The month in review: Sydney
By Herron Todd White
The residential property market in Sydney to date in 2016 has exhibited mixed performance throughout different areas, price points and product types. There has also been a shift in market performance and confidence from the early post-Christmas months through to the approaching mid-year point. Various factors have had a role in influencing the local market with the mid-year point set to be in a stronger position than start of year predictions indicated.
At the start of the year, most areas appeared to continue where 2015 left off with longer selling periods, lower auction clearance rates, decreased market confidence and in some cases lower than expected sales prices. This phase continued through to March when the market showed more positive signs of stabilisation. Overall however auction clearance rates remain below the levels of last year with auction numbers also decreasing significantly.
The levels of property price growth demonstrated throughout 2014 and 2015 have not continued into 2016 in the Sydney market. Various market influences continue to fuel the uncertainty surrounding the local property sector including the recent interest rate cut, the impending election, possible apartment oversupply and restrictions on foreign purchasers.
With the recent interest rate cut appearing to have an initial positive impact on auction clearance rates it must be remembered that most banks increased their mortgage rates late last year by about 0.2% points meaning the latest 0.25% point move from the RBA only takes home loan interest rates slightly lower than they were late last year. It is perhaps too early yet to tell if this will have any ongoing effect or if the previously tightened lending criteria and regulatory restrictions will continue to constrict the mortgage market with many consumers already
feeling the pressure of high mortgage repayments. It was reported by Moody’s recently that home buyers in Sydney spent an average of 35.6% of their pay on mortgage payments, the highest in the country and higher than the average over the past ten years.
The previous decline in investor activity appears to have shifted with the latest ABS lending finance data revealing a surge in residential investor activity.
Loans for this group increased by 30% in March allowing $5.5 billion in lending, the highest monthly total since September last year. This could be partly due to the impending election with the future of negative gearing being questioned. Signs are emerging that the prospect of changes to negative gearing in 2017 is stimulating investors in Sydney’s housing market who appear keen to secure property under existing conditions, indicating that investors could be nervous that negative gearing will stop for all but new properties.
With regards to levels of new stock in the city, CoreLogic has recently released a report revealing that record high unit construction is set to increase settlement risk. With apartment construction set to hit record highs over the next two years, latest figures from CoreLogic show a big disconnect in the volume of stock expected to settle over the next 12 to 24 months to the average number of unit sales annually over the past five years. This could culminate in an oversupply of units in many areas which would add further misery to an already slowed unit market. Coupled with this is that three of the four largest banks have announced they will no longer be lending to home buyers from overseas which not only increases settlement risk, but willalso affect future demand from the slowing foreign purchaser market.
As we attempt to gauge what is happening in the various local sub-regions the consensus appears to be consistent. The market performance in most areas started the year slow however stabilisation has occurred as we approach the mid-point of the year with some products and price points achieving subtle levels of market growth. In general it appears that the unit market, particularly in the inner city fringes, is taking longer to stabilise with many indicators suggesting that growth in this sector may still be hampered by oversupply, restrictions on foreign purchasers and possible negative gearing changes. As a summary of the various sub markets within
Sydney we provide the following comments:
As a region, the southern suburbs have showed signs of decline and reduced market activity in the later months of 2015 through to March 2016 when they began to stabilise. The fringe suburbs of Engadine, Loftus, Bangor and Menai have shown a noticeable decline in sales prices since the peak of the market in October 2015, with properties in the sub-$1 million range suffering. Similarly, townhouses and units under $1 million in many areas have seen a decline particularly in the suburbs of Hurstville, Mortdale, Oatley and surrounding areas.
An example of this is 14/17 Newman Street, Mortdale where a 3-bedroom townhouse sold for $862,500 in March 2016 compared with the sale of a similar townhouse in similar condition in the same complex for $905,000 in October 2015. The high influx of new development in the Hurstville region has also had a negative effect on overall values.
In early 2016 in southern Sydney there have also been some strong results for brand new products over established homes. The choice between brand new versus older style on a larger parcel appears to show a preference for a new product over extra land with strong demand for new duplex style property. Recent activity includes a duplex at 673 Kingsway, Gymea which sold for $1.365 million.
This activity can be property specific as there are examples including the following which highlight the weaker position at this mid $1.5 million price point:
• 6 Waratah Street Bexley is a duplex which sold in April 2016 for $1.65 million after previously trading in May 2015 for $1.66 million;
• The sale of 46a Parthenia Street in Dolans Bay for $1.95 million in November 2015 did not proceed and the property has since sold for $1,850,500 in March 2016 showing the decline in this region.
• 43 Lomandra Place, Alfords Point sold for $1.685 million in March 2015 and has just resold for $1.67 million.
In Sydney’s east, market activity and market confidence has increased since the last quarter of 2015 and early 2016 with one of the main drivers in this region being the lack of quality stock. As building and renovation costs remain high in this region, we have seen renovated family homes achieving solid results, especially in beach side locations with price ranges of $2 million to $4 million. An example of this is a house once made famous by The Block television show located at 10 Tasman Street, Bondi, which was purchased at auction on the show in March 2013 for $1.37 million and recently sold in May 2016 for around $2.5 million with only the addition of a
swimming pool since the previous purchase. Again it is the smaller sized investment units under $1 million
which appear to have been the hardest hit since the market peak. Prices for many units at this price point have shown signs of flattening with limited growth throughout 2016. Less popular complexes or locations or units on busy roads require extended selling periods.
In Sydney’s inner west and city fringe areas we have seen mixed results throughout the first half of this year. The year started very slowly with limited stock across all sectors making it hard to gauge how the market was performing. Auction clearance rates in these areas continue to perform well however the limited stock has played a part in this. We have observed the $2 million plus market performing well with large allotments still a sought after asset.
A recent sale at 27 Park Road, Marrickville on 693 square metres achieved $2.3 million with the dwelling appearing to require full renovation. The $1 million to $2 million price bracket appears to have stabilised
again following a period of decline at the end of 2015 through to early 2016. This varies in different areas as shown at 108 Warren Road, Marrickville, which sold in May 2016 for $1.247 million after being purchased in October 2015 for $1.185 million and undergoing a bathroom renovation. Little growth has been noted here. A recent sale in May 2016 at 34 Belmore Road, Enmore for $1.9 million showed approximately 7.5% growth over the 14 previous months when it sold for $1.77 million in February 2015. Again it is the unit market which has suffered most in this area. Suburbs with a high supply of average and low quality unit stock such as Ashfield,
Dulwich Hill and Marrickville have seen this sector suffer since mid to late 2015. This product in the sub-$1 million price point is yet to show any great recovery with demand here appearing to have suffered the most. Suburbs closer to the city are also showing unit markets performing below average.
We note 405/209 Albion Street in Surry Hills which sold in June 2015 for $707,000 has just resold in May 2016 for $715,000 after updating the kitchen appliances.
The property market as a whole in Western Sydney has bounced back from the nervous times of late 2015 to early 2016. While no longer surging ahead as it did for the first three quarters of 2015, sales results are still relatively strong and local agents are reporting good levels of interest in appropriately priced property.
It is too early to tell what effect the calling of the federal election has had on the market. Given property seems to be a hot topic in this election, we may see another slight easing in the market as policies remain unclear. In saying that, the cost of money remains low and supply is not yet reaching demand, certainly in the outer west of Sydney.
Vacant land and house and land packages within planned estates continue to be popular in the market and are seen as being both affordable and providing capital growth into the future. Recent land releases in Jordan Springs on the fringe of Penrith have seen strong sales results with record prices for vacant sites in the estate.
A property has recently sold in The Ponds for $2 million, smashing the previous record sale in the suburb. The Ponds is situated in the Blacktown LGA and is a less than 10 year old planned estate. CoreLogic RP Data figures indicate that the median house price has risen there by 57% in the past three years, 18% in the past year alone. Granted the property in question is arguably a one off, architecturally designed and built to a very high standard. It does show however that consumer confidence remains at strong levels.
Acreage and rural lifestyle properties in the outer ring of metropolitan Sydney remain popular, with increases in capital values and strong sales results evident throughout the first half of 2016.
This is in part driven by buyers re-entering the acreage market after having sold off their previous holdings, located closer to Sydney in the growth centres.
The Parramatta unit market will be one to watch with caution over the next 12 months, as buyers off the plan in late 2015 and early 2016 paid premiums to secure a unit in a number of new developments. Any further downward shift in the market may see these premiums remain unabsorbed by the market.
In the main, the northern suburbs of Sydney have been tracking along in a similar fashion to the majority of Western Sydney. We have noticed that suburbs surrounding planned infrastructure continue to grow. An example is Forestville, located within close proximity to the Northern Beaches Hospital, currently under construction. The median house price for this suburb is currently $1.65 million (according to RPData CoreLogic) and continues to strengthen from January’s $1.56 million after a lull in December. Values in the Ryde area have softened and stabilised after 12 months of rapid growth, particularly for below average stock. Quality well priced properties are still achieving strong results but are taking slightly longer to off-load than the peak of the market, although still within long term averages.
A recent sale of a duplex at 68A Champion Road, Tennyson Point for $3.44 million highlights that quality property is still achieving strong results.
The prestige residential market in Sydney is generally considered to comprise properties with values in excess of $3 million. These properties tend to be located within the eastern suburbs and eastern beaches, lower and upper north shore or northern beaches, with some waterfront localities in the southern suburbs and the larger rural residential estates to the north-west of Sydney.
Initial concern with the Sydney prestige residential market leading into 2016 was whether the upper end would feel the same deterioration in market confidence and demand as the greater residential market. Leading into June 2016, it would seem that this is not the case. Our discussions with leading local agents report limited stock levels across the board. Along with this reduced supply, it appears that buyer demand remains consistent and auction clearance rates remain high.
The recent reduction in interest rates by the RBA is not expected to provide any significant enhancement to the prestige market, although the reasonably low Australian dollar makes Sydney prestige residential property attractive to overseas purchasers.
The expected slow down in demand from high net wealth overseas purchasers does not seem to have transpired, although we would consider that purchasing decisions by local and overseas high net wealth buyers is now occurring at a more conservative level, with a higher level of due diligence.
However, with the Federal Election scheduled for 2 July 2016, the prestige market may show a moderate dip in activity as savvy purchasers and vendors await the outcome and evaluate the overall impact on the local economy.
A recent sale of note is a near $80 million purchase in Vaucluse. This property 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. This represents the most expensive amalgamation of Australian residential property to date and surpasses the sale of James and Erica Packer’s non-waterfront estate which sold in 2015 for $70 million.