Market comment: An election, a rate cut – and a bottom in sight

Mon, 17 Jun 2019

Market comment: An election, a rate cut – and a bottom in sightThe Sydney property market has been given some much-needed encouragement by the recent federal election result and by the Reserve Bank’s cut to its cash rate. For such an important economic sector that has most recently been best known for a record price fall, this couldn’t have come at a better time.

At its June meeting the RBA did what it’s been putting off doing for almost three years, and that’s to make a small but important cut of 25 basis points in its cash rate, to a new record low of 1.25 per cent. “The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities,” Governor Philip Lowe wrote in his statement that accompanied the announcement of the cut.

“Conditions remain soft, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised recently,” Governor Lowe said in the statement.

Professor Richard Holden of UNSW’s School of Economics said the rate cut would be welcomed by existing mortgage holders. “For people who haven’t seen their take-home pay increase a lot, have seen various parts of their cost of living get more expensive, and are struggling, very heavily indebted, have big mortgage repayments to make – a little breathing room is good,” he said.

Another key element in the mix is the Australian Prudential Regulatory Authorities' indication that it would remove a requirement for banks to assess a borrowers' ability to repay a loan if interest rates rose to 7 per cent. Property Developer Nigel Satterley told the Sydney Morning Herald why he welcomed APRA's action: "Banks are telling us they are in a strong position to lend to creditworthy customers; early modelling is indicating people can borrow $40,000 to $50,000 more."

Stockland managing director Mark Steinert said that over the last 18 months it has become increasingly hard to access credit for everyday Australians: "This announcement provides a much needed boost for the housing market and the broader economy, and gives more people the opportunity to realise the dream of home ownership."

The unexpected Coalition victory in the May election also means that the Coalition's new First Home Buyer Deposit Scheme will come into effect. The Scheme will be available to eligible first home buyers who have been able to save for a deposit of at least 5 per cent up to 20 per cent, and will enable eligible first homeowners to purchase their own home years earlier than they would normally be able to do. Also, they would not be required to purchase lenders mortgage insurance which could save them approximately $10,000.

The government has said it will also establish a National Housing Finance and Investment Corporation (NHFIC) with a dedicated team looking at ways to improve housing affordability.

But perhaps the most important benefit conferred to the housing market by the Coalition’s re-election is that it removes the threat posed by Labor’s plan to restrict negative gearing and raise the amount of capital gains tax. David Walker, portfolio manager at Clime Asset Management, told the Herald’s Clancy Yeates that the property market could reach its bottom sooner as a result of the election result: "If you take that policy change away, it's a boost to sentiment in the housing market," Mr Walker said.

The head of banking research at Morningstar, David Ellis,  said that investor sentiment in the housing market could improve based on the election result: "The rate of decline in house prices has been slowing, and this might just slow that down even further,  where it might stabilise for a while," he said.

HSBC’s chief economist, Paul Bloxham, told The Guardian Australia that the housing market had been showing signs of improvement before the election: “We’re of the view the housing market will stabilise in the second half of this year,” he said.

Is this the bottom?

Australia’s housing prices have been dropping since August/September 2017, losing a cumulative 7.9 per cent in the process. Sydney’s prices have plummeted even further, varying from suburb to suburb but hitting a record fall of 15 per cent across the city by most estimates. Now the question is: is this the bottom we’re seeing?

Some clues are outlined by The Guardian’s Greg Jericho, who said: “The latest housing finance figures, released…by the Australian Bureau of Statistics, show that the value of housing finance commitments in April was 19 per cent below what they were a year earlier.

“The big driver of the falls remains investment, which is 27 per cent down over the year. But it does at least not appear to be getting worse,” he said.

For New South Wales, Mr Jericho says the value of finance commitments in April was 5.7 per cent down on what they were in December, 23 per cent below April last year and a massive 45 per cent below the peak month of February 2017. This means that we won’t see an upward surge for at least the next six months, but the falls are certainly slowing.

Sydney’s auction clearance rates have recently shown a marked improvement, rising close to the 70 per cent mark on at least one weekend. Also worth noting is the increase in the rising number of properties offered for sale. “What happens is people wait for the market to bottom, and all of a sudden they have fear they’ve missed the bottom so they quickly rush out,” Tom Panos, auctioneer and founder of Real Estate Gym, told

Director of Suburbanite, Anna Porter, told the New Daily that she expects to see the Sydney market level out faster than the rest of the capital cities: “Sydney will hit the bottom towards the back of this year and Melbourne will follow next year. For Sydney, I’m expecting one to two years of soft conditions with no real growth for five years.”

Pete Wargent. founding director and buyer's agent of the AllenWargent Sydney office, says we’ll see the bottom of the market a bit later this year: “It’s already turning but again it’s dependent on sub-region,” he told the New Daily

“Some parts of Sydney, like western Sydney, there’s a big pile of unsold stock that needs to be chewed through, but lower north shore stock levels are already low so those markets will likely turn quickly. I don’t think prices will be as volatile in the immediate future because I think there’s less appetite from a regulatory perspective.”

Jeremy Sheppard, head of research at Sell or Hold, agrees on the timing: “We’re likely to see the trough sometime in the next six months and I would be predicting pretty much zero growth in Sydney for the next three years.”

The Daily Telegraph’s Aidan Devine says there’s now a ‘window of opportunity’ for property buyers, but the window could be closing due to recent market changes including the RBA’s rate cut and the banks’ easing up on mortgage requirements. “Increased demand would stop prices from falling but would not drive another boom due to a weakening economy, the experts said. The market would instead enter a much-needed period of stability after years of boom to bust conditions, which meant buyers and sellers would get more certainty about pricing.”

Domain economist Trent Wiltshire commented on the impacts he expected from the government’s proposed first-home loan deposit scheme and the regulator’s plan to relax serviceability rules. “There are early signs that the property market is close to bottoming out: clearance rates are at their highest point in over a year, price falls have slowed and more people are thinking about buying,” he said.

And when might we see another round of price rises? It’s probably too early to even speculate on when the next upwards swing could commence, but Josh Williamson, senior economist at Citi Research, has gone out on a limb and given us a prediction, forecasting that prices will start to increase by the second half of 2020.

“We’ve upgraded our house price forecasts,” Williamson said in a note to investors. “We now expect house prices to show year-on-year growth of 3 per cent by December 2020.”

Meanwhile, Jason Murphy, property writer for, cautions that it would be easy to get excited, but the economy is weakening and the housing market could be affected by external factors, both domestic and international: “With record high household debt, weak wages growth and now also a rising unemployment rate, it is hard to see how much enthusiasm there will be for spending up big on property.”

Empty towers

Nick Sas from ABC News has calculated that about 54,000 apartments built during the past two years will be completed and come onto the market in the very near future, creating a flood of properties and lead to an oversupply of units. Compounding the problems this might create is the rising rate of vacancies across Sydney – now 3.4 per cent and rising.

Dr Andrew Wilson, chief economist from My Housing Market, says the market is being affected by a combination of a massive number of new apartments coming onstream at a time there’s a shortage of tenants seeking properties: "We've come through a massive apartment boom in Sydney, and now we're at peak supply; it's all combined to create those empty towers."

The flip side of the situation is shown by statistics indicating the number of new apartments in Sydney is down 77 per cent year-on year. JLL’s head of residential research for Australia, Leigh Warner, said: “It will take some time for the supply pipeline to get going again and, with still very strong levels of national population growth, we could quite easily move into supply shortages over the next few years at the national level.”

So it could be that the dreaded ‘glut’ of new apartments is actually just in time to meet what is expected to be a growing demand as the Sydney property market begins to recover from two years of price falls. As Mr Warner foresees: “Very low completions over the next few years, along with continued strong population growth, will see us quickly move into an under-provision of space and see rental markets tighten once more.”

The NSW government has its own view of Sydney’s housing future and it’s one of continuing growth. The number of houses and apartments built in Sydney will continue to increase above already record highs with about 192,000 homes expected to be built over the next five years. This figure is an increase from the government’s forecast of a record 185,000 new homes made three years ago.

Writing in the Sydney Morning Herald, Jacob Saulwick has outlined the patterning of this planned growth: “Parramatta will be the fastest-growing council area, with 22,100 dwellings built by 2023. The second fastest will be Blacktown, with 18,300 dwellings, followed by the City of Sydney (14,850), Liverpool (11,950) and the Hills (11,700).”

He said the latest five-year forecast announced by Planning and Public Spaces Minister Rob Stokes shows a large increase in the number of dwellings predicted in Blacktown, Liverpool, the Hills, Cumberland and Ryde, while the pace of growth is slowed in the City of Sydney, Canterbury-Bankstown, Ku-Ring-Gai and Georges River.

The NSW Government’s projections say that another 725,000 homes will need to be built in Sydney over the next 20 years, or about 36,000 a year. A record 42,500 homes were completed in the 2017/2018 financial year, and the average number of homes forecast to be built over the next five years is 38,000 each year.

The end of stamp duty

We generally aim to report on current issues in Sydney housing, but occasionally something arises in the news that points toward future developments of interest to property owners, whether investors or homeowners. One topic that’s been around for a couple of years and simply won’t go away is what’s been termed a ‘broad based land tax’ – let’s call it BBLT for short.

Its most recent appearance was in an article entitled ‘Top government adviser lists reforms needed to kickstart economy,’ by Jessica Irvine in the Sydney Morning Herald on 13 June 2019. The ‘adviser’ referenced in the title is Michael Brennan, the new chair of the Productivity Commission who outlined a series of major economic reforms including doing away with stamp duty.

Stamp duty at present is paid by purchasers of property in NSW. It is the government’s most lucrative source of revenue and in 2017, a boom year for property sales, the NSW Treasury raked in $13.8 billion in stamp duty receipts. About half of this came from sales in Sydney alone. Property Council of Australia chief executive Ken Morrison described stamp duty as "Australia's worst tax", saying: "It locks people out of housing choices, creates a huge hurdle for those saving to buy and adds tens of thousands in mortgage repayments."

No wonder it’s an unpopular topic with home purchasers, many of whom are young couples who’ve struggled to save enough for a deposit only to be asked for another payment up front of up to $40,000 when stamp duty is applied. Governments at both state and federal levels have come up with a few financial cushions, such as the NSW government’s offer of stamp-duty exemptions to first-home buyers on properties under $650,000, but there’s no way the government can do without the stamp duty revenues they now receive.

The BBLT is a solution to many problems, although not one that property owners will appreciate if/when it’s introduced. Just imagine how much a tax on every property in NSW could raise; a true river of gold from property owners to the government’s coffers with little or no chance to escape payment.

The ACT has already begun to replace stamp duty with broad-based property taxes over a 20-year period. The Grattan Institute, often used by governments to provide analytical support for such moves, argues that other states should follow the ACT’s lead. It says a BBLT “could make Australians up to $17 billion a year better off, while also making housing more affordable”.

A figure extrapolated from the 2016 census data calculates there are 2,774,855 occupied private dwellings in this state. If the current stamp duty revenues of $12.8 billion were to be raised from this number of private dwellings, it would mean each dwelling would pay an average of something like $4612 per annum. And the unpopular stamp duty could be done away with, much to the delight of all property purchasers in the state.

Why is the idea of a BBLT coming up at this time?  CoreLogic figures show the real decline in the value of property sales as a result of the property price falls of the past two years to be 18.5 per cent in Sydney. That could equate to a loss of something like $2.5 billion in government revenues. No government wants to cut its spending by that kind of money, so a steadier source of income has great appeal in times like these.

There’s nothing happening at present to indicate either Macquarie Street or Canberra has such a tax on its mind, and it would take a very brave government to initiate a tax that would affect every household in the state, or possibly in the nation. But it’s a subject that keeps popping up from time to time and it’s mentioned here just to keep our readers informed.


‘Sydney 'ghost-tower' apartments increase as rental vacancies rise, market hits peak-supply,’ Nick Sas, ABC News online, 11 June 2019
‘Number of new apartments halves, shrinking supply pipeline: JLL report,’ Kate Burke, Domain, 2 May 2019
‘Real estate sector 'turns on dime' as housing prospects lift,’ Simon Johanson and Carolyn Cummins, Sydney Morning Herald, 23 May 2019
‘Shock Coalition win set to boost housing sentiment,’ Clancy Yeates, Sydney Morning Herald, 20 May 2019
‘House prices will be rising again by the end of next year, Citi says,’ David Scutt, Sydney Morning Herald, 23 May 2019
‘We have reached the bottom of the housing market but any rebound will be slow to come,’ Greg Jericho, The Guardian, 11 June 2019
‘Sydney property market ‘already bottomed out’ and bouncing back, say experts,’ Kirsten Craze,, 28 May 2019
‘It's time to ring the bell': has the housing market troughed?,’ Michael Bleby, Australian Financial Review, 15 May 2019
‘Five property pundits give their market predictions for the next 12 months – including where to buy, Cait Kelly, The New Daily, 7 June 2019
‘To buy or not to buy: Clues hidden in new housing price data,’ Jason Murphy,, 18 May 2019
‘Home buyers urged to capitalise on lower prices while they still can,’ Aidan Devine, Daily Telegraph, 8 June 2019
‘Top government adviser lists reforms needed to kickstart economy,’ Jessica Irvine, Sydney Morning Herald, 13 June 2019
‘Housing market may bottom out over next year, Australian property experts say ,’ The Guardian, 22 May 2019
‘Almost 200,000 new homes in Sydney by 2023 - but not evenly spread,’ Jacob Saulwick, Sydney Morning Herald, 17 May 2019
‘Housing closer to the bottom, but the boom's not back,’ Clancy Yeates, Sydney Morning Herald, 29 May 2019
‘There are 80,000 reasons why Australia's property market will struggle to bounce back,’ Chris Bourke, Sydney Morning Herald, 24 May 2019
‘Housing market at its slowest in 12 years — but is that about to change?.’ Liz Hobday and Alex McDonald, ABC News online, 10 June 2019
‘House prices will be rising again by the end of next year, Citi says,’ David Scutt, Sydney Morning Herald, 23 May 2019
‘Homebuyers crying out for a stamp duty tax shake-up,’ Chris Urquhart,, 12 May 2019
‘The hidden cost of the house price crash,’ David Ross,, 29 October 2018