The Smartline Report – June Edition

The month in review: Sydney

By Herron Todd White
June 2015

As In the first quarter of 2015 we have seen the market continually grow from 2014, astonishing even some of the most optimistic of followers. We are seeing strong activity throughout all levels of the market and this is especially evident below $2 million.

With interest rates at a record low there have been no brakes and activity has remained strong. We have seen record highs of auction clearance in the first quarter of 2015 with the clearance rate averaging 80% in May from around 50% in January. Record numbers of properties appear to be going to auction instead of private treaty to capitalise on the demand/ supply ratio. Analysts have predicted that interest rates will remain the same until 2016 or even 2017, so we may see the market continue this way or even possibly strengthen over the next 18 month period.

Given the range of property and value bands within the Sydney metropolitan area we felt it worthwhile to summarise as follows:

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

Prestige units tend to be located within the eastern suburbs and eastern beaches, lower North Shore and CBD and fringe CBD locations.

Over the past 12 months, the prestige market has shown very early signs of market recovery with an evident minor increase in both buyer interest and transaction activity.

We would consider this is reflective of a general perception that the bottom of this market has been reached, combined with improvements in the share market, the implementation of the Significant Investor Visa and cheaper Australian dollar.

Confidence in the prestige market is slowly reemerging, with moderate signs of a market recovery.

While we note the official cash interest rate was reduced to a new record low of 2% in May 2015, we consider interest movements have reduced impact on prestige residential market performance.

More significant drivers of the prestige market include the state of the equities market, stability in global economic conditions, levels of business and consumer confidence and overall business conditions and the value of the Australian dollar.

Demand for premium apartments is largely driven by overseas buyers and empty nesters seeking to downsize from the family home. With weakness in the prestige dwelling market post GFC and up until early 2013, these empty nesters had been unable to secure a premium price for their existing homes and there was a subsequent reduced demand flow-on into the prestige apartment market.

Over the past six to eight months, the market for prestige dwellings has shown early signs of strengthening, with increased sales activity and selling agents indicating ongoing strengthening in demand. Combined with the impact of the weakened Australian dollar, there appears to be early signs of flow-through strengthening into the prestige apartment market.

The Sydney prestige residential market, while highly visible and reported upon widely by the media, does not generally provide any significant indicator as to the state of the general residential market, with both markets moving in different cycles and influenced by different drivers.

While we consider the general residential market and the prestige residential market to have limited influence on each other, we do consider that emerging levels of confidence in the prestige market, including increasing transaction numbers (and an increasing number of trophy home sales), do provide a level of perceived comfort and underlying confidence to the state of the overall Sydney residential market.

Given there has been some gathering momentum in transaction volumes in this market sector, with a corresponding reduction in stock levels and an array of super prestige trophy homes transacting, we would expect that 2015 should show a maintained cautious optimism and confidence in the prestige market and further tempered recovery.

With possible further weakening in the Australian dollar and the possibility of additional interest rate cuts (generally impacting the lower end of the prestige residential market), there may be scope for increased demand from overseas purchasers (including expat purchasers) and further interest from local high net wealth buyers.

Recent reported high profile sales include:
Villa Del Mare, 63 to 67 Wolseley Road, Point Piper was sold in October 2014 for $39 million by Julia Ross to a Chinese businessman after around three years on the market. This 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 was recently the focus of Treasurer Joe Hockey when he reportedly announced in March of this year that this purchase was in contravention of the current foreign ownership laws and announced the forced sale of the property.

112 Wolseley Road, Point Piper sold in June 2014 for $37 million. This near 783 square metre absolute harbour front site is improved with a high calibre recently redesigned contemporary home providing
5-bedroom, 7-bathroom accommodation with parking for four cars. Featuring expansive harbour and CBD views with grounds including a private jetty, this home was sold by the reported accused murderer
Ron Medich and was originally listed for sale in 2011 for $55 million.

At the other end of the prestige scale on the fringes of the greater metropolitan area is that section of the market that is looking at lifestyle acreage parcels.

This prestige end paints the picture of improved market certainty, lifestyle buyers looking to up size in the confidence of a secure housing market with lower finance costs and improved market activity at the price point below. Buyers particularly in North West Sydney are happy to up size onto lifestyle sized acreage holdings as they are able to utilise familiar services and amenities.

Currently lower interest rates are bringing up sizers into the market place who are happy to capitalise on record low interest rates and bracket creep in the suburbs.

Money spent on infrastructure projects is helping to bring the fringe closer to suburbia. This is giving lifestyle buyers security in the knowledge that services are coming and they won’t feel isolated from usual inner suburban amenities and facilities and transport including the North West Rail Link, South West Rail Link and expansion of major arterial road links (Camden Valley Way, M5 duplication).

While interest rates remain low, prices at the level below continue improving and the sector above in all likelihood will follow suit. Buyers at the end of the year will look a little further afield into their next ring to find some value for money.

A snapshot of recent market activity within this submarket:

– Dural has had a minimum of ten sales exceed $3.5 million since July 2014 (two hectare holdings with substantial dwellings and ancillary improvements).

– Denham Court in the south west has seen three sales over $2 million since September 2014 (one hectare holdings with large scale dwellings and associated ancillary improvements).

– Mount Vernon has seen three improved sales in the Capitol Hill estate exceed $2 million and two vacant land holdings in this estate achieve over $1.1 million (all on one hectare holdings).

– 71 Patterson Lane, Grose Vale achieved a new record price of $2.3 million for the prestigious Patterson’s Road community estate to the north of Richmond (2.9 hectare holding). This shows that buyers are looking a little further afield than the traditional acreage districts.

The Western Sydney residential market is full steam ahead with no signs of slowing down as we draw in on the half-way point of 2015. This strong market is no surprise to many, as inner ring suburbs have priced many families, first time buyers and investors out of the market.

This strong market in the past six months is a result of perceived affordability, low interest rates and improved infrastructure such as the South West Rail Link, proposed North West Rail Link and further development of the West Growth Areas.

A common theme is that agents have limited stock and strong demand with property selling at record prices. This has resulted in more properties being sold via auction to maximise the selling potential in this strong market.

The sub $500,000 class predominantly comprises older style units, particularly in areas such as Liverpool and Fairfield which are both strong regional centres in the south west that have seen significant gains in the past 12 months. Properties that in early 2014 were at the low $300,000 market are now up to the $400,000 range.

Examples of this include:
Hamilton Road, Fairfield: A 1970s 2-bedroom, 1-bathroom unit situated in a low rise complex with a dated fit-out recently sold in April for $390,100; The Horsley Drive, Fairfield: A 1970s 2-bedroom, 1-bathroom unit situated in a low rise complex with a renovated fit-out recently sold in April for $415,000; The sub $800,000 is the largest portion of the housing market in the south west and in the past six months has been driven by families and investors due to the low interest rates and affordability.

Examples of this include:
Hinchinbrook: A 1990s single level, 4-bedroom 2-bathroom dwelling with 2-car garage was sold in March 2014 for $620,500. The same dwelling was recently re-sold with the same agency for $737,000 with no significant work being completed. This represents approximately 12% growth in a 12 month period.

Northmead: A 2000s 2-level, 3-bedroom, 2-bathroom townhouse with 2-car garage sold in August 2013 for $630,000 and has recently re-sold in February 2015 for $750,000. This represents approximately 18% growth.

Hughes Avenue, Ermington; A 2000 built single level, 3-bedroom villa which sold for $500,000 in 2013 recently re-sold for $800,000 in the same original condition. Records show that it took 13 years to go from an original purchase price of $300,000 to $500,000).

The Hills are alive with the sound of a new railway line under construction and the commencement of this project has seen significant demand within all submarkets along its new route.

Kellyville has grown up from the stigma of McMansions World in the early 2000s. It offers a wide variety of schools, churches, playing fields, modern shopping centres and access to the adjoining Norwest Business Park. There has been significant demand from families for the classic 4-bedroom, 3-bathroom, double storey project home which will shortly also be on a major transport line.

Since April 2015 there have nine agent advised sales in Kellyville alone ranging from $1,260,000 to $1,650,000 on parcels ranging from 393 square metres to 1000 square metres.

Castle Hill has long been the regional centre of the Hills District and offers a substantial commercial centre, light industrial park and a range of family based facilities. Several train stations are planned throughout the suburb with units adjoining the town centre particularly seeing a benefit.

Widespread media attention was recently focused on a proposed large scale residential unit development which on completion in two years will see several towers with some 20 plus levels completed. Located opposite the proposed station and on the fringe of the shopping centre, sales in the first weekend of
release exceeded $150 million.

Also benefitting from a station on the proposed train line is Cherrybrook which just hit a new record with a $2.2 million dollar sale of a Meadowbank home with an inground pool and quality fittings. Perusal of RPData records shows some 26 sales over $1.5 million in this suburb since the start of 2015.

Developers are buying large parcels of land in the semi rural suburb of Ingleside in Sydney’s Northern Beaches. Pittwater Council, in partnership with Urban Growth and led by the Department of Planning and Infrastructure, has established the Ingleside precinct project plan to rezone large sections of the suburb to
make way for up to 2500 homes, sporting fields and two new schools.

We feel that the CBD and city fringe may be one of the strongest markets as the locality has a lot to offer, having regular transport, a shopping precinct, work opportunities as well as hospitals and universities. One of the most popular products in the Sydney CBD area is new units off the plan. We are seeing dated contract prices at which we now believe to be below market value. By the time these units are ready for completion, they will have seen substantial increases from the original purchase price. The strongest performers in this sub market are 2-bedroom units with parking. A unit without parking does not appear to be getting the same growth as one with parking.

Units selling off the plan around the CBD are selling in record time and achieving record prices.

This market is particularly attractive to overseas investors who are able to purchase new properties, and local downsizers looking to secure a new product.

As in most suburbs we have a seen a strong market of owner occupiers, investors and developers in the southern suburbs. The market is predominantly stronger under the $2 million market with the market above $3 million remaining stable. We have seen some big results with one of the most popular products and achieving record sale prices being sites with potential development of either a duplex or triplex. The most popular price point would have to be the million dollar mark which is now the starting price for a dated house in the southern suburbs, although there is still a lot of demand for a semi modern unit in the mid $600,000 range. In speaking with local agents there appears to be a lack of stock in all price brackets but a strong demand. We have not yet seen any signs of the market slowing. Where will we be this time next year? And what will be the catalyst for a change in market confidence? Only time will tell.

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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