After watching the lower and middle markets reap the rewards of low interest rates, hedge fund managers and bankers can sigh with relief as the premium market begins to fight back.
“What we saw in the latter part of the year, was the lower end of the market experiencing the vast majority of sales but towards the end of the third quarter there was there a bracket creep, with the higher price segment increasing their market share while the lower end decreased their market share,” says Cameron Kusher of RP Data. “We’re starting to see some of those exclusive markets bounce back and now we’ve had three interest rate rises, and very likely to see further rises, I anticipate that the middle – above $500,000 – and the top end market will be the best performing in the next 12 months.”
Pauline Goodyer of GoodyerDonnelley Real Estate couldn’t agree more. Her company hit headlines earlier this year when they sold a Bondi apartment for $8 million. Downturn? What downturn? “There’s definitely an increase in consumer confidence,” says Donnelley. “When properties come on the market, there are definitely buyers for them – I don’t think we’re going to see any issues with that. It’s a matter of being able to find the stock.”
The undersupply, as with much of the country, is pushing up the prices. “It’s not all prices sectors, it’s certainly not the first home buyers market – it’s further up the ladder.” says Donnelley. “There is very strong demand in the $1 - $3 million market.”
However, while confidence in the upper market has been slow to establish, the lower and middle markets have been enjoying a boom, increasing the problem of affordability. Land values in the inner west and upper north shore have raced ahead of the traditional top ranking eastern and lower northern suburbs and competition is strong, especially in the sub $1 million mark.
In the Demographia International Housing Affordability Survey Sydney came only second to Vancouver on a list of the world's most expensive residential markets. Melbourne and Adelaide were ranked third and fourth in the list of least affordable major cities, above London, New York and San Francisco.
As a result, Australia was by far the least affordable of the countries surveyed, followed by New Zealand, Britain, Canada, Ireland and the United States.
''Australia registered the worst housing affordability in the history of the survey,'' said Wendell Cox and Hugh Pavletich, the authors of the annual survey for the Frontier Centre for Public Policy in Canada.
''The average household would be required to pay more than 50 per cent of its income to service a new mortgage on the median-priced house in Sydney or Melbourne.”
According to Residex, outer suburbs such as Rouse Hill, Narellan Vale, Cecil Hills, Bligh Park and Abbotsbury are tipped to become the best performers over the next eight years, while centrally located apartments in suburbs such as Bondi, Manly, Cremorne Point, Milsons Point, Rhodes and Balmain are also predicted to enjoy strong gains.
Cameron Kusher also forecasts investment potential in inner ring units as undersupply pushes up demand. “Yields have come off significantly and rents have fallen slightly over the last six to nine months but that’s because first home buyers have been so active,” he says. “We’re certainly not going to see the volume of first home buyers at the same level as we did last year and we’re not seeing new product coming on, so with higher interest rates and people finding it harder to get into the property ownership market, there will be more demand in the rental market and inner city units are very popular.”
Donnelley advises investors to look at suburbs that will benefit from a ripple effect. “The next approach is to look at areas one or two suburbs away from the beach or city, such as Randwick or Queen’s Park,” she says. “These two suburbs have so much going for them – they’re affordable, there’s plenty of demand for rentals and they have a lot of cafes, restaurants, shops and transport nearby.”
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