Appetite for Sydney’s trophy market unaffected by rising rates, inflation

The high inflationary pressure — which started to ramp up early in the year due to global supply chain issues combined with knock-on effects from the COVID-19 pandemic, overseas political conflict and strong consumer demand — has prompted the Reserve Bank in May to kick off its monetary policy tightening. 

As of its November policy meeting, the RBA board has pumped up the country’s official cash rate for the seventh consecutive month to 2.85 per cent as it looks to get inflation under its target band of 2 to 3 per cent. 

Mr Plohl commented that buyers have learnt to “make peace” with these uncertainties in the market. 

“There was somewhat of a lull in the market a few months ago when the rising interest cycle began, but that appears to be behind us now, with strong prices still being achieved for Sydney A-Grade property in particular,” Mr Plohl said.  

Drawing from his first-hand account of what’s happening in the city’s premium market, Mr Plohl said that there are no indications that the market is slumping. 

“On the ground in Sydney, it’s clear that premier properties have held their price points with solid volumes through open homes and strong offers being put forward. 

“We missed out on a property for a client recently that ultimately sold for $300,000 above reserve — that’s hardly a sign of a market in freefall,” he commented. 

While he acknowledged that the current inflation rate level is “clearly a concern”, Mr Plohl pointed out the finer details in the latest ABS report showed an easing in inflationary pressures. 

“[It’s] important to recognise that the quarterly result of 1.8 per cent over the past two quarters were both reductions compared to the first quarter of this year,” he said. 

Additionally, he highlighted that most of the major contributors to the high inflation reading are seeing temporary rather than permanent price pressures. 

Further citing the recent ABS report, he said that “for example, new housing is a key contributor due to labour shortages in the construction industry as well as the continuation of material shortages. However, the rate of new dwelling price growth eased in September compared to the previous two quarters, according to the ABS.” 

When it comes to transport costs, he also pointed out that compared to the previous year, the CPI measure has fallen by 0.4 per cent due to declining crude prices — indicating that it has been a temporary issue rather than a long-term one.

Mr Plohl said it was only relatively recently that the rising interest rate cycle had started to impact the spending behaviours of consumers, which would ultimately help to lower inflation readings in the “next year and beyond”. 

“According to the federal budget, we are also nearing the peak of the cash rate in this cycle; plus, the government is forecasting softer economic growth and higher unemployment within the next year or two,” he stated. 

He also offered advice on how prospective buyers can adapt to the shifting market and financial conditions. 

“My advice to existing or prospective property owners is to make room in their household budgets for slightly higher mortgage repayments than they are currently paying, but also consider that with softer economic growth predicted, interest rates are likely to be reduced over the medium term,” he concluded. 

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