- THE BUYER S EYE - SYDNEY 2018

Transcription

1 Sourcing Investment Properties in Brisbane & Sydney - THE BUYER S EYE - SYDNEY

2 - SYDNEY: A MARKET IN TRANSITION - Paradoxically, after several years of strong growth, Sydney s housing market slowed in the second half of calendar year 2018 in response to regulatory intervention, just as its economy is taking its best shape in years. Coming into this cycle with an infrastructure and dwelling deficit, the harbour city has embarked upon a record construction boom, with cranes adorning the skyline from Bondi to the Blue Mountains. While other capitals on the eastern seaboard saw their highly concentrated apartment booms passing their respective peaks in 2017, Sydney has seen construction spread more widely across the city, and still had a great of residential building activity in the pipeline coming into Allied to this, an unprecedented boom in stamp duty receipts has helped to fund a nascent infrastructure boom, with a raft of motorway, rail, light rail, and other infrastructure projects ranging from a second airport, a new casino and suburb at Barangaroo, and Parramatta s massive urban growth project. Sydney s unemployment rate is tracking at its lowest levels in a decade, and indeed coming into 2018 the city s unemployment rate had fallen below 4½ per cent, and was threatening to hit the lowest level on record. The housing market has been on a very strong run in Sydney since 2012, but the second half of 2017 saw regulatory intervention cool the market for a second time over that stretch, while the dwelling deficit has been tackled. With an economy bursting with energy and driving a huge chunk of Australia s growth, immigration into New South Wales hit the highest level on record in Yet employment growth was even stronger again, and effective full employment is beginning to put upwards pressure on wages in some sectors. This is adding tremendously to the demand for housing, with Greater Sydney s population long since having passed 5 million seems likely to bring a more balanced housing market dynamic for Sydney. Australia s most respected and recognised housing market forecaster SQM Research predicts capital growth of 4 to 8 per cent for the harbour city in 2018, but there will likely be the usual variances across the sub-regions of the city. - RETURN OF THE HOMEBUYER - Looking back at earlier editions of the Buyer s Eye, we first flagged the coming boom in investor activity in Sydney all the way back in early Due to low interest rates, investor activity was sustained at a high level for such a long period of time that the market regulator APRA finally elected to take decisive action in 2017 with respect to interest-only loans. An arbitrary cap of 30 per cent market share of new loans was introduced in in concert with several other measures to tighten lending standards. With banks and other lenders under pressure to fall into line by Q3 2017, the impact of the new rules was swift and dramatic, with interest-only lending declining to just 17 per cent of the market, from above 45 per cent of the entire mortgage market at the 2015 peak

3 - INTEREST ONLY LOANS - 55 Interest Only Loans Proposed Regulatory Cap Interest Only Loans Approved (% of New Residential Term Loans) Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 SOURCE: APRA With interest-only loans in Australia typically having a 5-year period, between 2018 and 2020 many investors will find that they are unable to roll over their interest-only mortgage, and will be forced to begin repaying principal. This will suck some of the hot air out of the market, while some investor interest has also begun to shift north to Queensland will see the return of the domestic homebuyer as the main driver of the housing market. Notably, the New South Wales Government has introduced a range of concessionary measures to help first homebuyers into the market, including stamp duty relief on purchases under the value of $750,000, and grants for some buyers and builders of new homes. On the other hand, foreign buyers will be forced to pay higher stamp duties and land taxes. With ample rental supply coming onto the market over the past year, 2018 is set to be the year that homebuyers retake control of the market. With stock levels and new listings higher than at any time over the past five years, discerning buyers will have more choice, while the market having been brought back into equilibrium should allow for a more sanguine buying environment. - CASE STUDY: THE VICTORIAN TERRACE - With record volumes of new apartments being constructed in recent years, at AllenWargent much of our focus has been directed towards finding properties with a point of scarcity value. With a totally fixed supply, the Victorian terrace has been one style of property that we have targeted specifically, with a focus on the suburbs of Paddington, Surry Hills, and Bondi Junction to the east of the city. Surry Hills is set to benefit significantly from the CBD and South East Light Rail project, which will connect the short 2-kilometre journey to the city from The suburb is becoming recognised as one of the trendiest suburbs in the world in which to reside, and we have had the pleasure of purchasing a range of terrific homes in the locality over recent years

4 AW BUYER S EYE - SYDNEY 2018 The attractive terraces of Paddington and Bondi Junction have also long been sought after, and we often look for opportunities to add a third bedroom or add value in another way. Prices for this property type tend to range from $1.5 million for the 2-bedroom terrace with an option to add a third bedroom, to $3.5 million for the premium grade and more spacious family accommodation. property that we have sought, while rental returns can be surprisingly strong due to the lure of highly sought-after school zones. Due to the inherent scarcity of this property type, vacancy rates remain extremely low for the types of For those with a lower budget, we have actively been buying units with scarcity value (such as water -4- views) in the eastern suburbs and on Sydney s lower north shore. Meanwhile for first homebuyers or investors looking for the entry level apartment, very affordable options can still be found in the CanterburyBankstown LGA.

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