Hot market set to cool, but not yet
As demand continues to heat up, forecasts of an impending price crash are once again dominating the headlines. But experts say this is highly unlikely given the strong market fundamentals
After taking a breather in May, Sydney’s rampant price growth resumed in June. According to
CoreLogic RP Data, Sydney dwelling values rose 2.8% for the month of June and by 3.1% over the quarter. This takes year-on-year growth to 16.2%. The median house price surged to $900,000, and the median unit price to $650,000.
With Sydney prices soaring higher and higher, the one question on everyone’s lips is, will prices keep increasing?
“I believe the answer is yes,” says Linda Phillips, senior economist at Propell Ltd. “For investors, buying into the Sydney residential market is a no-brainer. The median house price has now reached $900,000 and will probably hit the magic $1m by this time next year.”
But while the lure of further growth is strong, investors are facing a new challenge amid tighter lending. “The only problem for investors is that tighter lending requirements mean they have to come up with a 10% deposit, which means finding $100,000 or more when purchase costs are factored in,” says Phillips.
Bloodbath prediction premature
Robust price growth has reignited gloomy predictions of a catastrophic price crash. However, BIS Shrapnel analyst Angie Zigomanis refutes these dire forecasts.
“Doomsday predictions for the residential market are likely to be overblown,” he says. “While affordability is now becoming increasingly strained, Sydney’s dwelling deficiency, combined with healthy sentiment in the market and strong investor demand, is expected to continue to underpin further price rises in this environment.”
Phillips agrees and adds that the headlines about an impending bloodbath in the market, or of price falls in future, have not yet deterred buyers.
“We don’t see prices levelling out any time soon. The rate of growth is likely to pull back from the 16% plus of the last year to around 10% growth in the coming year, but this is still the best growth rate in Australia and one that investors are keen to share in,” says Phillips.
After next year, opinions are divided about future growth. Based on previous periods of price growth, the most likely outcome is that stability will return, with prices levelling out for several years.
But Phillips warns that once interest rate cuts have been washed through the system, and with the broader Australian economy growing as slowly as it is, there will really be no more capacity to push prices up. “We might go through a very long time with flat growth,” she says.
Demand outstrips supply
However, current demand for property in Sydney exceeds supply, and that equation is not going to change any time soon.
“That imbalance is the investor’s friend,” says Phillips.
Demand is not only coming from local investors. Phillips explains that with the A$ exchange rate falling, residential real estate prices have increased commensurately in Aussie dollar terms but have hardly changed in price based on the US dollar.
“Since the boom in prices started in 2011, Sydney house prices have gone up only 7.7% in US dollar terms, while Melbourne has fallen at -8.2% in US dollar terms. So while local buyers fret about the cost of getting into the Sydney market, it still looks attractive to foreign buyers,” she says.
Sydney’s North Shore has seen a dramatic surge in prices in the last six months, particularly within 15km of the CBD. Lack of stock, coupled with high buyer demand and historic low interest rates, has seen unprecedented prices achieved at auction.
“Prices have increased dramatically in prime east side Chatswood, which is commonly achieving $3m plus for quality properties, says Jason Lee, residential manager NSW/ACT, Propell. “This has had a flow-on effect to the less sought-after west side.”
Apartments are also in strong demand if well positioned. An apartment development in Beecroft was recently sold out on release, reflecting a location on the transport hub with easy access to the CBD.
The outer suburbs of Sydney continue to show higher percentage growth, reflecting their affordability compared to inner-city suburbs.
“Investors looking to spend $1m or less have to face the fact that they are really only buying at or below the median price,” Phillips says. “In this price bracket, the best selection of properties is out west, from Blacktown
to Penrith, Liverpool to Campbelltown. The alternative is to follow occupiers north into Gosford and the Central Coast.”
SUBURB TO WATCH
Girraween: Hidden gem in Sydney’s west
Situated next door to the bigger and more well-known suburb of Toongabbie in Sydney’s western suburbs, Girraween is a multicultural community that’s popular with a wide range of people. It has good local shops, but if its residents need anything more substantial it’s just a short drive to Westpoint Blacktown or Parramatta
Girraween is located about 30km from the Sydney CBD and there is a bus route through the suburb. It’s also close to both Pendle Hill and Toongabbie train stations, not to mention the M4, M2 and M7. Families in particular are drawn to the great local schools, parks and childcare facilities, in addition to the fact that the suburb is generally quiet and safe.
The great opportunities of Girraween are reflected in the strong demand for its property. Indeed, units have a vacancy rate of 1.5% and there is just 0.2% of stock on the market, according to DSRdata.com.au.
Other statistics that will draw the eye of investors are the healthy average rental yield of 5.1% per annum and the affordability of two-bedroom units, which can be bought for around $400,000.
There are two-bedroom apartments on Mia Mia Street and Targo Road that are good value at around $400,000. They are close to Pendle Hill Station, Civic Park Medical Centre and Girraween Primary School. They are perfect for small families, couples and seniors.
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