Throughout the COVID-19 crisis, Sydney property values have fallen by 0.8 per cent, while national capital has fallen by an average of 0.7 per cent. How will the NSW capital fare for the remaining months of 2020?
Over the past two months, home values have seen a “mild” downward pressure with capital city dwelling values falling a cumulative 1.3 per cent, according to CoreLogic head of research Tim Lawless.
However, Macquarie University business analytics professor Stefan Trueck said that properties sold, on average, 8 per cent below their valuation in May 2020 alone.
According to him: “It is likely that Sydney house prices have already dropped more substantially than the public has been led to believe. Vendors and real estate agents have significantly reduced the reporting of sales results for houses and apartments in many suburbs.”
Moving forward, the professor said that, with rising unemployment, a recession, renewed lockdown efforts and lower migration, downward pressure will remain on the property market over the next 12 months.
Over the quarter, house prices across Australia have fallen by 2 per cent, while unit prices are down even further at 2.2 per cent, according to the latest edition of the Domain House Price Report.
In Sydney, house prices are down by 2 per cent, or almost $23,000 to a median house price of $1,143,012. Unit prices, meanwhile, are down slightly less by 1.9 per cent, or $14,000 to a median price of $735,417.
While these prices are higher than they were in 2019, house prices are still $55,000 below the 2017 peak, while unit prices are down $52,000 in comparison with the same period.
Domain’s senior research analyst Dr Nicola Powell said: “Price expectations have changed rapidly in recent months, with more vendors adjusting asking prices downwards to seek a timely sale.”
“In June, 15.2 per cent of sellers reduced asking prices, three times higher than the same time last year. The proportion of properties discounted is a leading indicator of price movement, evidence that further price weakness lies ahead.”
Still, despite the losses, the impacts are deemed to “have been minimal”, with the report noting that the more drastic potential price falls have been buffered by significant government stimulus, mortgage holidays and the continued low-interest rates supporting home values, which have also kept distressed and urgent sales low.
Following the rollout of fiscal support from the federal government and loan repayment holidays, forecasts were revised down to falls of between 5 to 10 per cent from the original 20 per cent decline in home values over the course of 2019 and into the first half of 2020.
Unit rental yields have had their biggest drop in more than 15 years, falling by 3.2 per cent (equivalent to $15 per week) over the quarter, with COVID-19 seeing landlords reduce rates, according to Domain.
House and unit rental prices fell across most major capitals, with Sydney and Hobart unit rentals recording the steepest quarterly fall on record.
“The rental market has become highly fragmented in recent months. With weaker conditions for units compared to houses, tenants have a better chance of nabbing a cheaper unit,” said Dr Powell.
“This weakness has been led by significant rent reductions in Sydney and Melbourne inner-city areas due to a surge in advertised rentals from March to June.”
In Sydney, house and unit rents fell by as much as $50 a week, particularly in areas like the city and eastern suburbs.
Meanwhile, vacancy rates in Sydney are now sitting at 4.5 per cent, according to the Real Estate Institute of NSW. This is 0.4 per cent higher than vacancy rates in May, and 1.5 per cent higher than what was posted in March.
According to CEO Tim McKibbin, Sydney’s inner ring experienced the most significant change, rising 0.8 per cent to 5.8 per cent.
“Looking back at more than 20 years of survey results, we’ve not seen vacancy rates this high. It really is staggering. For Sydney’s inner ring, if this trend continues, as it’s likely to for the foreseeable future, we can expect to see downward pressure on rents,” he highlighted.
“While this is great news for tenants, it’s a recipe for disaster for many landlords.”
The middle ring has also seen vacancy rates swing upwards – 0.6 per cent to 4.6 per cent.
On the other hand, Sydney’s outer ring bucked the trend with vacancy rates tightening by 0.1 per cent to 2.6 per cent.
Mr McKibbin said that the impact of COVID-19 on the residential rental market “continues to be significant and shows no sign of abating”.
According to CoreLogic’s later Auction Market Preview, for the week ending 2 August, there were 1,206 auctions forecasted across the combined capital cities, with Sydney claiming the top spot with 611 auctions scheduled.
The combined capital cities forecast is down from 1,326 auctions last week, but higher than this time last year when 1,108 homes were taken to auction.
Across the smaller auction markets, Brisbane is set to hold the most auctions this week (114), followed by Canberra (61), Adelaide (51) and(11). While Tasmania has one auction scheduled.
Findings collected by CoreLogic for the week prior show that, of the 1,315 reported results last week, 54.1 per cent returned a successful result. This is an improvement from last week’s 53.1 per cent final clearance rate.
In Sydney, the final auction clearance rate fell across a higher volume of auctions during the previous week. There were 594 homes taken to auction, returning a final auction clearance rate of 60.6 per cent, lower than the 61.4 per cent over the week prior when 515 auctions took place.
One year ago, a lower 394 Sydney homes were auctioned with a higher final clearance rate (75.7 per cent).
Moving forward, amid economic uncertainties, predictions from the banks and industry have varied widely.
The Commonwealth Bank has predicted a worst-case scenario where house prices could fall by almost a third by the end of 2022. Under a more optimistic scenario house prices could fall by 11 per cent.
NAB’s worst-case scenario similarly predicts a 30 per cent drop by 2021, while Westpac’s base case scenario anticipates a 15 per cent fall in house prices in 2020 and a further 5 per cent fall in 2021.
ANZ’s base case scenario predicts a 4.1 per cent decline in 2020 and a 6.3 per cent decline in 2021. On the other hand, HSBC is predicting house prices to fall by 2-12 per cent in 2021 and AMP Capital’s Shane Oliver has forecast prices to fall as much as 20 per cent.
At the moment, market research reports mere modest price falls, which further adds to the confusion, according to Atelier Wealth’s managing director Aaron Christie-David.
“Come the end of September, several significant changes will occur. These changes could potentially create a perfect storm, driving up unemployment and leading to forced property sales, which could cause a drastic fall in property prices. But will this [worst-case] scenario actually come to fruition?” he said.
According to Mr Christie-David, conditions will be more difficult in the short-term, but those with a long-term view will most likely prevail.
The crisis has caused some investors to opt to sell up, and the withdrawal of investors could cause a further drop in property prices, especially for investment-grade stock like apartments.
“For investors wanting to sell, days on the market have increased as has vendor discounting, which could further impact median prices,” Mr Christie-David highlighted.
“The good news is that while yields have been trending downward, in May rental yields recovered by three basis points. There continues to be opportunities for investors, with supply at record lows and demand strong in certain suburbs.
“Areas which will benefit from First Home Buyer incentives and where incomes and jobs have been less impacted by the economic downturn will remain attractive to investors and will withstand any potential deeper price falls from September.”
Home upgraders will also have good opportunities in today’s market, according to him.
“Falling property values will allow for upgraders to access better homes. Steeper falls will lead to better discounts, but will also affect those opting to sell their PPOR. Record [low-interest] rates are also making purchases much more affordable,” he said.
Meanwhile, first home buyers will have government incentives, record low-interest rates and falling prices providing them opportunities.
Mr Christie-David advised them to focus on saving for their deposit right now so they could take advantage of the dropping property values.
“The higher the deposit, the lower the [loan-to-value] ratio (LVR) which may potentially allow you to avoid lenders mortgage insurance… If rates fall again or remain steady, this can provide good opportunities for first home buyers,” he said.
While there’s no certainty about the future of the property market, Mr Christie-David advised investors to avoid panicking and, instead, watch the market closely.
As September is a potential danger zone, he strongly encouraged undertaking extensive and engaging professionals in order to assess how any investment decision will affect their portfolios in the short, mid and long-term.
For those who want to buy, Propertyology’s head of research Simon Pressley highlighted four major government projects in NSW that are tipped to lift the housing market.
While the market did temporarily halt with COVID-19, Mr Diggins said it didn’t slow down levels of enquiry.
“With restrictions being lifted, we witnessed an upsurge in sales leaving stock levels now low. We have far more buyers in the market at present than available stock,” he said.
The south-west has long been an affordable option in the broader Sydney market, and with planned infrastructure for the region, including the Western Sydney international airport, the South West rail link, shopping centres, aged care facilities and educational offerings, Mr Diggins forecasts that the local market will be “extremely positive” post-COVID-19.
“We expect there to be a surge in enquiry from residents, considering the move west from inner Sydney suburbs. Their motivation seems to be an interest in expansive open plan home designs and homes within communities that offer an abundance of outdoor spaces and facilities,” he said.
Some of that demand is being underpinned by The Hermitage, a Sekisui House-developed masterplanned community in Gledswood Hills which embodies an “outdoor lifestyle”.
Sekisui House sales and marketing director Craig Barnes noted that “enquiry levels accelerated following the easing of restrictions in NSW, as did buyer confidence”. In fact, transactions post-lockdown are exceeding pre-COVID-19 sale rates for both homes and land.
“In the last two months, we have seen a sales uplift of 55 per cent when compared to March and April figures, and a 147 per cent increase [in] the same two-month period last year,” he highlighted.
“It appears that this trend is set to continue well into the future as many businesses re-evaluate whether to return staff back to the office full-time.”
For those willing to jump out of Sydney and into the regional markets, McGrath Estate Agents determined the Thirroul property market as one to watch, with more Sydneysiders looking to move to the hotspot as a result of relaxed working conditions off the back of COVID-19.
Located south of Sydney, the seaside suburb is approximately 13 kilometres north of the city of Wollongong.
According to McGrath’s Jeremy Hodder: “Since the onset of COVID-19, we have experienced a large number of enquiries from Sydney not only for relocation opportunities but also for investment options, this includes weekenders and beach holiday homes.”
The increased interest in the area is mostly due to its location and affordability of the area, he said. The wide variety of properties available and a value-for-money proposition for families wanting to relocate also make it more attractive.
Further, Thirroul offers low-density beachside living which has become increasingly appealing to Sydneysiders wanting an escape as well as those who are attracted to the wonderful lifestyle, amenity and the suburb’s proximity to Sydney and the regional cities of Wollongong and Canberra, McGrath founder and executive director John McGrath said.
“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,” he said.
McGrath Estate Agents also identified the market around the Snowy Mountains as a good performer amid today’s uncertainties brought about by the health crisis.
According to McGrath’s Cooma office head Shannon Fergusson, apart from the opportunities that will come with the “Snowy 2.0 Hydro project”, there is also a significant shortage of rental properties available to meet the needs of contractors.
“Since the onset of COVID-19, we have experienced a large number of enquiries from both Sydney and Canberra not only for investment opportunities, but also for lifestyle requirements. This includes weekenders and those wishing a permanent tree change where they can work remotely and escape the pressures of city life,” he said.
The average median house price for Cooma at the moment is $320,000, according to CoreLogic data.
McGrath’s head of franchise network Christopher Mourd said that the Snowy Mountains of NSW is a key lifestyle market for their ACT and NSW client base, who are increasingly attracted by its relaxed way of life, affordable housing and sense of community.
Another regional opportunity lies 254 kilometres west of Sydney, in the suburb of Orange.
Propertyology’s Mr Pressley said that Orange, with its 41,000 residents, stands as one of the strongest markets in Australia over the past five years, both in terms of capital growth and rental income growth.
According to the researcher and property enthusiast, the past five years have seen capital growth in Orange increase by 38.6 per cent and rental growth by 15.2 per cent.
By comparison, Sydney has seen capital growth of 22.2 per cent and rental growth of 5.8 per cent over the past five years. Of the major capital city markets, Hobart and Tasmania were the only ones to record higher numbers than Orange in both capital growth (58.8 per cent) and rental growth (39.4 per cent).
Mr Pressley added that the Orange economy is “one of the strongest in Australia”, further cementing its status as an enviable hotspot for investors looking to expand their portfolio.
“Even during COVID, the performance of the local tourism trade has been solid. Hotels and short-term accommodation businesses have had near 100 percent occupancy since Easter. Tourism, agriculture, mining, manufacturing, health and education underpin the incredibly diverse economy of Orange,” he said.
“The growing economy will place additional pressure on Orange rents.”
Ultimately, Propertyology categorises Orange as a “mini capital city” as it boasts good-quality infrastructure such as modern hospitals, universities and easy access via their expanding airports, which contributes to the growth of its property market.
“Investors would be wise to remove their blinkers and personal biases. You owe it to your own future to objectively assess the fundamentals of every location,” Mr Pressley concluded.