Property market update: Sydney, August 2020

According to the report, the residential property investor market has had some significant hurdles to face in the recent years, including tougher lender and regulatory requirements around investor loans and the threat of removal of negative gearing and capital gains tax allowances prior to the federal election in May last year, which significantly reduced the number of investors looking to get into the market.

As these lending restrictions eased and the threat to tax allowances was extinguished, the investor market began to recover along with the wider market as prices started to rise.

However, that recovery has now “come to an abrupt halt as a result of COVID-19”, the report noted, adding that asking rents have fallen sharply, while vacancy rates have climbed across many parts of Sydney.

Over the past year, Sydney properties saw an average of 16.7 per cent return, with 13.3 per cent through capital growth.

“However, with prices now falling and rental yields also under downward pressure, returns in the current financial year are likely to be significantly leaner. Vacancy rates in the inner and middle-ring suburbs have been particularly hard hit since March, while the outer suburbs have continued to see a tightening vacancy rate,” Herron Todd White said.

Zooming into the suburbs, inner-ring suburbs have seen an increasing supply of properties, particularly units, “as previous holiday-stay properties were switched over to the long-term rental market, and new unit completions have continued to hit the market.”

Middle-ring suburbs are also impacted by new unit completions as demand levels are not increasing at the same levels as supply, mainly due to a halt in immigration.

According to Herron Todd White, those who are adamant to get into the market will benefit from the lower end, as it has the most potential among all other price points.

“With values at the lower end of the market holding up better than other price points, and vacancy rates continuing to tighten in the outer ring, [western] Sydney is looking like the best place for investors for returns in the short to [medium-term],” Herron Todd White said.

Property values

CoreLogic’s latest Home Value Index found that, over the past quarter, Sydney and Melbourne have led the COVID-induced decline in national dwelling values, recording cumulative falls of a combined 5.3 per cent.

Domain’s new research showed that almost 15 per cent of Sydney property listings were discounted over the month, approximately three times higher than discounting rates during 2019.

According to the analysis, Sydney’s Northern Beaches, Canterbury Bankstown (17 per cent) and Lower North Shore (16.4 per cent) areas are seeing buyers benefit most from the bargains, recording the highest levels of discounting.

Still, despite the abundance of price drops, the level of discounting is “roughly on par or lower than last year”, according to Domain.

“All cities have proportionately more properties discounted compared with last year; however, the degree of discount is smaller across all cities, apart from median price discount remaining the same in Perth,” Domain said.

Ultimately, the housing markets have weathered the COVID storm much better than originally anticipated, according to CoreLogic’s head of research Tim Lawless.

However, investors are warned of the impact of the relaxation of government benefits and mortgage holidays in March 2021, including a rise in distressed properties coming onto the market as borrowers taking a repayment holiday face up to their debt.

“The extent to which this causes additional downwards pressure on home prices depends on how the Australian economy is travelling at that time,” Mr Lawless explained.

Moving forward, he believes that the property market will fall by 10 per cent nationally, with Sydney and Melbourne falling further.

Rental market

Data analysis by CoreLogic has revealed that there has been a significant increase in rental stock across inner-city areas around Australia, particularly in Sydney and Melbourne, since the onset of the COVID-19 pandemic.

CoreLogic’s head of research Eliza Owen said that the regions with significant accumulations in rental stock have exposed many of the “pain points” spurred by the COVID-19 downturn, particularly the “gaping hole” in housing demand due to international border closures.

“The dominance of Sydney and Melbourne with regards to heightened rental supply highlights the much-localised nature of the shock to rental demand that has been seen since the onset of the pandemic,” she said.

CoreLogic has analysed the increases in rental stock by SA4 region, which is defined by the Australian Bureau of Statistics (ABS) as broad regions of 100 to 300,000 people.

The increase in rental listings record the change in the level of rental stock counted in the 28 days leading up to 15 March, the week in which Australia recorded its 100th COVID-19 case, compared with that counted in the 28 days to 9 August.

Of the 88 SA4 regions measured across the country, 78 regions declined in the volume of rental listings between these days.

Across the 10 regions that have seen a rise in total rental stock, eight were across Sydney and Melbourne, while rental stock also rose in inner-city Brisbane and Adelaide Central and Hills.

These 10 SA4 regions that have seen a rise in rental listings between March and August together comprised 29.1 per cent of the net overseas migration to Australia over the year to June 2019.

According to more geographically granular data, some of the largest increases in rental stock are across inner Melbourne and Sydney city, as well as the inner south.

Due to the relatively high levels of investors, particularly in inner-city apartment markets, the trends in rental supply and demand could indicate added downside risk for values in these areas until international borders reopen and labour market conditions tighten.

The Australian Bureau of Statistics found that housing fell in most capital cities due to rents, with falls ranging from -0.2 per cent in Canberra to -2.0 per cent in Sydney. Hobart and Adelaide were the only cities to record rises in rents, with increases of 0.2 per cent and 0.1 per cent, respectively.

As these trends are placing downwards pressure on rents, they could also put upward pressure on vacancy rates.

REINSW Vacancy Rate Survey results showed that vacancies in Sydney overall increased for the fifth successive month and now sit at 5.0 per cent, up by 2.0 per cent since March.

According to the research, the impact of COVID-19 is starting to spread, with the outer ring experiencing the biggest drops.

On the other hand, the exodus from inner-city Sydney appears to have eased and now sits at 5.3 per cent. However, it’s still deemed 2.8 per cent higher than it was back in March.

Sydney’s middle ring, meanwhile, saw vacancies increase for the fourth successive month and is now at 5.4 per cent, up 2.2 per cent from March.

“This month’s results show that COVID-19 is having a significant impact across the whole of New South Wales and it’s unlikely that things will settle for a while yet,” REINSW’s CEO Tim McKibbin noted.

Supply and demand

CoreLogic found that the combined capital city preliminary auction clearance rate improved across a higher volume of auctions overall. For the week concluding 30 August, there were 1,163 homes taken to auction over the week, up on the 1,064 the week prior.

Adelaide recorded the highest preliminary clearance rate for the week concluding 30 August at 83.9 per cent, followed by Canberra with a preliminary clearance rate of 75.9 per cent.

Of the 837 results collected so far, 67.7 per cent were reportedly successful, which was higher than last week’s preliminary figure of 64.7 per cent, later revising down to 60 per cent at final collection.

This time last year a higher 1,615 capital city homes were auctioned with a final clearance rate of 70 per cent.

The figures show there were 730 Sydney homes taken to auction for the week, returning a preliminary auction clearance rate of 74 per cent, which is an improvement on last week’s preliminary figure of 71.9 per cent, later revised down to 66.1 per cent at final collection.

“In stark contrast to Melbourne, the number of auctions across Sydney has been consistently trending higher, with this week’s auction volume, at 730, the highest the city has held since April,” according to the report.

“One year ago, a lower 590 Sydney homes were taken to auction, returning a higher final success rate (74.5 per cent).”

2020 outlook

This year’s spring selling season continues to present opportunities for investors despite uncertainties brought about by the COVID-19 outbreak, allowing both new and old investors to thrive in what has traditionally been the busiest time of year for Australia’s property market.

The Sydney City property market, in particular, has maintained its ground over the winter months, Ayre Real Estate’s Adrian Wilson said.

“We believe from the level of inquiries to date that spring will deliver the annual boost in new properties coming to market and high volumes of sales we see year-on-year,” Mr Wilson said.

“As with most things in life at the moment, there are just a few things that vendors and agents need to tweak and test due to COVID-19.”

Mr Wilson’s five tips for the spring selling season are:

1. Don’t be deterred by the pandemic

“If you’ve been considering selling, now is a good time to sell, especially before we hit the Christmas and summer holiday period,” Mr Wilson said.

“If you’re concerned about what results you’ll achieve, simply speak to your agent and get them to talk you through recent sales and what a realistic outcome looks like.”

2. Styling is more important than ever

“It is [anytime] of the year, but as more properties come to market, the competition builds,” Mr Wilson said.

“Styling a home for sale is very hard to do on your own as it really requires you to take all emotion and personal touches out of the home so potential buyers have the ability to picture themselves in the home. Leave it to the professionals – it will save time and money and the outcome will be spot on for your market.”

3. Consider a two-stage campaign

“Don’t automatically think you need to go straight to auction. A good strategy is to test the waters with an initial off-market campaign for one to two weeks to gauge where the market is at,” Mr Wilson said.

“If buyer inquiry is strong, you will either achieve an offer you’re happy with or you can opt to take the property to market. At worst, you will get a feel for what buyers are thinking and some invaluable feedback; at best, you may just get a great result!”

4. Utilise social media to promote your sale

“Simply check your own screen time usage lately and imagine the same going on in households across Sydney,” Mr Wilson said.

“With more and more users on their hand-held devices and strategic targeting to buyers available, there is no better way to get eyeballs on your listing. Make sure your agent has a comprehensive strategy to tackle this.”

5. Be prepared to accept offers pre-market and prior to auction

“Just because you have promoted the property as going to auction doesn’t mean you can’t accept a great pre-auction offer,” Mr Wilson said.

“If you receive an offer that is in the ballpark of what you’d be willing to let it go at auction, be prepared to accept it.

“Although auctions can be a great way to drive the price up due to the emotion and competition on the day, there are never any guarantees. We are finding a lot of the strongest buyer interest is inspecting within the first week or so, so be prepared for an early offer – which may even be your best.”

For property buyers, TOGA’s CEO Fabrizio Perilli advised an age-old mantra: “Location, location, location.”

“When looking for a property, it is important to consider the fundamentals that will stand the test of time,” Mr Perilli said.

Properties that are close to public transport infrastructure such as train stations, light rail and major roads, will provide rental demand as well as long-term growth potential. Development precincts that have access to retail and convenience amenities, an easy commute to the CBD, close proximity to schools or universities, and a lifestyle offering, such as great restaurants, parks or beaches, will always be in demand.

Investing in these suburbs early can produce a higher return when the planned projects are complete, he explained.

“Take Marrickville, for example, it has exceptional transport connections, such as the newly opened WestConnex M8 tunnel, and future infrastructure projects, including the new Metro line and the WestConnex M4 tunnel due for completion in 2023,” according to Mr Perrilli.

“Marrickville is also in close proximity to the Sydney CBD, the airport and universities and offers a vibrant cultural and retail scene. The area is undergoing a revitalisation of the Victoria Road Precinct, with new residential communities such as Wicks Place, set to start construction early next year. All these factors create a highly sought-after neighbourhood, which makes it a strong property investment prospect.”

Hotspots

Real estate franchise group Raine & Horne found there has been considerable attention being drawn to NSW’s Central Coast recently, with traditional holiday markets faring well as they benefit from a “tectonic shift away from capital cities”.

Research by the group has found that Sydney sea changers represent 60 per cent of Central Coast property buyers.

“Because of COVID, more Australians have realised they can work out of the office for one or two days per week, and thanks to faster internet connectivity, this work can be completed from a home located within a three-hour commute from a capital city, or even much further afield,” said Angus Raine, executive chairman of Raine & Horne.

Among the Central Coast suburbs attracting the most attention are:

1. Terrigal
2. Avoca
3. Macmasters Beach
4. Copacabana

According to Brett Hunter, principal: “The Central Coast has always been a popular destination for Sydney sea changers. However, the impact of COVID-19 has driven up demand from buyers seeking to move away from the city.”

“Price sweet spots include modern two-bedroom apartments in the Gosford CBD, four-bedroom family homes in Avoca valued between $800,000-$1 million as well as acreages priced between $1 million and $1.5 million.

“Apart from excellent real estate value, the pandemic has allowed more buyers to recognise they can work from home on the Central Coast but still be in Sydney faster for a couple of days of work… The [soon-to-be-completed NorthConnex] will slash the daily door-to-desk commute to and from Sydney by around 30 minutes a day.”

Apart from the suburbs mentioned above, McGrath Estate Agents, highlighted the potential in the Thirroul property market, which attracts Sydneysiders through its laid-back coastal lifestyle.

Thirroul is located south of Sydney, approximately 13 kilometres north of Wollongong.

Further, the suburb has attracted increased interest due its affordability and the wide variety of properties available, accentuated by a value-for-money proposition for families wanting to relocate, McGrath’s Jeremy Hodder said.

“Thirroul offers low-density beachside living that is increasingly appealing to both Sydneysiders wanting an escape as well as those who are attracted to [its] wonderful lifestyle, amenity and its proximity to Sydney and the regional cities of Wollongong and Canberra,” according to John McGrath, founder and executive director of McGrath.

“This is an important region for our group to expand into. We are seeing more Sydneysiders make the move into Thirroul, especially now that many workers are given flexibility with their working conditions.

“The Thirroul train line allows commuters to get to Central Station in Sydney within an hour and gives residents the relaxed coastal lifestyle that Thirroul has to offer and get out of the busy Sydney area.”