Market comment: Sydney housing outpaces wage rises, becomes more affordable

Tue, 22 Sep 2020

Market comment: Sydney housing outpaces wage rises, becomes more affordableFigures from Domain show that Sydney house prices finished the financial year 10.5 per cent higher than the previous year.  Wages growth in the same period, however, went up by just 1.8 per cent over the same period, ABS figures show, which meant housing prices outperformed wages by 8.7 percentage points.

This has been a trend for some time. In 16 of the 29 quarters prior to June 2019, the median Sydney home earned more in price rises than the median full-time worker earned from wages.

"The modest decline in established housing prices at the national level, and the partial recovery in financial asset prices such as equities since March, mean that household wealth was broadly unchanged in the June quarter and increased a little over the past year," the RBA's August statement of monetary policy said.

Despite the pandemic’s impacts on our property values, Australia’s property market is still ranked 19th out of 56 countries and territories in Knight Frank’s global index. Our market recorded price growth of 6.1 per cent in the twelve months to June this year, even after price growth dropped by two per cent between April and June.

Knight Frank’s head of residential research in Australia, Michelle Ciesielski, said the ranking was largely because our lockdowns during the second quarter of the year weren’t as long or as severe as those in many other countries.

“It can also be attributable to the state of the housing market prior to the pandemic, with Australia’s market strong heading into 2020 with demand high and stock levels low,” she said.

“A key factor for property growth has been the strength of the market going into the pandemic, so with strong underlying fundamentals there is likely a better chance of speedier return to growth mode.”

Workers who kept their jobs through the pandemic are now in a position to take advantage of the turnaround in housing sentiment that began in March and has since pushed house prices lower. June quarter figures show a decline in Sydney prices of two per cent, especially beneficial to hopeful first-home buyers.

Deloitte economist Nicki Hutley says the pandemic has created an opportunity to save more as lockdowns force a reduction in spending: “Clearly a lot of people are out of work, but on the other hand, there are large pockets of the market that feel comfortable in their job and feel ready to make the leap into their first property,” Hutley said.

A research report compiled in June by ING found that almost half (46 per cent) of Australian Millennial home buyers say the COVID-19 pandemic has made home ownership more achievable. One-third (32 per cent) of these said they’ll buy a home in the next one to two years.

Those surveyed by ING are taking advantage of lockdowns to save even more than before the pandemic, diverting funds intended for travel into home savings accounts (59 per cent), taking on a second job (37 per cent) or moving back in with their parents (36 per cent) to save.

Head of home loans for ING Julie-Anne Bosich says the research suggests that Millennials haven’t given up on the great Australian dream of owning their own home: “It suggests many people, especially Millennials, are being savvy by taking advantage of record low interest rates, government assistance and a weakened housing market to get on the property ladder.”

Grattan Institute program director of household finances Brendan Coates told that once government stimulus was factored in, household incomes had outperformed house prices in the last quarter, meaning some have done very well and saved, and others have suffered.

“For many Australians, they have a better bank balance than what they had going into COVID,” Mr Coates said. “They either didn’t lose their job and [they’re] spending less or they’ve had income support and had a boost to their incomes during this period.”

Spring has arrived

The first weekend of spring saw strong bidding at Sydney property auctions with a clearance rate of 62.4 per cent from 437 properties on offer. More buyers were out than the week before following a change of state government advice that meant more than 20 people could be present at an auction.

Incidentally, a Covid-19 safety plan is recommended but not mandatory for the real estate sector, according to an email from the Real Estate Institute of NSW sent to members. The email also said masks and gloves are not mandatory but should be made available, while safety marshals are a “good idea” but not mandatory.

The month of August was steady with an auction clearance rate of 59.7 per cent for the month – 11.2 percentage points lower than the same time last year due to the effects of the pandemic and restrictions on the conduct of property auctions.

SQM Research's Louis Christopher said it was clear that listing volumes were "well and truly up" in Sydney and the market in Sydney remained strong: "It's not one that is in any way showing signs of collapsing or weakening. The trend seems to be a little bit stronger," he said.

"But I fear we are still not out of the woods yet in Sydney. There are still a lot of obstacles to consider. The scaling back of JobKeeper is going to be the first big test."

BresicWhitney’s head of sales Thomas McGlynn says that this spring selling season will be different from those pre-Covid-19: “It’s definitely a lot more resilient than people were predicting,” Mr McGlynn said. 

“Because travel and school holidays have been affected, seasonality hasn’t really played any part in the way the property market has ebbed and flowed over the course of winter.We were reporting near-record results of transactions through the winter months.”

OH Property Group buyers’ agency principal Henny Stier told Domain that, while the market had strong demand, buyers were acutely aware of the pandemic: “The buyers have been following a Covid season but the sellers are still following a weather season.

“We’re moving into a cycle where vendors want it done quickly and painlessly … buyers are extremely volatile, extremely picky and extremely price sensitive,” Ms Stier said.

And in the Hills district, The Agency North selling agent Sunny Gandhi said there weren’t enough homes to meet buyer demand: “We’re actually expecting a busy spring market with a lot more properties coming onto the market,” he said. 

“We’ve been busy with appraisals and new listings, ready to launch for spring. A good indication is that all the auctioneers are booked all the way through October,” he said. 

Selective geography

The economic effects of the pandemic are creating some interesting geographic divisions across Sydney with some areas dramatically outperforming others. Some areas that are comprised primarily of detached houses are experiencing heightened interest from families wanting better homes, while areas with heavy supplies of units are feeling a drop of interest from investors.

For example, prices in Sydney’s eastern suburbs were unchanged for the month of August, while a strong demand from upsizers has kept prices steady in the Hills district. This contrasts with areas like Parramatta and Ryde, both heavily populated with units, that fell 1.1 and 1.3 per cent respectively during the month.

Eastern suburbs agent Debbie Donnelley said she’s been kept busy meeting the needs of professionals and wealthier tradespeople: “For some of the properties we’ve had, we’ve been blown backwards with the price people have been willing to pay because of the lack of stock.

“It doesn’t stop people from having babies and needing to upgrade or if people die and their estates need to be sold.”

In Woodcroft, 42km west of the Sydney CBD, there’s been a rush for property from IT professionals, according to agent Rajesh Setia: “More than 60 per cent of people. It is a very wide-ranging industry,” he said. 

“The mix of accountants and doctors and that sort of thing, that’s about 30 per cent. Their jobs have been less affected. They’re happy to take a bit of risk.”

However, apartments in the CBD and surrounds have recently been listed at several thousands of dollars below their pre-Covid asking prices with some listed as “must be sold” or “urgent sale”.

Advertised unit prices in the CBD were about 15 per cent lower than when advertised a year ago, according to SQM Research’s Asking Prices Index.

My Housing Market economist Andrew Wilson said falling rents could force investors to make further price cuts. “The inner-city unit market is Sydney’s weakest and will probably remain so until international travel restrictions are lifted,” Mr Wilson said.

Nerida Conisbee, chief economist for, noted that Sydney is usually an ‘uneven’ market but said the pandemic had made some of these differences extreme: “Not every property in every suburb is going to be affected the same; it will be easier to get a bargain on a unit than a house.

“The strength of the market will depend on how long banks keep giving support, but we are in a very different market from previous (downturns) because banks remain well capitalised,” she said.

Overseas buyers 

Australia’s had a nationwide building boom since the 21st century began. More than 700,000 apartments, flats and units have been built since 2001, according to the Australian Bureau of Statistics. Demand has kept up with this ever-increasing supply as Australians from country areas have moved to the cities, while international students and migrants have arrived from abroad.

However, recently Covid-19 has slashed migration from overseas and decimated the number of foreign students studying in Australian educational institutions. Nett overseas migration is expected to show a fall of at least 30 per cent in the 2019/20 financial year and a drop of 85 per cent, from 2018/19 levels in the 2020/21 financial year. Property experts believe that will mean a fall in housing demand of around 80,000 units.

According to Georg Chmiel, executive chairman of Chinese real estate portal Juwai, Chinese interest in the Australian housing market has declined as a result of coronavirus restrictions and the deterioration of the relationship between Australia and China.

“Foreign buyers are most important when it comes to new home purchases, so they are a lifeline for developers who are having trouble selling to the local market because of Covid-19,” he said. 

Mr Chmiel added that while the market had so far been fairly resilient, further declines are still expected: “Economic recovery will take time, and we may see further losses in employment before things turn around.”

Mei Hoong Lai, a registered migration agent based in Hong Kong and a former immigration officer at Australia's embassy in Beijing, told ABC News that many Hongkongers are currently considering Australia as a future home.

"We have definitely seen a spike in the number of Hong Kong residents making inquiries since the [new security laws] announcement," Ms Lai told the ABC.

She said her clients mostly consisted of skilled professionals with young families between the ages of 25 and 44, working in sectors like IT, engineering and teaching. There was also a lot of interest from investors and business owners between the ages of 35 and 60.

"Australia is an attractive destination for many Hongkongers as it offers world-class education, political and economic stability," she said.

Crown Group chief operating officer of sales Prisca Edwards told The Daily Telegraph that Asian investors are taking a long-term view and looking beyond the present conditions.

“Overseas buyers are taking advantage of the low Australian dollar to make a significant saving,” she said.

“This can be up to 14 per cent for those holding savings in Hong Kong and Singapore, or 40 per cent for those with money in the US, depending on the timing.”

Property auctioneer James Pratt said overseas investors found Australia both affordable and appealing due to the dropping value of the Australian dollar.

“Someone in China, where they are getting over the coronavirus, is going to be more likely to buy than someone here in Australia where we are just going onto high alert,” Mr Pratt told’s Aidan Devine.

AMP Capital chief economist Shane Oliver says housing will likely be hit by the immigration intake falling to a fraction of pre-Covid levels and believes the government may find it hard to return immigration to previous levels when unemployment is so high.

"The decline in immigration, which means weak underlying demand, the loss of income in the community - which could result in increase in mortgage defaults - and then the loss of rents for investors could combine to weaken prices this year," Dr Oliver told the Australian Financial Review.

Banks look ahead

On average, most lenders still expect Sydney property price falls of about 10 per cent. In their latest results, the big four banks said they were surprised at how well housing had held up. 

It’s acknowledged that some property price falls are inevitable after the economy has plunged to the depths of its sharpest recession since the 1930s, but the falls in house prices so far this year have been relatively modest.

Most agree the big test for housing is yet to come because the financial support from government and banks has so far softened the pandemic's impact.

In the latest forecasts, ANZ has projected Sydney home values will have fallen by about 13 per cent from the start of the pandemic to mid-2021. NAB’s outlook is for a 10-15 per cent drop in prices nationally.

Westpac, the country's second largest bank, is forecasting a 10 per cent fall in prices in 2020 followed by a 1 per cent gain next year.

ANZ Bank chief executive Shayne Elliott said his bank expects house price falls of at least 10 per cent due to the coronavirus crisis and that the worst of the crisis for banks was likely to occur around the middle of next year: "When do the problems start emerging, people literally finding their businesses unable to operate? We think that’s probably more like the middle of next year…" Mr Elliott said.

"We know that there will be difficult situations where we need to help customers wind up their debt. And when this happens, we will be ethical and sensitive in our actions," he said in a market briefing.

The Commonwealth Bank’s economics team initially forecast an average 10 per cent slide in property prices nationally, but in early September announced it has reduced its base-case forecast to an average capital city property price fall of just 6 per cent with a recovery in home values in the second half of 2021.

Speaking to the House of Representatives economics committee, Commonwealth Bank CEO Matt Comyn said the economy will face its biggest test next year when taxpayer-funded income support measures are removed: "One of the biggest challenges for Australia in 2021 and beyond will be how effectively we can move from the substantial and I think very effective income support that’s been in place, to one of fiscal stimulus generating aggregate demand and new jobs."


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