Wednesday, 24 April 2013

A view from down under.

One of the unique things about our business is our intention to be a global firm acting in local markets. As such, we are excited that our Sydney office will be opening later in 2013, further giving us that global edge. 

In keeping with the Australian theme, this week's blog has been prepared by Pete Wargent, Director of the AllenWargent Sydney office, giving an overview of the key themes in the Sydney property market. Going forward we will continue to mix things up and we hope you find it of interest. 

After 18 months of steady corrections, and the national market falling by around 7% from peak to trough, the Australian property market turned around in May 2012.

In response to a series of interest rate cuts, the cash rate being cut from 4.75% to just 3.00%, prices have rebounded in all of Australia’s capital cities as confidence returned to the markets.

Interestingly, while prices remain below their 2010 peaks in all other capital cities, Sydney has now recovered all of its lost ground and all four major data providers show that Sydney’s prices are forging onto new highs due to very high demand.

Price growth

While data providers always show slight differences quarter-on-quarter, the trend is clear and that is that property prices in Sydney are set to increase.

In particular, RP Data notes that the major price growth has been driven by the broad middle market.

While the top 20% and the bottom 20% of the market respectively lag some way below their 2010 peaks, the popular properties close to the median prices are now 2.4% above their previous peak.

RP Data notes that apartment prices pushed on to new heights way back in June 2012.
Auction clearance rates in Sydney, which are usually a good indicator of future price growth have stormed upwards over the past 12 months, dwarfing those of every other Australian city.

Sydney’s regenerating Inner West has consistently shown auction clearance rates of 80-85%, while the most recent data has shown a strong resurgence of both homebuyers and investors in the traditionally popular City & East.

Population growth

The Australian Bureau of Statistics released its latest population figures for the year to September 2012, and the data showed that Australia’s phenomenal population growth is actually increased.

The number of persons increased by some 382,500 people over the 12 month period, of which the majority of the immigrants heading to only four places: Melbourne, Perth, South-East Queensland and Sydney.

The great population growth as ever will be concentrated on these four populous states, and Sydney will record further growth of around 60,000 persons.

Supply constraints

Vacancy rates in Sydney are very tight at below 1.5%, and in certain supply-constrained inner- and middle-ring suburbs, there is a dire shortage of dwellings.

The city recently announced drastic measures to build nearly 200,000 new dwellings over coming years to meet the exploding demand.

Unfortunately, Australia continues to suffer from widespread ‘NIMBYism’ and the proposals to build more new developments are already meeting roadblocks.

With the sprawl of Sydney constrained by the ocean to the east and National Parks at each of its outer fringes, the price of land looks set to continue to increase dramatically.

As the Sydney Morning Herald, summarised in March 2013: ‘If this plan doesn’t work, we really are stuck as a city’.


With inflation remaining benign, unemployment relatively low but creeping up and the almighty decade-long mining construction boom finally reaching its peak, most observers (and the futures markets) expect Australia’s cash rate to fall to a record low 2.75% during 2013.

The Reserve Bank desperately needs to stimulate dwelling construction to meet the accelerating demand, and so it looks to have little choice with regards to its monetary policy stance.

With investors already flooding the market – the average Sydney apartment is now being sold in just 32 days – economists believe that property prices may jump 10-15% higher spurred on by the stimulatory level of the cash rate.

Sydney looks to be the city where the gains will be focussed.

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