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While it has lagged behind other capital cities in post-pandemic recovery, Melbourne has now cemented its resilience, re...
At the end of 2020, Sydney showed signs of recovery from the headwinds brought about by COVID-19 in 2020. Can the NSW capital fully recapture its pre-pandemic momentum this year?
There are now indicators suggesting that the rebound of Sydney’s property market is underway.
At the end of 2020, the NSW capital showed signs of recovery from a slump caused by restrictions and lockdowns put in place to combat COVID 19.
And it’s showing no signs of slowing down again anytime soon, having kicked off the new year with continued growth.
As such, experts are optimistic that Sydney’s property market will keep getting stronger in 2021, despite the battering of the COVID-19 pandemic. Solid job creation, rising consumer confidence and improving business confidence are growth factors seen to underpin the NSW capital’s property market in the coming months.
But will Sydney live up to expectations in the remainder of 2021?
House values have risen to their highest level on record, with every capital city in the country experiencing an increase through the first month of the year. Cementing the recovery trend that began at the end of 2020, dwelling values continued to recover in January, with CoreLogic’s national home value index rising by 0.9 per cent.
With home values officially above pre-COVID levels by 1.0 per cent, the index also surpassed a previous high recorded in September 2017 by 0.7 per cent.
Sydney continued its recovery from the impacts of COVID, seeing a mild dwelling value increase of 0.4 per cent in January to a median of $879,299.
The declining demand for units throughout the pandemic, due to low levels of investor activity and shifting housing preferences, is reflected in the latest figures, which show house prices continue to outperform units. During the first month of 2021, Sydney house prices rose 0.7 per cent, while units edged down by 0.1 per cent.
According to CoreLogic’s research director, Tim Lawless, this trend may continue for some time as supply continues to outstrip demand.
“While demand and supply remain imbalanced, we are likely to see units continue to underperform relative to the detached housing market,” he said.
While the monthly increases are relatively modest, Sydney values have slowly recovered from the effects of COVID-19 lockdowns, with prices rising 2.0 per cent year-on-year. Additionally, Sydney recorded the biggest quarterly capital gains, rising 5.6 per cent at the end of January 2021.
Data from SQM Research showed that national residential property listings fell by 2.9 per cent in January to 265,111, from December’s total of 272,999. Out of the capital cities, Sydney, Brisbane and Melbourne recorded the highest declines of 4.7 per cent, 3.5 per cent and 3.4 per cent, respectively.
Annually, Sydney saw an increase in stocks at 4.5 per cent. As of January, Melbourne has the most stock available on market at 37,617 properties, followed by Brisbane with 25,720 and Sydney with 25,149.
While there is a monthly decline in listings, demand has continued to increase as government stimulus and a low interest rate environment drives up buyer activity. Mr Lawless noted that the current conditions of low supply levels coinciding with strong demand is an advantageous time for those who are looking to sell.
“With housing activity continuing to rise at above average levels while listing numbers remain well below average, the natural consequence is upwards pressure on housing prices,” he said.
Auction activity in Sydney rose in January, posting an impressive clearance rate of 82.9 per cent across 272 auctions during the last week of the month, according to CoreLogic data. The figures are relatively higher compared with the same period in the previous year, when the clearance rate stood at 72.9 per cent across 158 auctions.
Meanwhile, property listings in Sydney were impacted by the usual annual holiday hiatus, as latest figures from SQM Research showed listing numbers in the NSW capital fell 3.4 per cent over the month, declining from 26,038 in December 2020 to 25,149 in January 2021. Annually, listings are still up by 4.5 per cent.
Managing director of SQM Research Louis Christopher said that January traditionally sees a drop in properties listed for sale as the market emerges from the “summer holiday mode”, noting that this year was no exception.
On one hand, listings are expected to lift throughout the year, with early indicators suggesting that new listing numbers are set to rise and outpace levels from a year ago.
Following the headwinds of early 2020, the rental market finally showed signs of improvement towards the end of the previous year.
And the trend seems to continue at the start of 2021. Nationally, rents rose 0.5 per cent in January, bringing the annual change in rental rates to 1.3 per cent.
Across capital cities, Sydney is one of the three capital cities (besides Melbourne and) to record increases in weekly rents for both houses and units in January. Annual house rents posted a 2.1 per cent increase, while annual unit rents are still in the red, edging down 5.6 per cent.
Weak demand and an oversupply of units have caused units to freefall during the pandemic, particularly in Sydney’s inner-city markets.
But Sydney’s property market (as well as its landlords) are starting to catch a break, as the rate of decline showed signs of easing. Over January, Sydney unit rents posted the first month-on-month rise since March last year, climbing 0.8 per cent.
Mr Lawless said workers returning to offices in the city could be a factor in the rental market’s recovery. “Part-time job numbers are now fully recovered back to pre-COVID levels and more businesses are embarking on a return to work program, which could be helping to support renewed demand towards inner-city rentals accommodation,” he said.
According to data from Domain, Sydney’s rental market has remained fairly flat, recording an annual vacancy rate of 2.9 per cent in January, the second highest of all the capital cities.
The areas with the biggest rise in rental vacancies were Strathfield- - , Kogarah- Rockdale, , Marrickville- -Petersham and Eastern Suburbs-South. Parramatta saw the highest vacancy rate of almost 4.8 per cent during the period.
Domain’s senior research analyst, Dr Nicola Powell, noted that inner-city areas continue to have the highest vacancy rates.
“Strong exposure to international border closures in Melbourne and Sydney will ensure significantly less demand for rentals for the foreseeable future, at least until international border restrictions are lifted,” he said.
According to Propertyology’s head of research and REIA hall of famer Simon Pressley, Australia is now in the midst of the biggest national rental crisis in history. He states that towns and cities in the country can now be grouped into two paradoxical categories – Category A being locations where rental markets are as “soft as butter” and Category B being the complete opposite.
Sydney falls under the first category, where Mr Pressley said landlords face a real risk of a significant drop in rents or umpteen weeks of receiving no rent at all.
But according to Mr Pressley, COVID-19 did not birth this paradoxical rental market.
“The cause of the intense rental pressure is several years of very low volumes of investor activity in these locations. Low investor activity means that very little rental supply is being added to a market,” he said.
Despite the pandemic, certain areas of Sydney’s property market are expected to heat up – and none of them are anywhere near the CBD.
Buyer’s agent Grant Foley expects dwelling prices in the Greater Sydney market to increase by six to 10 per cent this year as the city rebounds from the headwinds brought about by COVID-19 in 2020.
The Sydney sub-regions showing the strongest capital gains are the Northern Beaches, where values are up 4.4 per cent over the past three months, and the Central Coast with a 4.1 per cent rose in values over the period.
This trend is seen to continue this year. Moving forward, established family homes in the inner ring and lifestyle locations such as Northern Beaches and Sutherland Shire will see stronger growth in 2021, Mr Foley predicted.
Apart from the Northern Beaches, demand will also increase in the upper property price brackets in the Newcastle, Central Coast, Wollongong and South Coast markets as the intrastate migration away from Sydney to regional areas continues, according to Mr Foley.
“Demand for new-build house and land packages will continue to be driven by first home buyers and associated government grants.
“But the new-build apartment market will continue to limp along, hamstrung by reduced level of foreign students/buyers and changing consumer preferences,” he concluded.
Overall, January figures show that the property market has started the year quite strong, with many expecting further rises to prices in the year ahead. Indicators are now showing that headwinds around the Australian property market have ebbed as the economy continues to outperform forecasts.
Generally, experts are optimistic that the property market will continue its recovery, with Sydney leading the way, as sustained low interest rates are expected to continue stimulating the property market by boosting demand, increasing housing construction and consequently driving up property prices.
Knight Frank Partner’s chief economist in Australia, Ben Burston, said that governments will also be seeking to move the needle on economic recovery in 2021 with an ongoing pipeline of new infrastructure projects, enabled by the low interest rate environment.
“We expect to see renewed debate on projects previously considered to be too expensive or not an immediate priority, such as faster rail connections between Sydney, Newcastle and Wollongong, additional airport capacity for Melbourne and improved access for cyclists in all of our major CBDs,” he said.