Sydney Property Market Overview

The Sydney property market continued to show good growth over 2007 despite two interest rate increases late in the year.

Growth in Sydney median house prices was 9.01% for the 12 months to 31 December 2007. Over the December Quarter there was a 2.25% increase in median house prices taking the median house price to $584,500. The unit market also performed well during 2007 with a 6.95% increase in median unit price to $400,000.

The Inner City, East and Lower North Shore continue to perform well with a lack of good quality stock. However not all areas of the Sydney market have been unaffected by the rate increases, the outer suburbs in the West and South are not faring as well. These markets are experiencing a number of mortgagee sales. The lower end of the market which is predominantly made up of first home buyers and investors is also feeling the effect of the interest rate increases.

In contrast the prestige property market continues to perform strongly with a shortage of $3 million plus properties on the market. Due to the low stock a large number of properties are selling off-market or pre-market. According to valuer Dyson Austen, the 10 most expensive properties in Sydney in the December Quarter 2007 sold for approx. $174 million, $61 million higher than the same period in 2006. Four of the top sales were in Mosman and one in Cremorne showing that the Lower North Shore is bringing large price tags.

In 2008 the top end of the market has continued to perform very strongly. Last week 73 Wolseley Road, Point Piper sold for $32.4 million breaking the record for a non-waterfront property. The property last traded in 2004 for $16.15 million. Also last week the record for apartment sales in Sydney was broken with the sale of a Penthouse in Bennelong for $16.75 million ($64,423/sqm). The apartment last traded in 1999 for $5.63 million.

Despite continuing interest rate increases the fundamentals of supply and demand seem to be holding up the Sydney property market in many areas. A lack of supply of good quality properties, declining new housing and a consistent large number of buyers in the market is keeping a floor under the market. High international migration and a steady reduction in the number of people per household as our demographics change are also creating increased demand.

It is to early to tell if the market will remain resilient with two additional rate rises already in 2008 and a declining stock market.

Sydney Median House Price Overview

Sydney house values have doubled, on average since 1980, every 7.34 years. House values doubled between January 1980 and August 1987 (moving from $47,783 to $97,804) – a period of 7.6 years. It took another 8.5 years for house values to double again, with the median value moving from $97,800 to $198,000 between August 1987 and March 1996. The next ‘doubling period’ lasted just 6 years, with the median house value moving from $198,000 in March 1996 to $400,000 in March 2002. The current median value is approx $580,000. (Source: Residex)

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National Property Market Overview

Figures released by RP Data showed that national house values increased by 13.97% during the 12 months ending January 2008. Median national house values are now approaching $500,000. As a result of the worsening housing affordability crisis, the national unit market has seen strong growth as buyers look for cheaper entry points into the property market. Nationally, units have been appreciating at a faster rate than houses, jumping by 16.31% during the 12 months ending January 2008, boosted by surging demand particularly in the inner-city areas.

Housing affordability fell by 1.7 per cent in the final three months of 2007. Housing affordability conditions in the December quarter were 5.2 per cent lower than the same period last year, and the lowest level for over 20 years.

According to RP Data Adelaide continued to outperform the rest of Australia, with house values rising to $416,870 - an increase of $86,799. Brisbane dwelling values rose 23.34%, while Melbourne values climbed by 22.97%. Sydney stayed on its course to recovery with dwelling values rising by 8.39%, while Perth continued to languish with just a 0.84% increase in values.

Despite continuing interest rate rises the Australian residential property market has remained resilient. The RBA's monetary policy has had a negative impact on new housing supply which is in turn putting pressure on property prices.

Sydney Rental Market

Sydney Rental vacancy rates continue to fall and as a result, rents and rental yields are on the increase.

The latest data from the Real Estate Institute of NSW (REINSW) showed that vacancy rates in all parts of Sydney dropped to 0.9% in February 2008. This is the first time all of Sydney - from the inner to outer suburbs - has experienced less than 1% vacant rental properties.

These very low vacancy rates are applying pressure on rents and are improving yields of property investments. With the supply of new dwellings decreasing, rental markets are expected to tighten even further in 2008. Rental yields are predicted to reach over 5% in the medium density market.

Strong population growth and an under-supply of new dwellings will continue upward pressure on rents. According to figures released by Residex median rent for an average Sydney house in January was $450 - a 25% jump from a year ago. The median rent for units for the same period was $385 per week, which is 22.22% higher compared to 12 months ago.

Experts predict an annual increase of between 10% and 12% for 2008. Westpac's `Outlook for Australian Property Markets' predicts that the undersupply will result in residential rents rising in 2008 by another 10 per cent in Sydney.

With the RBA lifting interest rates by 0.25% twice this year and major banks adding around 0.15% to the mortgage rate, investors will need to raise rents to cover the 0.65% increase in mortgage rates. The Westpac report said that to cover the higher cost, yields will need to rise to 5.4% by the end of 2008 and that a 10% increase in rents will achieve this growth. The report noted that the rising cost of finance and low vacancy rates will allow landlords to lift rents by the required 10%. Investors should maintain short term leases to allow flexibility to increase rent levels.

Sydney Holiday Rentals

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Suburb Snapshot - Surry Hills

Surry Hills is located in the Eastern Suburbs only 1.5km east of the CBD. It is a very good example of a working class suburb made good. Surry Hills is undergoing a similar gentrification to Paddington, while maintaining a hip urban edge and more affordable property prices. Surry Hills 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.

With an abundance of period terraces in various stages of repair and renovation, Surry Hills provides a more affordable alternative for those who are determined to buy in the Eastern Suburbs.

Surry Hills real estate is a mixture of newly renovated Victorian terraces standing alongside un-renovated terraces, flats and scattered houses.  It has experienced very strong growth in house and apartment prices over the last 12 months with a 18.49% growth for houses and 9.24% growth for apartments. These growth rates are high in comparison to other suburbs for this period. 

Rental demand is strong in Surry Hills due to its close proximity to the CBD. Gross rental returns in Surry Hills over the last 12 months are 3.34% for houses and 4.07% for units; these returns are high in comparison to other suburbs for this period. The table below shows average rent and rental returns for houses and units in Surry Hills.

Recent Purchase in Surry Hills: For an investment property, Surry Hills provides a good balance between capital growth and rental yields. It also provides more accessible entry levels than neighbouring suburbs such as Paddington. If you are looking for a semi-renovated 3 bedroom terrace you can enter the market in Surry Hills for around $1.1 million. In nearby Paddington a similar property will sell for over $1.5 million.

Property Profile - 60 Ridge Street, Surry Hills
60 Ridge Street, Surry Hills sold in 2007 for $1,087,500. The property is a semi-renovated 3 bedroom 2 bathroom terrace with single parking. The property is located on a quiet street minutes from Surry Hills cafes and other amenities. Land size is approx. 115 sqm.

Real Estate & Design: Surry Hills is a curious mixture of newly renovated Victorian terraces standing alongside un-renovated terraces, modern high-rise flats and impressive warehouse conversions.

Shopping and Entertainment: Once the centre of Sydney’s garment trade, Surry Hills still has factory outlets where clothing, lingerie and haberdashery can be purchased at below retails prices. Alternative fashion and retro clothing shops are found at the Oxford Street end of Crown Street. Surry Hills offers a wide range of great restaurants, smart and casual cafes and trendy pubs.

Schools, Education & Institutions: Local primary schools include St. Peters Public, Crown Street Public and Bourke Street Public. Nearby high schools include Sydney Boys and Sydney Girls in Moore Park, Sydney Grammar School and St. Andrews.

Distance from the CBD & Transportation: Surry Hills is 1.5km east of CBD. There are plenty of buses along Cleveland Street and the CBD is a short walk. Central Station, Sydney’s hub of rail and bus transport is on Surry Hills border.

Population & Demographics: Surry Hills has a population of 25,146 with the following age demographics: under 4 yrs - 3%; 5 to 19 yrs - 9%; 20 to 39 yrs - 52%; 40 to 59 yrs - 24%; over 60 yrs - 13%.  

Local Council: South Sydney Council.

Tax & Property issues for expats outside Australia

You’ve secured a new role overseas on an expatriate package and have been lucky enough to be posted to a lower taxing environment than Australia. This presents a wonderful opportunity for wealth and asset accumulation in a tax efficient manner.

So, what are some of the steps you can take to make best advantage of your financial windfall. If you’ve been posted to Singapore or Hong Kong you’ve got a 25% pay increase due to their lower tax regime - how to make the most of your new found cash flow.

First you need to determine your tax residency which is subject to a number of different rules. Residency is a matter of fact and is based on a number of rules; most common being:

If you reside outside Australia and intend to do so for longer than at least a 2 year period, and are not a Government employee, you are most likely a non-resident of Australia for tax purposes.

Opportunities exist to accumulate tax losses on any rental property in Australia to offset against future income when you return to Australia. You need to make sure you have all purchase costs & expenses documented and an up to date capital gains tax register, plus a depreciation schedule for tax purposes. If the property was your principle place of residence prior to relocation there are exemptions available for capital gains tax-but you need to document the facts.

Another important investment decision for your property is appropriate ownership and debt structure for tax purposes. Are you claiming all available deductions, should the property be in joint names or just highest income earners name, is a trust structure most appropriate for your needs? Opportunities may also exist to structure the debt in the currency you are now earning-which may reduce your interest costs from 8.75% in Australia to say 2.5% in Singapore. Before taking on a multi-currency loan facility you need to carefully analyse these options with the assistance of your advisors, as significant exchange rate risks could cause greater loss than the benefit of reduced interest costs.

These & many more issues present opportunity & challenges for Australians to maximise their wealth accumulation goals through existing property investments.  With appropriate advice you can navigate the financial journey ahead.

This article was contributed by Brent Allcock, Senior Vice President and a Licensed Financial Adviser Representative with ipac financial planning Singapore private limited, which is licensed with the MAS, Financial Adviser’s Licence No FA100003-2. Brent also holds an Authorised Representatives License with ipac securities limited (ABN: 30 008 587 595) Australian Financial Services License No. 234656. You can contact Brent at brent.allcock@ipac.com.sg or visit www.ipac.com.sg. (In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any person. Before making an investment decision, you should speak to a financial adviser to consider whether this information is appropriate to your needs, objectives and circumstances).