Sydney property price leap biggest since Bob Hawke era

The last time Sydney experienced a monthly price surge on this scale, Bob Hawke was in charge, Australia was celebrating its bicentennial, and Queen Elizabeth was opening the new Parliament House.

House prices in most Australian capitals have accelerated, with the widely watched CoreLogic home value index jumping 1.7 per cent nationally in November.

But in Australia's most populous city, home prices surged by 2.7 per cent, posting the biggest monthly gain in 31 years.

Buoyed by the re-election of a government unwilling to touch negative gearing, the Reserve Bank cutting rates to historic lows and bank regulator APRA easing credit standards, the median property price in Sydney has leapt by about five per cent in the past two quarters.

If the recent price growth continues, it’s expected that Sydney house prices will regain thier 2017 highs by early 2020.

According to Aussieproperty.com Portfolio Manager David McElwain, that remains a significant “if”.

While property speculators are frequently predicting a property frenzy as buyers try to capitalise on anticipated price hikes, Mr. McElwain said high rental vacancies could dampen the prospects of investors looking to cash in.

“Rental vacancy rates in Sydney are sitting at 3.7% overall, with a vacancy rate of 2% considered a normal rental market,” he said.

“There are many more properties on the market for lease right now than there are people looking to rent them and landlords are taking a hit on returns at the moment.”

Chris Gray, CEO of Your Empire, said confidence in the property market had continued to rise since the release of the SQM Research Boom and Bust Report and Core Logics updates that suggest 2020 could see double digit returns for some property.

Mr. Gray suggested it may be a few months before there was a clearer picture of which way the Sydney market would trend after this latest monthly blitz.

“Much will still depend on how the RBA, APRA and the banks react, but most observers believe the bottom of the market is well behind us,” he said.

With many property agents, buyers and sellers taking holidays at this time of the year, the degree of market confidence was still to be fully gauged.

“What lies in wait for the property market will all depend on how everyone wakes up in the New Year - everyone has a rest and a break from the market and it’s those early transactions that will highlight whether the confidence continues.

“A lot of Australia doesn’t wake up until after Australia Day at the end of January but some agents will come back from holidays early to work with their vendors that want to be the first to market and this can create an opportunity for buyers who are ready to go and want to make an early offer,” Mr. Gray said.

Seeking value

Sydney's preliminary auction clearance rate of almost 85 per cent is near peak boom-time levels and a sense of FOMO (fear of missing out) is seemingly returning to the market.

Countering the excitement is an economy losing momentum, stagnant wages and house price affordability already at restrictive highs compared to global norms.

James Nihill, Managing Director of Patrick Leo, was still on the side of the market hawks, predicting prices to continue rising sharply.

“Sydney’s median house price has increased by 3.1 per cent to $850,072, from $817,886 in October, showing that buyers have overcome the fears felt back in mid-2019, and we’re now seeing a sense of urgency,” he said.

“It looks as though buyers and investors are now well aware that Sydney is likely to return - if not exceed - its peak sooner than we initially thought, so it’s critical to act fast.”

Mr. Nihill said proximity to schools and transport and low vacancy rates were the key variables to look for investment opportunities.

“For investors, look no further than Sydney’s inner-west.

“One of the top four strongest sub-regions for capital city price gains over the past year has been the inner-west of Sydney, with suburbs such as Strathfield and Marrickville expected to increase in value by 7 per cent in 2020,” he said.

Road (or train) to success

Mr. McElwain said it was important that investors checked how much development was in any one area or suburb before buying there.

“Prices may be high but rental values will still be low if a number of developments come to fruition around the same time, with a subsequent impact on rents,” he said.

Securing a great deal in a firming market was challenging, but there were still good opportunities in outlying suburbs with good transport links to the city.

“Rockdale, Westmead near Parramatta, Ryde and other western suburbs represented a buying opportunity.”

“There is a lot of development in areas such as Kellyville (in Greater Western Sydney) where house and land packages can be found at around $750k, which could work for families trying to get a leg up.”

Mr. Nihill said it wasn’t too surprising that Sydney had bounced back quicker than expected. In addition to reduced borrowing costs, lending criteria had also eased and the Federal Election secured negative gearing tax incentives for investors.

“Improvements to Sydney’s transport and infrastructure can dramatically reposition a suburb’s potential and must be factored into decision-making,” he said.

“It’s a great time to act for investors, with the potential to reap capital growth again in a relatively short period of time – providing buyers pinpoint growth locations and snap up property before further price hikes.”