Market Update

Market update – February 2012

Now that 2012 is upon us, it’s time to reflect on the year that has been and starting thinking forward in to the new year. Overall 2011 was generally a good one for buyers of Sydney residential real estate and not necessarily a bad one for sellers, especially those upgrading to larger homes.

According to the latest available quarterly statistics by Australian Property Monitors (APM)), overall Sydney median house prices fell by 1.6% for the year to September 2011, whilst unit prices recorded modest growth of 0.6% over the same period. For the September quarter however, both houses and units recorded falls, of 1.8% and 0.4% respectively. These figures reflect an overall flat market.

Auction clearance rates hovered around 50-60% throughout most of 2011. Interestingly though, most agents in our main areas of operations (North Shore, Eastern Suburbs, Inner West and Northern Beaches) report that taking into consideration post auction negotiations, the results would have been closer to a 75% success rate a week later.

For these above areas that we mostly operate in, our experience of the performance of the residential property market depended on the price level. Our observations are generally as follows:

Lower end of the market. ($400K to $800K). This market segment experienced strong demand from first home buyers taking advantage of the expiring stamp duty concessions for existing properties, and from investors attracted toincreasing rental returns (and more recently reduced borrowing costs). Overall the market performance was reasonably strong.

Mid market ($800K to $1.5M). Quality properties in this market segment experienced good demand (those in desirable locations, in popular streets and in good condition). Less desirable properties in poor positions withdifficult floor plans or building issues, struggled however, with weaker demand from buyers.

Mid/Upper market ($1.5M to $2.5M). Demand from buyers was generally weak, with prices falling 5-10% in some areas.

Premium market (above $2.5M). The weakest market sector, experiencing the greatest buyer caution. Price falls, some significant were evident.

Several factors influenced the buyer wariness and the softening of prices experienced over 2011. Concerns over the international economy, massive stock market fluctuations, debate over the impact on household finances of the introduction of the carbon tax, and poorer employment figures have all had an impact. The high $A has also largely kept expats out of the market.

So what is in store for 2012?

Assuming the international economic situation continues to stabilise and European country debt issues are resolved, the signs for the Sydney property market are generally positive.

Significantly the Reserve Bank of Australia (RBA) decided to decrease the official cash interest rate by 25 basis points in November and then 25 basis points in December to 4.25%. These were the first interest rate decreases since April 2009, and many economists are expecting further decreases in the short to medium term.

This gave home buyers new confidence at the end of 2011, and is expected to continue over the coming year.

The situation for property investors improved over 2011. To the end of September year in year, Sydney house rents increased by 3.1% and unit prices 4.5%, whilst vacancy rates remain very tight. Investors are seeing more favourable rental returns as a result, and with current international economic uncertainty, we are experiencing the return of investors to the safety of “bricks and mortar”.

We think Sydney is now offering some of the best property buying conditions for quite some time, particularly in the mid to upper market segments.

Some factors contributing to a positive outlook for Sydney property in 2012 are :

• Unemployment remains relatively very low – 5.3% in November 2011 according to the Australian Bureau of Statistics (ABS)
• Interest rates are relatively low in historical terms, and with recent decreases by the RBA the outlook by most economists for interest rates is downwards
• Immigration is still very high to Sydney, and the population increases continue to exceed the amount of new development, putting further pressure of existing housing
• Australia’s economic growth rate was 2.5% for the year to September 2011 according to the ABS, which exceeds most OECD countries, and with continued growth expected

Please contact us for a discussion on how you can take advantage of the current buying opportunities in the Sydney market, or for specific advice on what is achievable with your budget in the various suburbs across Sydney.