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The question everyone is asking – what will happen to Sydney property prices in 2011? Before we make some predictions for 2011, let’s take a look back at what happened in 2010.
2010 proved to be an interesting year. Until around April/early May 2010, buyer activity was very strong in the inner/middle ring suburbs, with auction clearance rates regularly over 70%. Many of these suburbs showed significant price growth (some areas at as much as 15% in the first 3-4 months). Around early May 2010 however, the market began to soften, influenced by 3 subsequent interest rate rises (in March, April and May), international debt concerns, and a strengthening Australian Dollar deterring overseas and expat buyers. This weakening continued through to the conclusion of 2010, and with clearance rates trending significantly lower, the market was officially off the boil.
There has been a lot of anticipation with the start of 2011. How was the year to begin after the conclusion of 2010, where many properties had failed to sell and were still on the market?
Early indications are that the market has regained some strength after the Christmas break. Auction clearance rates, off to a slow start at 48% for 5th February auctions have improved with the next weeks recording 69% and 63% clearance. We have noticed large numbers at open for inspections of properties up to around $1.5m with good buyer interest for quality properties.
The high $AUD has continued to deter overseas property buyers. As buyers agents we have found that overseas buyers are sitting and waiting for a return to a stronger $USD. This has particularly impacted high-end properties and has presented some good buying opportunities, in some cases more than offsetting the poor conversion rates. This situation is unlikely to continue indefinitely and when rates return to more usual levels, we are predicting the return of overseas purchasers and higher premium property prices.
For investors, rental vacancy rates remain low at 1.4% for December 2010, with inner ring suburbs facing the greatest shortages with a 1.1% vacancy rate. Rental price rises are evident, as a result improving yields for investors.
We do believe that the market indicators are strong. Australia has high employment, historically relatively low interest rates (with no major changes expected in the short term), high levels of population growth and insufficient housing development, which will all ensure that the market will continue to growth however we believe it will do so at a modest rate. As always with Sydney property, there may be some troughs, but history has proven time and time again that the only way has been up, so if you are in the market for the medium-long term, you will find it hard to lose.
The start of 2009 was characterised by buyer reluctance and extreme caution in the midst of the global financial recession.
However from around February the lower end of the market ($400,000 to $700,000) was kicked along by the Government’s increased first home owner’s grant and record low interest rates.
Around May/June confidence reappeared in the mid market ($700,000 to $1.5M) and a couple of months after that, the higher end of the market started to show some signs of improvement. As economic conditions in Australia improved and confidence strengthened in financial markets, gains were made across all areas of the market.
Price growth across Sydney was recorded at over 10% across the board in 2009, with higher rises at the lower end of the market and more modest gains in the premium market.
2010 – What’s in store?
The 2010 real estate year has started strongly, with auction clearance rates across Sydney high – between 70 and 83 %.
As buyer’s agents, we are seeing large numbers of people attending open for inspections for both houses and units. Often there are lengthy queues at the front doors on Saturdays. The number of registered bidders at auctions is also very high, and the bidding is generally very competitive.
The market appears to us to be as strong as the boom of 2002/2003 when price rises were 29% and 15% respectively. Whether the overall gains for 2010 will be at these levels remains to be seen.
Some of the main reasons we are seeing the current boom and increased prices are :
- Official interest rates are still at very low levels historically with the official reserve bank cash rate at 4% – still 3.25% less than rates were 2 years ago. Although the trend appears to be for higher rates in the future, most buyers have factored this in, and few economists are predicting rates to return to those higher levels in the medium term.
- The Australian economy is performing very well compared to other OECD economies with economic growth at 2.7% for the past 12 months, and solid growth forecast for the remainder of 2010
- Relatively low unemployment at 5.3% (compared to nearly 10% in the USA), is increasing buyer confidence to purchase property and borrow money
- Return of the property investor to the market
- Relaxed Foreign Investment Review Board (FIRB) regulations which now make it easier to foreigners to purchase residential property in Australia
- Low supply of stock. This is a continual problem particularly in the sought after areas of the Eastern Suburbs, North Shore, Northern Beaches and Inner West. Our discussions with selling agents indicated that there is unlikely to be any increase in the supply of listings in the short to medium term
- Increased immigration to Sydney
- Lag in new developments around Sydney
- Sydney appears to be into a positive new property cycle
- The media is very positive about the Sydney residential market, and this in itself usually plays a very important part in determining confidence of buyers
Therefore in our opinion, provided the international economy continues to stabilise, the Sydney residential property market is set for continued strong growth throughout 2010 in all sectors.
Sydney House Prices Continue to Climb
Source : Yahoo 7 On the House
Thursday 11th March 2010
Sydney’s house prices have defied even bullish forecasts to post strong gains at the start of 2010, led by the Eastern Suburbs, Inner West and Lower North Shore, with many predicting the momentum will flow through to the rest of the year and into 2011. Buyers are being urged to enter the market now before prices move further away from them.
“What were considered bullish forecasts of ours six months ago have turned out to be on the light side,” said Harley Dale, chief economist at the Housing Industry Association (HIA). “Things are going even more strongly than we have forecast. On both fronts (activity and prices) it’s clear that, yes, we are in the midst of a housing recovery in Sydney.”
According to REX data, Sydney’s median house price rose 5.63 per cent to $525,000 in the past rolling quarter, while the Property Price Index, which factors in repeat sales, rose 3.92 per cent to $523,496 . It has outstripped gains in other NSW cities, including Wollongong where median prices were up 3.7 per cent to $362,950 and Newcastle where prices gained 1.54 per cent to $330,000. Sydney has also outperformed other capitals such as Brisbane where median prices rose 1.32 per cent.
Sydney’s housing recovery follows years of underperformance – the median Sydney price fell as low as $440,000 in March 2009 – after the market was affected by a sluggish local economy and the global financial crisis. But a stabilization of the economy and stock market has restored confidence in the Sydney market.
Henry Wilkinson, principal of Sydney-based buyers agent and property consultant Homesearch Solutions, says people should buy now, rather than wait. “We’re advising our clients to buy early this year rather than later,” he said. “We’re just seeing no sign of any change – unless there’s some world economic difficulty that comes from left of field. If fundamentals stay the way they are we’re expecting a very strong year in growth of greater than 10 per cent.”
Wilkinson said the main factor driving the market is relatively low interest rates. “The official cash rate is at 4 per cent – two years ago it was at 7.25 per cent,” he said. “That’s the main driving factor. Even with interest rates potentially going up a bit, they’re still going to be well below where they were two years ago.” He said there was also a shortage of quality stock in the market. “That seems to be a common problem around Sydney,” he said.
Eastern Suburbs strong
Wilkinson said Sydney’s Inner West has been strong. According to REX, median prices in the Inner West suburb of Birchgrove rose 34 per cent to $1.2 million, while Drummoyne was up 50 per cent to $1.13 million. But Wilkinson says the Eastern Suburbs are recording particularly strong price gains. “It’s the strongest of the market we have seen,” he said, adding the East was rebounding strongly after the GFC and is attracting people because of its access to the CBD and lifestyle including cafes, restaurants and beaches. According to REX data, median prices in Bondi Beach rose 42 per cent to $925,000, while the PPI for Bondi and Bondi Beach rose 8.96 per cent to $772,321.
Nathan Mainhoff of Century21 Ascot Homes in Bellevue Hill in Sydney’s East said there has been an upsurge in activity since Christmas, particularly in the sub-$5 million, with lots of activity in the $1 million to $3 million range. “The Eastern Suburbs is the first to go in and the first out in any cycle,” he said. “The market had a major correction last year and the one before courtesy of the GFC. It fell 18 to 20 per cent and is now finding its way back to what it was prior to the GFC in 2007.” He said there’s still scope for improvement – with the market still to get back to the peak it reached in 2005/06.
John McGrath, chief executive of McGrath Estate Agents, in his recently released Autumn 2010 market review said the bounce back in Sydney’s upper prestige end is continuing. “The recovery will likely be complete by mid-year so this is the last chance to upgrade into homes worth $3 million-plus at a discount to 2007 prices,” he said. “In 2010, the middle and upper brackets should increase as the economy strengthens and executive bonuses re-appear. I suspect we will see the $1.5m to $3m range start to increase strongly.” Mainhoff agrees there is still value at the top end. He says high-net-worth individuals are telling him they believe there is still good buying in suburbs such as Bellevue Hill and Point Piper. According to REX, median prices in Bellevue Hill surged 76 per cent to $1.43 million. Media heir Lachlan Murdoch’s $23 million purchase of the former French consulate, Le Manoir, at 93 Victoria Road, Bellevue Hill, helped boost overall prices.
Activity picks up on Lower North Shore
Homesearch Solution’s Wilkinson said the lower to mid North Shore is also strong, and stronger than the upper North Shore. Mary Curran, sales consultant at Ray White Lower North Shore, says she is seeing increasing numbers of inspections, while there is generally a lack of stock. “A lot of the properties are having offers on them prior to auction,” she said. “Properties on the market last year that weren’t sold have now sold. There are also high investor enquiries. The market has been very flat for a while. We don’t think it’s going to boom, but we think it will be a steady increase.”
Curran said there is a return to confidence in the general economy, which is underpinning the market. “The fact the stock markets have stopped falling means that people are now transacting again – they’re moving; they’re thinking about doing things,” she said. “Before they were just too nervous. There’s also confidence in the rental market from a landlord and investor perspective.” She said many were looking to diversify their portfolio out of the share market and into smaller units around the $500,000 mark.
Curran said anywhere close to the water, transport – including train lines and ferries – is particularly in high demand on the Lower North Shore. “The demographic is primarily a lot of single people. Therefore it’s good for rentals of studios and one and two-bedroom units.” According to REX, median prices in Kirribilli surged 53 per cent to $1.35 million, prices in Lane Cove North were up 27 per cent to $621,000 and McMahons Point rose 50 per cent to $935,000.
Price gains sustainable?
The HIA’s Harley Dale says the question is now whether Sydney’s price gains are sustainable. “Will we be talking about this kind of recovery in 2011? I think we’re at the crossroads at the moment,” he said. “There’s enough momentum that 2010 will be a better year than 2009 was. The next two to three to four months of information on housing will give us an idea of whether we will see a sustained recovery. It’s touch and go at the moment.”
But Dale is optimistic that prices can keep rising. “Momentum and confidence are very important to the Sydney market – two things Sydney has been lacking since around 2003/2004,” he said. “There’s more confidence on the ground from the building community than there has been for some time. There certainly seems to be a recovery underway in home values which is very good for household confidence. What I sense from talking to people on the ground is that sentiment’s improved and that’s a vital first ingredient.”