While the Australian property market is trending lower, Sydney continues to show subtle signs of improvement. Positive federal election sentiment, two rounds of Reserve Bank of Australia (RBA) interest rate cuts and low numbers of homes for sale have provided an unexpected lift in demand.
Sydney property values
According to CoreLogic’s June 2019 report, Sydney experienced a 0.1 per cent increase in dwelling values, marking the first monthly increase in the city since July 2017. Over the quarter, the city’s dwelling values declined by 1.1 per cent.
Overall property prices have fallen by 9.9 per cent over the past twelve months and are now 14.9 per cent below their 2017 peak. While values are trending lower, the pace of decline has eased considerably.
Sydney rental property market and vacancy rates
Sydney rental yields increased to 3.5 per cent in June, up from 3.2 per cent in 2018. The year-on-year lift shows positive signs for the property market however the city remains well below the national average of 4.1 per cent.
Asking rental prices for houses and units both weakened in the first half of July. Prices dropped by 0.5 per cent for houses and 0.2 per cent for units. The current median rent is $580, a 0.3 per cent fall from May. Although rental prices are weakening, Sydney remains the most expensive city to rent a property in Australia.
The city also continues to have the highest vacancy rates in Australia, according to SQM Research. Vacancy rates throughout June were recorded at 3.5 per cent, an increase of 0.2 per cent and the highest figure since 2005.
While June is typically a slow period for the property market, Sydney is expected to reach a 4 per cent vacancy rate before the end of 2019.
Sydney auction clearance rates
According to CoreLogic, the preliminary weekly auction clearance rate for Sydney this month is 77.2 per cent, compared to last year’s rate of 46.9 per cent.
The low number of houses going to auction is creating heightened competition among buyers, many of whom are eager to buy following the RBA’s second round of interest rate cuts and Sydney’s falling dwelling values.
Listing numbers in Sydney also experienced a large decline, falling by 10.8 per cent over June and 9.8 per cent from the same time last year.
Finance and interest rates
The Australian Bureau of Statistics lending data shows lending slumped by 2.7 per cent to owner-occupiers and 1.7 per cent to investors throughout June, while first home buyers edged up to take their largest share of the lending market since 2011.
As a result of continued low approval rates, the Australian Prudential Regulation Authority announced it would relax lending restrictions in early July.
The decision means lenders no longer need to apply a ‘stress test’ on home loan applications, which determines whether borrowers can afford to repay residential home loans with an interest rate of at least 7 per cent.
Relaxed lending regulations paired with recent RBA rate cuts is great news for Sydney buyers. The city’s property market has been weakening but it still remains the most expensive city to live in. Buyers are taking advantage of lower interest rates, improved sentiment and prices that seem to have bottomed out.
Sydney commercial property market
The Sydney office market continues to tighten as demand grows stronger, according to Savills Australia. In the first half of 2019 Sydney’s commercial sector has been characterised by limited supply, growing demand and rising rental prices, with this expected to continue.
Vacancy in the North Sydney office market remains well below the long term average of 8.7 per cent, according to Colliers Metro Office 2019 report. Coupled with continued low vacancy levels in the Sydney CBD, there are very limited ‘near city’ prime options for tenants. This limited supply saw net face rents grow by 2.5 per cent over the six months to March 2019.
Of all Sydney suburbs, Macquarie Park and St Leonards recorded the lowest vacancy rates. Vacancy in Macquarie Park fell from 5.4 per cent to 4.8 per cent, the lowest vacancy rate on record. Similarly, vacancy in St Leonards declined from 9.9 per cent to 6.1 per cent, the lowest rate since January 2001.