Sydney Property Market Overview

Despite the headlines it’s not all doom and gloom out there in the property market and for the savvy buyer there are some great opportunities. The media is sending mixed messages about the property market, and the Sydney market in particular, leaving would be buyers and sellers somewhat confused.

The market in general has definitely softened from the pre-GFC highs and subsequent post-GFC bounce. The biggest % shifts have been at the top end of the market particularly in the $5m-$15m price range. The lower end of the market under $1.5m within close proximity to the city is still performing well.

The strong AUD, uncertainty with interest rates, the rising cost of living, uncertainty with the carbon tax and mining tax, weak global equity markets, the Greek Sovereign Debt Crisis and falling commodity prices have all played a part in the softening of the Sydney property market.

The million dollar question is - Will the market continue to soften or are we at or close to the bottom? We believe the next 6 months will provide some fantastic opportunities for buyers as the market consolidates at these levels and that the next move in this market will be up. We have heard plenty of property pundits lately roll out the line – Buy in Gloom, Sell in Boom – and whilst we definitely agree with this, we realise it is sometimes hard swimming against the tide. But if you don’t we believe the tide will start turning later this year and you will miss the boat.

Official data is showing that the Sydney property market slowed significantly and we expect it to consolidate over the next 3-6 months producing good buying opportunities for astute buyers. The slowdown in the property market can be explained by economic factors (micro and macro) and not a bubble starting to burst as has been reported in some publications.

According to RP Data-Rismark, Sydney property values increased 1.2% in the 12 months to April 2011. This is a significant slow down when compared to a rise of 11.6% in the 12 months to April 2010. In the year to date we have seen prices start to fall slightly. According to RP Data-Rismark, over the first four months of 2011 Sydney dwelling values fell by 1.0%.

This shift is consistent with reports from the Australian Bureau of Statistics (ABS) that established house prices in Sydney fell by 1.8 % over the March Quarter. This trend is also broadly in line with the latest Australian Property Monitors March Quarter Report that reported Sydney median house prices fell by 0.4%.

There are a number of signs in Sydney and nationally indicating that the property market will continue to slow:

Listings Numbers Up: According to RP Data-Rismark the number of homes for sale across the capital cities is now about 31% higher than at the same time last year.

Sales Volumes Down: Sales volumes for houses and units are 13% below the 5 year average and 21% below the same time last year.

Days on the Market Up: The average number of days it takes to sell a Sydney property hit 87 in May compared to 79 in April and 76 in March. These figures were in the 60s at the same time last year. One report stated that 1 in 6 Sydney properties for sale have been on the market for over 12 months.

Vendor Discounting Up: In March 2011, vendor discounting across Australia was 6.5% for houses and 6.6% for units which is higher than the long-term average of 5.9%:

Auction clearance Rates Down: Sydney auction clearance rates have remained consistently under 60% over the last 6 months. In Sydney, the clearance rate recorded over last weekend was 52.0%, slightly lower than the previous weekend of 52.8%. There were 323 properties listed for auction in Sydney on the weekend with 196 properties selling. This time last year Sydney’s clearance rate hovered around 62%.

These market signs are definitely indicating a slowing in the Sydney property market but we do not believe it is a bubble bursting as some commentators are claiming.

RP Data Rismark has divided their capital city index into three sub-indices: the bottom 20 per cent of suburbs ranked by price, the middle 60 per cent and the top 20 per cent. The top 20% of suburbs have been the poorest performers in line with the share market. According to RP Data Rismark, Sydney’s most expensive suburbs saw an overall decline of 3.1% in home values over 12 months to April 2011. Sydney's middle market saw an increase of 2.5% in home values and the lower level an increase of 1.3% in home values over 12 months to April 2011.

Below we look at what SydneySlice is seeing in the different market segments.

Low End: The lower end of the market ($500,000 - $1.5m) in the Eastern Suburbs and Lower North Shore is an interest rate sensitive market and it has slowed over the last 12 months as a result of successive rate rises in 2010. There has been a decline in first home buyer numbers due to the end of the increased first home buyers grant in 2010. There was also a decline in the number of investors in the market in 2010 due to the rate rises.

We are now starting to see an increased number of investors entering this market as rates stabilise and property prices slow. Investors are starting to take advantage of these market conditions and the very good rental yields available. There are bargains to be found in this market for patient and savvy buyers. For example, a unit in The Marlborough in Surry Hills that was originally advertised at $749,000 recently sold for $690,000.

Despite a slowing in the East and Lower North Shore at the lower end of the market, the Inner West continues to perform well, especially in the $800,000 to $1.2 m price range due to continued demand from young families looking to break into the housing market and owners looking to upgrade from unit and semi living. For example, 96 Palace Street Petersham sold at auction in June for $1.255m. This 4 bedroom family home on 499sqm sold for well over the reserve of $1.1m and was a result of competitive bidding from 12 registered bidders. A 4 bedroom terrace with parking at 8 Creek Street, Forest Lodge sold last weekend at auction for $1.95 million with competitive bidding from 6 registered bidders. This was well over the $1 million price range.

Middle Market: In the $1.5m-$3m market on the Lower North Shore and the Eastern Suburbs, we have seen the market come off around 10%. A lack of good stock of family homes in this price range is keeping a floor under this market. Good family homes in this price range continue to perform well due to strong demand from young families looking to upgrade. For example, 60 St Marks Road, Randwick was auctioned in early June with 14 registered bidders. The agent was quoting low $2 ms and the property ended up selling at $2.9m well in excess of the reserve. In Mosman 23 Cabban St a 3 bedroom family home on 640sqm sold for $1.89m in late May, well above the $1.6m reserve. 63 Belmont Road sold prior to auction in June for $2.9 m above the $2.7 m quoted due to competition from a number of buyers.

Middle to Top End Market: In the $3m-$6m middle to top end market on the Lower North Shore and the Eastern Suburbs, we have seen the market come off approx. 10-15%. Some vendors are under pressure to sell but the majority of vendors are finally becoming more realistic with their expectations.

We have seen an increasing number of properties for sale in areas such as Mosman on the Lower North Shore and Vaucluse in the Eastern Suburbs. For example, 148 Hopetoun Avenue, Vaucluse sold in May 2011 for $4.7m after being offered $5.5m in Oct 2010: 15 Glendon Road, Double Bay which is a 4 bedroom family home sold in June 2011 for $2.9m. The owner rejected an offer of $3.5m in March 2010. Similar results are being seen in the luxury apartment market. An apartment in Campbell Parade, Bondi Beach last sold September 2009 for $3.25m and now has an asking price of $2.65m.

Very Top End: At the very top end of the market, $10m plus, we are seeing discounting of up to 20-30% depending on the vendor’s circumstances. For example, a waterfront property at 5A Wunulla Road, Point Piper that was initially marketed at $15m plus recently sold for just under $10m. Another waterfront at 52 The Crescent, Vaucluse sold in March 2011 for $15.5m well below the original expectations of $18m. 4 Rosemont Avenue, Woollahra sold in June for $7.9 m well below the original expectations of $10 m plus. The Hyde Penthouse recently sold for $14m after initially being marketed at $20m. On the Lower North Shore, 3 Cross Street, Mosman on 1,637sqm of land with tennis court sold in June 2011 for $7m well below the original expectations of $8.5m plus.

To date this year there have been a large number of top end transactions. According to Paul Donovan from Ponton Valuers at least 24 properties have sold in Sydney in the last 6 months for over $10 m. This is compared to 35 sales over $10 m in the whole of 2007.

We have recently seen two non-waterfront sales in Mosman at $15m (5 Kirk Oswald Ave) and $15.25m (29 Stanley Ave) which is a non-waterfront record for the suburb. In the East we have recently seen 8 Wharf Road, Vaucluse sell for $17.5m, 18 Drumalbyn Road, Bellevue Hill - the former home of Prime Minister Sir William McMahon and Lady Sonia McMahon sell for $9.6m and 14-16 Wallaroy Road, Woollahra sell last week for $10.6m.

Holiday House Market: As would be expected in the current market we have seen the demand for coastal holiday homes in areas such as Palm Beach, Whale Beach, Blueys, Avoca and the South Coast drop significantly. The post-GFC recovery in late 2009 and early 2010 ran out of puff and sales numbers were down across the board in late 2010 and early 2011. (Only 3 sales were recorded in Palm Beach and Whale Beach during the 1st quarter 2011).

Vendor’s have once again had to adjust their expectations to reflect the current market conditions and this has resulted in 18 sales in Palm Beach and Whale Beach over the past 10 weeks. The highest sale being 8 Iluka Road, Palm Beach which sold for $8.4m in May.

Outside of Sydney the demand is currently quite low for beach houses/weekenders and doesn’t look like improving anytime soon. A quick search of Mollymook on the South Coast at $500,000 plus brings up over 100 listings. The same is true for rural property and hobby farms within 3 hours of Sydney. A quick search of Bowral in the Southern Highlands at $500,000 plus brings up over 250 listings.

If you would like to discuss the beach house or rural property market please contact Stephen Smith. Email: steve@sydneyslice.com or Mobile: 0405 147 901.

Where is the Growth? Although median house prices have softened over the March Quarter, some suburbs in Sydney have recorded strong annual growth. According to APM the top ten Sydney suburbs for house price growth to the year ending March 2011 are as follows:

We believe over the next 3-6 months Sydney property prices will start to consolidate. The current uncertainty is certainly producing some good buying opportunities for astute buyers. The key to taking advantage of these conditions is to be across the market and be ready to move quickly if an opportunistic buy arises.

If you are interested in taking advantage of these market conditions contact us on info@sydneyslice.com to arrange for a complimentary consultation.

Sydney Rental Market

The Sydney rental market remains tight, with declining rental vacancies putting upward pressure on rents yet again.

According to the REINSW the rental vacancy rate for properties within a 10km radius of the CBD fell 0.2% to 0.9% in April 2011. Vacancy rates in Sydney are at record lows due to low supply of rental properties.

Rental returns continue to improve due to a shortage of rental properties on the market. According to AMP, in the 12 months to March 2011 Sydney median rents rose by 5.4% for houses and by 7.1% for units. During the March Quarter Sydney median asking rents for houses rose 1% to $485 per week, while units increased 2.3% to $450 per week. Units in particular have seen a major shift in demand, with chronically low vacancy rates for inner-city residences. Limited new development during 2011 will also add to the upwards pressure on rents.

Increasing rents and declining rental vacancies are pushing up rental yields. In Sydney gross rental yields for houses increased 2.2% in the March quarter to 4.48% pa and unit gross yields increased 2.3% in the March quarter to 5.02% pa.

A shortage of rental properties coupled with landlords passing on last year's successive rate rises will continue to put pressure on rents. We expect rents and rental yields to increase further over 2011 due to low supply of new dwellings and high levels of immigration and population growth. Vacancy rates will remain at record lows unless there is a meaningful change in supply. With increasing rental yields and decreasing vacancy rates we expect to see more investors coming back into the market in 2011.

If you are interested in purchasing an investment property to take advantage of these market conditions contact us on info@sydneyslice.com to arrange for a complimentary consultation.

Interest Rates

At its June meeting the RBA left rates unchanged at 4.75% for the 6th consecutive month after data showed the heaviest economic contraction in 20 years due in part to this summer's natural disasters. The RBA Governor Glenn Stevens said there had been a 'sharp' 1.2% on-quarter fall in output in the first three months of 2011, with 'resumption of coal production in flooded mines taking longer than initially expected.'

Employment growth in Australia had slowed and was likely to remain lower in the near term, while consumers were saving rather than spending and Australia's bullish dollar remained 'close to its highest level in several decades'. 'If sustained, this could be expected to exert continued restraint on the traded sector,' said Mr Stevens.

The most recently released minutes from the RBA are very interesting.

On housing the minutes say “consistent with ongoing consumer caution, the housing market had remained soft. Average dwelling prices had fallen modestly so far in 2011, with the weakness mostly in more expensive suburbs and in cities (notably Perth and Brisbane) that had seen a faster run-up in housing prices in earlier years. Housing credit growth had slowed and housing loan approvals had fallen in the first three months of the year, although preliminary numbers for April showed an increase.”

On financial markets the minutes say “global equity markets had also weakened over the month. Many markets were now back around their levels at the start of the year, while the Japanese market was more than 5% lower. Resources stocks had declined following weaker commodity prices, while financial stocks had been weighed down by ongoing regulatory and legal challenges. Members noted that volatility in foreign exchange markets had picked up over May along with the euro area concerns. The US dollar had appreciated, most notably against the euro but also against a number of emerging market currencies, such as the Brazilian real, that had previously appreciated strongly. The renminbi had moved up a little against the US dollar, resulting in a slightly larger increase against the currencies of its other trading partners. Having reached a new post-float high against the US dollar in early may, the Australian dollar has since depreciated”.

And in their final summation they have said “further tightening in monetary policy would be necessary at some point”.

A number of economists had predicted a rate hike in June and many still believe that another hike may be just around the corner. Despite the economic commentators mostly anticipating a near-term rate hike, the futures market is not pricing in another rate increase until 2012. A small group of economic commentators are predicting the next move in rates will be down.

Charlie Aitken from Southern Cross Equities who appears regularly on Switzer’s nightly show on Sky Business says “the tone of the minutes is far less hawkish than previous minutes and the currency markets correctly and finally are starting to see through the RBA’s jawboning bluff. As it becomes more consensus that the RBA is firmly on hold, you will see the AUD/USD cross-rate crack to parity or lower. Our view that the next move by the RBA will be a rate cut may even become consensus, and if that happens you will see the AUD in the mid-90’s at some stage over the next 12 months”.

With an official interest rate of 4.75%, mortgage holders on variable interest rates are being charged a standard variable rate of around 7.83% by lenders.

The decision by the RBA to leave rates on hold is good news for the property market. Interest rates have now remained stable for 6 months providing buyers with increased confidence.

We believe the next rally in the Sydney property market will be driven by expats and foreigners who have been noticeably absent since the AUD rallied to a 24 year high. These buyers are patiently waiting and any fall in the AUD, even to the mid-90’s will definitely increase demand for property from offshore.

Purchase Property With Your Superannuation

Self Managed Super Funds (SMSF) are now allowed to borrow to invest directly in property provided an installment warrant is used for the transaction.

What is an installment warrant? An installment warrant is a financial instrument which enables an SMSF to purchase a property partly with borrowed money. Typically the SMSF will contribute a sum of money to the purchase (called the ‘first installment’) and arrange for a lender to contribute the balance (which is equal to the ‘second installment’). The lender could be a financial institution or a member of your SMSF. The SMSF has a beneficial interest in the property and as a result will receive all rent paid by the tenants. Tax at the concessional rate of 15% is payable on this income by your SMSF. In addition, your SMSF pays interest on the loan and fees to the lender. It also pays for repairs, maintenance and property management expenses which are deductible to the SMSF. At the end of the term, the purchaser can choose whether or not to pay back the second installment.

What are the options at the end of the term? An installment warrant over an asset will usually have a defined maturity date (typically 1 – 20 years). At the end of the term, there are a number of different options for the SMSF, including paying back the second installment and acquiring full ownership of the asset. .

Make Sure the Structure is Right: When buying property using your SMSF, a Security Custodian purchases the property on behalf of your SMSF. This Security Custodian must be a limited liability company who then holds the property as an asset in trust for the SMSF.

Using installment warrants inside your SMSF is not a simple process and professional advice is required. For more information please contact us at info@sydneyslice.com and we will refer you to an appropriate advisor.

Sydney Holiday Rentals

From Palm Beach to Sydney Harbour
Now is the time to secure your Sydney Holiday Rental. Don't leave it until the last minute when all the good properties have already been snapped up. Whether you are looking beachside or on Sydney Harbour we can assist you in finding the perfect Holiday Rental. To find the perfect Holiday Rental contact us on info@sydneyslice.com.

Suburb Snapshot - Newtown

Newtown is located 5.5km south west of the CBD. On its northern border are Sydney University and the Royal Prince Alfred Hospital. Newtown attracts an eclectic mix of students, professionals, tradesmen, workers and the wealthy. This diversity is reflected today in the blend of housing from simple cottages to grand mansions. Once the student hub of Sydney due to its close proximity to the University of Sydney, this formerly working-class district has undergone a gradual process of gentrification, as more affluent Sydneysiders desire Newtown’s proximity to the City. Newtown is undergoing a similar gentrification to Surry Hills, while maintaining a hip urban edge and more affordable property prices. Newtown has seen a strong increase in property prices and prestige over the last 10 years. Young professionals have moved into the area lured by the charm of its Victorian terraces and closeness to the CBD. Newtown has experienced strong growth in house and apartment prices over the last 10 years. Houses have seen a 8.76% increase over the 12 months to 31 March and units a 7.75% growth. These growth rates are strong in comparison to other suburbs for this period. If you are looking for an investment property around the $1 million price range, a semi-renovated terrace or semi in Newtown is a very good option to consider. Median Prices for Newtown for the 12 months to 31 March 2011 Houses Units March 2011 Median Price $838,500 $424,500 % Change over 12 months to 31 March 2011 8.76% 7.72% Average % Change per annum over last 10 years 8.12% 6.73% Source: Residex Rental demand is strong in Newtown due to its close proximity to the CBD, Sydney University and Royal Price Alfred Hospital. Gross rental returns in Newtown over the last 12 months have been approx 3.8% for houses and 4.7% for units. The table below shows average rent and rental returns for houses and units in Newtown. Rent Returns for Newtown for the 12 months to 31 March 2011 Houses Units Av Rent per week over 12 months to 31 March 2011 $660 $390 Gross rental yield over 12 months to 31 march 2011 3.77% 4.71% Average gross rental yield per annum over last 10 years 3.85% 4.95% Source: Residex. Rent return is the gross annual income as a proportion of the value of the property. Recent Purchase in Newtown: For an investment property, Newtown provides a good balance between capital growth and rental yields. If you are looking for a semi-renovated 2-3 bedroom terrace you can enter the market in Newtown for around $1 million. Property Profile – 81 Lennox Street, Newtown 81 Lennox Street, Newtown sold in May 2011 $1,070,000. The property is a semi-renovated 2 storey 3 bedroom 2 bathroom terrace with single parking. The property is located on a quiet street minutes from King Street cafes and other amenities. Land size is approx 130sqm. Real Estate & Design: Newtown has a mix of affordable terrace and semi detached houses which are complimented by the pockets of painstakingly restored houses of grand proportions. Warehouse conversions and new modern apartments are appearing all over the place. Once off the bustling main strip of King Street, the back streets are much quieter and are crammed with character-filled terraces and semi-detached cottages, more and more of which are undergoing stylish upgrades. This transformation is particularly evident in North Newtown. Shopping and Entertainment: King Street and Enmore Road are vibrant retailing precincts with a mix of furnishings, antiques, designer clothes, recycled fashion, music, books, galleries, food, coffee and an interesting line in fetish fashions. Newtown is Sydney’s most diverse shopping area, with a refreshing lack of department stores. There are over 60 restaurants offering a diverse range of food. There are also traditional Australian pubs, many of which have been renovated to cater to the student and inner city crowd. Schools, Education & Institutions: Local state schools include Camdenville Primary, Stanmore Primary and Newtown Primary, which adjoins Newtown High School. Additional high schools include the Newtown School of Performing Arts, and the prestigious private boys’ school, Newington College, just minutes away in Stanmore. Distance from the CBD & Transportation: Newtown is 5.5km south west of CBD. There are plenty of buses along King Street. Newtown Station at the junction of King Street and Enmore Road is just three stops or 3km from the CBD and MacDonald Town station in North Newtown is only 2 stops from the CBD. Population & Demographics: Newtown has a population of 16,298 with the following age demographics: under 4 - 5%; 5 to 19 - 8%; 20 to 39 – 55%; 40 to 59 – 23%; 60 plus 9%. Local Council: South Sydney Council and Marrickville Council.