Buying Property with super

Self-managed super fund property rules

Buying property with Super and your SMSF is only permissible if you comply with the rules.

The property:

  • Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
  • Must not be acquired from a related party of a member
  • Must not be lived in by a fund member or any fund members’ related parties
  • Must not be rented by a fund member or any fund members’ related parties.

However, your SMSF could potentially purchase your business premises, allowing you to pay rent directly to your SMSF at the market rate.

What it will cost you

SMSF property sales may have many fees and charges. These fees can add up and will reduce your super balance.

You should find out all the costs before signing up including:

  • Upfront fees
  • Legal fees
  • Advice fees
  • Stamp duty
  • Ongoing property management fees
  • Bank fees
  • SMSF borrowing

    Borrowing or gearing your super into property must be done under very strict borrowing conditions called a ‘limited recourse borrowing arrangement’.

    A limited recourse borrowing arrangement can only be used to purchase a single asset, for example a residential or commercial property. Before committing to a geared property investment you should assess whether the investment is consistent with the investment strategy and risk profile of the fund.

    Geared SMSF property risks include:

    • Higher costs – SMSF property loans tend to be more costly than other property loans which must be factored into your investment decision.
    • Cash flow – Loan repayments must be made from your SMSF which means your fund must always have sufficient liquidity or cash flow to meet the loan repayments.
    • Hard to cancel – If your SMSF property loan documentation and contract is not set up correctly unwinding the arrangement may not be allowed and you may be required to sell the property, potentially causing substantial losses to the SMSF.
    • Possible tax losses – Any tax losses from the property cannot be offset against your taxable income outside the fund.
    • No alterations to the property – Until the SMSF property loan is paid off alterations to a property cannot be made if they change the character of the property.

 

See ASIC’s Money Smart or the ATO website for more information on Self Managed Super Funds and property purchase.

 

 

This week I was really excited to find a fabulous property that we could add value to.  “Add value? In what way,” I hear you say.  Perhaps you are thinking through renovation – new kitchen, new bathroom, paint throughout, perhaps a deck out the back or even maybe add another bedroom?  Yes, this kind of work would usually add value to a property.  But actually, I was thinking along other lines and two words had sprung to mind: granny flat.

By adding a granny flat to this property, we could literally double the rental return.

This four-bedroom house, in a Hunter Region of NSW town, was renting at $260 per week.  But as soon as I saw it, I knew it could achieve much more. It is a large block, more than 1,000 square metres, with dual access.  By building a 60-square-metre, two-bedroom granny flat on the property it could be rented for around $270 per week on its own, just for the flat.  But it does get better – the house is way under-rented.  You see, I’m finding right now that as rental markets have continued to tighten over the past few years, there are some owners and managing agents who haven’t bothered to increase rents. This house was being rented by a long-term tenant and quite frankly, she is on a very good wicket!  The market rent in this town for a four-bedroom house isactually up to $350 per week.  So the house is under-rented by a whopping $90 per week.

So if we spruce up the house a little, and this one only needs a paint and new carpet, we can increase the rent to $350 per week.  The purchase price is $250,000 and we may spend $8,000 of a cosmetic reno, so already that’s gives us a 7% gross yield. Not a bad return when the average yield for houses in Sydney, for instance is 4.18%.

The granny flat will cost us $92,000 to build, this includes the design and complying development application fees. It also includes separate service connections for the flat so that we can rent it to a different tenant to the house if we need to. Remember, the flat will rent for $260 per week.  If we add the cost of the flat to the purchase price of the house plus the small renovation costs, and include purchasing costs of stamp duty, legal fees, reports etc then we end up with a gross yield of around 9%.

Did I already mention that the average rental yield on houses in Sydney is around 4.18%?

OK, here is the twist. If you have a self-managed super fund or are thinking of setting one up, you may be able to do all this from within your fund.

On September 14, 2011 the ATO released draft Ruling SMSFR 2011/D1 clarifying its views on key issues surrounding borrowing arrangements (Limited Recourse) as they apply to self-managed super funds, allowing fund monies to be used to renovate property.

Importantly the ATO has given clarity to concerns of fund trustee’s in regards to repairs, renovations and improvements to properties held in SMSF’s under Limited Recourse borrowing arrangements. It is clear these can now be done within such arrangements. Borrowed monies cannot be used in all cases for such work; however other monies within the SMSF can be utilized.

This information comes from Nic Ellis, director of The 2020 Group, who tells me he’s had more enquiry than ever on this topic.  People want to utilize their Super to not just invest in property but to renovate and add value.  With such a volatile global situation and stock market, Australians want more security around their retirement funds.  Nick says he’s happy to see the draft Ruling as it falls in line with his company’s interpretation. The SMSF Limited Recourse borrowing for purchase of property has seen significant growth in recent years and this draft ruling will help turbo charge this sector of the market.

However, the area remains complex and care needs to be taken to ensure expert advice, appropriate structures and experienced administration of this process.

Source : Jo Chivers, Property Observer, 22 September 2011

 

 

The buyer, who has not been identified, has snapped up the 300 year-old Grade II-listed property, in the village of Remenham, near Henley-on-Thames, Oxon.

The record sale also reportedly includes about 200 acres of the parklands, listed monuments, house, cottages, stables and a boat house.

The £140m sale price makes it Britain’s most expensive house, eclipsing the £136m sale at One Hyde Park, Knightsbridge, central London, earlier this year.

Experts said the sale showed that the top end property market was still buoyant despite the global economic crisis.

Park Place, which has 30,000 square feet of living space and is set in 570 acres, was bought for £42m in 2007 by Mike Spink, a developer who specialises in upmarket properties.

At the time it was the most expensive house bought outside London.

The developer has spent several million pounds undertaking extensive renovations of the property, which had a decaying exterior and was run down. He is also developing a second 300-acre phase of the estate, which is not part of the sale,

The property, which backs on to the Thames river, was put on the market in 2006 for £45 million after plans to turn it into a luxury country club were rejected by Wokingham borough council following a vociferous campaign by residents.

The main house dates from the early 18th century and was once owned by Frederick, Prince of Wales and eldest son of George II, and was substantially rebuilt in the late 1800s.

Rooms still have the original huge stone fireplaces and stained glass windows. The ghost of Mary Blandy, who was accused of poisoning her father in 1752, is said to haunt the grounds.

The original sale involved several outlying properties, including three houses, 10 tenanted cottages and a further eight in need of renovation.

The property, which was used until 1998 as a boarding school, has two golf courses, a boathouse on the Thames and a stable block. It was recently used in the remake of the film St. Trinians.

Earlier this month, Knight Frank, the estate agents, which has advised on the Park Place sale, published research that concluded that a “notable change is the beginning of international interest” from buyers, especially from Eastern Europeans.

“Our experience is that the ripple effect from London is just beginning to reach the Home Counties where, after a slow start to the year, sales activity is rising,” said Rupert Sweeting, Knight Frank’s Head of Country House Sales.

“Generally, the market is still particularly price sensitive: if the price is right, a house will sell within six weeks of coming to the market.”

Mr Spink declined to comment to the Financial Times. Both Knight Frank and Savills, which also advised on the sale, declined to comment.

Source : The Telegraph London 17 August 2011

 

IF you’re worried about the price you’re likely to achieve for your home in a sluggish market, the last thing you’ll want to be doing is invest more money in it before you sell.  So is it worth styling a property for sale?

Yes say the property stylists, is exactly what’s needed.As Richard Armstrong, director of Melbourne’s the Makeover Group, puts it: “There’s a popularity contest held every week in the suburbs. They’re called auctions.

“In any market, whether it’s booming or on its knees, if you have genuinely comparable properties sitting next door to each other, then the one that is done well is always going to sell for more and faster.”

Michele Ardon of Michele Ardon Interior Design, a property styling specialist in Sydney’s eastern suburbs, says in a small market vendors simply need to spend money on some degree of property styling.

“They are simply not going to get the return they want if it [their home’s presentation] is average,” she says. “If it doesn’t stand out from the crowd, what is there to attract the prospective buyer?”

In the US they call it “home staging” and the queen is Debra Gould (aka the Staging Diva) who writes endlessly on the subject and runs training programs for people looking to set themselves up as professional home stagers.

As Gould puts it: “A house is a product that has to be packaged and marketed to the right target audience at the right price.

“In a slow or buyer’s market, any house is just one of many for sale in a neighbourhood. Real estate agents may say the only way to sell is to drop the price, but this ignores the positive sales impact of improving the product.”

How to improve the product and how much to spend doing it depends on the particular property, but there are some basic rules.

Ardon says the minimum spend is about $6000 and up to “$30, $40, $50,000”, depending on the value of the home, balanced against the possible return.

Armstrong puts the figure you should fork out at “between 0.5 and 2 per cent of the property’s value”.

“I would say 25 per cent of homes in the Sydney metropolitan area are being styled,” says John McGrath, chief executive and founder of McGrath Real Estate.

“People are wanting a one-bedroom flat styled right through to a four-bedroom house.

“We think there are three key pillars to selling a property and they are pricing, marketing and presentation.”

A lot of properties only need a few thousand dollars spent to get them right, says McGrath.

“Most people spend between $3000 and $8000, and my gut feel is that it adds between 5 and 10 per cent sale value.”

He says it can be as simple as removing or adding furniture.

“An agent should be able to give you advice but we do use outside style consultants, too. At the very least re-styling your property will make it sell a lot quicker,” McGrath says.

“The amount you may need to spend – and the possible return you can hope to get – depends on the value of the home we’re talking about,” says Armstrong, who believes – for the purposes of property styling guidelines – you can divide the Australian market into three broad categories: houses up to $800,000; houses between $800,000 and $2 million; and the $2 million plus property.

To ensure a house, in any category, has the best chance of achieving the best price, the minimum that a vendor should do to their property is “make sure everything is finished”, says Armstrong. “That’s [property styling] at the barest, most basic level. It’s things like cracks in walls, broken windows, broken handles.”

The next things that need to be done with all properties is to de-clutter and decorate in colours that are “warm, neutral and light”, he says. “Make it inviting so that people walk in and imagine themselves living there.”

Sometimes a stylist may go as far as a complete strip out of a client’s possessions.

“If I’m going to be a client’s style police,” says Ardon, “then we need to clear the place out, make it look empty and put in some good quality pieces. Sometimes it’s just a case of de-cluttering and renting a little bit of furniture, putting a few things in that make the place stand out.”

Also crucial is the property’s presentation to the street.

“What people experience at the front of the property will always set their expectations of what they are going to get once they walk in the front door,” Armstrong says.

This can mean giving the front yard “good crisp lines”, tidying, pruning and-or replanting garden beds, not to mention modernising the property’s exterior colours.

Armstrong had a client repaint the outside of a worker’s cottage in Melbourne’s Fitzroy.

“I honestly believe it added 30K or 40K to the property,” he says. “The heritage colours that were popular 20 years ago – the soft yellow and the Brunswick green – getting rid of that sort of stuff and working to a more modern colour palette says to everyone doing a drive-by: ‘We’ve got modern colours on the outside because we’re modern on the inside too.’ ”

Once inside (at least for homes worth more than $1.5 million) Armstrong advocates spending money on a “lifestyle” revamp to give it the contemporary feel that will appeal to most possible buyers. “You have to make sure the door handles are updated, light fittings are updated and things like dishwashers, stoves and that sort of thing are updated as well,” he says, adding that this stage might also include investing in a stone benchtop in the kitchen or “significant amounts of landscaping”.

Armstrong maintains that for every $1000 spent the vendor can look to add an extra $3000 on the total price achieved.

Ardon is more upbeat about the rewards of giving a property a makeover. “At the bottom end, if you spend $5000, then you can expect to get $15,000 to $20,000 [more],” she says. “At the top end I think [the return] is in the one to five or one to six ratio.”

That said, she also believes the sluggish market means vendors must make sure their home is memorable.

“You use elements of surprise,” Ardon says. All the basic principles of making your home attractive apply, but in a particularly slow market (not to mention one that already may be more property styling savvy, such as Sydney’s upmarket eastern suburbs) you also need to add “something prospective buyers will remember when they walk out”, she adds.

Perhaps a bright colour for the kitchen bench’s splashback or “wallpaper on a wall as you walk in the entrance”, Ardon says.

“They will have seen six or eight houses and they’ll remember the one with the red splashback.”

Gould, the Staging Diva, has likened the process to speed dating. You may see eight houses one weekend but “you’ll reject most and possibly choose one property to go back to for a second look”, she says.

“Home staging or house fluffing is all about creating the best first impression, paving the way for potential buyers to fall in love.”

Source : Guy Allenby, The Australian Newspaper 30 July 2011

A professional buyer’s agent should find out as much as possible about a property and it’s surrounds for their clients before their client exchanges contracts to purchase. An important part of the due diligence process is investigating whether there are any issues with the local council.

The purchaser’s solicitor or conveyancer will examine the Contract of Sale, and review the 149 Certificate that is issued by the local council. However from my experience many solicitors and conveyancers do not have the time or inclination to thoroughly check all of the issues with the local council, and therefore it is incumbent upon buyers’ agents to do those extra checks.

As buyers’ agents, we should independently call the local council and speak to the Duty Planner or Duty Surveyor to enquire whether there are any past or current Development Applications (DA’s) on the property to be purchased, and also for the surrounding properties. Information received may have a negative impact on the property of interest and may affect whether your client is still comfortable to proceed with the purchase.

Previously rejected DA’s may contradict what a selling agent has advised on what is possible with renovating or extending a property. Other issues that may be disclosed are: unauthorised building works, Construction and Occupation Certificates not issued, and also demolition orders.

Many council websites have a DA Tracker section, where you can see a history of Development Applications on any property within the area of that council.

Some recent examples of issues that I have uncovered from local council checks have been:

A federation house was in a Roseville street that the Kuringai Council had recently re-zoned to Residential 2(d3), allowing multi-storey developments. My enquiries through council disclosed that a large new six-storey development would be built behind this house. The client still proceeded with the purchase but the sale price allowed for this issue.
A house in Fairlight was affected by road widening. The client’s conveyancer ran a check through the RTA that stated that there were no road widening issues for this property. However my enquiries through Manly Council revealed that there was a Road Widening order on this property, that had been issued by the council independently of the RTA. The land resumed would have taken half of the lawn and garden space of the house. Our client decided not to proceed with this purchase.
A Maroubra unit, with open views to the city, was to lose those views due to a new development directly in front of this building. We checked the plans of the new development, and the client then decided not to proceed with the purchase.
In summary, it is very important that council checks are done on prospective properties as part of a buyers’ agent’s professional due diligence. Failure to do so could potentially expose you to litigation and liability with clients if adverse issues are uncovered following their purchase.

By Henry Wilkinson – Principal, Homesearch Solutions, for the NSW Real Estate Institute 2011

Awards for Excellence Homesearch Solutions

The REINSW Awards for Excellence gives recognition to the real estate industry’s top performers. The most prestigious awards of their kind in NSW.

For the second successive year, Henry Wilkinson of Homesearch Solutions has been nominated as a finalist for the 2011 NSW Real Estate Institute (REINSW) in the Buyers Agents Category. The award winner will be announced on Saturday, 15 October 2011 at the Sydney Convention & Exhibition Centre.

 

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.

World-class price tags on Wolseley Road

Wolseley Road, Point Piper, ranks as the world’s 10th priciest residential street, says the latest Dow Jones Financial News index.

Europe property prices are in turmoil, and the priciest street was in Hong Kong. Australia’s representative held its ground, and might edge higher after the recent $52 million sale of Villa Veneto.

The price reflects about $38,000 a square metre, higher than the $US28,000 ($30,000) a square metre given in the index for Wolseley Road.

Australia’s robust economy and the strength of the local currency helped Point Piper hold its spot on the list, according to Dow Jones.

Severn Road on Victoria Peak in Hong Kong ranks as the most expensive residential street in the world, according to the third annual survey.

It costs $US70,000 for one square metre of real estate. Severn Road jumped from eighth place to overtake last year’s No. 1, Avenue Princesse Grace in Monte Carlo.

About 15 per cent was wiped off the value of the world’s 10 most expensive streets in the past year. The worst fall was on Avenue Princesse Grace, from $US120,000 a square metre to $US65,000.

The next biggest decline was Chemin de Saint-Hospice in Saint-Jean-Cap-Ferrat in the south of France, where values tumbled from $US100,000 a square metre to $US55,000. The only places where prices rose were Severn Road and Moscow’s Ostozhenka.

Kensington Palace Gardens in London and Fifth Avenue, New York, ranked equal second at about $US65,000 a square metre, according to the list compiled by agents Knight Frank, Savills and Chesterton Humberts along with local independents.

It appears it took a Double Bay dentist, David Penn, and his wife, Linda Mueller, to consolidate Point Piper’s spot in the prestige stakes.

After their bullish $52 million purchase last month they will have the Lowys, of Westfield fame, as their neighbours.

Villa Veneto, the home of Andrew and Andrea Banks, had been on and off the market for three years. The Penns made their initial inspection two years ago.

Mr Penn heads clinical and technical research at Southern Cross Dental Labatories, which he founded in 1983. The Penns sold their Michael Suttor-designed home at Bellevue Hill for about $23 million to Tom and Lilly Haikin, owners of the Australian franchise of the Max Brenner chocolate shop, which recorded sales last year exceeding $20 million.

Mr Haikin, a former dental technician, has a $2 million house in Maroubra.

The listing agent of both properties, Bill Malouf of LJ Hooker Double Bay, will not confirm any sale details. But the reputed $52 million price trumps the $45 million – $11,250 a square metre – paid in 2008 by the expatriate foreign exchange dealer Ivan Ritossa for the Vaucluse residence, Coolong, currently rented to Lachlan and Sarah Murdoch.

After the Lehman Brothers bankruptcy in September 2008, which sent sharemarkets into a panic, the highest Sydney sale has been $26.75 million in Vaucluse, at $16,700 a square metre.

In Perth, a 7500 square metre residential compound with three houses on the Swan River at Mosman Park fetched a record $57.5 million in 2009. But it is hardly comparable, at $7666 a square metre and three houses.

The next Wolseley Road test will be the sale of property developer Nati Stoliar’s non-waterfront penthouse through Mr Malouf. It comprises 322 square metres on one floor, and a 280 square metre roof-level terrace with jacuzzi and barbecue.

Mr Stoliar, who once called as home both the record-setting Boomerang in Elizabeth Bay and Villa del Mare in Point Piper, is seeking more than $9 million.

It is in Pacific Point, in which was set a Sydney record off-the-plan apartment price of $3.8 million in 1988. But the apartment was sold again for $2.51 million in 1993, which indicates that prices do not only ever rise on the street paved in gold. Phil Green, of Babcock & Brown, then made money on it by selling it for $3.66 million in 2000.

The ground floor apartment in Pacific Point – which has 277 square metres of internal space, plus terraces – remains unsold after being scheduled for June auction with $5 million hopes through the McGrath agent Alan Waitsman.

It was listed by the Schwartz family executor after the death in 2000 of the long-time BRW Rich List dentist Bela Schwartz, who started investing in property after immigrating from Hungary in 1940, and his widow, Eve, who died in 2005.

The highest sale price at the weekend was $2.54 million for a terrace in Darlinghurst. Two pricier listings, at Balmain and Wollstonecraft, failed to find buyers.

The overall clearance rate from 243 listings was 57 per cent, 10 per cent weaker than the 67 per cent August average, according to Australian Property Monitors.

Source
Jonathan Chancellor
Sydney Morning Herald
September 6, 2010

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 :

  1. 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.
  2. 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
  3. Relatively low unemployment at 5.3% (compared to nearly 10% in the USA),  is increasing buyer confidence to purchase property and borrow money
  4. Return of the property investor to the market
  5. Relaxed Foreign Investment Review Board (FIRB) regulations which now make it easier to foreigners to purchase residential property in Australia
  6. 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
  7. Increased immigration to Sydney
  8. Lag in new developments around Sydney
  9. Sydney appears to be into a positive new property cycle
  10. 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.”

Sydney Rental Vacancy Rates 

Source: Press Release 25 June 2009, REINSW

Sydney’s rental vacancy rate is at its lowest level in 12 months, according to the latest data released today by the REINSW.

In May 2009, the percentage of available rental properties across Sydney slumped by half a percent to 1.0%.

“This is the lowest result recorded since May last year and is extremely disappointing,” said REINSW President Steve Martin.

In May 2009, the percentage of available properties in suburbs more than 25 kilometres from the CBD fell 0.4% to 1.0%.

In Sydney’s ‘middle’ suburbs, between 10 and 25 kilometres from the CBD, rental vacancies fell 0.2% to 1.5%.

The only parts of Sydney not to record a fall in available rental properties were suburbs within 10 kilometres of the CBD, which recorded a vacancy rate of 1.4% – unchanged compared to the previous month.

“These results are a double-edged sword: great news for landlords but grim news for tenants,” said Mr Martin.