The Smartline Report – December Edition

The month in review: Sydney

By Herron Todd White
December 2015

Overall 2015 will be seen as the turning point for the Sydney property market. As predicted the market continued to steam ahead in the early months from the momentum of late 2014 and then began to slow
in recent months. The current market conditions are mostly due to a combination of a higher volume of supply, affordability concerns, major lenders increasing interest rates and APRA regulations on investment loans.

The Sydney metropolitan area, as with the majority of Sydney, exceeded our expectations across all price points throughout 2015. A general consensus at the start of the year was that the Sydney metropolitan area would flatten after dramatic growth throughout 2014. This was a prediction based on historic trends, market fundamentals and conversation among other property professionals operating in our area. As the year progressed we were all very surprised at the continued growth and strength of the Sydney metropolitan market within all subsections.

Prestige market
Over the past 12 months, confidence in the prestige residential market appears to have returned to somewhat buoyant levels, with evidence of supportable value level growth in some areas, and with a strong number of trophy homes transacting.

While many local high net wealth purchasers are currently active in the Sydney prestige residential market, we have noted a resurgence in demand from ex pat buyers and international purchasers, particularly high net wealth Chinese buyers, seeking to acquire prestige residential property as the Sydney market continues in an upswing, and also to capitalise on the current weakness in the Australian dollar.

It can also be said that strong growth in the lower end of the property market has in some ways flowed through to the lower end of the prestige market, as those vendors are now able to take the profit from their strong sales results, and trade into those properties in the $3 million range.

With confidence returning to the prestige market and transaction numbers strengthening during 2015, a number of prestige selling agents have reported diminishing stock levels that are not currently matching demand and enquiry.

Over recent weeks, the overall Sydney auction market has declined significantly, impacted by the announcement by banks of increasing mortgage rates for investors, a generally weak local economic environment and concerns regarding the performance of the global economy.

Our feedback from prestige selling agents indicates that weakening in auction clearance rates appears to have mainly impacted the lower end of the residential market (say sub $2 million), with ongoing demand and reasonable confidence remaining in prestige price bands, with some agencies reporting prestige auction clearance rates of up to 80%.

Trophy sales
La Mer, Wentworth Road, Vaucluse – sold in August for around a reported $70 million, setting a new Australian house record. Sold by James Packer, this property reportedly comprises a 3,300 square metre site with quality harbour and CBD views, providing 6-bedroom main accommodation, with underground parking for 20 cars, vast entertaining spaces, two self-contained staff quarters, a rooftop lawn and lap pool. It is rumoured the property was three years under construction at an estimated cost of $40 million.

Villa Del Mare, Wolseley Road, Point Piper – originally sold in October 2014 for $39 million by Julia Ross to a Chinese businessman after around three years on the market. The new owner was then forced to sell the property by Treasurer Joe Hockey due to contravention of foreign ownership laws, reselling for $39 million. The property is a near 1,500 square metre non-water front site improved with a 6-bedroom, 8-bathroom high calibre Mediterranean style home featuring expansive harbour and CBD views and car accommodation for eight cars.

Southern Sydney
Predictions of Greenhills Beach, some three kilometres to the north of Cronulla in Sydney’s Shire have exceeded expectations with strong sales results throughout 2015. We had predicted after a strong 2014 that this market was sure to slow and level out. In particular, in the first half of 2015 demand was at its highest resulting in some very high sale results far exceeding everyone’s expectations.

The highest settled sale according to RP Data records shows a modern 5-bedroom, 4-bathroom dwelling on a 590 square metre parcel achieving $2,370,000 in June with the previous transaction being $900,000 for the transfer of the vacant land in late 2013.

This followed true throughout the rest of the suburbs in the south of Sydney where the market outperformed our expectations. One of our valuers came across a very strong trophy sale in the suburb of Sandringham approximately 20 kilometres to the south of the CBD. The property is east facing onto Botany Bay and is known as The Versace House due to its Versace theme throughout. The property sold in March 2015 for $7.8 million and comprises a 980 square metre parcel of land, beachfront reserve onto Botany Bay, 4-bedrooms and 5-bathrooms.

Fringe CBD
We continue to value a high number of properties in the Waterloo/Zetland area. We were concerned at the start of this year that the continued development of high density residential unit complexes was going to cause an oversupply issue, obviously putting downward pressure on prices. In truth, we under estimated the continued foreign and local investment in the area and have seen unit prices here go from strength to strength. This is the case for not only new developments but also for re-sales in the older complexes in the area which were the ones we predicted would not perform well in 2015.

Inner city fringe suburbs were again predicted by our office to flatten throughout 2015. Like everywhere else though, the market has had another year of extreme growth. We thought that investor interest would have reduced at the start of the year with calculated yields being unappealing due to the dramatic price rises in 2014. Investors were not deterred though and remained very active up until the point of the APRA changes. A converted warehouse unit at 82 Myrtle Street in the city fringe suburb of Chippendale just sold on 14 November 2015 for $1,236,000 according to RP Data. The previous sale of this property was $805,000 on 10 April 2013 (RP Data) with no significant improvements during this period giving capital growth of 53.5% over two and a half years. It was reported by Domain that this property sold at $136,000 over the auction reserve price which would indicate the selling agent and vendor also under estimated the strength in the market.

Western Sydney
Providing entry to the market for the majority of first home buyers and first time investors, the metropolitan fringes can provide capital appreciation and solid rental returns for those happy to commute or work in the regional town centres. Suburbs we advised to look out for in early 2015 were Penrith and Seven Hills.

In Penrith the median house price now stands at $547,000 shooting up by 31% (annual) and in Seven Hills the median house price is currently $676,000 up by 22% (source: Australian Property Monitors). Both locations offer existing transport links with rail and motorway access and proximity to employment zones ensuring a ready pool of both owner-occupiers and tenants.

South West Sydney
First home buyers will continue to be active within the south west growth areas including Gregory Hills, Oran Park and Catherine Fields. For mid $600,000, buyers can enter these markets and acquire a 4-bedroom, 2-bathroom family home. To highlight their popularity this figure has increased from high $500,000 over the past twelve months. Small blocks with low maintenance dwellings continue to be popular with time poor first home owners not keen to maintain a large block. A new suburb in Leppington within this south west zone was announced in November.

The released plans are to rezone existing semi-rural parcels into new estates for nearly 30,000 new homes.

We would expect that these sites will be popular with several market segments and particularly with those looking to the future with the proposed completion of Badgerys Creek Airport and its associated employment zones in the mid to late 2020s to benefit the entire region.

Central West
We suggested unit buyers keep an eye on suburbs surrounding Parramatta. With continued investment in Sydney’s second CBD over the next decade, the surrounding suburbs will also enjoy the benefits of this investment. This is evident with the Harris Park unit median price now $464,000 a growth of 11% (annual) and the Westmead unit median price at $535,000 showing a growth of 14% (source: Australian Property Monitors). Again due to the proximity of the commercial centre, ready access to transport, the continued expansion of the Western Sydney University (campuses at Westmead and Rose Hill) and the medical precinct surrounding Westmead Hospital these suburbs should continue in popularity with both owneroccupiers and investors and should provide steady capital appreciation.

North West
2015 saw a continuing trend of high growth in the north-west growth corridor of Sydney such as at Baulkham Hills, Kellyville, Cherrybrook and Castle Hill. With the north-west rail link construction well on its way, these suburbs continue to be popular with young families due to quality local schools, upcoming transport hubs and established shopping precincts. Australian Property Monitors indicates the median house price for Cherrybrook in 2014 was $980,000 and in 2015 it jumped to $1,239,000.

Residential land in the north-west is high in demand with The Ponds completely sold two years ahead of schedule. A new suburb of Box Hill is being developed to accommodate more than 4,000 families. The master plan for Box Hill North has been approved by the state government which is confident it will provide homes for a wide range of buyers. The new suburb will have a primary school, a 4 hectare lake, shops and commercial businesses.

In conclusion, 2015 outperformed our expectations in the Sydney metropolitan area. We continued to see strong growth, low supply and trophy sales. In the past six weeks we have finally started to see the market stalling, with auction clearance rates dropping to 61% (according to Domain). This has been magnified by an increase in stock levels turning the market in the buyer’s favour after two and a half years of relentless growth. This was always going to occur at some stage, but it happened far later than any of us predicted.

Dusting off our crystal ball we believe there will be limited growth in 2016 as the market will continue to cool due to a combination of a higher volume of supply, affordability concerns, major lenders increasing interest rates and APRA regulations on investment loans. Property professionals are not seeing this as a doom and gloom situation, more like a market correction after a period of strong but unsustainable growth.

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 – 2015. Australian Credit Licence Number 385325


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