarly, Randwick, Kensington and Kingsford in the east will benefit from the completion of the Randwick section of the light rail last December, with the Kingsford section due to open in March this year. Kingsford in particular, with a median house price of $1.98 million according to realestate.com. au, could well prove popular for buyers priced out of the neighbouring suburbs of Randwick ($2.35 million) and Kensington ($2,571,500).
After being one of the worst performing inner city suburbs in 2018, Pyrmont appears to be recovering, largely due to plans to redevelop the fish markets and surrounding Blackwattle Bay precinct. In addition, Mirvac is looking to redevelop the nearby Harbourside shopping centre and The Star casino is undergoing expansion and refurbishment, with a proposal for a new hotel atop the building.
Redfern is well serviced by public transport and is close to the city, yet provides plenty of green spaces. It appears to be comparatively affordable in relation to its surrounding suburbs with a median of $1.4 million for a three-bedroom property (realestate.com.au). The median for a similar property in Surry Hills is $1.65 million and across the park in Paddington is a whopping $2.235 million. The suburb as a whole is shaking its social stigma and it remains a popular choice for young professionals and families with the eastern corridor of the suburb considered the most desirable.
As always, high density, investor centric markets should be treated with caution, particularly those with large pipelines of new apartments, including Waterloo, Zetland and Rosebery.
Whilst the current supply pipeline may settle and even return to below average levels in 2021, the timing of projects settling throughout 2020 is unfortunate for purchasers, as many projects sold off the plan in the peak of the market. Therefore any purchasers unable to settle may be required to off load at a loss. A recent example is 106/16A Gadigal Avenue, Waterloo in the Emblem development (below) that was sold off the plan on 17 June 2015 for $970,000 and re-sold (nine months after completion) on 21 August 2019 for $910,000.
The other factor impacting this market segment is the ongoing negative sentiment related to building issues in newer, large scale developments. This could potentially continue to be a significant factor and it is imperative that purchasers take due care when buying into newer large scale developments.
There are a few other elements that will unfold throughout the year that could have specific effects on some locations throughout the inner regions of Sydney. For example, the lockout laws are set to be wound back across much of inner city Sydney (although not in Kings Cross). It will be interesting to see if this has some impact on property prices through changes to nightlife premises operating hours and the flow on impacts of noise and patron behaviour.
CBD apartments are likely to also benefit from light rail completion and traffic flow alterations, while the WestConnex motorway construction is likely to continue to impact Rozelle, Lilyfield and some inner western areas.
Southern Suburbs Property Updates
The south, like the rest of Sydney, had a strong end to 2019 after a sluggish start to the year. We are expecting property prices to continue to increase in 2020 across all property types and price points. Current levels of stock on the market continue to be below average, although are likely to increase as the year progresses.
In the Domain Livable Sydney study released in November last year, a number of suburbs in the Sutherland Shire made it into the top 100 suburbs with Jannali (13th) and Sutherland (18th) mixing it with some very well-known prestige harbourside suburbs at the top of the list.
Median prices in the Sutherland Shire region dropped more than the Sydney average during the decline, however there is already evidence that property prices have rebounded quickly since the federal election last May. A property at 21 Charles Place, Jannali sold in May 2019 for $1.195 million after 187 days on the market. The property resold in the same condition in November after just 11 days on the market for an undisclosed price slightly above $1.3 million, representing a 10 percent increase within a six month period.
There still appears to be some good opportunities with a number of suburbs along the railway line having a median house price at or below the million dollar mark, according to realestate.com.au data. Engadine ($900,000), Sutherland ($962,000) and Loftus ($980,000) have median house prices below $1 million, whilst Kirrawee ($1,007,500) and Jannali ($1.010 million) sit just above that mark.
These suburbs already enjoy a railway station with travel times of less than 40 minutes to the CBD during peak times and longer term will benefit from Stages 2 and 3 of the F6 Extension, should they be given the green light by the New South Wales state government.
In the St George area, Riverwood ($879,000), Narwee ($985,000) and Arncliffe ($1.005 million) provide a similar opportunity to purchase near a railway station in this price range. Adjacent to Sydney Airport and the M5 Motorway and only 11 kilometres from the CBD, Arncliffe provides an affordable alternative to its neighbouring suburbs including Banksia ($1.065 million), Rockdale ($1,080,500), Tempe ($1,117,500) and Bardwell Valley ($1.15 million).
The Sutherland Shire experienced a spike in new unit development completions over the past 12 to 18 months. This caused an oversupply of units, particularly along the corridor between Kirrawee and Caringbah, which put downward pressure on both prices and rents. In September last year, a two-bedroom, two-bathroom unit in a complex at 9 Urunga Parade, Miranda sold for $700,000 after originally being purchased off the plan in April 2017 for $719,040.
Whilst this type of product does still need to be treated with some caution, the drop off in supply of new units currently under construction will allow demand to begin to catch up and we expect prices in this market to begin to improve in 2020 as well.
The lower north shore prestige market experienced a fluctuating year in 2019. The market started very slowly with the number of transactions significantly down, although the second half of the year saw a notable improvement in market activity. We expect there to be continued high buyer confidence in 2020 within this sector of the market, barring any unforeseen financial or international turmoil. We believe that transaction numbers and sale prices throughout the year will remain strong, although not at the levels seen during the peak of the market cycle. Mosman could well see its suburb record sale price broken this year. It was previously set in 2018 with a $25 million sale on Hopetoun Avenue. The property as 2 Rosherville Road, Mosman, set on 1473 square metres of waterfront land, is currently on the market with a reported asking price of around $30 million (news.com.au). This property has been on the market since the middle of 2019 so we will wait to see if market conditions this year support the property transacting at this price level.
The inner Sydney prestige market will continue to be buoyed throughout 2020 by the current projects being constructed in the Circular Quay precinct and further development of Barangaroo. In late 2019 it was reported that a penthouse, two apartment amalgamation, had sold to an individual purchaser for $140 million. Benchmark sales such as this add to confidence in this sector of the market as the media broadcast such notable sales nationally and even internationally. This promotion attracts the attention of potential buyers in this top end prestige sector and the limited supply of such units can help spur continued strong sales. We expect this to be the driver of high-end sales in the new development areas in inner Sydney throughout 2020.
The eastern suburbs prestige market roared into gear in the second half of 2019 after a subdued first half of the year. Over 20 trophy homes, with asking prices above $15 million, are currently listed for sale across the prestige suburbs of Point Piper, Vaucluse, Bellevue Hill, Darling Point and Elizabeth Bay. On top of this, there is an increasing number of prestige property owners who utilise the expertise and contacts of well-regarded local agents working within this space to sell their properties off market. We are expecting the strong finish to last year to continue in 2020.
In the south, the record of $10.86 million for the Sutherland and St George region, set by a property in Kangaroo Point in 2018, is under threat. A large three-storey waterfront home on over 3000 square metres of land at 4 Townson Street, Blakehurst boasts six bedrooms, eight bathrooms, a tennis court, indoor and outdoor pools, slipway, jetty and garaging for up to 15 cars. The property was listed in October through Black Diamondz Property.
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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.