Market finally has wings
The Sydney property market is starting to soar, and yet NSW still leads the way in mortgage delinquency
Over recent months, the relevant indicators have been predicting that the Sydney property market is set for a surge. Now, the latest figures from RP Data prove that surge is underway.
Sydney was the (joint-) best performing capital city over the month of June, with a rise of 1.2% in dwelling values. The RP Data quarter-on-quarter results for June show capital city dwelling values were up 0.2%, and this was largely driven by a strong result in Sydney. The trend is indicative of an
ongoing recovery in dwelling values, according to RP Data.
A host of recent reports provide further evidence of the trend. Buyer activity in the city’s auction market has been steadily increasing since Easter, with auction clearance rates showing the highest level of buyer activity recorded at this time of the year for 10 years, according to APM.
In the latest Property Council of Australia-ANZ Property Industry Confidence Survey, NSW posted the largest state increase in property industry confidence (increasing 19 points to 131) in the June quarter. The report states that tight residential property market demand/supply fundamentals, low mortgage rates and solid housing market sales have driven property industry expectations for house price growth and housing construction higher.
The Residex May Property Market update notes the cost of the median house in Sydney is now more than $700,000. If growth continues at an annual rate of just 5.2% per annum, the Sydney median house price will rise to $1 million over the next seven years, according to Residex.
PropertyBuyer CEO Rich Harvey says the Sydney property market is definitely on the rise. “While it may not be sizzling just yet, the market has entered a phase of growth after a soft period of some years.”
Record low interest rates are stimulating investment and consumer confidence, while Sydney continues to struggle with a chronic under supply of stock at the same time vacancy rates are particularly low, at 2% or under, he says.
“Buyers are currently chasing properties with little regard for comparative value, and some properties are going to tender and are selling over full listed price. These factors are contributing to the rising property prices we are now seeing.”
Harvey believes the tight supply situation will put gradual pressure on property prices, which should encourage vendors to list their property for sale. “However, despite this and a slight increase in building approvals last month, the buyer price pressures will not be alleviated much.”
Potential investors need to do their property value research thoroughly but quickly, he says. “There is no luxury of time in this market. Investors should jump at the opportunities out there, while avoiding overpaying.”
Worst performance award for mortgage servicing
Sydney’s soaring property market aside, according to the latest Fitch Ratings mortgage delinquency report, NSW continues to be the worst performing state in terms of mortgage servicing.
The Fitch report found, at end March 2013, on average 1.58% of the NSW total mortgage balance was in arrears – as compared to the national average of 1.45%. It also found Sydney is performing in line with the rest of the state, with a delinquency rate of 1.54%.
Further, 13 of the 20 worst performing postcodes were in NSW, eight of which were in south west and western Sydney. The country’s worst performing postcode was NSW’s Nelson Bay with a 30+ days delinquency rate of 6.6%. NSW also boasted the worst performing region with Fairfield- Liverpool in the number one position with a 30+ days delinquency rate of 2.37% at end-March 2013, compared with 1.82% at end-September 2012.
Fitch Ratings primary analyst James Zanesi says NSW has long had a number of low performance areas. “It is certainly not a dramatic new trend, rather the situation is a historical one.”
The worst-performing areas are traditionally characterised by higher than average unemployment rates and lower incomes – and every major metropolitan region has such areas, which are simply more likely to default particularly in the face of any increase in expenses, he says.
“As the average income in these regions is low, households are able to better cope with their obligations as mortgage rates decrease and the cost of living remains low. Therefore, the unemployment rate, cost of living and serviceability remain key factors in mortgage performance in these regions.”
However, Zanesi emphasises NSW has a well-diversified economy with a stable housing market, and the best performance areas are a reflection of this. It is worth noting, according to the Fitch report, the movement in house prices has not particularly affected mortgage performance in NSW.
Spotlight on: Sydney’s high end suburbs
June RP Data figures show Sydney’s premium housing market has gathered significant pace. The city’s most expensive suburbs have seen dwelling values rise by 4.8% over the past six months – compared with a 3.2% rise at the most affordable end of the market and a 4.6% gain across the middle priced segment of the market.
RP Data senior analyst Cameron Kusher says Sydney’s premium housing market is closely linked to broader economic conditions. “We saw significant falls in Sydney premium home values in 2008 as the global economy stalled and equities markets plunged. But, over the past financial years, the S&P/ASX 200 is up around 17% and, economically, conditions have been more stable, which has no doubt assisted with the resurgence of the Sydney premium housing market.”
There was quite a lot of variation in the 12 month growth performance of the most expensive suburbs, but there will always be significant variations between different suburbs and submarkets, Kusher says. “For example, the Inner West has been particularly strong and is still an expensive market but is relatively more affordable than the Eastern Suburbs.”
Suburb to watch
Double Bay is an elegant harbourside suburb 4km east of the Sydney CBD. It boasts open parks, tree-lined boulevards, lots of level land and a village atmosphere.
Known as one of the most fashionable shopping districts in Sydney, there is a thriving commercial area, which features boutique hotels and shops, and a vibrant restaurant café scene. There are a number of schools in the area and its immediate surrounds.
Public transport options abound: Double Bay is a 15-minute ferry ride from the CBD via the Eastern Suburbs ferry services, it is a short walk away from Edgecliff train station, and there is a reliable bus service.
Local real estate agent Danny Doff , from Laing & Simmons Double Bay, says there is massive development going on in the area. A Woolworths, a top end grocery store, a bottle shop, commercial offices, retail spaces and a new library are all under construction. There are also lots of DA approved sites in the wings ready to be built.
Apartments dominate the property market in Double Bay, Doff says. “There are houses but they are generally on smaller land parcels. Anything being built over the past 10 years has nearly exclusively been top end luxury apartments or town homes catering for the downsizers.”
The median price for a house is $2,107,500 and $732,500 for a unit, and the rental yield for a house is 4% and 5% for a unit. With all the new development and infrastructure, there will be gains in property prices in the future, Doff adds.
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