Property markets in Australia are in a somewhat strange position at present. Markets are neither charging ahead as we’ve been used to, nor are they seeing significant price drops as has happened in many markets across the globe. Instead, they seem to be holding steady – not going forwards or backwards by any significant amounts.
Sydney’s property market is no exception. In the year leading up to January 2011, the city saw value growth of just 2.5%, according to RP Data. The median house price showed a minimal value increase of 1.7%, while the unit market saw growth of 4.3% – the highest in the country, but still far from the double-digit growth of previous years. The question on everyone’s lips in the harbour city is, “Is this the way it’s going to be from now on?”
Angie Zigomanis, economist at BIS Shrapnel, says yes – but not for long.
"Our view is that the market slowdown in 2010 – which took place across all markets – has largely been the result of the end of the First Home Owner Grant boost," says Zigomanis. It’s widely accepted that the boost pulled forward demand from first homebuyers, and when it ended it left a gap in the market, with various statistics attributing a drop in activity of between 10% and 15%.
However, Zigomanis argues that it’s not only the first homebuyers who weren’t present – upgraders weren’t either.
"The absence of many first homebuyers also meant that there was a knock-on effect on the rest of the property market: upgraders stayed put as there were fewer people to buy their properties, and so on. This, I think, has been a major influence on the reduction in turnover, and that’s flowed through into weaker price growth."
The good news is that first homebuyers are coming back into the market. The Australian Bureau of Statistics (ABS) recorded an increase in the proportion of mortgages taken out by first homebuyers in December 2010 from 15.6% to 15.8%: mortgage broker AFG also recorded an increase of nearly 3% in the proportion of mortgages taken out by first homebuyers in January, increasing to 14.1% from 11.4%. Zigomanis argues that this increase in activity will slowly flow through the rest of the market.
"We’ll see activity increase through 2011, although it’s unlikely to return to ‘normal’ levels until the end of the year," adds Zigomanis. "What we’re looking at is a fairly modest first half of the year as activity picks up. However, we’ll also see rental price growth as pressures such as affordability and supply reassert themselves."
The questions of affordability and supply are ones that Sydney knows well – and renters are already feeling the pinch. Residex figures for January 2011 suggest that rents have increased 8.3% for houses and 7.1% for units since January 2010 – well above the national average of 5.6% for houses and 2.9% for units – and there’s likely to be more increases to come. Residex CEO John Edwards argues that it may even be possible to locate positively-geared properties in some Sydney suburbs as yields increase. This could be good news for investors feeling the impact of interest rate rises on their holding costs.
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