Sydney December 2017

The month in review: Sydney

By Herron Todd White
December 2017

For greater Sydney, 2017 was a year that saw continued growth but at a lower rate than in previous years. Recent months have shown signs of slowing even further. This was widely anticipated and our prediction of slower growth as the year progressed proved correct. CoreLogic’s quarterly results as at 31 October 2017 revealed an annual return of 7.7% and a quarterly result of -0.6% for dwellings in Sydney. This annual growth occurred mostly in the earlier months with the last two quarters recording flat to slightly negative growth.

Throughout the earlier months of 2017, demand continued to outstrip supply, keeping the wider residential market buoyant. In more recent months we have seen selling periods extend closer to longer term averages and prices begin to stabilise and even fall in some areas. As the market moves from a seller’s market to a buyer’s market, the instances of sales results well above asking prices are becoming far less frequent.

All is not lost however. Local agents have noted quality properties are still highly desired and are continuing to record strong results; they are just taking slightly longer to sell with a reduction in the number of interested buyers compared to previous years. We have noticed that below average stock, including properties considered to be in secondary locations, is being hit harder with buyers feeling they have more choice within their budget range.

Eastern Suburbs

The Eastern suburbs generally played out as expected. The year started off very strong with some large price increases in the first quarter compared to the last quarter of 2016. The limited available stock continued to drive the market which resulted in premium prices being achieved in both units and houses up to $3 million.

With so much heat in the market over the past four or so years up until early/mid 2017, it was safe to predict that things were going to cool down at some point. The second half of the year saw a change in market conditions, with auction clearance rates and buyer demand easing but prices in most cases generally holding in value with only some slight decreases noted. The sense of urgency has been removed from the market with buyers being more savvy and cautious in their purchasing decision. A number of properties scheduled for auction are being pulled due to lack of interest, with agents often changing tactics and advertising with an asking price to entice the buyers. Selling agents are advising that if a property is priced too high, it will sit on the market longer and lose momentum. This is different to what was seen at the beginning of 2017 where almost everything was selling at premium prices and reduced days on the market.

Houses in the $1.5 million to $3 million range, which performed strongly at the beginning of 2017, eased in the second half of the year. The units up to $1.5 million sector was also a notable performer which has clearly flattened with investment style units impacted by increased listings on the market and tightening of lender restrictions. Auction clearance rates in the eastern suburbs went from 87.5% in March to 67.1% in November (source: CoreLogic).

2017 proved to be a generally good year for the prestige market in the eastern suburbs. The market saw some steady increases throughout the year with the second half of the year seeing the $4 million to $10 million housing market still performing strongly.

Interest from foreign purchasers has softened, however this market continued to perform well, driven by wealthy local purchasers looking to upgrade and demanding good quality homes in the harbour side locations of Darling Point, Woollahra, Rose Bay and Vaucluse in addition to the beachside locations of Bondi, Bronte, Tamarama, Clovelly and Coogee.

As an example, research shows that in Vaucluse, there were ten house sales of between $5 million and $9 million between 1 September and 14 November which averages at close to one per week in this one suburb alone (source: PriceFinder and RP Data).

Sydney property

75 Ocean Street, Woollahra sold in September for around $13.5 million after being on the market for approximately 23 days. (Source: PriceFinder)

Sydney property

10 Thompson Street, Tamarama sold in September for around $9.2 million after being on the market for approximately five days. (Source: PriceFinder.)

Inner West

As predicted, dwellings in the $1.5 million to $3 million range (a section of the market with a high concentration of owner occupiers) started the year off strongly with steady levels of growth and strong demand, continuing where 2016 left off. This appeared to continue for the first quarter of the year. Although we expected growth in this segment to remain steady, a significant change was experienced mid-way through the year. Local agents reported a substantial decrease in the numbers attending open homes as well as a sizeable drop in registered bidders at auctions. This has resulted in some of the lowest auction clearance rates seen since 2015 (source: Domain). Inner west auction clearance rates in September were recorded at 67% compared to 87% over the same period in 2016 (source: Domain). Agents attribute this partly to vendors who are yet to revise their price expectations to be more realistic taking into consideration current market conditions.

The unit market in the inner west did not show much in terms of growth throughout 2017. Popular with investors, this segment of the market was significantly affected by government policy changes around foreign buyers and developers, coupled with tighter lending requirements. As predicted, oversupply issues also continued to put downward pressure on the unit market in some areas, with the record number of development approvals seen in recent years seeing unit complexes reach completion at a time when demand is struggling.

Whilst most inner ring suburbs showed a slowing or stabilising of price growth for the second half of the year, there were also a few examples of declining prices. A dwelling in the popular inner west suburb of Birchgrove, which had very strong growth during the current boom cycle, sold in April 2017 for $1.85 million before being re-listed in October 2017. It recently sold reportedly for $1.7 million after 87 days on the market.

In the developing suburb of Erskineville, an 84 square metre, 2-bedroom, 2-bathroom unit sold on 29 April 2017 for $1.045 million. A similar 2-bedroom, 2-bathroom unit in the complex on the same floor level sold on 18 September 2017 for $1.025 million even though it was five square metres larger. Although it appears to be a small decline, it is perhaps showing early signs of things to come.

Sydney property

Eve complex, Erskineville. (Source: PriceFinder.)

Southern Suburbs

Our prediction for 2017 was for another year of steady growth. Whilst we did see steady growth in the first half of the year, the second half saw signs of a slowing market.

A main driving factor behind the growth in the first half of the year was demand continuing to outstrip supply, while interest rates remaining steady and at historic low levels also contributed to this price growth.

We predicted strong growth for houses in Gymea and Engadine and these suburbs have seen double digit growth over the past 12 months, Gymea up 12% to a median price of $1,332,500 and Engadine up 10.8% to $1.022 million (source: PriceFinder).

We also predicted high quality units in Cronulla to have a strong year and 16 sales above $2 million have occurred to date this year compared to nine in 2016. The median 3-bedroom unit price in Cronulla is $1.597 million compared with $1.38 million a year ago (source: realestate.com.au).

Cronulla houses also recorded strong growth in the year to date with a 12.7% annual growth rate to a median price of $2.22 million (source: PriceFinder). A street to deep waterfront property at 34 Grosvenor Crescent, Cronulla was purchased in September for $3.95 million. The property comprised an easy sloping, partially terraced parcel with a pontoon and boat pen, swimming pool and garage. Unusually the property only provided a relatively small 2-bedroom residence providing the purchaser an almost blank canvas to create their dream home.

Sydney property

34 Grosvenor Crescent, Cronulla. (Source: realestate.com.au)

The recent approval of Stage 1 of the F6 extension from Arncliffe to Kogarah has generated a lot of media interest. The proposed Stage 2 through to Sans Souci and Stage 3 through the Sutherland Shire will extend the F6 all the way to Loftus. What will be the flow on effect on the housing market? We will have to wait and see.

Western Sydney

There was continued growth in the outer growth areas of south-west and north-western Sydney with land values generally increasing month on month. So far the cost of land plus improvements is typically supported by the sales of completed products, however as mentioned earlier in the year, incomplete products that don’t include landscaping or internal finishes are more likely to be discounted by the market and may not stack up to the cost outlay by the owner.

Another prediction was the trend for low rental yields to continue. This was again accurate as currently dwellings on average are returning approximately 2.8% with units at 3.8% (source: SQM Research). Evidence that the rental market is struggling in certain areas is highlighted with one developer offering new renters the chance to win a car. Areas at most risk are suburbs with a high concentration of new units such as Carlingford, Wentworth Point and Macquarie Park.

One of our other predictions which proved correct was in relation to investor markets, both locally and abroad, and the challenges they may face in 2017 which we thought would reduce participation in the property market.

The regulatory changes to the local lending market that took place around mid 2017, similar to what we saw in late 2015, included higher interest rates on interest only investor home loans, higher deposit requirements, tighter lending on certain high risk post codes generally aimed at high density units and the overall restrictions on investor lending which was driven by APRA in response to the high levels of household debt and increasing property prices.

On the overseas investor front, foreign investors have found it harder and have been less willing to invest in the market due to the uncertainties surrounding the property bubble. Australian banks have cracked down on lending money to foreign investors, governments on both a state and federal level have introduced higher taxes, including higher stamp duty rates, for foreign investors and some foreign nationals have had tighter restrictions on removing money from their home countries off shore and into the Australian property market.

Given the perfect storm of regulatory changes, lending restrictions, affordability issues and increasing levels of supply particularly in the unit market, we have continued to see many off the plan units struggling, with settlement valuations coming in under the purchase price from the stronger markets in 2015 and 2016. This is more prevalent in areas with a high level of saturation and investor participation.

Northern Sydney

The northern suburbs of Sydney were forecast to continue to record steady growth throughout 2017 and generally this region has continued to move along with the overall Sydney market. In recent months there has been a cooling of the wider market with selling periods extending slightly and less participants resulting in more stable prices.

We did note that areas of concern were suburbs seeing a high supply of high density residential development in a short space of time, with the potential to stunt price growth in the short to medium term.

An example is Asquith on the Upper North Shore, which has seen an influx of high density residential development come online in the past 12 months with more planned for construction. This area is not usually known for high density units and as such may find the local market will flatten for some time as the stock is absorbed. In addition, a large participation of investors will result in the rental market remaining flat as supply will outweigh demand for the short to medium term.

The Lower North Shore has always been attractive to buyers and investors alike, with highly regarded schools, quality property, leafy surrounds and close proximity to the Sydney CBD. Whilst properties closer to the median value are steady, the prestige market appears to have slowed more quickly over the past year. Mosman has recorded nine sales over $10 million to date this year, compared to 15 sales for the full year of 2016, with the majority of the 2016 sales occurring in the latter half of the year.

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