Bernadette Hayes, Principal of Harbourline Real Estate, reviews the Sydney property market; the past, the present and where the market is headed.
June 12 to June 17
In the 5 years from June 2012 and June 2017 Sydney property prices rose approximately 80% and unit prices 60%. These gains were underpinned by:
- Strong overseas immigration of approximately 90,000 per annum
- Lack of supply of dwelling stock
- Strong overseas investment particularly from China
- Strong local investment because of negative gearing and capital gains tax advantages
June 17 to June 19
From the peak in June 2017, house and unit prices have dropped by approximately 15% to bottom in June 2019; some suburbs falling further and some lesser than 15%. So a $1,000,000 house in June 2012, would on average be worth $1,800,000 in June 2017 and $1,530,000 in June 2019; a resultant 53% increase over the 7 years. The reasons for the large price drop was a confluence of factors:
- Prior excessive price gains and a natural pull back from buyers unable to afford the high prices
- Sharp drop in local investor demand because of Labour’s proposed investor legislation, regarding negative gearing and capital gains tax
- Massive increase in unit construction and supply throughout Sydney
- Chinese overseas money transfer limits and disappearance of mainland Chinese investment
- The banking Royal Commission induced banks to cease LIAR loans and improve lending standards as well as increased Australian Prudential Regulation Authority (APRA) lending standards resulting in a sharp reduction in lending for dwellings.
June 19 to October 19
Since June 19 until now prices have rebounded in Sydney by some 3% due to:
- The surprise Coalition win in May, which immediately changed the investor mindset. Investor demand started increasing and investor properties being planned for sale stopped.
- The Reserve Bank research showed the economy was slowing sharply and so reduced interest rates in June, July and again in October with the objective of preventing a housing collapse and to stop further property price declines, and flow on effects to reduce further declines in consumer spending and support the faltering economy.
- APRA in concert with the Reserve Bank loosened the lending criteria of the banks so as to increase lending volumes and assist in underpinning the housing market.
- The fall in property prices has resulted in vendors withholding stock, waiting for better times in the future to sell. The resultant reduction in supply has contributed to the recent higher auction clearance rates and price increases.
Harbourline is at the coal face of dwelling demand. We have seen a substantial increase in buyer interest from the lows earlier in the year, which has put a floor under further price declines. For the future we believe the variables to consider will be:
- Low inflation, low wage increases and low interest rates will be with us for many years
- As prices improve more sellers will be enticed into the market increasing supply in the short term
- Immigration into Sydney will remain robust at approx. 90,000 per annum and Sydney’s population could reach 6 million by 2026 and 7 million by 2035.
- In the short term keep an eye on monthly employment numbers, monthly Reserve Bank credit growth figures and the $A exchange rate. Positive numbers will exert upward pressure on house prices, negative numbers downward pressure.
In conclusion, we believe price growth will remain subdued for 3-5 years, before perennial Sydney supply constraints kick in, banks loosen their lending criteria and population increases create stronger demand, before kicking off a larger price increase cycle once more. Plan and prepare accordingly!
The one variable that can derail this, is a recession in the USA, which is in its 11th year of growth, the longest on record. If this does occur and how big and how long it lasts will have a major impact on the Australian economy and in-turn the housing market, in which case a re-evaluation of the future would be required.