Sydney Property Market Analysis Reveals More Room For Growth
As 2018 gets underway Sydney’s lower clearance rates suggest a residential property slowdown, however looking deeper all may not be what it seems. While investor concerns lie with potential market collapse as seen overseas post the Global Financial Crisis, local lead economic indicators tell another story. They show a city primed for billions of dollars of public and private funding, with major infrastructure projects planned and commercial investment transforming the CBD. These developments suggest there’s some way to go with Sydney’s residential property - which means looking elsewhere to understand the current state of play.
Limited credit post APRA reforms
The Australian Prudential Regulation Authority’s (APRA) measures were announced March 2017 to curb investor borrowing, limiting the supply of credit into the residential property market. Designed to stem the effects of high household debt, low interest rates and subdued income growth, APRA’s intent was to ensure borrowing practises were in line with a higher risk property market. Measures included limiting interest only (IO) lending, reduced loans with high loan-to-value ratios over 80% and tightened serviceability with interest and income buffers.
Residential investors feel the pinch
APRA’s new serviceability measures mean that many property buyers now find they can't borrow more than their current debt. Additionally, instead of principal and interest rates being at parity with interest only, banks have now moved the latter rates upward. This has effectively ended the traditional investment model of purchasing property with IO loans for cashflow, waiting for growth and refinancing to withdraw equity for the next purchase until a large portfolio is built. Sydney’s clearance rates dropped from a consistent 80% to below 60% in the later stages of 2017 as vendors readjusted their expectations to meet reduced demand and a lower supply of funds.
Overseas buyers’ market withdrawal
Over the past few years the heated property market has been attributed in part to overseas buyers with particular focus on Chinese investors, however this demand has started to slow. Local banks have placed restrictions on foreign lending in combination with regulation by the foreign investment review board. At the same time, China has increased control over its foreign exchange, to try and limit the amount of money leaving the country. This may not have been the most significant factor fuelling Sydney house prices, but the market has been much quieter since these changes came into play.
Sydney’s government infrastructure boost
Government plans for $20bn of state infrastructure spending are set to boost the New South Wales economy by almost $300bn over 20 years. Initiatives to deliver world-class connectivity will put Sydney on the global stage, with state-of-the-art road corridors and public transport systems to increase productivity and reduce congestion. Upcoming projects include WestConnex, NorthConnex, Sydney Metro rail line, light rail extension and Badgery's Creek Airport. The city will become more efficient, with many areas easier to access and property values will increase accordingly.
Commercial investment creates residential buzz
Significant investment into large projects includes developing high profile sites around Sydney’s Barangaroo in the CBD and Central Park at Broadway/Chippendale. The derelict area surrounding the former Tooheys brewery at Chippendale is now one of the city’s hottest ""eat streets"", surrounded by an award-winning high-density residential development. Barangaroo is no different - with development underway it’s already become a top tourist attraction with Packer’s soon-to-be iconic 6 star Crown Casino still to be completed.
More growth to come as city transforms
APRA’s reforms may have created a manufactured slowdown but the natural upward swing of the NSW economy is set to continue. Flow-on effects from statewide infrastructure developments include jobs creation, with higher discretionary spending bringing money back into the property market. Large-scale developments will increase as additional infrastructure unlocks potential in new business hubs throughout Sydney. This gives investors multiple opportunities to capitalise, as areas transform and zoning changes in a city set for ongoing economic growth.