Boom times for most expensive capital

Sydney’s property market is going from strength to strength, although a question mark hovers over residential building activity

Australia’s economy may be slowing, but NSW’s property market certainly isn’t, with the latest research highlighting a market on the boil.

The Australian Property Monitors (APM) Quarterly Housing Report shows that Sydney’s median house prices increased by 2.7% to $690,064 over the June quarter, with median unit prices also rising strongly by 2.4% to $491,845. Both figures are all-time highs.

These rises are due to low interest rates, rising investor confidence, and a continued solid economic performance, APM senior economist Andrew Wilson says. “The results are not surprising and are in line with earlier forecasts – of particular note is the correlation over the quarter with the strong auction clearance rates, proven to be an accurate guide to the general level of house and unit prices growth.”

The APM Rental Price Series Quarterly Report shows Sydney’s unit rental prices also rising again. While Sydney’s house rents remain flat, with no increase recorded over the June quarter, unit rental prices rose 1.1% over the quarter and 2.2% over the year.

This is a trend that has been obvious throughout the year, Wilson says. “Affordability constraints are motivating tenants to gravitate towards cheaper unit accommodation; however, the consequence of this of course is that the difference between house and unit rents is converging.”

Sydney’s home auction clearance rate has also reached levels unseen since the GFC. Wilson says the Sydney market is being “energised”. He estimates that half the sales are by investors, many of whom are seeking capital growth from property in their SMSFs.

“Very positive conditions” mean that residential values in Sydney have risen by 3.7% over the past three months alone, and the city remains the country’s most expensive capital, with a median dwelling price of $570,000, according to RP Data research director Tim Lawless.

The RP Data accumulation index showed Sydney’s total gross returns were 11.2% over the past year, and vendor metrics were continuing to show strength. A typical capital city dwelling is selling in just 45 days compared to 59 days a year ago, vendors are discounting prices less, and clearance rates remain close to 80%.

However, with the housing market again showing solid capital gains, and rents also rising, the issue of housing affordability will soon attract more attention, Lawless continues. “With Sydney values now back at record high levels, there are likely to be a growing number of households who find it challenging to enter the housing market.”

Prestige market records highest growth in years

After some years of struggle, signs of recovery are evident in the Sydney prestige residential market, according to Knight Frank’s latest Prestige Index.

It shows that the annual price growth for prestige residential has rebounded by approximately 7.9% over the last financial year, a stark contrast to the negative 6.2% growth experienced the previous year. The majority of this growth has occurred in the first half of 2013. Further, it is forecast to outperform the broader market growth over the next six months, with double-digit annual price growth expected by the end of 2013.

Increased market confidence plus lower interest rates, more liquid debt markets, and a strong rebound in the share market are contributing to the deepening pool of prestige residential buyers, Knight Frank’s Craig Moore says. “Consequently, vendor discounting has lessened as confidence has returned, in turn supporting prestige prices.”

While prestige prices remain at almost 17% below pre-GFC levels, compared to mainstream residential market prices, which are 18% above, there will be continued demand for prestige residential from Asian buyers, he continues. “With the lower than normal interest rates and a devaluing Australian dollar, we expect to see a further increase in residential investments from both local and offshore.”

However, because of the looming federal election, the prestige market is expected to now enter a holding pattern until the end of the calendar year, Moore adds.

HIA questions housing recovery

Meanwhile, building approvals data for July 2013 highlights the continued vulnerability of residential construction activity, according to the Housing Industry Association (HIA).

HIA senior economist Shane Garrett says the figures now show two consecutive quarters of decline in residential building approvals. “The number of residential building approvals fell by 6.9% during June. This means that the number of approvals is 13.0% lower than 12 months ago.”

These figures put a large question mark over suggestions that a housing recovery is underway, and make government action imperative, he says.

“For some time, we have been calling for structural impediments on housing activity to be reduced, including the taxation burden, excessive planning barriers and regulatory costs.”

Suburb to watch

Hillsdale

Usually overlooked, and with oft-cited humble beginnings, Hillsdale is located just 9km southeast of Sydney’s CBD in the Botany Bay area. Developed largely after World War II, housing is divided fairly evenly between single-storey detached homes and blocks of home units, which are typically brick buildings of three to four storeys.

Nick Efrossynis, from Laing + Simmons Kingsford, says the suburb’s selling points are that it is affordable, especially when compared to surrounding suburbs, while still being central.

Hillsdale is close to beaches, parks and decent public transport, he says. The suburb has a number of shopping centres and commercial areas, one primary school and several high schools, as well as the Hensley Athletic Field.

More than half the households in Hillsdale are renting, which is significantly higher than the Sydney average. It is also known for being a particularly multicultural suburb.

Efrossynis emphasises that there is potential in the area. He notes that the first Hillsdale apartment he sold went for round $17,000 in the mid-1970s, yet he recently sold a similar apartment for $405,000.