Inner West Update

An interesting series of events noticed from the front line over the past few weeks.

I am noticing (and so are the selling agents), reasonable numbers attending the auctions and some either registering or not registering to “wait & see” what happens. It is also apparent in a few cases that the expectation was 5x registered bidders to end up with 3x registered/2x not registering and only 1 of them bidding.

It goes to show that the market is softening and buyers behaviour is to act with extreme caution.

Make no mistake that the Inner West of Sydney has always performed well in soft markets including the GFC in 2008. So if there is a good property out there, chances are, it will still attract a lot of interest as there are still plenty of buyers around and low levels of new stock.

Easter is fast approaching at the end of this month so it will be interesting to see the impact on the market leading up to the holiday break.

State of the market Autumn 2017

State of the market Autumn 2017

SYDNEY, NEWCASTLE & NSW CENTRAL COAST:
The Sydney boom continues as auction clearance rates exceed 80% on most weekends. The major factor we see playing out is the Supply V Demand equation. Last year in 2016, sales volumes were down by around 50% in most of the suburbs we buy in. This was not due to lack of buyers but by a lack of stock on the market to buy. The situation has not changed much this year in 2017. The main problem seems to be two-fold:

  1. Owner Occupiers are not prepared to sell before they buy for fear of being locked out of the market because of extremely low stock levels and ever increasing prices.
  2. Investors are over-represented at almost 60% of the market (a factor of almost double their normal 30%) and when an investor buys, unlike an Owner Occupier, they have no property to sell – so there is no additional property being put back on the market for sale.

The one good thing about these stock levels being so low, is that it is forcing up the prices for sellers, and holders of real estate are sitting on large equity gains.

This is affecting all of the Northern Beaches, Upper and Lower North Shore, and Inner West. The Eastern Suburbs has seen more listings come through but not enough to satisfy demand. Price growth in Western Sydney appears to have stalled recording growth of only 1-2% in 2016. Stock in the $400-600K price range on the NSW Central Coast is being snapped up by buyers (in some cases sight-unseen) as the “ripple effect” moves out from Sydney (perceived by some to be ‘unaffordable’).

Do we see any change to this situation in the short term? Unfortunately, no.

The people that represent the bulk of the properties coming onto the market are known in the industry as the “4D clients” i.e. those affected negatively by debt, the downsizers, the divorced and the deceased.

The only things we foresee that are going to make a shift in this market is a sharp rise in the cost of money (interest rates), a sharp rise in unemployment, or a huge global unsettlement and we all hope & pray that does not happen.  All things being equal, with limited supply and huge demand, we will be looking at more price increases in 2017 as we saw in 2016.

The good news is that currently up to 50% of the properties we are buying for clients at present are what we call off-market or pre-market properties, silent sale properties not advertised to the general public but instead marketed to the agent’s private database of investors and Buyers Agents.  The great advantage to this is that in most cases you have no competition if you can act fast.

If you’d like to get an unfair advantage or are finding it difficult with your own efforts to buy property, then hit us up for a chat to discuss what we at Propertunity can do for you.

State of the market report – 31 August 2015

Back at the beginning of Winter in June 2015, I posted a blog on why I did not see Sydney being in a “bubble” https://www.propertunity.com.au/is-sydney-in-a-property-bubble/

At that time we had experienced 7-8% in Sydney for the year to date. Since then we have experienced a very busy Winter period. We put this down mostly to demand exceeding supply. New listings numbers were down almost 10% over Winter compared to same period last year in 2014. And 2014 was down on new listings approx. 20% on the same period the year before that, in 2013. Demand however has increased. This had led to median sale price growth of 1.1% in August which translated into 7.4% over the last quarter and 17.6% over the last 12 months (source – RP Data), even higher than the 15% I predicted at the time.

Central Coast & Newcastle market update:

Capital Growth is (and will be) due to the ripple effect coming out of the Sydney property market – which shows no immediate signs of slowing down. Whenever Sydney gets heated, areas within a 1 hour commute also do well. So we see Wollongong to the South, Blue Mountains to the West and Central Coast (Gosford & Wyong) to the North, all going through a growth cycle (of some 18-20% in the last 12 months). Even if Sydney stopped dead in its tracks right now, today, it would take 6-9 months for the market to peak on the Central Coast. This is borne out by the fact that when Sydney peaked in 2003, the Central Coast did not peak until 2004.

The Lower Hunter is a different story, and has been affected by the slowdown in the mining industry. Rents have also softened in this area.

Newcastle has been a strong performer for a number of years, and I don’t see that changing. It has really come into its own since BHP moved out and the waterfront foreshore development has occurred. The inner CBD suburbs are going through a gentrification process and are always in high rental demand and sales demand.

So what’s in store for Sydney now? In 5 words – “Spring will be the test”.

On the negative side of the “continuing growth” equation we have the big 4 banks plus Macquarie slapping investors with some small token interest rate rises of between 0.1% and 0.4% in a bid to satisfy APRA’s requirements on “responsible lending” and for the banks to hold higher cash reserves. (In my conversations with brokers, they are all busy putting deals with other lenders who are more investor friendly – so I expect this move by the big 4 will do nothing other than lose them some market share). We have linked to a blog of one of the brokers we deal with, if you want to read up on the recent lending changes at http://www.passgo.com.au/blog/25-mortgage-broker-canberra-blog/90-recent-lending-changes.html

Anecdotally, taking to selling agents, they are bringing on more listings in the next few weeks of September – so supply is starting to come and will therefore meet some demand.

Foreign investors are being more carefully watched by the FIRB now too. Although to be fair, non-residents were always restricted to buying brand new (overpriced) Off the Plan properties.

The Chinese stock market meltdown may be having an impact of confidence? This may also lead to more investment money finding a safe haven in the Australian real estate market. This is exactly what happened in Australia after the 1987 stock market crash – we had a property boom.

Auction clearance rates have fallen back from the mid-high 80%’s to the mid-70%’s (76% last week-end). BUT it was only a few years ago that anything over 65% was considered to be “boom” conditions.

On the positive side:

As reported by the SMH  http://www.smh.com.au/nsw/nsw-adds-more-jobs-in-six-months-than-the-rest-of-the-nation-combined-20150816-gj088g.html NSW has added more jobs in 6 months than the rest of the nation combined, so we have strong employment growth.

Interest rates (despite the recent small rise for investors) are still historically low – so the cost of money is still exceedingly cheap.

The Australian share market has recently had all its gains since the GFC wiped out – so investors are wary and when they get concerned, they traditionally go to the perceived security of “bricks & mortar”.

Whatever conclusions you come to, what is clear is that capital growth rates cannot continue at the current pace forever. So at some point they will moderate, we just don’t know when that will be. What is important is your selection criteria for property purchases. This will stand the test of time, when you buy the right type of property, for the right money, in the right location. This is the value that a well experienced Buyers Agent can bring to the table.