Economic adjustments, the RBA rate hold and Chinese investment shifts are changing the face of Sydney’s property market. On the frontline, the Sydney market is fragmenting to a degree. Depending on your postcode and property style, there are still strong sales results to be achieved, while vendors in other Sydney regions need to meet the market. The decrease in the rate of price growth is not something sellers should be concerned about. As discussed by The Agency's CEO Matt Lahood.
The state of the market
As reported globally this month, one of the world’s largest investment banks UBS, has stated Australia’s world record housing boom is ‘officially over’. This comes on the back of the latest CoreLogic Home Value Index results for October 2017, that show national dwelling values flatlining, remaining unchanged, and a drop of -0.48% in values across Sydney. This follows a minor drop in values in September across Sydney of -0.13%.
Now again, to put this in perspective, this is not a housing bubble bursting nor does it indicate a downturn. This is an important normalising of the market that will help first home buyers and general housing affordability. National home values have still increased by 6.6% annually when compared to this time last year and by 7.7% in Sydney.
As I have maintained, a decrease in the rate of price growth will avoid a property crash and create a sustainable and healthy property market. For buyers and sellers, this stable real estate environment means you do not need to panic about time out of the market. By this I mean if you sell, there is less pressure to have your new home locked in as your re-entry point is less time dependent.
Further CoreLogic data revealed housing affordability dropped in Sydney and Melbourne in the June quarter of 2017. When you combine this with the fact Sydney is now ranked the second most expensive housing market in the world, behind Hong Kong, price moderation is more than welcome.
27 Comber Street, Paddington sold by Ben Collier.
Interest rates and the economic status quo
Throughout my 30-year-career I have observed interest rates as one of the biggest determinants in property value growth, the higher the rate the slower the growth. The Reserve Bank of Australia has left the record low cash rate of 1.5% on hold for another month. Now on hold for 15 consecutive months, this is the second longest hold on cash rate changes since the 1994 to 1996 period. Economists suggest this current hold could continue until December 2018 or even into 2019.
The key reasons for holding the cash rate is to prevent an economic slowdown. The RBA has been balancing the need to slow the property market without slowing the economy. Fortunately, government taxation measures and stricter investor lending criteria (both foreign and local) seem to have helped slow the price growth. This has also led to an increase in first home buyer activity and lending. As reported in the Financial Review, first home buyer lending increased by 6.5% to $2.9 billion in July this year, 29% above the year before.
In significant news for the Australian economy, the ASX closed above 6000 points on Tuesday the 7th November (Melbourne Cup!) for the first time since in the Global Financial Crisis. While this market recovery is significant, retail results are quiet and the growth in household debt is still outpacing the growth in household income – all leading to a continual hold on interest rates.
A slow-down in Chinese property investment
As identified by Steven Chen, The Agency’s Executive Director Projects, we are seeing a major uptake in apartment sales from local owner/occupiers and investors in NSW and QLD, and a decline in Chinese buyers as well as affiliate Chinese agents. Steven Chen sites the following drivers:
- The Chinese government is now enforcing a cap on the amount of money that an individual can take out of the country annually, at a maximum $50,000 (USD) in foreign exchange.
- Chinese nationals are now allowed to purchase more than one investment property within China, this had previously been limited to one.
- Australian banks have tightened lending measures for foreign investors.
- The Australian Government’s increases in foreign property investment duties and exit taxes.
111 Milson Road, Cremorne, currently on the market with Nic Yates.
Sell now? Or post the holiday season?
If you are toying with the idea of selling and your property displays certain attractive features, such as is located in a coveted or convenient location or has design merits, now is still a good time to get into the market rather than waiting to the New Year. Many areas are still achieving strong results and there is an opportunity to capitalise on the current real estate stability.
Over the last 12 months we have seen a large number of new apartments come onto the market, post an active development period. Despite an increased supply in this segment of the market, if it is an appealing property in a sought-after location, it will make a strong long-term investment and still garner buyer interest.
Sydney is not one-dimensional
The Agency’s Director of Sales and Chief Auctioneer, Thomas McGlynn, explains there has been some fragmentation within the Sydney market, results vary signifcantly between the inner and outer regions.
While Sydney’s headline clearance rate is now consistently below 70% with an average weekly rate of 67.8% throughout October 2017, clearance rates in the eastern suburbs have been sitting around 80%. They are also at similar levels in the inner city and north of the harbour.
“Auction clearance rates at these levels are usually taken as a sign of a very strong property market,” says Thomas McGlynn. “It could be that people have just got used to the once in a lifetime growth we experienced in 2015 and 2016, against which anything else looks slow.”
“That said, not every part of Sydney is performing equally and the outer ring suburbs are experiencing significantly lower clearance rates than more established areas closer to the city.”
A symptom of a growing international city
The comparative resilience of inner-city Sydney in the face of a slowing overall market is partly due to historically low stock levels. But it is also the upshot of Sydney’s increasing status as an international city.
If you look at other global cities such as London, New York or Tokyo, property prices in areas that are close to lifestyle precincts, public transport and amenities, such as good schools, have grown disproportionately compared to the rest of the city.
This theory is also supported by the fact properties with significant amounts of land are in increasingly high demand. After all, in a global city, nothing is more valuable than land close to the centre. Recent auction results back this logic.
For example, in mid-October Thomas McGlynn auctioned 4 Riddle Street, Bellevue Hill, a centrally located Edwardian home on 447sqm. There were 10 registered bidders and it sold for $3,680,000 - or $680,000 above reserve. Another example is 148 Brook Street, Coogee, a Californian Bungalow set on a 546sqm plot with R3 zoning. The property sold under the hammer for $4,405,000, a whopping $705,000 above reserve. This increased emphasis on land in the mind of buyers means properties over $4 million are still in high demand, with affluent downsizers and up-sizers competing for generous-sized properties in blue chip locations.
148 Brook Street, Coogee, sold by Tony Laing.
Back to reality: a normal auction market
If open home numbers are anything to go by, buyer interest is still present across most property categories. It is simply buyers are more reluctant to go ‘all out’ in pursuit of a property – a fact that could be attributed to ‘buyer fatigue’.
It is not uncommon for some buyers to have missed out on three, four, even 10 properties while the market was running hot. This naturally leads to a level of fatigue, with buyers taking a small break to survey their options. We are now seeing two or three registered bidders at most Sydney auctions, where once there would have been four or five.
The changing rental market
According to The Agency's National Director of Property Management, Maria Carlino, the rental market is very active right now. October saw a substantial change in average days on the market, with rental houses falling by 11.4% to 22.1 days and rental apartments by 2.1% to 21.6 days, according to rent.com.au. Despite this, yields remained stable, with no change recorded.
The Agency’s property management team is receiving high numbers of enquiries, especially in the executive market. With the recent addition of the Laing family business, which had been trading as Raine & Horne Bondi Junction Coogee Clovelly offices, The Agency’s ability to service the rental sector, particularly in Sydney’s Eastern Suburbs, has been strengthened.
Maria Carlino has identified an interesting trend in the homeownership market – homeowners selling their family home to take advantage of their property's equity and then renting long term. “These renters are quality tenants seeking well-presented, quality homes at the same level they’re accustomed to,” Maria says. In order to attract this tenant market, landlords need to make sure their rental property is clean, attractive and appropriately presented.
Stunning six-bedroom executive rental in Balmain, in the care of Ryan Minuzzo.
Maria has also noticed an increasing number of tenants looking to capitalise on lower rental prices outside of Sydney. Many of these renters are moving south from The Shire to Wollongong and its surrounding areas.
The Agency’s partnership with Jordan Andonovski’s Wollongong and Thirroul offices has now created a strategic network between the Sydney and Illawarra markets for both rentals and sales. There has been significant interest in this southern region from Sydney and home values have jumped recently, house values by 14.3% and 13.9% for apartments.
This important partnership has brought a team of 52 staff and approximately 800 properties under management into The Agency fold.
As the rental market traditionally quietens down over Christmas, Maria’s advice is to enter the market now and capitalise on the fact most people are keen to have a settled home over this period. “But do make sure your lease won’t expire over next year’s holiday period, look to entering into a 13- or 14-month agreement instead of a standard 12-month one,” Maria explains.
The Block a microcosm of the Melbourne market
Australia’s collective real estate attention turned to The Block auctions in the final week of October. All five Elsternwick properties went under the hammer and were sold for between $2.615 million and $3.067 million.
The Agency’s General Manager Victoria, Peter Kakos, says that while The Block is ‘somewhat divorced from reality’, much of what happened on auction night reflects the current Melbourne property market quite accurately.
Unlike the last couple of seasons of The Block, each auction had only two or three committed buyers. The thinner buyer pool became critical in determining the ultimate price. Peter Kakos points out that despite some perceptions the auctions were not a success, the eventual results demonstrated the resilience of the Melbourne market in the face of unprecedented levels of supply.
Saturday the 28th of October - The Block auctions date - there were a record 1,695 listed auctions across Melbourne and the city still achieved a clearance rate of 72%. Understandably viewers focused on the amount the contestants made rather than the final sale price. The final results reflected each home's varying size, aspect and quality of finishes.
Though buyers are becoming more picky, in Peter’s view homes in the sub-$2million bracket, as well as apartments, are selling well. He also singles out family homes around the $3million mark as particularly strong performers. The same conditions should continue until the summer slowdown. Vendors who are thinking of selling before the close of 2017 should act fast to get their home onto the market, or wait until February 2018.
501/2 Rouse Street, Port Melbourne, currently on the market with Spencer Mitchell.
The Gold Coast gaining strength
In early October prestige agent John Natoli joined The Agency’s Gold Coast operation and our Broadbeach office opened its doors, giving the group a high-profile presence in an increasingly important property market.
In John Natoli’s opinion, the Gold Coast market has traditionally been a measure of the economy’s wealth more broadly, because it has been driven by southerners buying holiday homes. But he believes this is rapidly changing.
While the southern states are still driving price growth, the Gold Coast is becoming a primary home market for those looking to relocate permanently for work or retirement. The high prices being achieved for waterfront family homes supports this trend. In the Financial Year 2015/16 there were no less than 14 sales over $5 million, up from nine the previous financial year demonstrating growing confidence in the Gold Coast’s market.
The market in properties under one million dollars is also going “gangbusters” according to John, especially as October saw a shortage of quality properties hitting the market.
Given the gap in prices between the Sydney and Gold Coast markets has never been higher, John expects to see more people moving to the Gold Coast from the southern states over the next few years. The Agency’s local presence will benefit buyers looking to relocate to the Gold Coast from around the country.
On the back of this interstate buyer network, our busy Projects division has three new developments launching on the Gold Coast in the first quarter of 2018. This will bring in excess of 600 new apartments (excluding Spirit's 479 luxury apartments) to the market including:
- Entry level, first home buyer
- Mid-tier, owner/occupier
- Premium properties, local owners and interstate investors
These developments will feature incredible views and extensive indoor/outdoor living via expansive terraces.
In the Sydney market, “we have an array of similar projects in the metro and regional areas, and further to this, significant house and land packages in the northwest corridor,” Steven Chen explains. “These projects will cater to the Sydney market in the first quarter in 2018.”
Thank you for taking the time to read my October market report and company update.
Matt Lahood, CEO, The Agency
