Sydney Property Market Overview

The Sydney property market is showing signs of slowing however the market still remains divided between areas of strength and areas of weakness.

According to the Australian Bureau of Statistics the median Sydney house price fell by 0.3% in the June Quarter. However the Sydney median house price rose 4.4% over the year ending 30 June 2008.

Australian Property Monitors figures showed Sydney median house prices falling 2.1% in the June quarter. RP Data/Rismark International likewise showed Sydney house values dropping by around 2% over a slightly longer period of six months.

However the Sydney market can not be treated as one market. There are many different markets operating within the Sydney Market.

The mortgage belts in the outer Western and Southern suburbs are still feeling the effect of rate rises and these markets are continuing to experience a number of mortgagee sales. In these markets rate hikes, rising living costs and high oil prices have all added to the stress on the household budget. Similarly the lower end of the market which is predominantly made up of first home buyers and investors is also still feeling the effect of the rise in mortgage rates.

By contrast the Inner City, East and Lower North Shore markets continue to perform well with a lack of good quality stock holding up these areas of the Sydney market. These markets have been less affected by the rate increases. The prestige property market is also continuing to perform well with a shortage of $5 million plus properties on the market. Due to a lack of stock a large number of prestige properties are selling off-market or pre-market. Over 50% of the properties we are currently buying for clients we are buying off-market or pre-market.

According to valuer Dyson Austen, the 10 most expensive properties in Sydney in the March Quarter 2008 sold for approx. $179 million, $62 million higher than the same period in 2007. Records continue to be broken at the top end of the market with the previous record in Woollahra of $11 million set last year being smashed with the sale of a property in Rush Street, Woollahra on 590sqm selling for $16 million. The property last traded in 1999 for $5.5 million. A property in Holdsworth Street, Woollahra on 620sqm also recently sold for $12.5 million. The property last traded in 2004 for $4.4 million.

Beachside suburbs are also performing well with a record sale in Tamarama in June with a property in Thompsons Street on 584sqm selling for $10 million. There was a second sale in Tamarama this month for $10 million.   In June there was a record sale in Breakfast Point in Sydney’s inner west with a freestanding home being sold off plan for $4.8 million.

Last week a one bedroom unit in Bondi Beach sold with strong competition for $418,000 which was $98,000 above the reserve price and a two bedroom unit in Bondi Beach sold for $865,000 which was $150,000 above the reserve due to strong competition at auction. A two bedroom unit in Woollahra sold $175,000 over its reserve and a unit on Edgecliff Road, Woollahra sold for $1.475 million despite having an asking price of $1.3 million due to strong competition from two buyers.

The fundamentals of supply and demand still seem to be holding up the Sydney property market in many areas.

High international migration, strong population growth and a steady reduction in the number of people per household as our demographics change are creating increased demand for housing. Australia is currently undergoing a population boom with a population increase of more than 330,000 last year. In raw numbers, Australia's population growth has never been higher. Over the 2007 calendar year almost 180,000 net migrants arrived in Australia. There are too few new dwellings being built to keep up with the growing population. According to the the Australian Bureau of Statistics, the supply of new homes in NSW has dropped to its lowest level on record. The Commonwealth Treasury has estimated that demand for housing will increase to over 200,000 homes per annum by 2010 due to the demands of a growing population. In contrast, new supply is forecast to be around 150,000 to 160,000 dwellings per annum. The imbalance between supply and demand will be a fundamental driver placing upwards pressure on Australian property values

High immigration, low unemployment and a long-term housing supply shortage are leading some economists to predicting residential price growth annually of 6-8% on average across Sydney over the next 3 to 5 years. Economic forecaster BIS Shrapnel is predicting that Sydney property prices will rise by 18% over the next three years.

With the Reserve Bank of Australia giving clear signals that the interest rate cycle is at its peak and that a cut is on the horizon, many economists are predicting a rate cut as early as next month and some Banks have already started cutting their fixed rates. In addition the recent fall in the Australian dollar from 98 cents to 87 cents has lead to an increase in the level of enquires from expat and foreigner buyers.

The current stalling in the Sydney property market is providing good buying opportunities which we believe buyers should be taking advantage of.  We believe that the current cycle is one of the best long terms buying climates we have seems in Sydney for a long time.  While Buyers should exercise caution in the current market to ensure they do not overpay Buyers should not be afraid of a volatile market they should be taking advantage of good buying opportunities. Spring should bring an increase in stock and with it increased buying opportunities.

Christmas Holiday Rentals

Sydney Rental Market

Sydney Rental vacancy rates remain consistently low and as a result, rents and rental yields are continuing to increase. Data from the Real Estate Institute of NSW (REINSW) shows that vacancy rates across Sydney from the inner to outer suburbs remained below 1%.

These very low vacancy rates are applying pressure on rents and are improving yields of property investments. According to Residex the average rent yields for houses in Sydney was 4.46% and for units in Sydney was 5.46% for the 12 months to 30 June 2008. Comsec is predicting that rental yields will increase a further 10% over the next 12 months.

Residex figures show that rents for houses in Sydney increased 15% for the 12 months to 30 June 2008 which is a weekly increase of $65 per week and to a median weekly rent of $490. Rents for units in Sydney increased 10.5% for the 12 months to 30 June 2008 which is a weekly increase of $40 per week and to a median weekly rent of $420 per week. Rent rises have been concentrated in the inner ring of the city however rents have started increasing in outer suburbs as renters are forced out of the inner city suburbs.

According the REINSW each week an additional 1400 people arrive on Sydney’s doorstep looking for a home.  This combined with strong population growth and an under-supply of new dwellings will continue upward pressure on rents. Experts are predicting an annual increase in rents in Sydney between 10% and 12% for 2008. Australian Property Monitors are predicating that rents will increase 50% in most capital cities over the next 4 years.  Investors should continue to maintain short term leases to allow flexibility to increase rent levels.