NSW Excerpt from the 2016 November Market report

Sydney market grows, but shows signs of slowing
In what might be a sign of things to come, Sydney’s annual growth rate has dropped
The median price of houses in Sydney increased by 2.94% over the June 2016 quarter, and Eliza Owen, market analyst at OnTheHouse.com.au, says this is mainly the result of capital gains recorded in June.
This indicates a rise of 8.02% in the house market over the past 12 months and a $55,000 boost in the median value. However, the current rate pales compared to that recorded in September 2015, which was a whopping 21.95%.
This reduction in growth is hardly surprising, given that Sydney is coming off extreme boom-time conditions that can’t be supported over the long term. Owen suggests that growth rates may drop further as house rents dip and unit rates remain unchanged.
Cameron Kusher, head of research at CoreLogic, notes that Sydney’s boom period has lasted over four years thus far, even though Melbourne briefly overtook it. He partly attributes Sydney’s sustained position at the top to the unit market, which saw 1.85% growth over the June 2016 quarter. He also considers the auction market to be instrumental the market’s growth.
Dwindling demand matched by falling supply
Andrew Wilson, chief economist at Domain Group, says that despite the high clearance rates reported at auctions this year, they are now falling behind those recorded in 2015, which reached 90%.
Moreover, Sydney homes are staying on the market for two weeks longer than they did last year, and lower demand is being matched by decreasing supply, with construction activity expected to weaken in 2017.
In contrast to most states, which are reporting oversupply, Sydney is experiencing undersupply relative to the demand for apartments – thus the decreased activity could intensify this issue. Even then, the fallout should not be felt for a few more years.
“Sydney is up against an affordability ceiling as well as constraints on site availability. Investor demand is cooling, and the city will see a surge in new supply coming on stream over the next one to two years,” says Kim Hawtrey, associate director at BIS Shrapnel.
Sydney struggles to attract investors
Significant contributors to the fading demand for new units include the tightened investment lending practices and fluctuation in the Australian dollar over the past year.
However, in the Month in Review for August 2016, Herron Todd White points out that “official interest rates are at a historic low”.
“It is predicted by a number of economists that there may be up to another two interest rate decreases … which could possibly stimulate the property market in the lower and middle price brackets,” the report says.
One of the ways in which Sydney officials are attempting to address this demand issue is through the commencement of infrastructure projects. The establishment of a light rail system running from Dulwich Hill to the Sydney CBD has helped enhance the appeal of homes in the inner-west suburbs.
Another line is to be set up to link Randwick and Kingsford to the CBD. The WestConnex project, which is considered the largest integration transport project in Australia, will provide West Sydney suburbs with access to the heart of the city and to the airport.
This development initiative has benefited areas on the fringe of the city, where many first home buyers are going after house and land packages.
“These first home buyers have been able to capitalise on the rapidly rising prices along this corridor and shift towards the traditionally highly desirable regions that surround these growth centres, such as Castle Hill, Kellyville and Bella Vista, which were previously unaffordable,” Herron Todd White says.
“The past 12 months has seen the long awaited north-west rail link reach its final construction stage and buyers who previously steered away from the region due to the lack of infrastructure are being drawn to the area.”
Dulwich Hill: Inner-west suburb climbs quickly
One of the beneficiaries of the local government’s efforts to improve infrastructure, Dulwich Hill has been progressively on the rise in the past two years. In particular, the house market reported hopping growth of 15.8% in the last 12 months.
Demand for properties here may be ascribed to gentrification and the new light rail line, which simplifies travel to the CBD. By train, Dulwich Hill is now less than 20 minutes from Sydney. Bus services are also available, as are trams.
Residents are spoilt for choice with respect to shopping options, and various cafes and restaurants have sprung up in the area. The Marrickville Library has opened a branch here as well, supporting the needs of students at the suburb’s schools – including Australia’s first visual arts school, the Dulwich High School of Visual Arts and Design.
Dulwich Hill is known for homes constructed according to Federation architecture specifications.

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