John McGrath - Sydney Market Turns And New Infrastructure Underway
Sydney appeared to turn a corner in October, with the median home value returning to growth for the first time since April and every other capital city bar Melbourne posting price rises for a second consecutive month.
There is much to be positive about right now, with the re-opening of Melbourne, another official cash rate cut, $100 billion in further quantitative easing, rising consumer sentiment, continued historically high lending to owner occupiers and a significant bounce in new job ads.
Economically, things are looking good as we continue down the path of recovery and the housing market is responding. This week, let’s drill down on the Sydney market.
We’re seeing a bit of FOMO back in Sydney this Spring, particularly with houses. Stock is low and more buyers are returning to take advantage of softer prices. But they won’t stay soft for long!
As outlined in our newly released McGrath Report 2021, Sydney’s median house price was $866,524 as at June 30, 2019. It continued rising to a peak of $1,026,418 by April 30 before the pandemic dragged it down to $983,262 by September 30. Last month, it returned to growth at $993,927.
So, we’re 3.2% below the April peak but the typical house in Sydney is still worth $127,400 more than in June last year - despite a global plague in between. That is remarkable resilience.
During the pandemic, the business elite has continued to invest in prestige property in Sydney. In September, a harbourfront property in Point Piper sold off-market for $95 million - Australia’s second highest sale on record.
Other strong prestige sales include $24.5 million in Newport in August (suburb record); $17.9 million in Bronte in July (record); $16.6 million in Rose Bay in March; and $15.125 million in The Rocks in May (record).
The low dollar and Australia’s safe haven status is prompting many expats and internationals to buy in Sydney, despite in many cases only being able to view properties for sale by video inspection.
First home buying has been strong all year but a lack of investor activity has contributed to Sydney’s median apartment price falling slowly but consistently since May. The median price is now $735,350, down from $777,940 in April, according to CoreLogic.
Sydney’s apartment market has been hit harder by COVID-19, with rental demand falling significantly in the inner city and some inner ring areas, due to no immigration and international students returning home.
Young locals who have lost their jobs or are working less hours have left apartment rentals to move in with friends in shared rental houses or returned to the family nest. Higher vacancy rates and reduced rents are a deterrent for new investors and are making life hard for existing landlords.
For now, mortgage deferrals and other stimulus measures are keeping apartment prices relatively stable. Weakness is more likely in FY21 as the recession plays out and some investors sell.
Extra incentives for first home buyers might offset this and support prices, especially in the new apartment market. In NSW, stamp duty has been scrapped for new purchases up to $800,000 and there are discounts up to $1 million. This stimulus initiative will be in place until July 31, 2021.
The Federal Government has also released 10,000 new places under the First Home Loan Deposit Scheme but has limited them to new properties only.
The $25,000 HomeBuilder grant has also been popular in NSW, with 7,500 registrations within the first month of the program. There is good evidence that HomeBuilder is working, with new home construction loans up 19.2% nationally in August and 25.3% in September, according to the ABS.
New infrastructure will play a central role in the NSW economic recovery, with 87 projects worth more than $25 billion and creating at least 50,000 jobs fast-tracked and some already underway.
Many suburbs will benefit from this enormous spending spree and this bodes well for local home values. To find out if a new project is coming to your area, download the McGrath Report 2021.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (November 09, 2020)
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