Property shaping as safe bet during Sydney lockdowns

Determining how the Sydney property market will react to the self-imposed economic vandalism of extended lockdowns is an inexact science, but Australia’s banks and US researchers seem to agree — price impacts will be short-lived.

While it may be perceived as predatory, investors have always sought opportunity in times of crisis. 

A paper published by Georgetown University researchers in 2018 in the United States looked into the impact on property prices of a range of natural and economic disasters and concluded that “housing rents go up but prices do not drop much.”

It also found that high-wealth households, who are more risk tolerant, increase their housing holdings and receive higher rent revenue from their housing investments. 

“Thus, natural disasters lead to a reallocation of the housing stock and mortgage credit to the wealthy,” the report said.

It’s easy to see the parallels between this study and the unfolding pandemic’s impact on the Sydney housing market.

When COVID-19 first hit early last year, widespread panic about collapsing property markets failed to materialise. Few expect the current lockdown, despite its greater length and current knowledge about the virus’ durability, to have an impact on property prices. 

“We remain optimistic that as restrictions are eased, activity will rebound, as has been the case in previous lockdowns,” NAB economists wrote in a recent report. 

“Dwelling prices continued to grow at a robust rate in June with the combined capitals rising by 1.9 per cent over the month.”

The US researchers would find little to surprise them if they were to look further afield to Sydney. 

They found that following hurricane Katrina, low-income households moved into low-rent housing, mid-income households moved out of the area, while wealthy households were insensitive to the shock.

While clearly not on the same human or economic scale as Katrina, the same findings are applicable in both property markets.

House prices in Sydney’s well-heeled coastal and middle-ring suburbs have defied the lockdown, rising by up to 5 per cent over July. 

Meanwhile, in line with the US research findings, ten of the 17 worst-performing suburbs were in Sydney’s south-west, according to CoreLogic’s latest data.

Buyer’s agent from Strategic Finance and Buyers Agents Sydney, Kiril Ruvinsky, said this data had become particularly pronounced since the recent lockdown of Sydney’s southwest but could present those with the financial means an investment opportunity. 

“The divide between these outer suburbs and the inner city and coastal suburbs is really visible in July’s numbers, as those residents are locked in their homes, but this should be a short term situation only,” he said.

“Suburbs under heavy lockdown should bounce back once restrictions are lifted, and they could offer a buying opportunity for buyers who are clever and can act quickly, taking advantage of any forced selling while confidence has dropped.”

A million dollars isn’t what it used to be

The pool of auction listings in Sydney is shrinking steadily as lockdowns extend, leading to record auction clearance rates of the properties that do emerge for sale. This time last year the clearance rate was 57 per cent — this week it is at 82 per cent.

As lockdowns bite, more than 10 per cent of the 534 scheduled auctions were withdrawn.

Ray White chief economist Nerida Conisbee also highlighted the Sydney prestige market’s ascendency and broadening base.

“Over the past 12 months, the number of suburbs with medians over $3 million has almost doubled, from 29 to 56 but what isn’t surprising is that most of the additional suburbs are in Sydney, where house prices across all price points have increased at a blistering pace over the past year,” Ms Conisbee said.

“What is more surprising is that we have our first $3 million suburb in regional Australia, Bar Beach in Newcastle and our first in western Sydney, Horsley Park. 

Australia’s newest $3 million-plus suburbs - 12 months to June 2021

“Twenty years ago, suburbs with medians over $1 million were very rare and there were in fact only 16 of them — now there are 881 of them nationally, making a $1 million home relatively commonplace. 

“The new benchmark for luxury is now $3 million and properties at this price point are certainly having a moment.”

Amid the uncertainty and economic hardship thrust upon so many by lockdowns without a known end date, there are still many with money looking for a high return in a low interest rate environment.

REINSW chief executive Tim McKibbin acknowledged there had been speculation that the current COVID outbreak may take some of the heat out of the property market but said, “it’s hard to argue selling conditions could be any more advantageous for vendors than they are at present.”

“People don’t abandon their property plans during lockdown and in recent weeks we’ve seen a strong appetite among buyers to proceed. 

“Once we came out of lockdown last time, the market quickly re-gathered momentum, and the current strength of demand suggests this will happen again.” 

Domestic debtors

Property buyer Mr Ruvinsky said wealthy overseers of the ‘Bank of Mum and Dad’ were playing a major part in driving the market in more affluent areas.

“The coastal and inner city suburbs are really seeing what happens when mum and dad want to help the kids — the Bank of Mum and Dad is doing great business in these areas,” Mr Ruvinsky said.

“Parents have benefited from massive price growth themselves and now have the means to help their kids into their first property and even though some parents living in west/outer suburbs can and do help their kids as well, those kids are choosing to buy in the higher growth areas of the coastal and inner ring, which is where they want to be living.”

As the lockdown situation extends and vaccinations take many months to reach a level that will negate their implementation, areas within five kilometres of the CBD remain the investor hotspots, according to Mr Ruvinsky.

Strategic Finance and Buyers Agents conducts a six-monthly analysis of all 180 suburbs that sit within a 20km radius of the Sydney CBD, to identify their preferred areas for investment. 

“The smart investors are looking beyond the lockdowns and taking advantage of areas that have been hit the hardest, with a great example of this being the inner city area of Darlinghurst, which pre-Covid had one of the highest rates of Airbnb listings in all of Sydney. 

“When COVID struck, all those units became empty and desperate owners flooded the long term rental market, which completely decimated rent returns for all owners in that area as supply swelled.

“Playing the long game, smart investors are scooping up investment-grade property near the Sydney CBD and, while accepting a reduced rental, know this is only a short-term situation.”

Closed borders have reduced the volume of skilled migrants that Sydney attracted each year. Sydney previously experienced two per cent year-on-year net migration, equating to around 20 per cent more people living in Sydney in a couple of decades. The pandemic has brought this growth to an end — for now.

“All this property demand is purely domestic, with a tiny number of Aussie expats buying on top of the local demand,” Mr Ruvinsky said.

“Once international borders open up, and with record low interest rates, watch the market go ballistic.”

As the researchers studying the correlation between property prices and disasters found time and again, any blips are only temporary. 

Unless this constantly mutating virus knows something we don’t.