Sydney property market has a spring in its step

A buoyant monthly growth in median dwelling values, auction clearance rates around 80 per cent and some excitable property market commentators spruiking imminent double-digit annual growth rates – welcome to the fluctuating fortunes of the Sydney property market.

For more than two years prices had been declining, to be down about 13.3 per cent from their peak in June 2017. But the first signs of recovery have brought the buyers out in time for the traditionally strong spring season.

Sydney real estate agents said while the number of available properties was thinning, there was no shortage of potential buyers.

That buyer confidence has returned thanks to falling interest rates, easing lending criteria since the Banking Royal Commission, and an election result that was seen to provide more certainty around issues such as negative gearing and investment rules.

Finn Simpson, business development manager at Belle Property Dee Why, said now could be the best time for investors to buy in the last two years.

“As spring is now upon us we’re seeing more tenants at open homes and while this hasn’t yet translated into an increase in rental figures, if increased competition is sustained then it’s only a matter of time before we see gradual increases,” Mr. Simpson said.

The volume of properties on the market is still relatively low, with sellers seemingly waiting for spring when conditions are historically better for good sales results.

Buyers upgrading to larger properties are fuelling renewed demand in Sydney, clamouring for the limited number of new homes up for grabs. Agents are reporting more activity from those keen to trade up as the market heads towards its next upswing.

Andrew Woodward, founder of The Investor’s Way, acknowledged the solid auction clearance rates, which are steadily increasing, but said supply remained the difficulty.

“The volume of properties on the market is still relatively low, as it appears sellers are waiting for spring, so it will be interesting to observe whether the sellers do come to the market in the coming weeks.”

David Mcelwain, aussieproperty.com.au portfolio manager, echoed those sentiments.

“Spring invariably brings with it some increase in consumer confidence but the current economic predictions are not overly positive and this may well impact the market yet again,” he said.

Mr. Mcelwain also said the rental market would dampen investor enthusiasm, with vacancy rates now at three percent, a full percentage point above the level deemed normal.

“More than 5,000 new properties hit the rental market last month and vacancy rates have indicated landlords should be looking after their tenants and not increasing rents arbitrarily, if at all,” he said.

“In times like these it is important to maintain good tenancies and in some cases even look at possible reductions in rent to maintain parity with what else is around and to show consideration for the tenants.”

Government incentives are expected to provide some solace to those trying to enter the property market.

The federal government recently introduced a bill to Parliament to fulfill its election pledge to help up to 10,000 first-home buyers a year into the market.

Under the First Home Loan Deposit Scheme, which is due to start on 1 January 2020, the government will provide guarantees to lenders that will allow first-home buyers to buy a property with a deposit of five per cent, instead of the usual 20 per cent.

At the other end of the market, Sydney’s median priced, established, blue-chip, inner-city property market has grown stronger since the election, according to Chris Gray, CEO of Your Empire.

“There’s always been a shortage of good quality properties, even in the downturn, and so with more buyers in the market, record prices are still being achieved and properties are still selling above expectations,” he said.

“There’s still a way for the market to go though and buyers need to be reminded that you’ve got to go for quality as that will always sell and rent well in any market.

“It’s much better to pay full price for a ten out of ten property than get a discount on a seven out of ten.”

Lower expectation for high rise

While most pundits are predicting a return to stable growth for Sydney’s housing market, hopes are lower for high rise apartments.

A spate of building quality issues have beset the construction industry, scaring off many investors in a sector already overstocked with existing and developing projects.

Mr. Simpson said investors needed to be wary.

“Buying in big off-the-plan projects is a risk at the moment,” he said.

“If the recent building issues all over the country aren’t enough to scare you off, these properties are also likely to see sub-par rent increases over the next couple of years due to the increase in stock,” he said.

Mr. Gray also identified the high-rise market as a one in which buyers should drive hard bargains.

“Overseas buyers still have issues with getting finance and justifying the high taxes and the local buyers are becoming cautious with all the media around building defects.

“If you are in the market for a brand new property, it’s a great time to negotiate as this market is bound to come back in time, with potential value if the original purchase is made astutely.”

Sydney in numbers – August 2019