Property market update: Sydney, November 2018

“If you were to gain 85 per cent in property value and then lose 10 per cent, would you still consider it a bad investment? That sums up what’s happened in the Sydney property market this year.”

Real Wealth Australia’s Helen Collier-Kogtevs highlighted: “We’ve got a stable government, we’ve got high immigration coming in, we’ve got low-interest rates; these are all good signs for investors to be investing.”

Instead, the capital city is currently undergoing a correctional phase after experiencing an unprecedented boom a few years ago.

Mr Dixon explained: “The correction phase is, basically, prices begin to moderate and is often equated to a crash, because what is behind property values is they go up, up, up, and when they go down, they go down fast, then they level out. Keeping all of that in mind, observe that Sydney is in a correction phase.”

Instead of looking at a city-level, the property expert encouraged investors to observe Sydney’s property market on a suburb-by-suburb basis.

For instance, some cities are truly dropping by as much as 40 per cent, but when looking at suburbs like Bronte, it’s had gains for the most part of the year. On the other hand, suburbs like Wahroonga are seeing big drop often associated with the entire Sydney market.

At the end of the day, if you have your finances sorted and your strategies laid out, Mr Dixon and Ms Collier-Kogtevs believe that there’s really nothing to be worried about.

Mr Dixon said: “While looking at the market as a whole, it’s important to look at each market, and it’s important to know the forecasting in any market can be quite imprecise in that way. Always educate yourself on what’s going on. You don’t need to worry about the media hype; you just hang in there and you’ll get the returns.”

“I see it as a fabulous time to for those that have already got their finances sorted, their budget sorted, their credit files are clean because that’s now becoming more important. I feel now’s a great time, especially over Christmas when there aren’t as many buyers around and it’s easier to bag a bargain,” Ms Collier-Kogtevs added.

Property value

Sydney’s dwelling prices fell by three per cent in the week ending 25 November, second to Melbourne and followed by Adelaide, according to CoreLogic’s Property Market Indicator. Meanwhile, Brisbane and Perth’s property values held steady.

Despite being one of the most expensive property markets in Australia, Sydney still contain affordable properties across its suburbs, CoreLogic’s Cameron Kusher said.

With the dwelling value at $833,876, the most affordable major city area is outer South West at $602,246, while the most expensive is the Northern Beaches area at $1,383,461.

Essentially, the closer capital city regions are more expensive than those farther away from the city centre.

“Although it is clichéd; location, location, location holds true and purchasers still pay a significant premium for well-located properties,” Mr Kusher said.

Apart from affordable properties in several city regions, the repricing of blue-chip properties in Sydney has also allowed buyers to enter the market and even make net savings of at least $250,000 on purchase price and stamp duty cost, according to Nick Viner of Buyers Domain.

In fact, Mr Viner said that, since he started operating in Sydney nearly a decade ago, there has been no period when market conditions.

“The time is now, particularly for those looking to trade up. There’s an incredibly rare window of opportunity to secure a really good quality property with extraordinary long-term potential because the competition just isn’t there at the moment.”

“If you sell your home in today’s market for $2.2 million, you probably had to accept around 14 per cent less – or $300,000 – compared to the same time last year. However, when you buy an upgrader in this same market, which will cost around $4 million, you’ll receive a similar 14 per cent discount which now equals around $560,000 on this more expensive property,” Mr Viner said.

“Your net savings in dollar terms means you are already over $250,000 ahead compared to last year. Add in savings on stamp duty, because of the lower purchase price for the prestige home, and you come out even further in front,” Mr Viner highlighted.

Bargains are particularly evident in the Eastern Suburbs, which have seen declines up to 13.9 per cent compared to this time last year, as well as Inner West and Inner South, declining at 4.5 per cent and 3.1 per cent, respectively.

Supply and demand

Listings were up in most capital cities during the final week of November, with only Sydney, Melbourne and Brisbane witnessing declines. Sydney fell by 9.9 per cent while Hobart and Darwin rose by 19.4 per cent and 16.4 per cent, respectively.

According to SQM Research’s Louis Christopher, the declines in listings are perfectly normal, particularly during this time of the year.

“It is typical to record a slight decline in listings in October after an initial Spring jump in September. A second surge is usual in November, before the property market slows down for Christmas, and so we expect listings to rise again this month," Mr Christopher said.

Over the month, vacancy rates are also down in Metropolitan Sydney by 0.1 of a percentage point to 2.1 per cent, REINSW Vacancy Rate Survey showed.

REINSW president Leanne Pilkington said that there was a slight slowdown on demand for rental accommodation in Inner and Middle Sydney, while Outer Sydney proved to be slightly more popular.

Inner Sydney vacancy rates were up by 0.4 of a percentage point to 2.8 per cent and Middle Sydney was up by 0.1 of a percentage point to 3.2 per cent. Meanwhile, Outer Sydney’s vacancy rate declined 0.1 of a percentage point to 2.8 per cent.

As the Sydney property market continues to soften and ‘correct itself’ and the lending environment continues to tighten, property investors and homebuyers are provided more choice and less urgency.

This trend has allowed median days on market figures to continue going up, urging vendors to lower their price expectations or withdraw their property from the market in the meantime, according to Mr Kusher.

In Sydney and regional NSW, the median days on market has edged slightly lower over the recent months but remained higher that the figures last year.

Median days on market has increased from 31 days to 50 days in Sydney and from 52 days to 64 days in regional NSW—both higher than their recent lows of 24 days in April 2017 and 48 days in May 2017, respectively.

Among the reasons why demand from buyers has dropped are stamp duty surcharge for overseas buyers, the tightening in lending, as well as loans switching over from interest-only to principal and interest, Mr Viner said.

Since clearance rates are currently down at nearly 40 per cent, he urged buyers to take advantage of their opportunity to be ‘picky’ and look into purchasing blue-chip properties that would otherwise be difficult to secure in a rising market.

“Those who wait could miss out on their dream home. As soon as the market turns, all they will be doing is chasing their tail every week. As prices rise, so will the competition,” according to Mr Viner.

Lending

While investing in Sydney truly isn’t a bad idea despite the softening of the market, property investors are finding that doing so has become more difficult due to the current state of the finance environment.

Scoutable’s Kellie Landrey said that what would normally take a week to secure now takes more than a month. Meanwhile, those who turn out successful in securing finance are getting less than they expected and are, therefore, unable to compete for a property.

“There was another property I was looking at buying for a client in Paddington. About six months ago, [it] would’ve sold strongly for $2.6 [million] and they’ve pushed back the auction with only two buyers on property and both struggling to get finance is a reason why it’s not selling,” Ms Landrey recounted.

“What I’m finding is that there’s a limited availability of funding which is causing less buyers on the property then there were six months ago.

“Not that there aren’t buyers, it’s just they don’t have the funds to really push to the level that vendors are wanting right now and it’s causing some properties to pass in but other properties are still going well if [they are] priced accurately.”

In Sydney’s inner ring, properties worth up to $1.5 million are selling well but those between $1.5 million to $3 million are doing worse due to the tight lending environment.

As Christmas approaches, Ms Landrey does not see the situation improving significantly, but while vendors are likely to have a harder time, smart and finance-savvy investors could have the upper hand.

According to Ms Landrey: “There are vendors who are probably going to drop pricing to try and get property sold before Christmas. Some vendors will drop prices to have it all done by Christmas to start the new year fresh.”

“You’re ahead of the game if you’ve got your pre-approval and you’re ready to act.”

Strategy

Investors who are looking to maximise investment opportunities in Sydney are advised to consider buying and yield opportunities, particularly during December. Ms Collier-Kogtevs said that the golden standard is yields of at least six per cent.

Great deals are coming through on a daily basis, especially in and around capital cities, with properties that usually sell from $600,000 now down to $400,000 and properties that used to be worth over a million dollars are now settling at hundreds of thousands, according to her.

Dr Andrew Wilson agreed that chasing yield would be a smarter option than chasing capital growth in today’s market as the ‘era of property hotspots’ come to an end.

According to him, the margin between gross yields and deposits is now the widest it’s ever been, but despite the changes in the cost of money, gross yields for property remains stable.

In other words, yields have been consistently immune to the unpredictable movements of the property market, particularly in recent times, when some of the biggest markets continue on to the softening phase.

“The highs and lows of capital growth have always been a hook to investors. The cycle always rises on the back of speculative investors wanting to get in on higher prices but if we take that roller coaster ride out of it, residential investment offers tremendous positives in the form of yields that are highly tax-advantaged.”

“If you're an investor, you must start thinking a little bit more about the yield opportunities rather than the capital growth opportunities, which aren't going to be a lot different from capital city to capital city. I think the era of the hotspot is probably behind us to some extent,” Dr Wilson highlighted.

Experts advise investors to take advantage of the low level of activity in the market and consequently implement medium- to long-term yield plays to be able to continue capitalising on the changing market. The Christmas season will likely have most buyers turning off, with the level of activity recuperating by February. Therefore, the best property discounts are usually found in December.

While the extraordinary returns experienced by investors during the property boom is unlikely to happen again soon, they can still expect around four to five per cent return on their investment, even in a flat interest rate environment. Capital growth will still be substantial and yields can still reach about three per cent, according to Dr Wilson.

“I think that we'll see certainty and predictability in this market cycle and our economy going forward, particularly when it comes to interest rates. The changes, really, are in the nature of that asset class and, I think, it's a positive and, in a way, a bit of a lifesaver against this grinding low-growth economy. Just open the door when opportunity knocks,”

Ultimately, investors are encouraged to continue doing their due diligence, educate themselves further and cut out the noise from doom-and-gloom headlines. Instead, learn about the truth by looking into historical and economic data as well as real-time market movements.

Paying attention to their borrowing capacity and adjusting their strategies accordingly amidst the tighter lending environment, with the help of professionals where appropriate, will also help them thrive in the changing property market.

Right Property Group’s Steve Waters said: “No matter how good or bad the market is doing, if you haven't got the surplus income to be able to invest, you just shouldn't be investing at all. If you can't sleep at night because of your finances, then don't invest.”

Hotspots

Starr Partners’ Douglas Driscoll identified 10 Sydney suburbs located around the Inner West, Northern Beaches, Eastern Suburbs and the North West as the market’s prospects for 2019, including Eveleigh, Waterloo, Maroubra, Brookvale, Baulkham Hills, Auburn, Millers Point, Castle Cove, Breakfast Point and Riverstone.

Mr Driscoll referred to Eveleigh as ‘Australia’s Silicon Valley and Castle Cove as ‘one of Sydney’s best-kept secrets’, while Waterloo is Sydney’s ‘reborn residential hotspots’ and Auburn is the ‘cultural melting pot’ of the country.

South-West Sydney also proved to be a top performer, with some suburbs seeing double-digit growths as they benefit from major government spend and redevelopment.

Reforming the region’s transport, roads, hospitals and schools is core to the government’s ultimate ‘Greater Sydney Region’ plan, which aims to create a Sydney where most residents can live within 30 minutes of their workplace, education and essential services.

The NSW government’s spend and investment pipeline is having a significant impact on the values of houses and apartments in the South-West Sydney region.

Among South-West Sydney’s best suburbs are Macquarie Field, Glenfield and Campbelltown, with median prices ranging from $355,000 to $761,000.

Get a FREE comprehensive report on the South-West Sydney market by filling out the form in this link.

Track the major market movements in Sydney and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018, May 2018, June 2018, July 2018, August 2018, September 2018 and October 2018 market updates. Visit Smart Property Investment's Property Market News page to get updates on other major capital cities.