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Sydney property market shows signs of improvement

BMT team — Mon, 29 Jul 2019 00:29:05 +0000

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.

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Will your children be able to own property in Australia?

Chan Naylor Team — Fri, 06 Nov 2015 05:37:44 +0000

Last month I wrote an article about how Sydney is fast becoming like the property markets in New York and London and also how the younger generation are feeling disenfranchised due to out of reach affordability of property ownership. Read David Naylor’s previous article: London, New York, Sydney? I have recently returned from a trip to the UK and while there, undertook some research on how cities like London and the younger generation are dealing with affordability of property ownership, what strategies are being implemented and then looked at how these strategies could apply back here with young Australians. The concept that has become popular in the UK is the “share the pain” principle. As property prices rise the option of shared ownership is gathering momentum. The bottom rung of the housing ladder is being pulled further out of reach with data showing how few potential first home buyers’ earn enough to get the mortgage they need on a typical first home in high price areas. This is not unlike markets in Sydney and Melbourne where the gap is sometimes even greater. Unless young people have access to the bank of ‘Mum and Dad’, than shared ownership may be the only option. The young generation point to the now or never syndrome… before even a ‘share’ of a home becomes unaffordable. In the UK they have organisations called Housing Associations. These are private non-profit groups which offer properties for shared ownership. I am not yet aware of any such organisations in Australia but don’t be surprised if something similar doesn’t start to emerge in this country soon. There are advantages and disadvantages with the UK model, but what the research did highlight is the fact that there is a growing need for shared ownership strategies among the younger generation to allow an entry point. With shared ownership you have to pass an income eligibility test with the banks before you can then get a mortgage of between 25 and 75 per cent. You pay rent on the part of the home you do own and you can increase the mortgage to take out larger slices based on the increase in property value until you own the home outright. This is called ‘Staircasing’. Until organisations like those in the UK appear in this country, one option for young people could be a joining of family members or close friends to pool deposits and use combined incomes to access finance. A slightly more complex idea could be that they enter into a joint venture where the rules are clearly defined and the property is held jointly via a partnership or trust structure. This would give them access to property ownership which is an obvious advantage. The disadvantages with a model like this is, that what happens if circumstances change, how flexible is the structure to allow changes in personal situations and at what cost? This will all be governed by the Joint Venture Agreement. With any change of percentage of ownership of property you would then also need to consider the cost of Stamp Duty and Capital Gains Tax, however if structured correctly and the appropriate agreements are in place then this can be managed to some extent. When a property seems financially out of reach, a joining of two or more people’s resources may potentially allow them leverage to enter the market together, at a younger age. There has to be, and there is hope for our younger generation with regard to property ownership. The old fashion principles still apply, work hard, budget, save hard and then perhaps to get entry into the market they may just have to think outside the square and consider non-traditional methods of property ownership. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122.

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London, New York, Sydney

Chan Naylor Team — Tue, 29 Sep 2015 07:07:52 +0000

The Sydney property market is fast turning into one that is similar to London and New York both in affordability, demographics and the style of dwellings. It has recently been confirmed that in fact, this is now actually the case. Sydney medium house prices have finally hit the $1 million barrier and with record clearance rates, auctions at over 90 per cent and low interest rates, many say there is still plenty left in the Sydney market. Sydney’s median is now higher than average house prices in London and is fast approaching that of New York, the ‘Domain House Price Report’, released recently says. The median house price has increased by almost $200,000 or 22.9 per cent in a year, which is one of the highest annual growth rates ever recorded by the city, even exceeding the boom time results of 2001 and 2002. Besides the changes in housing growth, it is also the style of living that is changing. Just like the major centres of London and New York, apartment living is becoming the preferred option. After a lost decade with little housing investment, Sydney is leading the country’s biggest housing construction boom. Densely populated neighbourhoods near the CBD are at the epicentre of Sydney’s housing boom with one in five of all new homes in the metropolitan area being built within the City of Sydney. New State Government figures reveal that over three times more homes were completed within the City of Sydney’s boundaries during the first seven months of this financial year than in any of the forty one other Sydney councils. The City of Sydney, which covers just twenty six square kilometres, is adding new homes at the rate of 100 per week. The figures underscore the growing dominance of multi-unit housing in the Sydney property market. In the first seven months of 2014-15 more than two thirds of all dwelling approvals in greater Sydney were for multi-unit developments. Sydney’s apartment boom is also spreading across the metropolitan area, with suburbs also doing some heavy lifting when it comes to new approvals. The quadrupling of new apartment approvals in the outer-ring northern districts this financial year showed the boom was spreading to suburbs with the transport links to support it. The negatives of such high growth is the frustration that young people and those still to get a foot-hold in the market feel especially in Sydney, in trying to achieve property ownership. To most of these people, property ownership appears both unaffordable and well out of reach, similar to both the London and New York markets, which now means that renting becomes the next best option. With the latest boom in Sydney we are seeing the ripple effect coming into play, which basically means the younger generation either accept the “rent” apartment style of living closer to the inner ring, or ownership by moving further out to areas that are more affordable and have good transport links. The ripple effect is the phenomenon that occurs when prices become unaffordable in a particular area and overflows to the next suburb so on and so on. Sydney’s suburbs outside the inner rings are now experiencing record growth rates. I have been a long term property investor in Sydney and it may be boom times at present but like previous cycles it will not last forever and just like the mining boom we have just seen, the bubble will eventually burst. It’s now all about when. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122.

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Sydney’s house-of-cards property market

Simon Pressley — Tue, 10 Feb 2015 02:53:44 +0000

While there may still be a bit of steam left in Sydney’s property engine, Propertyology has previously described Sydney’s market fundamentals as being as fragile as a house of cards. A statement in February’s Reserve Bank press release could be a suggestion that a joker in the pack may soon be played. The House-Of-Cards Concern It is this statement from the RBA that could suggest that policy makers may soon play that joker: “Credit growth picked up to moderate rates in 2014, with stronger growth in lending to investors in housing assets. Dwelling prices have continued to rise strongly in Sydney, though trends have been more varied in a number of other cities over recent months. The Bank is working with other regulators to assess and contain economic risks that may arise from the housing market”. The concerns for Sydney are these: Lack of affordability (long been Sydney’s Achilles heel), A very high level of sales transactions to investors, Potential tightening of credit policy specific to Sydney, Potential policy changes by Australia’s Foreign Investment Review Board to curb Asian investors, and A significant supply of new dwelling stock in the pipeline. Under ‘normal’ circumstances the RBA responds to a property boom with a few interest rate hikes to caution consumers. But this current boom is isolated to Sydney – it’s not like the RBA can raise rates just in Sydney. In fact, the RBA’s decision at its February meeting to reduce rates has the potential to add fuel Sydney’s market. A subdued employment market and sharp declines in commodity prices are bigger national issues which forced the RBA’s hand. This is where that “…working with other regulators to assess and contain economic risks that may arise from the housing market…” comment is so interesting. What if the Foreign Investment Review Board (FIRB) passed legislation to restrict Asian investment in Australian real estate? Joker number one! What if banks (with some ‘encouragement’ from the likes of APRA and / or RBA) tighten their credit policy just on Sydney-based securities to shelter themselves from extra risk? Banks have been known to do this before when they’ve identified a ‘location risk’ in the likes of the Pilbara and Moranbah. Joker number two! Another possibility lies in China where there are reports of residential market declines of 15% over the last 12 months. Chinese banking executives and economists say that a severe housing downturn could cause a considerable increase in non-performing loans amongst Chinese banks. We know that when times get tough investment properties are often one of the first assets disposed of in order to bring the household budget back in to order. Further instability in China’s market could result in high levels of resale stock in Sydney. Joker number three! Regardless, Propertyology does expect vacancy rates to increase and rental yields to reduce in Sydney. An unhealthily high ratio of investor-owned properties is already occurring with ABS data confirming that 60% of NSW home loan approvals (refer Sydney) were for investors [30% is ‘normal’]. The Fundamentals The performance of Sydney’s property market over the past 18-24 months is as spectacular as it is concerning. Contrary to tabloid rhetoric, outside of Sydney, property markets are experiencing a predictable post-GFC recovery phase with normal rates of growth (0 to 6%) over the past 12 months The state of New South Wales is home to 7.4 million people (a third of Australia’s total population) and 4.3 million (18.7%) of these are in Sydney Greater-Sydney can be broken in to ‘Metropolitan’ and ‘Western Sydney’. With a population of 2.06 million people (8.9% of Australia), Western Sydney on its own is bigger than the combined populations of South Australia, Tasmania, ACT, and Northern Territory With a median house price of $730,000 Sydney is the least affordable location in Australia (miles above the capital city average of $580,000) For the same price that you can buy a Sydney apartment (median value $576,000) you can buy a house in every other location in Australia with the exception of Melbourne Sydney’s population growth rate has been below the national average for much of the past 10 years, and only ahead of economic minnows South Australia and Hobart. Rate of growth is completely different to population size New South Wales has a long history of people immigrating away from Sydney to alternative locations. Cost of living, especially housing, is a key factor Sydney has been Australia’s worst performing capital city market since the 2000 Olympic Games. Sydney’s high property prices meant less buyer competition to force the rate of growth that other locations around the country have historically experienced. It’s not until we had 60-year low interest rates that Sydney has first significant price growth spurt in more than a decade. Through 2000 to 2010, the NSW unemployment rate was regularly above the national average. A massive job swing has recently occurred; of the 134,408 jobs created nationally during 2014, 52,975 of these were in Sydney. Boom! Metropolitan Sydney is Australia’s white-collar capital and unemployment rates are currently up to 50% better than the national average. Much of the recent jobs growth has been in white collar sectors such as financial services. If only people can afford to buy a property in Metro Sydney. Large parts of Western Sydney, on the other hand, have significantly fewer job opportunities. Manufacturing accounts for 16% of jobs (not ideal in the current climate) while a fifth of all businesses are in the construction industry. Australia’s highest crime rates are in Western Sydney. To overcome a reported 182,000 job shortfall, tens of thousands of people have to commute from the more affordable western suburbs to work in metro Sydney each day. Transport infrastructure has not kept pace with population growth. The rail network has not been significantly expanded since the 1930s, yet the region’s population is now five times greater. The heavy reliance on passenger cars results in horrendous traffic congestion, loss of productivity, and high fuel costs. Remember that earlier […]

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