Sydney

The Smartline Report – December Edition

The month in review: Sydney

By Herron Todd White
December 2016

2016 continued to illustrate how diverse our nation’s residential sector is. From our global cities and their seemingly unstoppable growth to many regionals looking for their price bottom, Australian residential property has run the full gamut of possibilities.

This month, we not only take a look back at the year that was, our team also analyse their market predictions from February to see how they fared.

Sydney
After a sustained period of strong growth, the final quarter of 2015 saw a softening residential market across many parts of Sydney and it was widely expected that this trend would continue into 2016. Despite those expectations, the market continued to see price growth throughout 2016, with double digit growth in a number of suburbs for both houses and units.

Auction clearance rates have recovered since the beginning of the year and are now consistently above 70% and 80%. Some areas such as the inner west and eastern suburbs have had clearance rates regularly above 90%. A major reason behind the increase in clearance rates and sale prices has been the reduced number of properties on the market and majority of properties going to auction rather than private treaty. The usual boom in the number of transactions taking place in spring has failed to live up to past experience. According to CoreLogic the month of November saw auction volumes starting to ease as we approach the holiday season. Sydney has 948 auctions scheduled for the third week of November compared to 1,063 in the second week of November. In 2015 the last week of November saw 1,372 auctions in Sydney. The decrease in auctions from 2015 has been mainly due to lack of stock coming onto the market. Agents have been unable to obtain the same amount of stock compared to 2015. This has caused congestion amongst competing buyers and agents are taking advantage of this. We have seen properties advertised with a price guide only to see prices jump further as they get closer to auction. Sometimes these properties are sold prior to auction for unjustifiable prices.

Mosman in Sydney was the busiest suburb for auctions. In the second week of November, 26 properties were scheduled to be auctioned. The data from a 2015 CoreLogic report indicates that in the week ending 28 November 2015, Mosman was also the busiest suburb in Sydney for auctions with 20 properties scheduled. This trend continued and we have seen an increase in the number of Herron Todd White valuations ordered by lenders in Mosman for the month of November, particularly in the prestige market.

Australian Economy Extract
The minutes of the Reserve Bank of Australia meeting on 1 November indicate that the Australian economy is still going through a transition from mining sector to non-mining sector. The RBA is struggling to gauge the implications of this and the uncertain job market. Low interest rates have seen an acceleration in housing, growth in construction activity and government infrastructure projects which have resulted in the continuation of the strong property market in Sydney.

Sydney Unit supply
The Reserve Bank of Australia also noted that over the next few years a considerable number of apartments will hit the market in particular capital cities. Growth in rents in the September quarter was the slowest for some decades as a result of this new apartment stock coming onto the market. The value of units in the Sydney metropolitan area since the start of the growth phase in June 2012 has increased significantly when compared to other capital cities however it is still below the increase in housing values for the same period (see graph below re change in house & unit values). This increase in housing costs has meant that units are an affordable option for the majority of buyers – owner occupiers and investors alike, especially in key locations with accessibility to infrastructure a major driver.

sydney-2

Although units are more affordable, the Sydney median unit price is $675,000 (see graph above of median selling prices of houses and units) which is more expensive than the median Melbourne house price at $641,500.

A report published by Urbis titled Sydney Apartment Essential Report indicates that the average sale price of off-the-plan units was $1.150 million which is considerably higher than the median unit price. We have seen these large contract figures for off-the-plan valuations prior to the recent decision by the Australian Property Institute to abolish off-the-plan valuations. The more notable areas are Mascot, Zetland and Waterloo which have been attractive because of their close proximity to the CBD and the amenities required for modern living incorporated in these developments. These developments are very popular with overseas investors.

Herron Todd White also noted a decline in off-theplan valuations prior to their abolishment due to the Australian Prudential Regulation Authority’s tighter lending regulations for banks. Many of these lenders have black listed suburbs such as Waterloo, Zetland, Botany, Homebush, Sydney Olympic Park, Greater Parramatta and Auburn. These suburbs are considered high risk lending due to the large supply of these apartments and the unjustifiable prices.

Buyers should take the same caution as lenders for these suburbs as CoreLogic reports that the construction boom is yet to slow with 16,194 apartments under construction in New South Wales. The graph below indicates that if everything that has been approved is built over the next 24 months there will potentially be a big uplift in stock.

The big uplift in stock levels will come from the inner-city locations as well as regions further afield which have benefited from transport infrastructure projects. The potential risks in Sydney should not be discounted. CoreLogic reports that Strathfield, Burwood and Ashfield will potentially see a 20.7% increase in apartment stock, Parramatta apartment stock could increase 19.2% and Auburn could see stock increase by 26.1%. Many of these apartments are marketed to overseas investors and with the tighter lending criteria there is an oversupply risk in some areas. Furthermore, the risk of oversupply is likely to be vastly different across product types, target markets and based on the quality of the development, location of the site and the reputation of the developer.

Eastern Suburbs
The suburbs along or close to the south-east light rail corridor have been performing well as construction has commenced. Suburbs such as Kensington saw growth of 8.3% in 2016 with the median apartment price being $790,000 and Centennial Park has seen growth of 9.2% in 2016 with a median price of $675,000. On the eastern beaches, the suburb of North Bondi has been performing well with growth of 22.4% in 2016 and a median house price of $2.5 million compared to 2015 which was 13.1% growth and a median house price of $2.287 million. Lastly the popular city fringe suburb of Paddington has seen growth of 16% with a median house price of $2.03 million. The strong performance is an indication that the market has caught up from previous years as in 2015 the growth was 8.7% and median house price was $1.75 million and in 2014, growth was 3.8% and median house price was $1.61 million (pricefinder.com.au).

Inner West Suburbs
It was widely anticipated that a softening investor market, both local and abroad, along with an increase in new unit stock coming on to the inner west market would begin to affect prices in some suburbs. A number of lenders listed postcodes they considered risky for unit buying, including CBD fringe suburbs such as Rosebery, Waterloo and Zetland. This is mainly due to high investor demand, oversupply and lack of quality associated with developments. Many of the developments are replicating each other in terms of quality and finishes included. There are early indications that this is beginning to happen with Waterloo’s median price in 2016 to date down 0.3% on 2015 after three years of double digit growth (pricefinder.com.au). Herron Todd White has found that the product performing strongly in the inner west is houses over $2 million. Suburbs such as Marrickville, Stanmore, Petersham, Newtown and Enmore have had substantial growth recorded according to pricefinder.com.au. An example of this is a sale in Newtown which saw an 1880s Victorian terrace fetch $3.76 million, a new suburb record. In the February 2016 Month in Review, we predicted that the Harold Park development in the suburb of Forest Lodge would see strong demand with the opening of the Tramshed, which houses many boutique style restaurants and the Jubilee Park station. Suburb growth for Forest Lodge units in 2016 has seen a 17.9% increase and the median unit price is $935,000. The amenities provided, public transport (light rail) and the quality of the Harold Park development has led to this increase in price.

Southern Suburbs
The Sutherland Shire suburbs such as Gymea, Kirrawee and Miranda have been strong performers in the housing market. Gymea has had growth of 10.3% in 2016, Kirrawee 4.5% and Miranda 7.3% (pricefinder.com.au). While these growth figures are not huge compared to 2015 these suburbs have performed stronger than others. A trophy house built in 2012 at 18 June Place, Gymea fetched $2.185 million and a house built in 2015 at 24 Rutherford Avenue, Burraneer sold for $3.3 million. These house sales are showing the strength of the market for quality properties. In the unit market the top performers are Miranda at 3.2% in 2016 and Cronulla at 4.9%. A boutique luxury style development at 19 Gerrale Street, Cronulla saw unit 403 fetch $2.54 million which is the first resale in the development since purchase from the developer. Again sales are showing the strength of the market for quality properties. The suburbs which did not perform in 2016 are Engadine, Menai, Bangor and Alfords Point coming back around 2.2% (pricefinder.com. au). In our previous Month in Review we discussed Miranda and Sutherland which had not taken off due to an oversupply of units which has continued into November. Suburbs such as Monterey and San Souci have seen houses under performing. Monterey house growth was 20.8% in 2015 compared to just 8.8% in 2016 and Sans Souci was 23.1% in 2015 compared to 9.1% in 2016.

Prestige
The prestige residential market in Sydney is generally considered to comprise properties with a value in excess of $3 million. These properties tend to be located either within the eastern suburbs and eastern beaches, lower and upper north shore, northern beaches, some waterfront localities in the southern suburbs and the larger rural residential estates to the north-west of Sydney.

During 2016, the prestige residential market generally showed signs of sustained demand and growth across traditional prestige residential localities within the Sydney metropolitan area, although a recent evident lack of stock in the prestige tier appears to be creating a bottle-neck in the market, with transaction numbers slowing and the number of off market sales increasing.

Having now clearly rebounded from the impact of the GFC, current drivers supporting the prestige market include limited stock levels, the weak Australian dollar, a perceived robust economic foundation, sustained strong auction clearance rates and to a far lesser extent a current record low official cash interest rate of 1.5%.

Local high net wealth purchasers as well as ex pat buyers and international purchasers are currently active in the Sydney residential market, with overseas purchasers primarily seeking to capitalise on the current weaker Australian dollar.

The expected slow in demand from high net wealth overseas purchasers does not seem to have transpired, although we would consider that purchasing decisions from both local and overseas high net wealth buyers is now occurring at a more conservative level and impacted by limited stock levels, which becomes more apparent the higher the overall value level.

Although demand from overseas purchasers appears to have remained steady, with the recent introduction of a NSW Stamp Duty surcharge on foreign purchasers (an additional 4% charged from 21 June 2016) and with a new Land Tax surcharge (0.75%) to be introduced for the 2017 tax year, there are concerns that overseas investors may tread more warily when considering Sydney prestige residential real estate.

The impact of Chinese buyers (prevalent in the Sydney prestige market over recent times) may also weaken with ongoing difficulties surrounding moving cash out of China due to changes to capital control regulations and local bank and regulatory changes surrounding loans obtained based on overseas income.

Currently, the Sydney prestige residential market seems somewhat immune to deterioration, although we note the property market moves in cycles and we consider the prestige residential market may potentially be approaching the peak of such a cycle.

A reported recent sale of note is an over $70 million purchase in Vaucluse.

This property reportedly includes four separate properties (13, 13A, 15, and 15A Coolong Road) which have been purchased in one line and once amalgamated, will form a near 4,270 square metre waterfront site with a north-eastern aspect over Vaucluse Bay.

Should this transaction settle, it will represent the most expensive amalgamation of Australian residential property to date and overshadows the sale of James and Erica Packer’s non-waterfront estate which sold in 2015 for $70 million.

Another home with the potential to set a new Australian price record is the reported recent listing of the Point Piper residence of “Aussie” John Symond. With media coverage indicating a potential sale price in the vicinity of $100 million, this harbour front mega mansion set on around 2,700 square metres with a near 90 metre harbour frontage is believed to provide around 4,000 square metres of accommodation, took five years to build at a reported cost of more than $50 million.

Find out more information and to chat with a local Mortgage Broker in Sydney.

www.smartline.com.au

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2016. Australian Credit Licence Number 385325

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