Sydney Property Market Overview

Throughout 2008 the Sydney property market was overall surprisingly resilient to the global credit crisis especially when compared to other international property markets. However we started to see negative growth in the second half of 2008 and we expect that growth will continue to slow further in 2009. When combined with historically low interest rates these conditions are bringing good buying opportunities for astute buyers.

Sydney property prices started to experience negative growth in the September 2008 Quarter. According to Australian Property Monitors (APM) Sydney median house prices fell -3.1% for the 12 months to 30 September 2008 and -1.7% over the September Quarter taking the median house price to $539,733. The Sydney unit market declined -2.8% over the 12 month period and -1.1% over the September Quarter to a median price of $362,366.

Prices continued to decline over the December 2008 Quarter, the second consecutive Quarter that we have seen prices falling. According to APM Sydney house prices fell -0.7% over the December Quarter and -4.2% over the 12 month period to 31 December 2008 taking the median house price to $536,021. Sydney unit prices remained more resilient with a decline of -3.8% over the 12 month period and they remained flat over the December Quarter at a median price of $362,366.

These figures are consistent with figures released by RPData for the December Quarter which showed that Sydney median house prices fell -1.38% over the December Quarter and -3.64% for the 12 month period to 31 December 2008. Sydney units declined -0.38% over the Dec Quarter and -1.12% over the 12 month period. They are also consistent with figures released by the Australian Bureau of Statistics for the December Quarter that show Sydney house prices declined -0.3% in the December Quarter and -4.1% for the 12 month period to 31 Dec 2008.

Below we take a closer look at different segments of the Sydney property market and what SydneySlice is seeing in these markets.

Low End: The lower end of the market ($500,000 - $800,000) in the Eastern Suburbs, Lower North Shore and Inner West is performing well as lower interest rates, increased first home buyer grants and increasing yields lure first home buyers and investors back into the property market. This market is interest rate sensitive and appears to be less impacted by the global credit crisis than the middle to high end of the market. For example, 56 Gowrie Street Newtown a semi-renovated 3 bedroom terrace with parking had over 40 groups thorough its first open and sold at auction in December for $852,000 well over its $810,000 reserve.

Middle Market: In the $1.5-$3 million market on the Lower North Shore and the Easter Suburbs we have seen this market come off around 10%-15% however a lack of good stock of family homes in this price range and lower interest rates are holding this market up in some areas. This market is interest rate sensitive and lower interest rates are reducing the mortgage stress for some owners in this level of the market. However we expect to see a continued softening in this market if stock increases.

Middle-Top End: In the top end of the market $3-$6 million on the Lower North Shore and the Eastern Suburbs we have seen the market come off approx. 15-20% where some vendors are under pressure to sell. We have seen increasing numbers of properties for sale in a number of areas such as Mosman on the Lower North Shore and Vaucluse in the Eastern Suburbs. However to date we have not seen a large number of fire sales. This level of the market is less interest rate sensitive than the lower end of the market however the huge rate cuts are reducing mortgage stress for some owners in these markets. We are expecting to see more stressed sales in these markets over the next 3-6 months as job losses kick in and banks start to put increased pressure on owners in which case owners who have had properties on the market for a while maybe forced to sell.

What SydneySlice is seeing has been reflected in the figures released by APM who have reported that Eastern Suburbs median house prices have fallen by -14% over the December Quarter and Lower North Shore median house prices have fallen by -13% over the December Quarter. The Eastern Suburbs and Lower North Shore are middle to higher end markets and these figures are the first real sign that we have seen that these markets have started to come off. By contrast and again consistent with what SydneySlice is seeing, APM reported much lower falls at the lower end of the market with prices in the Inner West declining only -2.7% over the December Quarter to a median house price of $700,000.

Very Top End: At the very top end of the market $10 million plus we have seen a large number of strong sales in the second half of 2008. There were twelve $10 million plus sales in the East in the second half of 2008 with a total value of over $220 million. The top sale was the record breaking sale of a waterfront estate in Coolong Road, Vaucluse for $45 million followed by a $28.1 million sale of a beach front at Watsons Bay and a $22.5 million sale of another waterfront at Watsons Bay. At Point Piper there were two non-waterfront sales on Wolseley Road of $26.1 million and $20.6 million and a sale in Wentworth Place of $15 million. However this market started to show signs of coming back at the end of December with two pre-Christmas sales showing drops of up to 25% on the original asking prices. Post Christmas 25 Victoria Street, Watsons Bay a 1350sqm beachfront block site has reportedly sold site unseen to an overseas buyer for $16 million, original expectations were over $20 million. This sale reflects a 15-20% drop when compared to the sale of the property next door on 1950sqm which traded in September 2008 for $28.1 million.

Coastal Holiday House Market: We have seen coastal holiday home markets such as Palm Beach, Whale Beach, Blueys, Avoca, Mollymook, come off 20%- 30% and even more in situations where sellers have been forced to sell. SydneySlice recently bought a property at Whale Beach for a client at more than 30% below the original asking price. Figures from APM report that the median house price in Palm Beach fell 20.4% over the 12 months to December 2008. At Macmasters Beach a property sold for $1.4 million in January down from an asking price of $1.75 million. It last traded at $1.35 million in late 2003. A beachfront at North Avoca that originally had expectations of $5 million now has expectations of $3.5 million. The property last traded in 2001 for $2.37 million. A Pearl Beach property was on the market this time last year for $2.9 million and they are now seeking any offers over $2 million.

We believe that the top end of the market and the holiday house markets will continue to slow due to ongoing uncertainty surrounding global credit crisis. Affluent areas such as the East and Lower North Shore and discretionary investment assets such as holiday homes are much more affected by share market conditions and low levels of business confidence than other less affluent areas of the market.

Buyers and Market Activity: At SydneySlice we are seeing a large increase in the number of expat buyers and foreign investors taking advantage of depreciation of the $A from a high of 0.98USD to a low of 0.6055USD in addition to falling prices and lower interest rates. We are also seeing a large number of local buyers in the market a majority of which are trading up to take advantages of price reductions and lower interest rates. Open houses are busy and there has been early buying activity already in 2009. Last weekend Sydney recorded a clearance rate of 71% with $36 million in sales. This is high compared the 52% clearance rate for the same weekend last year. Di Jones Real Estate, a boutique agency in the East, has sold 6 properties ranging from $515,000 to over $4 million in 2 weeks. McGrath Estate Agents in the East has already had 147 sales between 1 January and 5th February 2009 by comparisons to their total sales for the 2008 calendar year of 683 sales. This is very strong activity for this time of the year.

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We believe over the next 6 months prices and interest rates will continue to fall and that this will bring some great buying opportunities for astute buyers. We expect to see more forced sales and opportunistic buys during this period. 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.

Interest Rates - 45 Year Low

The Reserve Bank of Australia (RBA) cut the official cash rate by another 100 basis points on 3rd February to 3.25%. This is the 5th consecutive cut since September 2008 when rates peaked at 7.25%. The combined cut of 4% has bought the cash rate to its lowest level in 45 years. 

In the RBA statement Governor Glenn Stevens said “There was a significant deterioration in world economic conditions late in 2008. The effects on household and business confidence of the financial turmoil following Lehman’s collapse, and continuing strains on major financial institutions, saw a significant downturn in demand around the world”.  The rate reduction came just hours after the Federal Government announced a proposed $42 billion stimulus plan aimed at keeping the economy out of a recession. ''The combination of expansionary monetary and fiscal policies now in place will help to cushion the Australian economy from the contractionary forces coming from abroad'' the RBA said in its statement.

Westpac immediately passed the full 100 basis point cut and the other major banks have followed suit. The new standard variable home loan rate is around 5.9%. In addition to passing on the full cut one bank is offering a special discount of 1.5% off their standard variable rates for the first 12 months bringing their rate down to 4.39%. The latest cut will save a mortgagee with a typical 30-year $300,000 home loan about $250 in monthly repayments - the combined 4% cut is now saving close to $1000 per month. After today's rate cut, servicing the loan on the median Sydney home will now require just 21% of average income down from 30% in August (HIA Data).

These lower interest rates are to some extent offsetting the impact of the global credit crunch by reducing the level of mortgage stress owners are under. According to industry reports low interest rates have reduced the number of households in mortgage stress to 635,000 in January a decrease of 6% from the December figures and a significant fall from a peak of 883,000 in August 2008. Figures from the NSW Sheriff’s Office indicate that due to lower interest rates the number of properties seized in the last 3 months of 2008 was 27, down from a peak of 179 in July 2008.

The RBA indicated it had more scope for cutting rates as inflation eases. ''Inflation has begun to moderate and, given recent developments, it is likely to continue to decline,'' the RBA's statement said.   Economists had widely predicted the latest 100 basis cut in the official rate. Some economists are now predicting a further 50 basis point cut at the March meeting and some are predicting rates will fall to 2% by the end of the year.

Sydney Rental Market

Property investors in Sydney are still reaping the benefits of a tight rental market with rents continuing to rise.

Sydney's rental vacancy rate continues to hover at around 1%. These are at historical low levels and are applying continued pressure on rents and improving yields for property investors. With the supply of new dwellings decreasing rental markets are expected to tighten even further in 2009.

Sydney rents increased 16.9% for houses and 8.1% for units in the 12 months to 31 December 2008. Despite these increases the global credit crunch has started to have an impact on the top end of the rental market. $4000 plus a week properties are slower to move and we are seeing rents come down at the top end of the market.

Over 2008 yields improved as weekly rents increased at a faster rate than property value and interest rates fell. The gross yield for Sydney houses over the 12 months to 31 December 2008 increased by 10.3% to 4.5% and has increased by 6.5% for units to 5.39%. For example, a large one bedroom unit with a balcony and parking in Paddington sold in January for $490,000 and is currently leased at $550 per week (gross yield 5.8%) and a two bedroom garden apartment in Queens Park sold in January for $620,000 and is currently leased at $650 per week (gross yield 5.5%).

With increasing rental yields and historically low interest rates some investors will find that previously negative cash flow properties will become positive and we expect to see investors coming back into the market in 2009 as properties become cash-flow positive.

We expect rents and rental yields to continue to increase over 2009 due to low supply of new dwellings, high levels of immigration, low interest rates and slower growth rates.

SydneySlice in Singapore

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 2.7% increase over the 12 months to 30 September and units a 7.5% growth. These growth rates are strong in comparison to other suburbs for this period.  If you are looking for an investment property around the $600,000-$800,000 price range, a semi-renovated terrace or semi in Newtown is a very good option to consider. 

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 4% for houses and close to 5% for units. The table below shows average rent and rental returns for houses and units in Newtown.

Recent Purchase in Newtown: For an investment property, Newtown provides a good balance between capital growth and rental yields. It also provides more accessible entry levels than neighbouring suburbs such as Glebe, Annandale and Leichhardt. If you are looking for a semi-renovated 3 bedroom terrace you can enter the market in Newtown for around $750,000-$850,000. In nearby Glebe or Annandale a similar property will sell for $850,000-$950,000.

Property Profile - 83 Burren Street, Newtown
83 Burren Street Newtown sold in October 2008 for $850,000. 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 184 sqm.

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 - 4%; 5 to 19 - 8%; 20 to 39 - 54%; 40 to 59 - 23%; 60 plus 8%.  

Local Council: South Sydney Council and Marrickville Council.