Voices of reason suggest Sydney will simmer not soar
When the property doomsayers were clamouring for attention 18 months ago, the media happily obliged by reporting their wild predictions of a 40 per cent housing price collapse.
The property bears were making headline-grabbing bets that they’d walk naked down busy malls if prices didn’t fall more than some plus 30 per cent figure. The forecast falls never materialised any more than did the nude real estate relays.
Fast forward less than two years and the same breed of property pundit is being gleefully reported by the same click-bait media outlets, this time espousing enormous imminent price rises in Sydney.
CEO of the Real Estate Institute of New South Wales (REINSW), Tim McKibbin, knows how hard it can be to be heard when you’re trying to be the voice of reason.
“When the 40 per cent crash headlines were everywhere, I was telling the media enquirers that I expected the market to be relatively flat.”
“My comments were never reported in the published articles.”
In the face of an ever more voluminous chorus of panic buyers and overexcited property agents, API Magazine spoke to five leading Sydney property experts to assess the validity of the more ebullient speculators.
Mr. McKibbin said he expected Sydney prices to rise by five per cent, possibly as much as 10, over the coming year.
“The market underwent a correction because people were talking it down hard and constantly, so it was like a falling stock market,” he said.
“The falls were more marked than they might otherwise have been until buyers and sellers started to again look at the market fundamentals.
“Employment figures, low interest rates, a growing population and reduced supply ensure there are no real downward pressures on the market, so I’d expect to see prices continue to build on the gains made since the correction,” he said.
Sydney leading recovery
In January, Sydney’s median house price sat at $994,300, up from $973,664 in December 2019. The median unit price sits at a healthy $746,017. January was the sixth consecutive month where the two biggest property markets in the country, Sydney and Melbourne, saw house values grow by more than one percent.
James Nihill, Managing Director of Patrick Leo, said the Harbour City would continue to recover in 2020, with January having posted a median house price growth of 1.1 per cent, down slightly from 1.7 per cent in December.
“While we were seeing values rising month-on-month in Sydney by nearly three per cent back in November, this decline in growth is expected due to the seasonal effect, and housing affordability constraints are once again becoming more apparent,” Mr. Nihill said.
“Auction rates have improved dramatically over the past 12 months as well, with clearance rates sitting at 77 per cent, compared to just 49 per cent this time last year.
“Sydney is looking to be a strong investment opportunity in 2020 as rental demand remains strong thanks to the trend of renting as opposed to buying,” he said.
The media was also a variable, if not a culprit, in perceptions around the quality of new builds in New South Wales.
The Sydney sale market grew 1.1% in January, 5.6% over the last quarter and 7.9% for the year, which is positive news.
David McElwain, Portfolio Manager for aussieproperty.com, said there had been a drop in interest for new builds, primarily due to the recent spate of deficient new buildings and a lack of litigation framework to compensate buyers of flawed buildings (such as the Opal Tower).
“Given the number of new apartments built over the last few years, the number of major defects is actually rather small overall but you only hear of the disasters, not the properties without major issues,” Mr. McElwain said.
“A building commissioner has been appointed to oversee major defect issues but his powers are nebulous and we are not sure yet just how effective he will be.”
Mr. McElwain said consumer sentiment was still strong, with first home buyers disadvantaged as property values continued to rise in Sydney.
Rents and risks
Rental vacancy rates in Sydney tightened from a high of 3.6% in August 2019 to a current 2.9%.
Mr. McElwain said landlords should be aware of the risks presented by potential health and disaster possibilities.
“Two per cent is considered a normal rental vacancy rate, so at 2.9% the ball is still very much in the tenants’ court, so landlords are encouraged to leave rents at current levels as an increase may lead to a vacancy that may be hard to fill,” he said.
The bushfires and now the coronavirus may also impact sales moving forward, both from local and overseas purchasers, but currently, there is no indication of this impacting the market, he added.
“We are concerned about predicting property movements going forward as there are so many mitigating factors.
“We believe the market will continue to move forward over the next few months but are loathe to predict further ahead.”
Finn Simpson, Business Development Manager of Belle Property, said they had noticed a strong interest in their properties early into 2020, with open homes as busy in very early January as they would normally be when things usually built up in the mid to latter part of the month.
“We have been noticing a larger number of applicants offering more than the asking rent when applying, likely due to the larger number of people at rental open homes.
Tenants are noticing this and realising that they may need to offer more in order to stand out and, if this continues, the traditional winter dip in the rental market may not be so bad, with rents possibly rising in spring.
It was important, he said, that landlords didn’t undercapitalise on their leasing campaigns.
The January property market had also started strong in Sydney’s blue-chip suburbs, according to Chris Gray, buyers’ agent for Your Empire and host of Your Property Empire on Sky News.
The business media was also in his sights.
“With many agents and buyers and sellers taking a well-earned break, not a lot normally happens until Australia Day, however, the media has been reporting on a lot of positive results, which means they’re not reporting on the less successful ones or there hasn’t been that many to talk about.
Mr. Gray said consumer confidence would play an integral part in how the Sydney market evolved.
“A lot of the property market results are dependent on consumer confidence and it’s always a nervous few weeks to see how the market opens, as that often sets the benchmark for the rest of the year - I believe that this confidence will continue to grow.”
“While I do think there is a good chance the market will grow by as much as 10 per cent in 2020, buyers still need to be cautious as things can change very quickly.”