After months of continuous decline, the Sydney property market has begun to show signs of recovery, highlighted by the improvement of consumer sentiments. How can investors maximise wealth-creation opportunities in the shifting capital city market?
Like most experts, mortgage broker Redom Syed points to the conclusion of the federal election as one of the “stabilisers” of some of the biggest property markets in Australia, along with limited supply, improving demand and the possibility of rate cuts and lower assessment rates for home loan applications.
When asked how he would describe the current condition of the Sydney property market, Mr Syed said: “Confidence, boom, good times.”
“I pick up the phone at the beginning of the day and they’d tell me that they’re starting a negotiation on a property. They think it’s probably gonna sell for $900,000 but, by the end of the day, they’re paying close to 10 per cent above that. Multiple bidders just driving up the price,” according to him.
“There’s a low level of existing stock at the moment, at least for existing dwellings. Home buyers are paying a little bit more now than they would have two or three weeks ago,” the mortgage broker highlighted.
With buyers regaining confidence and investment activity gradually improving in the capital city, Mr Syed expects prices to go up across Sydney in the near future.
According to him: “I’d say after June might be a good time to jump back into the market.”
Overall, the Australian property market is bound to see significant improvement moving forward, driven primarily by rate cuts.
CoreLogic’s Property Market Indicator data showed Melbourne with largest rise in property values at 0.2 per cent, followed by Sydney at 0.1 per cent.
Meanwhile, Adelaide and saw the largest declines at 0.3 per cent each, followed by Brisbane, which declined by 0.1 per cent.
However, year-on-year, Sydney, Melbourne and Perth recorded the highest declines at 10.1 per cent, 9.6 per cent and 9.1 per cent, respectively.
Among the most significant drivers of growth in the NSW capital is its luxury market, as shown in the data from Knight Frank’s The Wealth Report Insight Series - June 2019.
The top 5 per cent of the Sydney property market has reached a record high, with an average price of $27,244 per square metre.
According to Michelle Ciesielski, head of residential research Australia at Knight Frank, this rate puts Sydney on the sixth spot of the top 10 most expensive city markets around the world.
“This continues to demonstrate there are only a handful of local exclusive super-prime properties available in Sydney for the growing ultra-wealthy and billionaire population, and competition for these rare properties is driving prices up.”
“These types of buyers own multiple residential homes and are typically looking for ‘best in class’ or ‘one-only’ style properties with a particular focus on iconic Sydney harbourfront residences with panoramic views and waterfront access,” she said.
As of writing, 43 per cent of Australian residents are recorded as billionaires, up from last year’s 30 per cent. Since 2013, the number of billionaires in the country has grown by 95 per cent – outpacing the global average of 55 per cent.
Overall, Hong Kong was the most expensive market, with an average luxury price of $65,002 per square metre, while New York and London sit on the second and third spots, respectively.
As property values increased, listing volumes experienced declines over the month, according to CoreLogic.
Over the last week of June, every state and territory saw new listing volumes decline, except Hobart and Adelaide. Melbourne saw the largest declines at 29.4 per cent, followed by Sydney at 27 per cent, Perth at 17.2 per cent, Canberra at 16.6 per cent, Brisbane at 10.8 per cent and Darwin at 17.2 per cent.
Meanwhile, the average time for houses on market fluctuated slightly, but, overall, houses remained more popular than units.
Hobart had the fastest time on market for houses at 36 days, followed by Melbourne at 43 days and Sydney at 48 days, while Darwin, Perth and Brisbane had the slowest time on market at 90 days, 86 days and 73 days, respectively.
For units, Hobart was the fastest at 41 days, while Perth, Darwin and Brisbane were the slowest at 86 days, 77 days and 75 days, respectively.
Vendor discounting was between 4.2 per cent and 8.7 per cent for houses across most capital cities and between 5.5 per cent and 10.4 per cent for units, with Canberra as the low-end exception for both houses and units, Darwin as the high-end exception for houses and Perth as the high-end exception for units.
In terms of vacancy rates, the Greater Sydney area saw an increase, while the inner region saw a decline of 0.1 per cent to 3.1 per cent. The middle region saw no movement and held steady at 3.3 per cent, while the outer region saw an increase of 0.3 per cent to 3.6 per cent.
Moving forward, experts believe that population growth and infrastructure spending are two main elements that will ultimately help the Sydney property market recover.
Supporting the recovery of the Sydney property market is the continuous growth of its population, which consequently leads to an increase in demand for property.
According to an analysis of fresh data from the Australian Bureau of Statistics by CoreLogic, the past 12 months saw increase by 1.6 per cent – the largest increase in raw number terms since September 2017. This also marks the third quarter in a row to see the rise in annual population figures increase over the previous quarter.
Overseas migration accounted for a big part of population growth across Australia, followed by natural growth.
CoreLogic’s Cameron Kusher said that this year’s natural growth of 156,337, which is 8.5 per cent higher than the previous year, is at the highest level since March 2015. Meanwhile, net overseas migration is at 248,446 people and sits at its highest level since September 2017.
Over the year, the states of NSW and Victoria saw the strongest growth in population.
“Population increase in NSW is primarily driven by natural increase and net overseas migration, accounting for 37.0 per cent of national net overseas migration… High levels of migration mean increased demand for housing, which is a factor that should assist in putting a floor under the recent declines in dwelling values, particularly in Sydney and Melbourne,” Mr Kusher said.
“Furthermore, increasing populations should also assist in the absorption of the large volume of apartments under construction in the capital cities.”
Along with infrastructure investment, the report claimed that build-to-rent developments would also assist these areas in meeting the increasing population growth figures.
“Unsurprisingly, the highest proportion of renters are in some of the most desirable and, therefore, expensive locations. Given the current high cost of land in these areas, it will be difficult – but not impossible – to make BTR developments stack up even with the pullback in residential markets and subsequent lower cost of land.”
“Therefore, we anticipate most developments will initially be in more fringe locations and, crucially, they are expected to be in and around population growth corridors,” the report noted.
Apart from population growth, infrastructure spending across NSW is also expected to spur growth in the property market.
The NSW state budget for 2019-20 by the Berejiklian government detailed a record-breaking spending of $93 billion over the next four years to 2022-23, with $55.6 billion for public transport and roads around the state, $10.1 billion for over 40 new and upgraded hospitals and $7.3 billion towards over 190 new and upgraded schools.
Among the major infrastructure projects across NSW are the Sydney Metro City and Southwest rail; Sydney Metro West rail; North South Metro Rail Link; Parramatta Light Rail Stage 1; the establishment of building eight schools and the upgrades for 32 government schools; the new TAFE Western Sydney Construction Hub; eight new TAFE Connected Learning Centres in Byron Bay, Nelson Bay, Bateman’s Bay, Jindabyne, Nambucca Heads, Hay, Cobar and West Wyalong; and the upgrading and construction of 29 hospital and health facility projects.
However, while infrastructure often mean great things for a local economy, it doesn’t always translate to property price growth, according to experts.
For instance, the Sydney Metro Northwest rail link opened a month ago, bringing automated, driverless trains to the Sydney network and establishing a train line between Rouse Hill and Chatswood to bring more people through the public transport network.
In theory, as infrastructure projects enhance public transport for residents, they also increase the demand of living close to these locations. However, in practice, property prices in areas along the rail link have not moved significantly.
According to BIS Oxford Economics’ managing director, Robert Mellor, macro conditions of supply and demand need to be analysed first before investing in areas with new infrastructure.
“When supply catches up to demand very quickly, there won’t be price growth. It’s a bit like the last part of the boom in construction in Perth… post-GFC, when you had that second leg of the investment boom in commodities. Still, we didn’t get significant price growth in median house prices in Perth.”
“So you’ve got to watch the supply side of the equation very quickly, very closely and understand its implications,” Mr Mellor said.
The timing of the market was important to reaping the benefits of infrastructure, despite its potential to bring dramatic change, according to him.
“The people who have bought into that northwest area and the people who buy in the southwest close to the new airport are going to do well over 10 or 15-plus-year period.”
Buyer’s agent Robert Skeen currently helps investors purchase properties across Sydney, including areas within the 12 kilometre-radius of the Sydney CBD, such as Maroubra, Randwick and , as well as Gladesville and Drummoyne in the Inner West.
According to him, new infrastructure and new development, as well as the demand for rental properties, are the primary drivers of growth in these markets.
“We have the university and the light rail, among other things happening around there. In Gladesville, there’s a lot of new development, but we focus on the smaller, older ’60s and ’70s-type buildings. We find that they’re quite well priced at the moment and they’re renting well.”
“The apartment market there has come off by almost 20 to 25 per cent. There’s a property in Cremorne at the moment – two bedrooms, small block of 12, huge balcony, car space, harbour views. In 2017, this would have sold for about $1.2 million. Now, you can buy it at $975,000,” he said.
Further, the suburb of Gregory Hill offers opportunities to own a positively geared property. Located around 20 minutes from Camden, Gregory Hill can provide up to 7 per cent net return on investment, according to Mr Skeen.
“It’s built up. There are hotels out there, up towards Penrith way. They’ve also got the new airport going out there, up Badgerys Creek way. If you go out there now, it’s amazing what they’ve built. Huge streets, huge shopping centres, buildings. They’ve got a new hospital going out there.”
Similarly, Badgerys Creek also offer opportunities for positive gearing, the buyer’s agent said.
On the other hand, Sydney-based buyer’s agent Nick Viner identified Glebe, Redfern, Lane Cove, North Bondi and as Sydney’s “beacon suburbs”, or those that will herald the capital city’s bounce-back in the market.
However, these suburbs have median prices that range between $1.3 million and $2.4 million.
For those who want to jump into the Sydney property market without burning a hole in their pockets, Mr Viner recommended affordable alternatives, including Forest Lodge, , Lane Cove North, Lane Cove West, southwestern Chatswood, South Coogee, Petersham and Haberfield.
Lane Cove North, Lane Cove West and southwestern Chatswood, in particular, provide investors with the opportunity for better value than Lane Cove, as long as they are prepared to go closer toRoad.
According to the buyer’s agent, markets close to Epping Road have good supplies of sizeable blocks of land up to 900 square metres.
“You wouldn’t get that closer to Chatswood or on the eastern side of Chatswood. And the reason being is it’s a little bit more remote, it’s a bit more tucked away, but a lot of people like that, they like to be away from all the action and the hustle and bustle,” Mr Viner said.
Observations by Angus Raine, executive chairman of Raine & Horne, showed that the conclusion of the federal elections continue to generate confidence in the Sydney property market, several weeks after the winners were announced.
According to Raine & Horne North Sydney’s Todd Houghton, the boost in confidence is being felt in Lower North Shore suburbs, with demand rising in North Sydney, Waverton, McMahons Point and Kirribilli,
“People were waiting to see how the election panned out, while an interest rate cut whether it’s June, or later in winter, will keep the market’s newfound confidence rolling along.”
North Sydney, in particular, is expected to see further interest from investors, as 6,000 additional workers enter the area through the towers at 1 Denison and 100 Mount Street.
“These people need to live somewhere, and many will want to be close to work, and this tenant demand will help investors with their rental yields,” Mr Houghton said.
Southwestern Sydney is also seeing a rise in demand, highlighted by the increase of one-on-one property appointments since the end of the election, according to Peter Diamantidis, sales manager for Raine & Horne.
“We sold seven properties in the first week after the election and seven last week. It was lucky if we sold 10 properties a month before the election,” Mr Diamantidis said.
“Apart from the election result, our buyers are being contacted by their brokers in the wake of APRA’s calls for lenders to scrap the 7 per cent mortgage interest rate test. Consequently, for some properties we are attracting as many as 18 groups to open homes, whereas before the election buyers were very thin on the ground.”
“We haven’t seen this level of activity and buying since 2016.”