Sydney Property Market Overview

The Sydney property market has entered a phase of stabilisation and consolidation.

Over 2010 the Sydney property market experienced moderate growth of 6.6 per cent according to RP Data-Rismark. The Sydney median dwelling price was $673,000 for houses and $477,500 for units in December 2010.  Most of the capital growth was experienced in the first quarter of 2010.  The RBA’s four interest rate hikes in 2010 and additional hikes from the major banks dampened capital growth for the remainder of the year.  In December, Sydney’s dwelling values continued to flat-line with a 0.9 per cent increase in home values.

In 2011 the Sydney Property market has continued to plateau.  The first Quarter has seen Sydney home values record a 0.3 per cent gain. Of the larger capitals, Melbourne values fell 1.8 per cent over the same period, Brisbane values fell 3.3 per cent and Perth values fell 1.9 per cent. The results highlight that despite having the highest median house and unit prices of any capital city Sydney continues to maintain a small amount of capital gain. During the past 12 months Sydney toppled Melbourne as the best growth market, recording an improvement in home values of 5.3 per cent, while Melbourne values rose 2.5 per cent.

A number of market indicators suggest that the market will continue to plateau. Auction clearance rates have been oscillating around 60 per cent since February and the number of homes advertised for sale are at high levels.  There are now 68,000 homes being advertised for sale across NSW, 19 per cent higher than at the same time last year.

Other lead indicators, such as the time it takes to sell a home and the margin by which vendors have to discount their properties have also started to climb.   Sydney houses are now taking, on average, 54 days to sell compared with 38 days when conditions were more buoyant and sellers have to discount their price expectations by 6 per cent compared with just 5.2 per cent early last year.

Despite cooling market conditions good quality properties are still being competitively bid.  For example, a great family home in Northbridge in the $4 million price range recently sold prior to auction with competitive bidding from 4 parties.  Another competitive area of the market is good family homes in the $2-$2.5 million range due to a large number of young families looking to trade up. Good quality stock, in particular good family homes are selling well provided they are not over priced. It is compromised second rate stock that is being left on the market and over priced stock that is failing to sell. 

We predict that the market will continue to plateau over the next 6 months. The current market conditions are favourable for buyers. Increasing stock will give potential buyers increasing scope to negotiate on price and get the best possible deal. We think the next 6 months will bring some great buying opportunities. 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.

For those of you who have always dreamed of owning a beach house you can’t go past Palm Beach and Whale Beach. This market was hit hard during the GFC with prices down 30%-40% from the 06/07 highs. The market recovered late 2009 and early 2010 with a number sales being recorded at good prices. The market has again slowed and we are seeing increased levels of stock on the market and some very good buying opportunities. The strength of the AUD has kept the Expats buyers at bay so we are seeing less competition on properties and vendors are being more realistic with pricing. If you would like some more information on Palm Beach/Whale Beach properties and pricing contact Steve Smith.

The Top End

According to a report released by PRDnationwide, Mosman had the highest number of sales in excess of $1 million recording a total of 192 sales in excess of the $1 million.  $461 million of premium housing changed hands in Mosman between April and September 2010. Brighton in Melbourne came second with 127 sales over $1 million followed by Double Bay in Sydney with 50 sales.   

There have been a large number of high end sales already in 2011. We have set out below details of the top 20 sales so far for 2011. The sale of Stanley Ave in Mosman for $15.25 million is a record price for a non-waterfront in Mosman, the previous record was $13.5. Another non-waterfront property in Kirkoswald Ave, Mosman traded last week off market at $15 million.

.

SydneySlice in Hong Kong

Sydney Rental Market

Investors are benefiting from a tight rental market.  In Dec 2010 Sydney rental yields were 4.03% for houses and 4.92% for units.

In 2011 rental yields have continued to climb and have now hit over 5% in Sydney. Nationally, gross yields for apartments and houses are 4.7 per cent and 4.0 per cent, respectively.  According to RP Data/Rismark, Sydney is providing yields greater than five per cent with a gross yield of 5.1%.  Melbourne, in contrast, is offering investors gross rental yields of just 4.2 per cent.

According to AMP in Sydney, median asking rents for houses rose +1.0 per cent to $485 over the March Quarter and units jumped +2.3 per cent to $450 per week. We expect growth in rentals to continue through 2011, driven by accelerating economic activity, household growth, housing shortages and affordability issues associated with entry-level home buyers.

Vacancy rates in Sydney continue to fall and are at record lows due to low supply of rental properties. According to new figures released by the Real Estate Institute of NSW (REINSW) rental vacancies in Sydney fell by 0.4% to hit 1.1% in February.   These low vacancy rates confirm an ongoing tight rental market and a resulting higher than average rental growth per annum for Sydney, where rents have grown on a compounded basis by 8.8 per cent per annum for the past five years.  In 2010, median Sydney rents jumped by 10% or more than double what they did in 2009.

We expect rents and rental yields to continue to increase further over 2011 due to low supply of new dwellings and high levels of immigration and population growth.  In  Sydney, the per capita housing supply has halved since 2003.  Housing affordability is also putting pressure on rents. As property prices rise, it makes it more difficult for people to enter the market leaving more renters to compete for rental stock. The undersupply of new housing is causing both the increasing prices and the lack of supply for renters.

There are simply not enough rental properties for tenants to live in at affordable prices. Generation Ys in particular prefer to rent in their favoured lifestyle locations rather than saving up to buy an affordable first home out west. They want low maintenance properties close to the CBD, transport, cafes, restaurants and beaches.

Vacancy rates will remain at record lows unless there is a meaningful change in supply it will take some time before this position changes.  With increasing rental yields and decreasing vacancy rates we expect to see more investors coming back into the market in 2011.

With increasing rental yields and decreasing rental vacancies it is a great time to consider purchasing an investment property by starting or adding to your investment portfolio. SydneySlice can provide guidance and advice on the best way to build your investment portfolio and utilize your existing equity.

Buy an Investment Property Using Your Superannuation

Changes to superannuation rules a few years ago have opened the door for investing through super by allowing Self Managed Super funds to borrow money for property assets.

Buying property through your super fund can provide great tax benefits.  If an investor decides to sell the property from the time they have started drawing down a pension, no capital gains tax will be payable.  Also by holding your property in super, any rental income is only taxed at 15 per cent or not taxed at all during the pension phase.

For example, somebody in their 50s who buys an investment property outside super, then sells it 15 years later to fund their retirement, then has to pay capital gains tax which could amount to many thousands of dollars. If the same property is held within a super fund, the tax can be reduced to zero if the property is sold after the super switches to pension phase

Financial institutions will typically let a self-managed fund borrow about 65-70 per cent of the property value.  For a $400,000 property that means you'd need up to $140,000 deposit, before other costs.

Any borrowing must be through a non-recourse loan. This means the underlying security for the loan must be the property in question. No other assets are allowed as security for the loan. If borrowing for a property there are restrictions on improvements and redevelopment. A self-managed fund cannot develop or improve a property while it is still under loan. Only once a loan is fully paid out can you make improvements to the property.  One key trap is liquidity: You have to make sure that your fund has enough cash to pay liabilities and pension payments if a member receives one.

Any savvy investor knows the importance of diversifying their investments and within a self-managed super fund it is no different.

Suburb Snapshot - Woollahra

Woollahra is located in the Eastern Suburbs only 1.5km east of the CBD. It is a small suburb known best for it village atmosphere, proximity to the CBD and access to Centennial Park. The housing comprises a mixture of heritage Victorian and Federation homes and a small number of boutique residential blocks, Australia’s finest Victorian and Edwardian grand houses, and rows of exquisitely detailed terrace houses. Their lovingly maintained gardens give Woollahra the feel of an English village. Many of the houses in Queen Street are registered on the National Estate.

Over the last 12 months Woollahra has experienced good growth compared to other suburbs for the same period with 4.18% growth in houses for the 12 months to 31 Dec 2010 and an average growth rate of 7.67% over the last 10 year. Three sales of $6.5 million and above have already made the top 20 sales list for 2011.

Rental demand is strong in Woollahra due to its close proximity to the Paddington, Edgecliff , Bondi Junction and CBD. Gross rental returns in Woollahra over the last 12 months have been approx. 2.2% for houses and over to 4% for units. The table below shows average rent and rental returns for houses and units in Woollahra.

Recent Sales in Woollahra: For a family home Woollahra provides a great balance of village lifestyle, park lands and close proximity to CBD, Bondi Junction and beaches.

Property Profile - 59 Wallaroy Road Woollahra
59 Wallaroy Road Woollahra sold in Dec 2010 for $7.450 million. The property is a freestanding 3 storey homes. The property has been fully renovated. It has 5 bedroom, 4 bathroom and double garage. Level lawn and pool. The property is located close to Cooper Park and within walking distance of cafes and other amenities. Land size is 748 sqm. The property last sold in May 2006 for $5,250,000.

Property Profile - 59 Wallaroy Road Woollahra

50 Edward Street Woollahra sold in march 2011 for $6.6 million. Freestanding home on 234m2. 4 bedrooms, 3 bathrooms. Features include main living/dining, media room/cinema, integrated Miele kitchen, BBQ, 2 master bedroom suites, additional 2 bedrooms and bathrooms, built-ins, internal laundry, C-Bus, store rooms, pool, remote double garage (internal access).The property last sold in Nov 2007 for $5,283,000.

Real Estate & Design: Housing in Woollahra comprises a mixture of heritage Victorian and Federation homes and a small number of boutique residential blocks. An extremely affluent and well heeled suburb, Woollahra attracts professional families, executive couples and empty nesters and is also home to Sydney’s consular belt. The housing comprises a mixture of heritage Victorian and Federation homes and a small number of boutique residential blocks

Shopping and Entertainment: Woollahra offers a wide range of great restaurants, smart and casual cafes and trendy pubs. For the dedicated foodies there is Jones the Grocer with its brilliant produce, books, kitchen equipment, and fabulous coffee and snacks. Down in the village are Agostini’s, Nostimo and the robust Big Mama’s. The newly reopened Victor Churchill butcher shop has become a local landmark and attracts an ever-growing number of gourmands. There are plenty of gourmet delis and Parisian style cafés and patisseries along with renowned restaurants such as the award winning Bistro Moncur and the Lord Dudley Hotel and fashionable Centennial Hotel

Schools, Education & Institutions: There are 3 schools and 4 childcare centres located in Woollahra. Local state school Woollahra Primary is situated in Forth Street. Private school Reddam House which is co-education from toddlers to year 12 in Edgecliff Road. Holy Cross Catholic Primary School in Edgecliff Road and The Goethe Institute which is a language school in Ocean Street

Distance from the CBD & Transportation: Woollahra is 4 km east of the CBD, and has ample buses along Oxford Street and Edgecliff Road. The fast and frequent trains from Edgecliff Station are only 5 minutes walk from Woollahra village.

Population & Demographics: Woollahra is 4 km east of the CBD, and has ample buses along Oxford Street and Edgecliff Road. The fast and frequent trains from Edgecliff Station are only 5 minutes walk from Woollahra village.

Local Council: Woollahra Council.