Property market update: Sydney, December 2019

“After a Liberal win on both fronts, we began to see more confidence in investment and a willingness to transact, which was further encouraged by the APRA changes to both the interest-only loan cap for banks as well as the way banks were assessing borrowing capacities, which increased potential borrowing power for buyers.”

Then, Australia also saw one of the fastest recovery cycles, “with housing values bouncing back rapidly over the second half of the year, led by Sydney and Melbourne where values are around 9.5 per cent higher since finding a floor in May.”

Premium-value suburbs in Sydney and Melbourne, in particular, have led the charge towards recovery. Seven of the top 10 best-performing suburbs for growth show a median value of at least $1.1 million.

Overall, 2019 has successfully ended in positive annual growth territory, with capital city home values around 2.2 per cent higher over the full calendar year – a remarkable difference from 2018, when capital city housing values were down 6.1 per cent.

Despite uncertainties, Mr Orr said that confidence levels will continue to rise in 2020, particularly in Sydney, where limited stock levels are the main driver of price growth.

“If we continue to see a lack of listings, we’ll no doubt benefit from similar price growth that we saw in the second half of 2019; however, my prediction is that we may start to see a larger number of listings from those who have taken the ‘sit back and see’ approach,” Mr Orr highlighted.

“This will have a balancing effect on prices being that supply begins to meet demand.

“While there are many markets within Sydney and some areas still have an oversupply of apartments for sale and due to settle, the areas I believe will perform best will continue to be the established suburbs where apartment development is minimal, with a scarcity of quality detached housing.”

Moving forward into 2020, CoreLogic’s Tim Lawless said that markets are likely to go into “recovery mode” as housing prices catch up and ultimately overtake previous record highs.

Property values

The Australian property market, for the most part, saw a strong finish for the 2019 calendar year as dwelling values continued to rise over the December quarter.

According to CoreLogic’s national home value index, dwelling values rose by 1.1 per cent over the month of December and by 4.0 per cent over the quarter, marking the fastest rate of national dwelling value growth over any three-month period since November 2009.

Mr Lawless said: “Although the monthly capital gains trend remains fast-paced, the 1.1 per cent rise in December was softer relative to the 1.7 per cent gain in November and the 1.2 per cent rise in October.”

“This would suggest that the pace of capital gains may have been dampened by higher advertised stock levels or worsening affordability pressures through early summer.”

Of all the capital cities, Darwin was the only one to record a fall in values over the month, with a 0.5 per cent decline.

Over 2019, Australian dwelling values tracked 2.3 per cent higher, with five of the eight capital cities and five of the seven “rest-of-state” regions seeing the year out in positive growth territory.

Sydney and Melbourne recorded the highest annual capital gain among the capitals, with both cities posting a 5.3 per cent rise in dwelling values over the year. Meanwhile, Regional Tasmania, where values were 6.1 per cent higher over the year, led the regional markets.

Dwelling values were down in Darwin by 9.7 per cent, 6.8 per cent lower in Perth and 0.2 per cent lower in Adelaide over the year, as well as across regional Western Australia (-11.8 per cent) and Regional NSW (-1.1 per cent).

“The positive year end results mask what has been a year of two distinct halves – we saw capital city dwelling values fall by 3.8 per cent over the first six months of 2019 and then rebound by 7.0 per cent over the second half of the year,” according to Mr Lawless.

“The housing value rebound was spurred on by lower mortgage rates, a relaxation in borrower serviceability assessments, improved housing affordability and renewed certainty around property taxation policies post the federal election. Lower advertised stock levels persisted providing additional upwards pressure on prices amidst rising buyer activity.”

The Real Estate Institute of Australia (REIA) revealed that the weighted average median house price for the eight capital cities has increased to $743,776.

Ultimately, the increase was driven by the two largest capital cities, Sydney and Melbourne, where house prices have consistently increased over the past months while other capital cities saw declines.

REIA president Adrian Kelly said: “The weighted average median price for other dwellings increased to $577,135 over the quarter, with prices increasing in Sydney, Melbourne, Adelaide and Hobart. Prices remained stable in Brisbane and Canberra and decreasing in Perth and Darwin.”

Supply and demand

As in the past years, the clearance rate of combined capital cities declined during the final week of auction reporting, according to CoreLogic’s Market Activity Update.

For the week ending 15 December 2019, the combined capital city clearance rate dropped below 70 per cent.

There were 2,750 homes taken to auction across the combined capital cities over the said week. The figures determined that volumes were down by -5.6 per cent from last week’s 2,912 auctions, which was regarded as the second busiest week of 2019.

“Preliminary results show a clearance rate of 69.2 per cent, after last week’s final clearance rate of 71.1 per cent. One year ago, 2,406 auctions were held across the combined capitals, with only 40 per cent returning a successful result,” CoreLogic noted.

In Sydney, there were 846 homes taken to auction, a decrease from the 976 auctions held the week prior.

“Preliminary results show a clearance rate of 73.6 per cent, which was slightly lower than last week’s final result (73.8 per cent). One year ago, 723 auctions were held across Sydney, returning a final clearance rate of only 38.8 per cent.”

CoreLogic expects auction activity to pick up in earnest by early February as the market emerges from the seasonal festive period slowdown.

Meanwhile, the Real Estate Institute of New South Wales (REINSW) found that vacancy rates across Sydney have shown an “unusual decline” as it dropped by 0.4 per cent to 3.2 per cent.

Still, while vacancy rates are lower, they have remained above 3 per cent for most of the year – an improvement from last year, when rates stayed between 2 per cent and 3 per cent.

The Hunter Region, in particular, showed promising results, with rates dropping by 0.2 per cent to 1.8 per cent. On the other hand, Newcastle saw rates rising up slightly by 2.5 per cent to 2.6 per cent.

Wollongong saw a significant increase, up by 1.8 per cent to 4.3 per cent, its highest rate since the start of the year.

According to REINSW CEO Tim McKibbin “The Illawarra has bucked the trend, with vacancies in Wollongong jumping significantly. Agents there are reporting difficult conditions, with a large proportion of homes unlet.”

The rest of NSW reported decreases, except for Albury, the Central West and the Mid-North Coast, which had small increases.

Hotspots

First home buyers are showing significant interest in three South Sydney residential projects at the moment, namely Kogarah Central, Vicinity Point and Panorama Blakehurst.

According to commercial projects company Level 33’s Eddy Haddad: “These latest sales figures are testament that Level 33 has met the market, giving South Sydney locals including downsizers, second property investors and first home buyers what they are looking for.”

Vicinity Point has been deemed as the most value for money, with an entry price at $450,000 and a close proximity to Wolli Creek train station.

The demand for these projects further proves the recovery of the market as well as the growing appetite for apartment living with a “lifestyle of convenience”, St Trinity Property sales director Will Wehbe said.

“We have guided many local buyers through the process of redeeming tens of thousands of dollars in government grants and stamp duty concessions. In addition, from 1 January 2020, first home buyers will be eligible for the government’s First Home Loan Deposit Scheme requiring only 5 per cent deposits,” he said.

“Together, Level 33 and St Trinity are proving to be in the business of turning local first home buyers’ dreams into reality.”

Proving the popularity of apartments, the company has successfully sold 250 properties which fetched more than $200 million over the last nine months.

Meanwhile, CoreLogic’s Best of the Best report found that Sydney’s fastest-growing suburb in 2019 is Carlingford, Parramatta, which grew by 15.4 per cent for the calendar year.

“For 2020, we’re likely to see markets in recovery mode as housing prices catch up and then overtake their previous record highs; however, we expect the rapid rate of capital gains seen over the second half of 2019 to lose steam as stock levels rise and affordability deteriorates,” Mr Lawless said.

The work on the expansion of the Sydney Metro also continues to attract investor interest, particularly in the suburb of Crows Nest and other surrounding areas, according to Ray White’s Between the Lines research. Pacific Highway has already seen a benefit to the transport growth.

As the Crows Nest Metro Line nears completion in 2024, the area is expected to profit immensely due to increase in buyer demand, Ray White Commercial NSW Sydney North director Scott Stephens said.

“This precinct is likely to be the greatest to benefit from the metro rail link to reactivate the high number of vacancies, providing a mix of food and services to cater for the various users of the metro throughout the day.

“Quality assets along Pacific Highway average gross face rents of approximately $725-$775 per square metre, while those in the suburban Willoughby Road precinct are achieving closer to $1,000 per square metre gross,” Mr Stephens highlighted.

Similarly, Sydney’s Eastern Suburbs emerge as property hotspots in NSW as they boast average prime retail yields hovering around the 4-to-5-per-cent-mark, thus resulting in strong demand from yield-chasing investors who have faced continued yield compression in the office and industrial markets.

Retail strata properties are also becoming a new talking point across the region, indicating that attention is being directed to less expensive areas as investors look to capitalise on infrastructure improvements such as the Randwick Light Rail, which has driven demand for surrounding pockets to the traditionally popular and more expensive suburbs like Bondi.

Savills Australia’s executive metropolitan sales executive Ollie Ridley said: “Over the past couple of months, renowned suburbs such as Bondi, Double Bay and Woollahra have witnessed record-breaking property acquisitions.”

Mr Ridley believes that investors are now becoming more creative as purchasing retail in these coastal hubs is not simply about securing a long-term income stream but also about redevelopment potential or the ability to be able to spark conversion with the implementation of a new tenant.

Looking ahead to 2020, apart from an unprecedented pricing uplift for well-located retail properties, he also expects investors to continue favouring the commercial property market as the probability of further interest rate cuts is soon to become a reality.

Starr Partners’ CEO Douglas Driscoll enumerates other Sydney suburbs that are worth keeping an eye on this new year – most of which feature significant infrastructure such as public transport, schools and universities, a family-friendly atmosphere, budding gentrification and affordable housing.

1. Kensington
2. Crows Nest
3. Oran Park
4. Bellevue Hill
5. Busby
6. Summer Hill
7. Merrylands
8. Pagewood
9. Blaxland
10. Lalor Park

For those looking to implement a long-term play, RiskWise Property Research CEO Doron Peleg said that certain suburbs have holding periods of over 20 years.

In Sydney, these are Miller, Rossmore, Wallacia, Birrong and Sadlier.

Talking about the different reasons people choose to hang onto properties longer, Mr Peleg explained: It is well demonstrated that the long-term approach is very effective, and with transaction costs being extremely high, this provides negative incentive for home owners.”

“A couple of other reasons not to sell are that the primary place of residence is not subject to land tax and, in most cases, is also below the means testing threshold for retirees.”

Due to huge population growth in Sydney, as well as the systematic undersupply of family-suitable properties, he said that it is “very likely” holding periods would continue to increase as long-term price growth was evident.

“Obviously, the greater the holding period in strong markets, the greater the equity people have, so with property prices making a strong comeback, ultra-low interest rates, a more relaxed lending environment and auction clearance rates sitting above 70 per cent, it pays owners to sit back and see what happens.”

Moving forward, the NSW property market will be supported by good population growth, strong economic fundamentals, solid economies and healthy job markets, as well as solid economic growth and high government spending and private capital expenditure.

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