Property market update: Sydney, September 2018

Sydney’s Inner West, in particular, is expected to witness a surge of property listings between September and November, with higher-end properties put up in the market for a reasonable $1.5 million.

Properties in the more affordable Western Sydney region will be up for around $600,000 to $800,000, particularly in the suburbs of Fairfield, Fairfield Heights, Yennora and Canley Vale, where demand is expected to be significantly high.

Sydney’s upper North Shore suburbs, including Hornsby, Mount Colah and Mount Kuring-Gai will also be benefiting from new stock soon and ultimately experiencing a robust spring market. Like the Inner West, North Shore will also offer premium three- to four-bedroom houses for around $1 to $1.2 million.

According to Raine & Horne Concord’s Paul Peterson: “Owners are prepared to listen to the market and are pricing their properties accordingly.”

The low-interest rates and the potential for long-term capital growth and 5 per cent-yields are expected to attract first home buyers and budding investors to the capital city as it offers more opportunities for entry-level real estate investment, backed by a strong economy, good infrastructure and dependable transport systems.

Dwelling values

Despite the positive outlook for the Sydney property market, the latest data reveals that, at the end of the day, the capital city is still in a softening phase.

CoreLogic reports that the largest declines for the week 23 September 2018 are recorded in Sydney, Melbourne and Adelaide, which saw falls of 0.2 of a percentage point each. Perth followed with a decline at 0.1 of a percentage point.

However, even with consistent declines in dwelling values, Sydney properties are still deemed too expensive to purchase, according to a new research by Mozo. Homeowners nowadays admit that they would not be able to afford their homes had it been put on the market today.

Since 2009, property prices in Sydney have increased by 105 per cent, the largest increase that any property market in Australia saw over the past years. To date, the capital city is still deemed the least affordable housing market in the country.

On average, it takes 12.1 years to save a deposit for a property in Sydney. Meanwhile, the share of income required for mortgage repayments is currently at 48.4 per cent.

Mozo’s Steve Jovcevski said: “A whopping 40 per cent of Australians purchased their home between 2011 and 2018, while a further 28 per cent purchased property between 2001 and 2010.”

“This period signifies an unforgettable time in Australian property history where prices rose at an alarming rate, auctions ran red hot and properties sold for prices that economists could have never predicted.”

Now that the housing market has cooled, a lot of Australians are essentially locked out of the market due to affordability issues. The introduction of stricter lending criteria and stagnant national incomes have ensured that the prices will not be dropping back to pre-property boom levels.

“With the introduction of stricter lending criteria, stagnant wage growth and largely unattainable house prices, the Australian property market is now essentially broken for many hopeful property owners looking to make their first purchase,” Mr Jovcevski added.

Currently, the weighted average median house price in Sydney, Melbourne, Perth, Darwin and Canberra sits at $765,098. Due to affordability issues, rentvesting has become more popular for investors as it becomes cheaper to rent than repay a mortgage that costs 26.9 per cent of the gross household income.

Housing affordability will only improve once incomes rise and mortgage rates decline, experts said.

Supply and demand

Like dwelling values, listings also declined in Sydney this September. However, the capital city emerged as one of the top performers among all capital cities in terms of average time on market.

For houses, Canberra, Hobart and Melbourne performed the best with 27 days, 32 days and 33 days, respectively. For units, Hobart, Melbourne and Sydney were the top performers with 28 days, 31 days and 41 days, respectively.

Vendor discounting is currently between 4.9 per cent and 7.3 per cent for houses and between 5.4 per cent and 9.3 per cent for units.

Resales accounted for most of the profit in the Sydney property market. The capital city contributed 32 per cent of the $15.6 billion property sale profits across Australia, according to the latest CoreLogic Pain & Gain report.

In the unit market, only 3.5 per cent of all properties in Sydney were resold at a gross loss over the quarter.

According to CoreLogic’s Tim Lawless: “Values remain 43 per cent higher relative to five years ago. With a recent history of such strong capital gains, the vast majority of Sydney unit owners are still in a positive value position relative to their purchase price.”

In contrast, Perth and regional Queensland were responsible for 23.4 per cent and 20.1 per cent of resale losses, respectively.

Ultimately, the Sydney property market may be showing signs of improvement and stabilisation.

ANZ’s latest house search index report stated that house prices are expected to stabilise by the end of the year. For the immediate short-term of the next three months, no more weakness is expected in the capital city based on consumer sentiment.

Auction clearance rates in the capital city have slightly improved, inspiring a rise in the housing finance credit impulse.

Mortgage rates

While investment activity is slowly stabilising in the Sydney property market, the recent loan hikes may push the capital city into a decline once again, according to CoreLogic’s Cameron Kusher.

To date, New South Wales and Victoria market up the highest share of investor lending based on value, with investors making up 49 per cent and 51 per cent of all lending in the states, respectively.

However, the planned increase in variable mortgage rates by three out of the four big banks, as well as the increasing rates in smaller regional banks, may affect the housing market sentiment significantly.

Mr Kusher believes that this trend is likely to inspire the existing declines in the capital city and slow down the growth happening in surrounding areas, and unlike previous rate hikes which were directly affecting investors, owner-occupiers will also be bearing the brunt of these rate hikes.

He said: “Although spring is somewhat overhyped as a good time to sell, more stock does typically become available for sale over the period and buying activity typically increases. The beginning of spring also sees lenders offer enticing mortgage rates to the market to jostle for market share.”

“By contrast this year, major lenders are announcing higher mortgage rates. This move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further.

“From the lenders’ perspective, clearly they realise that the housing downturn is becoming entrenched and they are doing what they can to maintain profitability in the face of lower mortgage volumes,” the property expert added.

Unit market

Like most city centres across the world, including New York, London, Hong Kong and Tokyo, Sydney has also seen a significant rise in apartment living over the years. In fact, based on the Australian National Strata Data 2018, nine per cent of all Australian residents live in apartments.

Starting 2015, attached houses began to gain more popularity than detached houses, particularly in New South Wales, Victoria and Queensland.

As a result, more than 50 per cent of capital growth has been recorded in Sydney and other major capital cities over the last five years, aided by strong demand and insufficient supply, according to RiskWise’s Doron Peleg.

Urbanisation has also been attributed for the unit market trend as it drove property prices up and consequently pushed people to look for more affordable dwelling alternatives.

Mr Peleg said: “In the big cities, especially Sydney, in high-demand areas, people embrace unit living. While demand is not as strong as for houses, it is still very strong, achieving capital growth in Greater Sydney for the past five years for units of 54.7 per cent.”

Family-suitable units, with an average of two bedrooms, bathrooms and car spaces, close to transport hubs and schools, are the best investment options for those who are chasing long-term capital growth.

Hotspots

Despite affordability issues and the overall softening of the market, high levels of growth and affordable properties can still be found in Sydney.

Cromer, for instance, ranks 10th in LocationScore’s top 15 suburbs in capital cities, with a median house price of $1.5 million. Narraweena, with the same median house price, ranks 11th.

Meanwhile, Greenwich ranks 12th with a median unit price of $827,000.

High levels of demand will be significantly aiding the growth of properties in these areas, according to LocationScore’s Jeremy Sheppard.

He said: “Sydney housing always garners demand and our analysis shows there are still plenty of locations where buyer numbers are rising while supply tightens. With frontage to Narabeen Lakes and easy access to popular beaches such as Dee Why, this suburb provides a highly attractive lifestyle with comprehensive services and facilities."

"We are seeing more and more buyers looking at property in Cromer online, and vendors are hardly needing to discount their asking prices in order to sell. It certainly bodes well for house prices in the near future," Mr Sheppard added.

Most of the Northern Beaches region also seem to be bucking the trend with strong sales and price growth.

STRAND Property Group found that average auction clearance rates in the region currently sits at 71 per cent—a significant improvement from June’s clearance rates, even before the spring selling season started.

In contrast, the rest of Sydney’s auction clearance rate sits at 56 per cent, lower than last year’s 67 per cent.

According to STRAND Property Group’s Michael Ossitt, the Northern Beaches is perhaps the ‘most oblivious’ to Sydney’s slow market conditions.

Mr Ossitt highlighted: “These results are a testament to the fact that desirable locations retain their attractiveness regardless of the overall market conditions. The Northern Beaches has long been a location that many Sydneysiders aspire to live in and they’re prepared to make their move on the local market whether the wider market is firing or not.

“What’s even more extraordinary is that winter is traditionally a quieter month for the Sydney market generally, but that certainly is not the case on the Beaches this year,” he added.

The state of the Northern Beaches market is expected to continue through spring due to high demand and a limited supply of properties.

At the end of the day, no matter how long the Sydney property market stays in the softening phase, experts believe that the ‘world-class city’ will survive with one of the biggest populations in the country, rich and varied industries, multiple employment nodes and other economic factors that influence the growth of properties.

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 and August 2018 market updates. Visit Smart Property Investment's Property Market News page to get updates on other major capital cities.

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• Expert advice
• Hotspots
• Australia property market news roundup
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