Property market update: Sydney, February 2021

The NSW capital’s property market is seen to continue booming, boosted by government policies designed to ensure prices keep rising. While overall, the Sydney property market has now moved up from its low point, some sectors of the Sydney property market, such as its rental market, continue to see weakness.

With most of the property market finding its footing by the end of 2020, after the COVID-induced disruption, experts have grown optimistic about the future of real estate in a post-pandemic world.

Westpac’s chief economist, Bill Evans, said the bank has now lifted its forecasts to double-digit growth across the nation as momentum across the capital cities continues to swell until a predicted stall in 2023. Sydney dwellings prices are estimated to grow in line with Australia and is expected to deliver an 8 per cent growth for the year. Westpac’s chief economist pointed to the high clearance rates across Sydney, declaring a “sellers market” until new listings become available. 

“The upturn is being supported by record-low interest rates, the confident expectation among borrowers that these rates will remain low for years to come, ample credit supply and an improving economic backdrop, as the rollout of vaccines promises to bring the pandemic to an end and drives a sustained lift in confidence,” Mr Evans said.

Will Sydney live up to expectations in 2021? 

Property values

Recent data from property research CoreLogic showed that the nation’s property prices recorded a 2.1 per cent increase in the month of February, rising at their fastest rate since 2003. 

The surge in prices were driven by a combination of record-low mortgage rates, improving economic conditions, government incentives and low advertised supply levels. 

Sydney’s dwelling prices rose 2.5 per cent month-on-month and 2.8 per cent year-on-year. The monthly increase caused house prices in the NSW capital to stand at a median value of $895,933.  

A housing market trend that has persisted through the COVID period to-date is the weaker performance of unit markets compared with detached housing. But there are indications that this trend could be changing, as Sydney unit values rose 1.19 percent in February, recording their first month of growth since April last year. However, growth in house prices continue to outpace units, rising 3.01 per cent over the month. 

The monthly surge in the five capital city prices could mean that the regional trend might be coming to an end. In 2020, regional markets significantly outpaced the price growth of properties in capital cities. However, the recent data indicates that buyers may be more inclined to buy properties in capital cities in 2021. 

Cameron Kusher, REA Group director of economic research, expects the regions to be tested in the months ahead.

“Price growth in capital cities has been stronger than in regional markets over the past two months, so it will be interesting to see if this trend continues as vaccines roll out in Australia and we head towards a new COVID-normal,” said Mr Kusher.

“Undoubtedly, the lure of regional Australia with its lower property prices and desirable lifestyle remains strong, but we may see those who intended to make a tree- or sea-change reconsider their regional move as cities reopen.”

Despite the recent turnaround, capital cities are yet to be at par with regional market’s growth. REA’s Insights Home Price Index showed that over the past year, regional markets recorded growth of 9.6 per cent, almost double that of capital cities’ gains, which stood at 4.8 per cent. 

While Sydney and Melbourne were the strongest-performing markets over the month of February, Mr Lawless also noted that the sustainability of this growth was “unclear”.  

Supply and demand 

Data from SQM Research showed that national residential property listings fell by 2.7 per cent in February to stand at 257,952 from January’s total of 265, 111. Compared with February last year, listings are down by 13.1 per cent. 

Sydney and Melbourne defied the declining trend across capital cities, recording substantial increases in listings. The NSW capital city led the gains with a 6.5 per cent increase, bringing the number of residential property listings from the January’s total of 25,149 to 26,435 over the month. Compared with 12 months ago, listings in Sydney are up by 1.3 per cent.  

Louise Christopher, the managing director of SQM Research, said that despite the increase in new listings nationwide both on a monthly and annual basis, buyers are absorbing listings at a quicker pace than currently being added into the market. “Right now, demand is swamping supply,” he noted. 

But he cautioned that the trend could shift at the end of March. “Still, the big test is to come when JobKeeper ends at the end of this month. If there is no evidence of a material fall in clearance rates over April, then nothing is going to stop the market until the day APRA steps to regulate lending in or we have a rate hike from the Reserve Bank.”  

Auction rates 

The February auction market ended with solid results, with CoreLogic reporting a preliminary clearance rate of 79.3 per cent out of the 2,473 capital city homes taken to auction in the last week of the month. 

Around 844 properties went under the hammer in Sydney in the last week of February, rising from 768 over the previous week. The capital city recorded a clearance rate of 85.3 per cent during the period, the highest final result the city has recorded since June 15 in 2020 and the fourth consecutive week above the 80 per cent mark. 

While Sydney’s median price for houses sold at auction stood at $1,645,000, slightly below the previous weekend’s $1,692,500, it surpassed last year’s result by 14.2 per cent.

The latest auction figures are showing a booming market, with buyers looking to make the most of the ultra-cheap money, but while their interest is sending prices soaring, this year’s end-February results have been called slightly disappointing.

According to Dr Andrew Wilson, chief economist at Archistar, vendors could be holding back with signs of lower new listing growth continuing to emerge.  

But despite the lower-than-expected figures, Sydney looks to have hit the boom-time result of 90 per cent, Dr Wilson said. In fact, all other capitals again reported fairly high clearance rates.

“The Sydney home auction market is now tracking at unprecedented levels, which is likely to continue with strong buyer demand confronting fewer choices as new listings growth declines,” said Dr Wilson in a statement.

The recent migration of auctions to online platforms and turning virtual for property inspections by agents are also seen to power auction markets in 2021. 

REA Group’s Ms Conisbee said that moving forward, auction activity is expected to grow in strength through 2021, with clearance rates tipped to rise further. Sydney, despite bearing the brunt of the pandemic early in 2020, saw its annual auction record in the second week of December.

Rental market 

Australia’s rental market is experiencing an extreme disparity, according to CoreLogic’s latest data. At one end of the spectrum, rental conditions in cities such as Perth and Darwin are extremely tight, with both house and annual rental growth in both cities clocking in above 10 per cent, supported by extremely low supply and rising demand. 

The scenario is a stark contrast to what landlords in Sydney and Melbourne are experiencing, as rental markets in the capital cities plunged over the previous year, with average rents falling 5.3 per cent and 8.0 per cent, respectively. Matching the trend in housing values, rental markets are stronger within the detached housing sector compared with the unit sector. 

Weaker rental conditions in Sydney relative to rising home values is evident in the gross rental yields, with yields declining to a new record low in February. Gross rental yields in Sydney were recorded at 2.9 per cent at the end of February. 

CoreLogic’s research director, Tim Lawless, attributed the weakness in Sydney and Melbourne’s rental market to increased rental supply due to a recent history of investor exuberance, weaker demand from negative interstate migration and, more recently, a demand shock from closed international borders, which halted international migration into the cities. 

But things may be looking up for Sydney. Sydney’s rental index for units has recorded two successive months of mild growth. However, this could be because of more people returning to work in the inner cities as well as workers in some of the hardest-hit industries returning to employment. Mr Lawless noted that until international borders reopen and migration rates bounce back to their pre-COVID levels, Sydney will continue to see weakness in inner-city apartment rates. 

Vacancy rates 

Domain’s latest vacancy rate data for February shows the national vacancy rate was unchanged at 1.9 per cent of properties compared with the previous month, and increased slightly from 1.7 per cent a year prior. 

However, data shows that the trend is mixed across different capital cities. Every capital city recorded a decline in empty listings from the same period of 2020, with the exception of Sydney and Melbourne. 

Sydney’s vacancy rate climbed from 2.6 per cent to 2.8 per cent from last year, as the capital city continues to be hit hard by closed borders, lockdowns and a lack of migration. On a monthly basis, vacancy rates declined from 2.9 per cent to 2.8 per cent. 

“In Sydney and Melbourne, the general rule of thumb is that the closer you get to the city, the higher the vacancy rate,” Domain senior research analyst Dr Nicola Powell said. 

Many Aussies are leaving the bigger capitals to move to locations a bit further out, as the working-from-home arrangement permanently becomes a viable option for some employees. 

The areas with the biggest rise in rental vacancies were Parramatta, Strathfield-Burwood-Ashfield,  Auburn, Botany and Pennant Hills – Epping. Areas with the lowest vacancy rates were Camden, Wyong, Blue Mountains, Gosford and Wollondilly. 

Powell warned that tenants will soon find it difficult to find new homes, especially low-income tenants, as eviction bans expire and JobSeeker as well as Jobkeeper schemes are phased out at the end of the month.

“When we start to see the rental moratorium ends, we’re likely to see significant jumps in asking rents,” she said.

Outlook 

Nerida Conisbee, REA’s Group chief economist, forecasted that the NSW capital’s property market will fully recover in 2021. She noted that while Sydney bore the brunt of the impact of COVID-19 in early 2020, the capital city eventually found its footing and is well underway to recover by the third quarter of the year. 

According to Ms Conisbee, price growth will continue into 2021, on the back of low interest rates and an improving economy. “There is nothing to suggest that pricing will divert from its fast trajectory,” the chief economist said.

The desire for more space will drive strong performance across the state, particularly for outer suburban areas and regional areas on the outskirts of Sydney, as well as the premium property market.

In contrast, rental markets and unit pricing could take more time to recover, Ms Conisbee forecasted, noting that rental markets require further boost in employment, the return of local students to university campuses and population growth.

Unit pricing, on the other hand, relies on the return of investor activity and better performance by rental markets.

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, August 2018, September 2018, October 2018, November 2018, December 2018, January 2019, February 2019, March 2019, April 2019, May 2019, June 2019,July 2019, August 2019, September 2019, October 2019, November 2019, December 2019, January 2020, February 2020, March 2020, April 2020, May 2020 and June 2020 market updates. 

Visit Smart Property Investment’s Property Market News page to get updates on other major capital cities.