JUNE 2008 – Sydney Property Brief

A bit of history

In the last 18 months, the sentiment surrounding the property market in Sydney’s Eastern suburbs and Lower North shore has been on a bit of a roller coaster.  The last big property cycle ended at the end of 2002.  Between then and early 2007, the market was relatively flat.  By early 2007, all factors were pointed towards to start of the next property cycle, interest rates were low, rentals were increasing, and vacancy rates were extremely low.  Supply of new homes was not even close to sufficient to match demand.  A lot of global funds were flowing in to the property market from expats earning big dollars…..we all know what happened next.

By the end of 2007, vendors were listing their homes and achieving high prices on their properties.  The number of buyers well and truly out numbered the number of available homes.

What is happening now…..

Over the past 5 months, we have been affected by the sub-prime crisis in the US, interest rate rises, stock market crash, petrol price rises and the uncertainty of company bonuses.

From the buyers’ perception, many people are holding off “to see what happens”.  Potential buyers are concerned that prices will fall so they are nervous about buying at the moment.  From the sellers’ perception, with a reduced number of buyers vying for their property, they are reluctant to put their home on the market. 

In the markets I work in, namely the Eastern Suburbs and Lower North Shore, I have noticed a significant reduction in the number of homes that are being successfully sold through an auction campaign.  For example if I compare the auction clearance rate in the six months to November 2007 with the six months to May, in Mosman the rate has gone from 63% to 45%; Woollahra has gone from 67% to 45%; and Bondi has gone from 86% to 55%.  This is just one indicator that the demand has dropped significantly.

I am now starting to see significantly more quiet listings, having more conversations with agents about vendors understanding the current market and adjusting their price expectations i.e. reducing their prices. 

With many future buyers sitting tight and not competing for a property, it is a great opportunity to buy a great home at a great price.  Will it get better, from a buying perspective?  It might.  Although what most people will do is wait until everyone else is looking at buying and follow everyone else i.e. once again competing for properties when the market in an upward phase.

It is a very different environment to 6 months ago and a different strategy is required to secure the right home at a good price.

If you, as a buyer have time on your side, why wouldn’t you be actively looking at the market at the moment?  Generally, it is difficult to pick the exact moment when the property is at its peak or trough.  As we are not in a growth cycle, buyers do have time.  If it was that easy, it certainly wouldn’t stay there for long.  We do know however, every 10-15 year's, the property market becomes a Buyer's market, we believe that we are entering this cycle and the next 12 - 36 months will be just that. There are a lot of similarities between the current climate and the recession in the early 90’s.

The Global market volatility will affect every segment of the market – it’s unavoidable, some of course more so than others.  People do not seem to be concerned about the interest rate hikes; they are more concerned about their erosion of wealth through their exposure to the equity market.  This is starting to impact the Eastern suburbs and Lower North Shore and will affect properties above the $3million mark.  Vendors are being forced to sell as margin calls continue.  Some are trying to sell off holiday homes but are competing with too many others also trying the sell off their holiday homes.  Just look at Palm Beach, auction clearance rates are at 9%; the median price has fallen 37%; and days on market has increased from 101 days to 195 days.  They’re pretty scary stats for those hoping to sell off these properties to shore up their position.

It is important now more than ever to really understand what is happening and how it is impacting on prices.  I am coming across great opportunities that can be capitalised on now.  These opportunities won’t stay around for ever but the right strategies need to be in place to make the most of these.

Represented buyers will have better access to these opportunities and will be confident in the pricing to be able to move forward. 

According to RP Data "The nation's largest real estate market Sydney, is continuing to show improvements after three years of depressed prices.

Overall price growth for houses and units is now at 7.4 per cent per annum; this time last year the growth rate was just 0.4 per cent.

The number of houses being listed in the market is up by 24 per cent on the same period last year, suggesting the vendor confidence may be returning to the market."

In the inner areas, more and more properties and being sold via the Auction process, which is best suited to high demand situations.  Good properties are moving fast and we are having to prepare our clients for a speedy transaction when the right property presents itself.

It is only the beginning of this growth cycle.....

Quite often I am asked whether I think the property market is recovering or whether I think that the credit crunch will affect prices.  In answering these questions, we need to think about the suburb in question.  Not all suburbs across Sydney have suffered or will suffer equally from external market forces.

If you look at the following table, which shows property prices for houses in Mosman from 2002, you can see that the market has continued to rise.  The small down turn that occurred in 2004 was short lived.  If this is the suburb you are considering, be careful what you read about Sydney prices.  It does not seem to reflect this suburb.
 

Houses

Calendar Year        Median Prices          Capital Growth  
2002                    $     1,690,000  
2003                    $     1,699,500                  0.6%
2004                    $     1,640,000                 -3.6%
2005                    $     1,860,000                 11.8%
2006                    $     1,900,000                   2.1%
2007*                  $      2,005,000                  5.2%
*Settlements as at 26/9/2007

We are nearing spring and the number of properties that are being listed is lower than normal.  I am referring to the inner suburbs of Sydney where, it seems people had factored in the interest rate hikes.  You would expect the interest rate increase would have impacted on the property market in a negative way.  It has not had a chance.

We have  a few factors at play -

The demand is increasing because of:

• Population Growth
• people being more lifestyle driven and wanting to be closer to amenities, cafes etc.

The supply of homes is decreasing because:

• People are nervous they will not be able to buy again as there are few homes on the market.
• People are in a wait and see pattern.

To buy a property now, you need to know how to source the property and how and when to negotiate the price - otherwise you could be looking for a long time.

Located just 2km from the city centre is this vibrant harbour side suburb that is perfect for investors and first homeowners alike.
According to Domain (SMH July 21st-22nd 07) “Even in a subdued market, Rushcutters Bay is a happening place. Properties in the suburb are spending less time on the market, prices have climbed and clearance rates at auctions are also up on the past year.”
Being located within close proximity of the city and next to Elizabeth Bay and Potts Point, it is only a short walking distance to the Kings Cross station, which is one stop to the city. The area is well located to transport, shopping facilities, parks, harbour, nightlife and cafes which makes it a desirable location to live and in turn a perfect location for investment.  “An area like Rushcutters Bay will always enjoy better long term capital growth than other areas simply because it is one of Sydney’s most well located suburbs.” According to Michael McNamara, APM, General Manager.
“In the six months to November, properties were taking 102 days to sell. By the end of May it was 60 days. Prices have edged up 32 percent from a median of $371 000 to $490 000 and auction clearance rates have risen from 65% to 75% for the same period, according to Australian Property Monitors.”

If you are a first home owner or an investor looking for property with good rental return and capital gains potential, don’t hesitate to contact Platinum Buyers Agents to assist with your property needs on 02 8003 7558 or by email on email@platinumbuyer.com.au

It has been proposed by Advisor Edge head of property research Louis Christopher  “Sydney prices should climb 10.5 per cent this year and a further 9 per cent next year” (Australian Property Investor June 2007).

There are numerous benefits for the foreign investor and expats to invest in this market while it is moving.

Based on the current upward trend in the property market and further evidenced by the increased auction clearance rates, property is going through a growth spurt.
For expats this creates a perfect opportunity to be part of this growth spurt, which is reinforced by an undersupply of rental properties and in turn acting as a catalyst for increases rental income potential for investment purposes.

Expats planning to return to Australia can benefit from capital returns by being part of this growing market.

For investment purposes these statistics are self-supporting however investing in a foreign country can be difficult for the simple reason that you lack complete and utter control over the buying process and accessibility to current market information from afar. 

Investing in property requires sourcing, researching and negotiating property information and requires accessibility to conduct inspections and valuations.

The benefit of utilising a buyer’s agent to a foreign investor is that they can outsource these necessities to professionally qualified persons who are educated in the property market and can make informed decisions in relation to the acquisition of a foreign investment.

 

Auction Price Guide Misconceptions

A need to investigate real estate agents who are deliberately misleading the public in relation to price guides for auction campaigns has been raised by an article in the SMH (21.07.07).
“At the heart of the problem is the industry practice of giving a “price guide” which is meant as a clue to the true value of a property. But several sales in the east have been so wide of the mark that buyers have been left wondering whether they were deliberately misled.”
The investigation will look at an Edgecliff terrace that sold for $1.42milliion despite being advertised for more than $1.2 million, a Woollahra property selling for $1.475 million after being quoted as “above $800 000” and a flat in Bondi selling for $1.6milllion when it was suggested it would sell for more than $800 000.
These figures demonstrate that price guides being speculated to the public are misleading potential buyers. Essentially the issues that this creates is that by under speculating the true value of a property during an auction campaign, greater interest from the public can be gained and in turn a larger show of people on the day of auction will result in more competition during bidding which will inevitably increase the auction result. This is why we are seeing such huge differences in the values of properties being advertised and their actual auction result.
By utilising the service of Platinum Buyers Agent this problem can be avoided and time saved as all properties are thoroughly researched and a reasonable value of the property can be indicated.
Buyers Agents do not work specifically for the vendor, so unlike agents who are trying to sell the property at the highest possible price to keep the vendor happy, buyer’s agents are working to save the purchaser time and money. They are dedicated to assisting the buyer find the right property without the normal stresses that are involved and without the bias that exists between the vendor/agent relationships.
Platinum Buyers Agent specialises in researching, sourcing and negotiating the purchase of quality homes and investment properties in Sydney.
“Australian Property Monitors figures show auction clearance rates have hit 80% in the east, 72% on the lower north shore, and 74% in the inner west” which indicates that many vendors are using auctions to sell their property. Given the evidence of property being undervalued by agents, contacting a buyer’s agent such as Platinum can save you both time and money and offer the best strategy to secure the right property at the right price.