Market comment: Spring is here with early rewards for property buyers

Tue, 11 Sep 2018

Market comment: Spring is here with early rewards for property buyersThe slowdown in real estate activity continues across Sydney, but there are signs the market is quickly adjusting to the new realities confronting buyers and sellers in a changed property environment.

Harry Triguboff, owner of Meriton and one of Australia’s richest men, told ABC News that Australia is in an apartment development slowdown: "I'm experiencing [the downturn] more than anyone because I build the most," he said. "That doesn't worry me."

"So what I do is, I sell some of my old blocks so then I give more variety for the purchasers. I will also be leasing more. When the market will improve, I will take some of those units from leasing and sell them."

CBRE chairman of residential, Justin Brown, says that developers have been quick to reformat their plans: "There's been a lot of adjustments. Developers are stalling projects; their next stages aren't coming on."

"You see all sorts of offerings, whether it's a reduced price, a rebate on stamp duty or a rental guarantee."

One interesting development is that auction clearance rates, subdued since the start of the year, have begun to pick up. SQM Research's Louis Christopher said that auction volumes are beginning to climb upwards from the winter lows: "The pick-up for the spring selling season is now upon us. The market is going to be very much tested," he said.

Sales volumes are still well down on those of the previous three years, but pre-auction sales are picking up as vendors accept early offers on their properties.

Doman’s Chris Tolhurst summed up the reasons why there’s been a shift in this new direction: “This is a tried-and-true strategy that can work well in a more subdued market because it allows cashed-up buyers who’ve sold an existing home to profit from the traditional surge in stock between October and December.”

Auction clearance rates aren’t the only way of gauging the health of Sydney’s property market. In fact, the majority of Sydney homes sell by private treaty rather than auction. But there is a correlation between price appreciation and the ratio of auction sales to those sold by other methods.

Domain’s Dr Nicola Powell tells us that during strong periods of price growth a higher percentage of homes will sell by auction. During slower periods the opposite is true. Furthermore, a lower proportion of units sell by auction compared to sales of houses.

“The peak rate of growth for Sydney house prices was reached during 2015. At the same time the market also experienced the highest proportion of sales under the hammer, with 30 per cent of houses sold by auction in the six months to the end of October 2015,” Dr Powell says.

“Prior to the recent price upswing, roughly eight per cent of units were sold by auction and this rose during the boom to a high of 20 per cent of units selling by auction in the six months to the end of September 2017. This has been declining since.”

First-home buyers are becoming more active as investors take a break. The NSW government released figures in August showing the number of buyers taking advantage of stamp duty concessions has tripled in the past year.

Before the state government eliminated or reduced stamp duty for first-home buyers purchasing a property valued at up to $800,000, the number of first-home buyers receiving stamp duty concessions averaged 780 per month. In the year since the stamp duty concessions were implemented, this figure has risen to more than 2700 per month.

Pull-back welcome

Falling house prices and a weaker property market have been given a cautious welcome by Philip Lowe, governor or the Reserve Bank. In his semi-annual testimony to Parliament he said that although sliding prices may worry some people, we should keep things in perspective.

"Not so long ago there was concern in the community about rapidly rising housing prices and debt and declining housing affordability," he told the House of Representatives standing committee on economics.

"These earlier trends were not sustainable and were posing a medium-term risk to our economy. So, a pull-back is a welcome development and can put the market on a more sustainable footing.”

Dr Lowe added that he felt the Australian economy, with GDP growth above three per cent, inflation around two per cent and unemployment below 5.5 per cent, continues to move in the right direction.

He also said that the average borrower was now getting a better interest rate than a year ago: "I say this to everyone: if you are unhappy with the interest rate you are getting, go to your bank manager and ask for a lower one; because when I tell people this they actually come back and say 'yeah, it actually worked'. If you're a good quality borrower, you can get a good deal."

BIS Oxford Economics’ forecast for Sydney property indicates that Dr Lowe has little to worry about until 2021 or thereabouts. The market analyst says that home prices will rise by a meagre three per cent by 2021 – the slowest growth rate of all capital cities.

It also expects Sydney’s median home prices to decline by two per cent over the 2018-19 financial year; however, it says a major fall is unlikely due to the development of an anticipated undersupply.

BIS senior manager Angie Zigomanis said that although new housing supply has been at record levels with more than 200,000 dwellings being completed each year since 2015-16, population growth is expected to rise above 400,000 this financial year: “It's the highest level since the peak in net overseas migration in 2008-09, although this will still not be sufficient to meet [demand].”

Property advisory firm Charter Keck Cramer's National Executive Director Bennett Wulff says over the next five years Sydney needs to build about 196,000 dwellings per annum just to keep up with growth in population: "We do expect to see supply come back again," he told ABC News’ Rachel Pupazzoni. "The NSW government has indicated that we require 36,000 new dwellings over the next 20 years per annum and we're only just touching those numbers now."

Recent reports from ANZ, Macquarie Securities and UBS have all expressed expectations of weaker prices. Global ratings agency Moody’s Analytics, however, said it believed the worst was over and forecast Sydney house prices to begin a weak upward move from early next year.

Another positive outlook was expressed by Ray White chairman Brian White who told the Australian Financial Review he is confident the market will rebound this spring: “I am confident the downhill slide is easing and there are better prospects of getting good prices [this spring]," he said.

"Confidence will increase on the back of low interest rates ... traditionally when the market is down, it is usually accompanied by a rise in interest rates."


The Economist magazine recently found that Sydney is one of the world’s most overvalued cities when it comes to prices of residential property.  It concluded that Sydney is among the world’s top 10 cities where property price rises are “unsustainable” when compared to household incomes.

Using this method of comparison, the magazine ranked Sydney as seventh in its global cities index while saying home prices were “overvalued by 50 per cent” when compared to average earnings. This puts Sydney in the same unaffordability league as Amsterdam, London and Vancouver.

The magazine said that national house prices in Australia, Canada and New Zealand have been more than 20 per cent above fair value compared with income and 30 per cent above fair value compared with rents for the past three years. They have now hit 40 per cent above fair value for both methods of calculation.

CoreLogic property analyst Cameron Kusher said there is a simple reason for the prices of Sydney property to now take a backwards step: “It is clear that on a historic basis housing costs are expensive, and values are falling indicating that the prices that people are seeking are not prices that potential buyers are willing to meet,” Mr Kusher told The New Daily.

Looking further into the background of Sydney’s now-ended property boom, The Economist said that “demand, supply, the cost of money and foreign investment” were behind the unprecedented property price rises of the past three years. It noted that prices have fallen 4.5 per cent over the past year but did comment that Sydney’s rate of house-price inflation has fallen from its peak, suggesting we are nearing a turning point.

Another viewpoint came in research conducted by that showed the number of buyers actively looking for a home dropped by nearly a quarter over the past twelve months. It also found that Sydney property would not rebound by spring but is likely to bottom out by early 2019.

Less growth

There’s been a significant clash between the NSW government’s desire to increase housing supply and community concerns about overdevelopment. As a result, some of Sydney’s largest residential development schemes have been put ‘on hold’ for an indeterminate period, although sceptics say it could just be until the next state election, scheduled for March next year.

On her first day in the Premier’s job, Gladys Berejiklian nominated housing affordability as her foremost priority. This led to a series of legislative and structural changes that largely took planning powers for major developments out of the councils’ hands and put them into the hands of state government planning authorities.

The planned precincts – termed “priority precincts” and before that, “urban activation precincts” – in which higher-density housing would be partly master-planned by the state, had meant the installation of high-density apartment towers in many suburbs favoured by rail transport links. Homeowners within a few hundred metres of railway stations suddenly found themselves overshadowed by thousands of new apartments – but little or no new infrastructure or services like schools, parks and roads.

Commenting on the NSW government’s changed attitude towards these developments, Chris Johnson, from property developer group Urban Taskforce, reported on a meeting between developers and the Department of Planning and Environment held to discuss the delays in approvals:

“Quite a number of our members have got big concerns about progress in planned precincts where they were expecting the government to be having fairly speedy planning approval processes but in many areas across Sydney they are finding planning is on hold,” Mr Johnson said.

“I think the mood of the meeting was such that it appeared there were higher order decisions being made than from the staff members from the planning department.” In other words, the elected officials at the top had taken a political decision to slow down the pace of development and contain some of the opposition growing at voter level.

The chief executive of the Urban Development Industry Association NSW, Steve Mann, said: “Without planned precincts we may see a return to the seven-year slump that created a 100,000-dwelling backlog. Industry requires the certainty planned precincts provide to make investment decisions.”

Seeking to reassure developers that the current pause in approvals for major developments was only to ensure that projects were given adequate consideration, Planning and Housing Minister, Anthony Roberts said the planned precinct program was about making sure growth was managed in a co-ordinated way.

“We’ve always said that the success of the program relied on sound research and collaboration – with local councils, communities and other stakeholders – and this process takes time,” Mr Roberts told the Sydney Morning Herald.

Rents and prices

There’s no doubt that a simplistic interpretation of the ‘law’ of supply and demand equates to lower housing prices and reduced rents if more housing comes onto the market. And recent market statistics show that Sydney’s housing prices and rental rates are indeed falling as a huge number of new apartments become available.

Figures from SQM Research show that Sydney’s vacancy rates have hit a 13-year high of 2.8 per cent, and SQM’s Louis Christopher expects this figure to rise further: “Sydney has…experienced slowing population growth, which has helped to push asking rents lower, as landlords increasingly struggle to fill properties,” he said.

“Vacancy rates will most likely reach 3 per cent in Sydney … I suspect that will happen before the year is out, which is great news for tenants but not for landlords.”

Prices too take a hit from increased supply. In fact, research by declared 17 Sydney suburbs “danger” markets for buying property due to the risk of prices falling after a home is purchased. The majority of these ‘danger’ zones were in the Greater Parramatta area, Sydney Olympic Park area and a belt of suburbs stretching south of the Sydney CBD to the airport.

And while 17 suburbs might be considered ‘dangerous’ due to a perceived oversupply, other parts of Sydney are doing quite well with ongoing growth that seemingly defies market trends. The Knight Frank Australian Prime Residential Review reveals that despite an overall softening of the market the top end is still showing strong momentum.

The Review found that “prime property” – the top five per cent of a market by value – tends to follow global wealth patterns rather than Australian income growth. This is the explanation for sales of properties above $3 million-plus increasing nationally every year since 2014 and still rising.

Sydney “prime” prices rose 8.7 per cent over 2017, making it the 9th best performing city globally for growth. Sydney saw 1809 sales above $3 million in 2017, up 7.6 per cent on 2016. But even at this level there are some striking variations in growth of different price segments.

Michelle Ciesielski, Head of Knight Frank Residential Research, said that despite a generally strong performance, certain prime property segments were ahead of others: “In Sydney, despite a reasonably good result, the $5 million to $10 million price point saw lower growth in sales turnover than those in the $3 million to $5 million and $10 million-plus cohorts,” she said.

She added that expats returning from overseas looked for homes close to the water, which helped drive demand in suburbs like Longueville, Clovelly and Manly.

And maybe the rampant success of property sales in the top brackets of housing prices isn’t so surprising after all. According to figures provided by Domain’s Nicole Frost, 10,000 people with a net worth of more than $US1 million migrated to Australia in 2017, according to the New World Wealth. Australia posted the biggest inflow of High Net Worth Individuals for the third year running.

She also said that Australia ranks third in the top five countries to move to for Ultra High Net Worth Individuals (a net worth of over $US30 million excluding their primary residence) considering emigration.

To paraphrase what the voice tells Kevin Costner in the movie ‘Field of Dreams’: “Build it because they’re coming.”


‘Meriton's Harry Triguboff stops buying land as apartment downturn bites,’ Rachel Pupazzoni, ABC News online, 28 August 2018
‘As Sydney’s spring selling season looms, vendors become willing to accept early offers.’ Chris Tolhurst, Domain, 19 August 2018
‘Sydney is one of the world’s most ‘overvalued’ cities for housing, new data shows,’, 14 August 2018
‘Slowing housing market and falling prices welcome, RBA governor Philip Lowe says,’ Stephen Letts, ABC News Online, 18 August 2018
‘The housing downturn we had to have, according to RBA governor Philip Lowe,’ Patrick Commins, Australian Financial Review, 11 August 2018
‘More housing or unhappy locals? NSW wrestles with desire for growth,’ Jacob Saulwick, Sydney Morning Herald, 18 August 2018
‘Six months left: Hidden danger in falling house prices,’ David Ross,, 13 August 2018
‘Auction market steadies, readies for spring tide,’ Nick Lenaghan, Australian Financial Review, 20 August 2018
‘Sydney House Prices Are ‘50% Overvalued’: The Economist,’ The Urban Developer, 14 August 2018
‘Data deep dive: Why auction clearance rates don’t tell the full story on home sales in Sydney,’ Dr Nicola Powell, Domain, 17 August 2018
‘National rental vacancy rates dip to 2.2 per cent in July: SQM research,’ Kate Burke, Domain, 14 August 2018
‘Seventeen Sydney suburbs declared danger markets for buyers,’ Aidan Devine,, 8 August 2018
‘The only suburbs in slumping Sydney and Melbourne property markets revealed,’ Stephanie Bedo,, 16 August 2018
‘Knight Frank Prime Residential Review shows strong growth in Australia’s top end despite a softening market,’ Nicole Frost, Domain, 5 July 2018
‘Returning first-home buyers competing in most robust sector of the market,’ Chris Kohler, 10 August 2018
‘Australian construction hits record $29.9b in June quarter but experts warn it won’t last,’ Tawar Razaghi, Domain, 22 August 2018
‘Sydney housing market poised to languish until 2021,’ Gerv Tacadena, Your Mortgage, 26 June 2018
‘Sydney slump drags on but Brisbane, Perth to rise,’ Turi Condon, The Weekend Australian, 26 August 2018
‘Auction clearance rate: House buyers know they have the upper hand,’ Su-Lin Tan, Australian Financial Review, 27 August 2018