State of the Sydney Property Market – January 2020
2019 was a year of extreme contrasts for the Sydney property market.
From January to May the market was generally subdued and prices were dropping. Then came 3 major changes which dramatically increased buyer confidence.
Firstly the Federal Election upset in May which removed the threat of changes to negative gearing and capital gains taxes.
Secondly APRA removed the regulation where banks were required to base a home loan borrower’s capacity for repayment on a 7% interest rate, and banks instead would be able to set their own minimum interest rate floor.
Thirdly the RBA reduced interest rates and the current cash rate now stands at a historic low of 0.75%, providing more available finance and lower rates for borrowers.
Buyer numbers have increased substantially at open inspections, bidding registrations have increased at auctions, and auction clearance rates have improved significantly.
Sydney’s premium and inner city suburbs have performed stronger than the outer suburbs, and auction clearance rates have been highest in the Eastern suburbs, North Shore, Inner West & Northern Beaches.
In general the medium sector of the market ($1M to $3M) has performed the strongest with 6 monthly gains of over 20% in the Inner West and low/mid Northern Beaches. The premium end of the market has also performed well but price gains have been more modest.
However some brand new developments in Sydney are still seeing modest demand from overseas buyers. This is particularly evident with buyers from the Chinese mainland, who have been discouraged by the NSW Goverment taxes, together with increased charges from the FIRB (Foreign Investment Review Board).
Investors should continue to be focused on areas that have new transport and amenity infrastructure planned, including suburbs along the Sydney Metro and also the planned Northern Beaches tunnel link.
What are the factors that will continue to drive demand ?
- Lack of housing stock. Our discussions with sales agents indicate that the supply of new listings is likely to continue to be relatively low over the coming months. Many home owners are often choosing to renovate their current homes rather than to move or upgrade.
- Record low interest rates. The official RBA rate of 0.75% is well below GFC levels of 3%, and is keeping borrowing costs low for both home buyers and investors. Many economists are expecting that rates will remain very low in the long term,
- Increased immigration into Sydney, which exceeds the rate of new development and will continue to put pressure on new housing supply. There are still a large amount of buyers ready to purchase homes.
- Demand for property from investors will continue although at more modest levels. Gross rental returns are currently averaging between 3-4%, which although reduced, are higher than bank deposit rates and many share market returns.
- The Australian economy is still relatively strong, despite a recent reduction in GDP growth rates. National economic growth was 1.7% to September 2019.
- The national unemployment rate is still relatively low at 5.3% (September 2019) with NSW at a low 4.8% (November 2019).
- The NSW State Government, which has major infrastructure projects currently under construction and also further projects planned. NSW continues to the be the strongest performing economy in Australia.
- Stamp duty concessions for first home buyers.
- The allure of Sydney as an attractive and vibrant international city, with it’s harbour, beaches, climate and outdoor lifestyle
Some potential risk factors ?
- Potential over supply of new unit developments in some areas of Sydney where amenities have not been planned properly.
- The NSW State Government’s higher duties and land taxes for foreign buyers and owners of property. This appears to be having an impact on certain types of properties and suburbs within Sydney. The revenue raised from these duties and taxes was planned to fund the new stamp duty concessions for first home buyers, however the NSW Govt has revised revenues from these taxes downwards.
- International political and economic uncertainty (US/China trade agreement etc).