Deflating the Sydney property bubble narrative
Recent news that Philip Parker from Altair Asset Management wrote to his investors explaining he was returning their funds due to excessive risk, has many investors fretting that the Sydney property market is heading into bubble territory.
However, the fact that large developers Lendlease, Mirvac and Meriton are still selling stock proves the actions of Altair Asset Management are just an overreaction to the present state of the market.
Media hype such as the above has savvy investors rubbing their hands in glee in the anticipation of a very small segment of the market panicking and selling at any price. These same savvy investors continue to purchase through all stages of the property cycle as they understand that property is a long-term investment. Provided they can maintain their repayments, it should never be sold as capital growth over a seven- to 10-year period.
In 2009, after the GFC hit, similar predictions of bubbles and impending disaster on the horizon created a minor hiccup in the market, and those investors and homeowners who did not panic, have reaped the rewards of massive capital growth in the ensuing years.
The reality is, supply in Sydney is restricted, demand is continuing to rise and there is little that is going to satisfy the need for new property in the region. The only impediment to continued growth will be a sharp and highly unlikely rise in interest rates or an also unlikely spike in unemployment.
Although there are currently many uncertainties in the world, it is still a normal state of affairs in the markets and there will always be unpredictable change that investors must accept. One property group recently sold a whole apartment block in under two hours, proving the property market in some areas, including Sydney, is still buoyant.
It is evident that there is still an incredible undersupply of housing in Sydney as vacancy rates continue to fall, now sitting at 1.7 per cent for across the whole city and only 0.3 per cent in the CBD. The rates are lower than this time last year, clearly eliminating any concerns of a major oversupply of housing in Sydney.
The plunge in vacancy rates sees rents increasing almost daily. The high demand placed on finding property reflects the low vacancy rate, with the need for apartments jumping up by 1.6 per cent. There will always be a demand in real estate due to the nature of life, whether it be from wanting to move closer to the CBD for work, moving out of home, or separating from your partner. Other factors such as immigration also put a strong demand on the dwelling supply.
Since Australia has recorded 103 successive quarters of recession-free economy, there is a sharp rise predicted for the Australian economy over the next four years.
One recent report cites dwelling investment in NSW growing by 0.7 per cent in the three months to December.
If Sydney were to have a housing market correction at all, it would be very minor. Sydney’s property market would only stagnate for a few years without having a steep decline in pricing – price growth may soften, but it will definitely still be growing.