The NSW property market update shows the market is currently slowing and continues its uncertainty showing ongoing strength in only a few sectors of the property market at this time.
Most NSW property markets are under threat from continued interest rate rises which have seen continued weeks of residential auction results at the lowest levels since the pandemic began in 2020. A slowing of buyer interest, and over inflated levels from seller’s sentiment of property values are impacting on clearance rates and prices. The flow on affect has seen commercial confidence begin to wane with mortgage stress now beginning to impact retail spending.
Recent announcements by the Reserve Bank of Australia focus on reducing inflation will continue to cause negative consumer confidence, which is expected to flow on to most sectors and the economy.
The true economic picture is currently obscured by previous volumes of government incentives still providing structural support.
The government and Reserve Bank are carefully monitoring present activity and market movement allowing market forces to dictate pricing levels for the next NSW property market update
The impact on demand will be felt and dictated by the opening of the Australian borders to investment, overseas students and managing immigration. This is intended to provide the needed stability and ongoing economic recovery, whilst without it much of the economic future and the NSW property market remains unclear. Review Previous NSW property market updates.
Additionally the current turbulence throughout the world, with the still lingering the effects of COVID-19 and the current Ukrainian conflict, has conditions in the economy and real estate market changing daily.
For further discussion on the NSW Property Market update Contact us
Two Distinctive Dynamics for the NSW Property Market
Top/middle/bottom residential market status
The current state of the NSW property market seems to be operating with two distinct dynamics. High-end and sought-after properties are experiencing strong demand from affluent buyers who are not affected by the rising interest rates. However, first-time homebuyers are facing difficulties meeting the current requirements for loan repayment. Middle mortgage holders are rapidly depleting their savings and equity gained during the past three years of the Covid period.
Interest rates and Inflation, Immigration update and the affects of a housing shortage
The economy has been facing mounting inflationary pressures and interest rate hikes since May 2022. Additionally, the projected high immigration rates and the existing housing shortage are expected to support dwelling prices in most capital cities over the next two years including the NSW Property market.
In the commercial sector, there is a visible market weakening as government and large businesses encounter significant resistance in their attempts to bring employees back to the office. Without a revival in the transient workforce, commercial operations, buildings, and investments face an uncertain future as vacancies rise, yields decrease, and traffic-dependent businesses continue to decline.
The recent announcement of a change in the Reserve Bank Governor and associated rules and regulations may lead to varying perspectives on the use of interest rates as an economic management tool. Based on previous experiences, using the interest rate brake has been likened to driving in heavy traffic. Where the brakes wear out quickly. It may require more foresight to anticipate future needs for effective brake usage.
Industrial market resilience
On the other hand, the industrial market appears to be the most resilient. Sydney having one of the lowest vacancy rates globally, according to some analysts. This situation highlights the growing necessity, post-Covid, for the Australian economy to reduce reliance on external supply and focus on revitalising domestic manufacturing of goods and services. Compare this NSW property market comment to the November 2022 update Previous NSW property market updates.
Global Factors
The world has undergone significant changes. Mounting social pressures, power struggles, conflicts in the Indo-Pacific and Ukraine, and uncertain conditions in most economies. Australia appears to have become an appealing destination for those seeking a safer refuge and an attractive NSW property market fowards the future. Further information can be found with a Karvon Property Partners search.
The great pandemic of 2020 has created more questions than answers, I’d like to look at how it affects property.
We have seen the world brought to ground by the isolation and closing of borders. In Australia we are in the enviable position of being an isolated country with a good government which has provided protection against this and potentially future 1 in 100 year pandemics.
By isolating ourselves and bringing home our traveling expats, we have created a cocooned economy that needs to become internally reliant. With our wealth now circulating throughout our own borders, the economic impacts appear to be moderating.
I know that isolation will cause many areas within our economy to suffer through the next few years. Industries that have relied on overseas travellers and immigration continue to be hard hit, although there is some relief cushioned by the homegrown factor.
The Australian property industry has traditionally benefited in the past from immigration and overseas investment. There is evidence that it is now being supported by an increased demand from returning expats. Together with lower interest rates and government incentives, there is strength in the residential property market for freehold houses and townhouses.
The industrial property market is being strengthened through the new home-grown businesses. These are developing as result of the current uncertainties causing former employees moving into small business opportunities.
The office market in contrast, is suffering, as “work-from-home” has become an attractive option with increased vacant offices. It has created a balance of family/work-life for the employees and cost savings for the boss. My view is that the full impact on the market, especially on institutions, investors and superannuation firms (who are major investors in this type of property), is still unclear .
Currently I can see that apartments and units are the hardest hit of all of the markets. This sector is now suffering from years of over-development, poor construction, loss of immigration and the lack of overseas student demand. It is likely that the volume of projects under construction and ready for commencement may result in subdued pricing over the next three years. I am already seeing the cracks appear with many prominent apartment builders currently under the microscope.
The retail market, already suffering from the online shopping bonanza, has seen many smaller enterprises and shops closing through inefficiencies the pandemic has now highlighted. How this sector will develop over the next few years remains unclear.
The next two years require caution with a moderate sense of optimism. The isolation of countries and economies should redistribute the real wealth on this planet. The new world has realised that it is not impervious to external threats, with a need to recede to a place of certainty and safety seen as valuable. Globalisation and open economies have created problems outside our control making us reconsider our lifestyle choices.
Australia controls so many resources including a food supply that can satisfy twice our population. This, together with ocean borders, results in a truly safe place to live. I consider Australia has the environment where the reliance on necessities does not need to be satisfied by other countries.
Much of our wealth lays in the property we own. Our property is fast becoming the envy of many in the world, who now look at Australia as truly the lucky country. I think this demand for security and safety has become more attractive as the world comes closer through travel times and the internet.
I know from people around me that pandemic has change our lives. It has shown that most of us do not always need to leave home to be happy and productive. A balanced life can be truly, more enjoyable.
As the government pushes forward with its current metropolitan
changes and strategies, Sydney is undergoing a monumental period of land and
property acquisition.
Road and transport networks are needed to assist in the metamorphosis
to Sydney’s Three Cities plan with the Department of Transport leading an
unprecedented amount of property acquisition plans across the city. Large projects such as the Light Rail systems,
Northconnex, Metro west and south west tunnelling together with the Northern
Beaches link are only some of the projects likely to affects Sydneysiders over
the next five years.
As the Government pushes forward it will have a direct
affect on many property owners and occupiers requiring relocation of homes and
businesses. Are you prepared? Do you
have the right tools and advice?
Changes in the Land Acquisition (Just Terms) Act 1991, as a
result of the review by David Russell and Michael Pratt, changed much of the
landscape in the acquisition process. It
resulted in changes in the legislation and methods for notification providing a
better timeframe for decision making.
Understanding the acquisition process and your rights
through the Act are critical in formulating strategies and an effective
approach to compensation. Do you know
your rights regarding the extent to which you are protected under the Act and
the situations where compensation is and is not available.
As each matter is individual, all acquisition and statutory procedures require specialist legal and valuation advice. It is important that you seek out those who are proficient and have the experience in these matters.
I was discussing the current spike in the real estate market with friends who have recently sold and wanted some advice on whether they should jump straight back into the market and buy. They were concerned that the market (which has been lagging for the past few years) was spiking upward and they were afraid of not being able to buy back in.
This is a common concern for many who sell their properties, and have not bought – a practice I do not encourage to most. I’ve always had the same advice for the majority of home buyers, which is, buy and sell in the same market, it’s a no risk policy.
Of course, this is not what they wanted to hear, they wanted
my opinion on the current state of the market and what I predicted would happen.
Crystal ball gazing is not a wise practice without some
in-depth understanding of market trends and historical and empirical data, and,
is always subject to risk, opinion and judgement.
As they were both adamant to hear my views I simply said “Dead
Cat Bounce”. They both looked
quizzically at me before I had to explain.
I said, it’s an economic term used to describe the temporary
recovery to a market that, has been in the doldrums for a period of time. Of course they thought I was making it up until
I went to trusty Google to show them what I meant.
I explained that the current spike in the market was the
result of languishing supply, being snapped up by pent-up demand, and that the
real number was not the Auction Clearance rates (as some would want us to
believe) but the value of the sales in the marketplace.
When I showed them that the current total value of the sales
in the marketplace were in fact 35% less than the sales value at the top of the
market, they seemed surprised. I went on to explain that the volume
reflected sales at the lower end of the market with a high volume around the
median price which had spiked. These
factors, together with the springtime selling period were the reason for this
false impression of the market. Yes, there
has been a spike but not sufficiently at this time to make me believe it was
anything more than “Dead Cat Bounce”.
I’m pretty sure they both really didn’t understand my explanation and hope they buy something before too long, just not straight away. Time is on their side
Australia’s Royal Commission into Banking has been long overdue most people would agree. The nature of financial lending has evolved dramatically since its deregulation in the mid 1980’s.
The competition and growth of second and third tier finance providers, together with the demands from their shareholders, forced banks into areas and diversification that were, to say at the least, questionable. The Royal Commission has now uncovered much, that many of us already knew, and that few would have ever dared criticise.
The Banks have been the Australian economy’s greatest strength and now potentially its greatest threat.
What we have is the great conundrum.
Shareholders are suing the banks whose share price then suffers to both parties detriment. The more that is being claimed the greater their losses.
Banks now need to review all their add-on charges to consumers, which have to date supported record profitability. So to maintain profitability will they be forced to increase interest rates on those same consumers?
With tightening credit controls, borrowers who now wish to move loans from the banks who are raising interest rates, may now not qualify under new lending requirements.
And with these new lending controls, banks will not, in the immediate future, lend at the previous capacity thereby reducing the borrowed money supply. The main beneficiary of easier money in the past 30 years has been the property industry, which has grown and is advancing on the supply of money. What now?
With the property market beginning to show signs of a correction a lot of property owners will still be burdened by high land tax assessments. The averaging system that the governments uses over a three year period provides a better outcome for collecting tax however, in a downward market with returns and values falling the average value is only partially affected.
If we consider the last three years of growing prices in property when the market values start to fall your next assessment is of vital importance in future tax assessments. The government valuers have ensured that their assessment for rating and tax purposes has been current and up to date, will the same be said as the market begins to fall.
Taxation on property and property holdings an ongoing burden on the property investor and ensuring that valuations are current and accurate may save thousands of dollars in the next market phase.
Eighteen months ago I started gathering information from Domains property research in an effort to better understand the current market situation. I listened to many industry and financial experts discuss this information and make seriously inaccurate statements about the condition of the Sydney market place.
The discussion in property has been based around the medium prices being paid in Sydney and its unparalleled growth. Or so it seems. The data reflected growth in medium prices. The above data shows that the average prices have in fact fallen over the last 6 months by comparison to last year. In fact over the last two months the difference in the average price has fallen by almost 35%.
How is this possible?
The medium price does not accurately express the value of the market place only the middle number. In fact from figures provided by Domain the total value of sales in the last two month period were $3.2 billion whilst twelve months ago there was $4.4 Billion dollars in sales recorded. The total number of sales in this period were almost the same – so where did the value go if in fact the medium price remained the same.
Less value in total sales within the same volume activity suggests falling prices. With falling sales value we are seeing less money in the residential market place.
Comments by Reserve Bank assistant governor Michele Bullock last week reflected an opinion which I highlighted in a previous article. The strength of the Australian residential market place is predicated on ownership not speculation. The level of investment and speculation that has occurred over the past four years in the Sydney residential market place is cause for concern and this may only be the tip of the iceberg.
