Despite the current downturn, a significant level of positive sentiment remains in the Sydney property market, particularly across suburbs surrounding the CBD. How can investors capitalise on the NSW capital today?
Over the past six months, the property market has improved considerably, spurring a little more confidence from investors and home buyers alike, according to buyer’s agent Brady Yoshia.
In fact, there have been more buyers looking to acquire new investments today, eager to take advantage of the opportunities as ‘the market pulls back’.
“Even though we’re looming close to the elections, people are seeing that the marketplace is not falling apart and, therefore, are taking advantage of wanting to buy prior to the election, particularly with the uncertainty of negative gearing,” Ms Yoshia said.
Still, investors remain ‘quite conservative’ with their money, particularly when dealing with markets that have seen significant downturn in the past 18 months, including Sydney and Melbourne.
After all, even if ‘the worst has passed’, the Sydney property market generally remains a recovering market.
CoreLogic’s Tim Lawless said: “The Sydney marketplace will continue along the trajectory of decline. This consistent moderation in the rate of decline will continue before winding up, probably, around the first half of 2020.”
“We’re about a year away before the marketplace bottoms out.”
CoreLogic’s Property Market Indicator data showed that during the week ending 28 April, Sydney, Melbourne and Adelaide recorded a rise of 0.1 per cent and Brisbane saw no movement.recorded declines in dwelling values, ranging from 0.1 to 0.2 per cent. Meanwhile,
According to data from the CoreLogic April 2019 index, while the declines continue in most capital city markets, they have been slowing down compared to national dwelling value falls recorded last December.
Over the month, Darwin saw the biggest decline at 1.2 per cent down to $390,621, followed by Hobart, which fell by 0.9 of a percentage point; Sydney, which fell 0.7 of a percentage point down to $780,672; Melbourne, which fell by 0.6 of a percentage point down to $621,759; then Brisbane and Perth, which both fell by 0.4 of a percentage point down to $484,047 and $440,546, respectively; and then Adelaide, which only fell by 0.1 of a percentage point down to $430,352.
“Values are still broadly declining; however, the pace of decline has moderated since December last year and there are some tentative signs that credit flows have improved, albeit from a low base,” Mr Lawless said.
“Considering that tighter credit conditions were one of the primary catalysts for the housing market downturn, any sign that credit availability is improving would be a welcome outcome for the housing market. The prospect for lower interest rates is another factor that could support an improvement in housing market activity later this year.”
In Sydney and Melbourne, the largest declines are witnessed by the most expensive quarter of the housing market, with drops ranging from 11.8 per cent and 13.7 per cent.
Despite the decline in property values, an affordability issue persists across Sydney and Melbourne—both of which remains as the most expensive property markets in Australia.
Studio Zanardo’s Dr Michal Zanardo said that the government needs to ‘provide a lot more a lot sooner’ in terms of new developments in order to successfully address the need for affordable housing across these major capital cities.
“It’s 30 to 35 per cent of our population that we need to be housing in these developments. Even if we provide that in new developments, we’re playing catchup for decades. We need to be providing a lot more a lot sooner.”
“The greater Sydney commission has said that we need 5 to 10 per cent of new projects to be affordable housing; they said it’s only on the uplift. We need to have a much higher percentage of affordable housing delivered almost in every project.”
“Once a developer or whoever’s going to build that site knows that they have to deliver that affordable housing, the land price comes down, and it’s not that simple, but it’s an equation that if you pay less for the land, you can deliver this housing affordably,” Dr Zanardo highlighted.
According to the property expert, if the councils are able to execute their housing affordability plans well moving forward, there could be a potential for a wave of affordable housing in the coming years.
Over the month, rents rose by 0.3 per cent nationally to 4.1 per cent, according to CoreLogic’s national hedonic rental index.
Melbourne saw the largest increase at 0.5 of a percentage point, followed by Perth at 0.4 of a percentage point, the ACT and Sydney both at 0.3 of a percentage point, Brisbane at 0.2 of a percentage point and Hobart at 0.1 of a percentage point.
Meanwhile, both Darwin and Adelaide held steady in terms of rental rates.
Like property values, new listing volumes were also down in most capital city markets, resulting in a combined capital city loss of 30.8 per cent.
Sydney, in particular—with a 37.3 per cent decline this month—recorded its 10th consecutive week of new listings decline. Along with the NSW capital, Melbourne, Canberra and Hobart also recorded declines ranging from 37.7 per cent to 7 per cent.
Meanwhile, houses remain more popular than units across most capital cities, based on the property type’s average time on market.
Canberra recorded the fastest time on market for houses once again at 39 days, followed by Hobart with 40. Darwin, Perth and Brisbane, on the other hand, had the slowest time on market at 93 days, 77 days and 66 days, respectively.
For units, Hobart was once again the fastest at 26 days, while Darwin, Brisbane and Perth were the slowest at 84, 78 and 77 days, respectively.
Vendor discounting was between 5.3 per cent and 8.6 per cent for houses across most capital cities, and between 5 per cent and 11 per cent for units, with Canberra as the low-end exception for houses, Hobart as the low-end exception for units and Darwin as the high-end exception for both houses and units.
The latest CoreLogic Quarterly Auction Market Review report showed that almost half of the houses at auction across capital cities during the first quarter of 2019 were sold—that is, a clearance rate of 49.9 per cent out of 14,647 residential auctions.
Sydney recorded the strongest clearance rate at 53.2 per cent, followed by Melbourne with 51.8 per cent, Canberra with 45.3 per cent, Hobart with 44.8 per cent, Perth with 31.4 per cent and Brisbane with 31.3 per cent.
Looking down to the suburb level, Sydney’s Erskineville saw a clearance rate of 83.3 per cent, Melbourne’s saw a clearance rate of 75 per cent, and Brisbane’s Sunnybank Hills saw a clearance rate of 35 per cent.
According to CoreLogic’s Cameron Kusher: “Auction volumes and clearance rates are mirroring the broader slowdown in property transaction and housing market conditions. Vendors are less confident of achieving a positive result at auction, and this has further impacted auction volumes during what is traditionally a quiet start to the year.”
Auction rates have also risen over the quarter across capital cities except Canberra and Hobart. Melbourne saw the highest level of auctions at 6,375, while Hobart saw the fewest at just 45.
In Sydney, the regions of North Sydney and Hornsby region was labelled by CoreLogic as an auction hotspot, with the highest number of auctions at 839 and the highest region clearance rate of 62 per cent. Following this was the Eastern Suburbs, with 832 auctions and a clearance rate of 56.6 per cent.
In last place was the Outer West and Blue Mountains region, which both have the lowest clearance rate and auction volumes for the capital city area at 30 per cent and 40, respectively.
Vacancy rates in Sydney, meanwhile, have mostly increased over the month, with some exceptions.
The latest data from the Real Estate Institute NSW Residential Vacancy Rate Report showed that Sydney saw a rise in its vacancy rate up to 3.6 per cent.
Across the Greater Sydney area, the inner and outer rings of Sydney saw their vacancy rates increase to 3.7 per cent and 3.5 per cent, respectively, from 2.9 per cent and 3.1 per cent, while the middle ring saw its vacancy rate decline to 3.1 per cent from last month’s 3.6 per cent.
REINSW president Leanne Pilkington said that the rise in vacancy rates are generally caused by supply outweighing demand.
While the Sydney property market makes its way towards recovery, housing affordability remains one of the more serious issues that plague the capital city market, according to lord mayor Clover Moore.
In order to fix this, the local government intends to focus on catering to the diverse demographic that resides in the capital city.
As such, they plan to create housing closer to places of work and, in turn, tackle congestion.
“We want Sydney to be a diverse city, not only in terms of our nationalities, but in the people who live here, who do essential jobs, like nurses, teaches, farm and council workers,” Cr Moore said.
“We don’t think they should have to then travel to Gosford or Central Coast after doing a 12-hour stint at King’s Cross police station for example, and we know people need to get to St Vincent’s hospital pretty quickly in an emergency as well.”
Currently, under the Sustainable Sydney 2030 strategy, which was set in 2008, goals were set to have 7.5 per cent of social/public housing and 7.5 per cent of affordable and worker housing.
The City of Sydney council has, so far, been able to create 835 affordable housing dwellings through levies collected from developers in Pyrmont, Ultimo and Green Square, and has been able to widen the area the levies target due to the rules allowing them to widen their net.
Further, the local council has been able to sell land to affordable housing providers at discounted rates.
In order to drive more growth into the market, property experts encouraged the government to dedicate more resources to the improvement of infrastructure across Sydney and, consequently, address existing infrastructure spending issues.
“Sydney is growing and needs infrastructure, but we haven’t got the right funding system for delivering it. Currently, communities in high-growth areas are paying high infrastructure costs on their homes, and this is not sustainable or equitable,” said William Power, acting NSW executive director of the Property Council of Australia.
“Planning reform and infrastructure charges must be the top two priorities for minister [Rob] Stokes and the new Department of Planning and Industry to ensure Sydney is growing well.”
At the moment, the federal budget includes $100 billion worth of infrastructure projects, which is expected to place Australia in a favourable economic en according to the International Construction Market Survey 2019 by Turner & Townsend.
The survey, which analysed 64 markets around the globe, considered Sydney and Melbourne to be hot at ranks 13 and 31, respectively. Brisbane follows at rank 34 while Perth sits at rank 38.
Construction costs are expected to rise in hese markets, with Sydney’s costs growing by 3.5 per cent in 2018 and is expected to rise by the same amount again in 2019; Melbourne’s costs growing by 4 per cent and an expected 5 per cent in 2019; Brisbane’s cost growing by 2 per cent and an expected 2.5 per cent in 2019; and Perth’s costs growing by 1 per cent in 2018 and an expected 1.5 per cent in 2019.
In comparison, global construction costs rose by 4.2 per cent in 2018 and are expected to rise 4.1 per cent in 2019.
According to Turner & Townsend’s economist Garry Emmett: “As the nation approaches a federal election and possible change of government, the strength in the construction sector is expected to continue and will help prevent a slowdown. The federal government’s $100 billion investment in infrastructure over the next decade, in addition to the state government investments, will help cushion the economy and keep jobs growth strong.”
“Sydney Metro, Melbourne Metro, Cross River Rail in Brisbane and Perth’s METRONET will help counterbalance downturns elsewhere. The announcement of the Inland Rail project for freight adds to the high levels of infrastructure investment.”
“An already busy construction sector in Sydney and Melbourne in 2018 was boosted by a pledge of around $50.4 billion of public funding for road and rail projects in these states alone.”
In terms of auction clearance rates, the Lower North Shore suburbs have been outperforming the rest of Sydney, according to Michael Ossitt, director of STRAND Property Group.
Sydney’s weekly auction rate has tracked between 61.5 per cent and 67.9 per cent since the start of February this year, with Lower North Shore doing most of the heavy lifting—boasting auction clearance rate between 65.6 per cent to 89.5 per cent during the same period.
“The Lower North Shore has been a star performer, with more homes selling at auction than in any other locality, including the City & East, and the Northern Beaches.”
Among the three drivers of growth in the Lower North Shore are:
1. High demand for quality
2. Premium buyers
3. Location, location, location
According to Mr Ossitt: “These addresses are historically resilient in downturns and show the greatest upside potential when markets eventually turn around. Savvy buyers and investors are seeing hot prospects in the Lower North Shore and are taking the chance now to get in while vendors are willing to negotiate.”
“They’re close to the city, well represented by lifestyle drivers and attractive to those middle-ring buyers who were looking to upgrade a year or two back and can now afford to come closer in.”