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’.

Outlook

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.

Driven round the bend.

As any seasoned Londoner will know, if you want to get any where fast, don't drive. Driving in the capital takes patience, cash and a fairly flexible schedule. You need patience to navigate the traffic and deal with the odd rogue cyclist, you need cash to pay the congestion charge and parking costs, and you'll need the flexible diary because ultimately you will get stuck in gridlock or end up parking half a mile from your meeting. 

London is gradually evolving into a city less reliant on the motor vehicle. Investment into improving public transport infrastructure, the expansion of the 'Boris Bike' cycle hire scheme and the fruition of car sharing schemes across the capital are giving households more reasons not to own a car. The increasing cost of fuel and insurance has also led to households seeking alternative forms of transport across the capital. 

Making car ownership more expensive and improving transport infrastructure is also part of a wider 'green' plan for London to increase air quality and create a sustainable environment for Londoners and visitors. This is also reflected in planning policy which has drastically reduced the number of parking spaces allowed for new developments. New residential and commercial developments, especially those in Underground Zones 1 & 2 are likely to have limited parking and in some cases, no parking whatsoever. Through so called 'Planning Gain' (terms and conditions of planning permission being granted) developers will often have to make contributions to or facilitate local transport infrastructure to improve the quality of the surrounding environment. 

So, what if you like cars, you own a car, and you want to use your car in the capital? Fair enough, you'll need a parking space. 

In many London boroughs, on street parking can be obtained after some form filling at the local council office, but that doesn't guarantee you a space on your doorstep (or even on your street). Also, do you really want to leave your new motor in full grasp of the wondering cyclist or driver with a limited spacial awareness? 

Parking in the capital is a premium, but everything has it's price. That's why there is a bustling market for parking spaces across the capital, from central underground car parks to secluded mews garages, there will also be a home for your car. Last year a double garage in Knightsbridge (pictured below) apparently sold for over £500k. If you want something less personal, Foxtons is currently marketing this space on Park Lane for £87,000 on a 99 year lease, a relative bargain. 

If this all seems like hard work, a super car club may be more tailored to your needs. Why not get the new Ferrari 458 Italia or Aston Martin Rapide delivered to your home or office, then give it back when you're done. Established clubs such as P1 and Ecurie250 are worth a look if this is more you. 

Making money work for you.

I discovered a few years ago standing at the bar of a brasserie in central Paris, that if I stood at the bar my beer would cost me €3, if I was sitting in the window it would be €4 and if I was sitting on the terrace it would be €5. It seemed bizarre that the same product could cost different amounts depending on where the buyer was placed. 

Well it's a similar story in the global property market of London. A domestic buyer paying Sterling for a property, could in essence be paying more or less than an international buyer who is converting their local currency into Sterling to purchase a property. The weakness of the pound in recent months has made UK property (in particular London) very attractive for investors looking to enhance their return with a currency strategy. 

Our spring edition of the Buyer's Eye talked about Singaporean and Australian buyers in particular paying over 10% less for London property over the past 5 years due to the strength of their respective currencies against the Pound. This was further reinforced by the latest research report from Hamptons International this week.

The on going noise about a triple dip recession and uncertainty regarding the UK's credit rating has undermined the Pound in 2013, resulting in a record low rate against the US Dollar in March. Not great if you've got a long weekend planned in New York soon, but interesting news if you're looking to buy UK property from a US Dollar source. The savvy buyer will also take time to look at forward currency contracts or limit orders to ensure that they benefit from the favourable rate for as long as possible and hedge the risk of a strengthening Pound. 

For overseas clients, we treat your currency strategy as a key part of the buying process therefore we work closely with foreign exchange brokers to ensure clients get the best and most appropriate advice. Take a look at who we work with here.

On a social and charitable note, I am lucky enough to be involved with a new project called Pathways to Property: a Reading Real Estate Foundation initiative, supported by the Sutton Trust and British Land. The project is aimed at increasing diversity and awareness across the entire property industry, focusing in particular at the grassroots level by developing a summer school for 16-17 year olds looking for that next step. The vision is long-term but it's widely recognised that the industry needs to embrace change and that it will be better for it. I'll be regularly mentioning developments through our blog and social media feeds, so watch this space. 

April already?! A view on the last 3 months.

There is no official data out for Q1 2013 for a few weeks yet, but how has the first quarter of the year been for the London property market? 

The threat of a mansion tax, the introduction of the Annual Residential Property Tax on certain companies and other structures holding properties, London property prices rising, UK property prices falling... it can be quite confusing working out what has happened and where things will go from here. 

The mansion tax is the political hot potato of the moment and will probably remain so for the foreseeable future. Essentially, the coalition government doesn't seem to be able to agree a way forward: recognising the desire for a 'wealth tax' to appease the wider population, whilst being aware of the impracticalities and unpopularity among their core voters. One of the stronger arguments against any mansion tax is that it will tax those who have seen their assets rise in value over the years, however their disposable income would not cover such a tax. It is also considered that the tax would have a disproportionate effect on London, in comparison to other areas in the UK, due to the higher proportion of houses valued over £2m. 

The London market seemed to react in late 2012 to the political noise, with agents noting a significant fall in viewings for properties in the £2m to £5m price range. However, this was very much blown out of the water by the Land Registry figures in March highlighting that sales of properties above £2m were up 35% year on year in the capital. What does this mean? Well, it could mean something or nothing, as there are also many other factors influencing transaction numbers and house prices within a particular period. For now, it seems that the worry of an imminent mansion tax is cooling as parliament continues to remain in disagreement, and therefore one must make hay while the sun shines. 

The idea that nothing will happen at all is hopeful, but not very likely. Therefore, we can probably expect some sort of housing tax shake up in the near future. The loudest chatter seems to be referring to a revision of the council tax system, which is currently based on 1991 values, but there still remains the issue of a high number of people living in high value houses who wouldn't be able to afford the tax. So the way forward remains unclear. 

On the ground, in some areas of London it seemed there was a temporary stock shortage at the beginning of the year as vendors were assessing their next move and waiting until the end of the fiscal year (and bonus season). This didn't seem to affect purchasers however, so with the shortage of good stock and competition among agents, asking prices in the popular pockets of London have edged up further. This isn't necessarily true of all London areas, as the Capital is a web of diverse sub-markets, but certainly in the popular areas of Shoreditch and Battersea, this has been the case. 

Looking into the second quarter of the year, it's likely we will see more decisions being made by buyers and sellers, even if the government isn't able to do so. The continued weakness of the pound and Eurozone uncertainty also means London property will remain attractive to overseas buyers. Shrewd investors will try to price in political risk as much as possible, but in a fast moving market like London where competition amongst buyers is strong, sometimes you just have to get on with it: Carpe Diem. 

On another note, I didn't realise that people still played April fool's jokes until I was very much 'punked' this week. I received a note on Monday morning from a lawyer that we had breached copyright laws for our publication The Buyer's Eye (shameless plug - www.allenwargent.com) and action was imminent. I chose to react with surprise and disappointment as one would, only to learn it was an elaborate prank. The alarm bells should have been ringing upon receipt, we all know that lawyers don't work on a bank holiday. Needless to say, I learnt a valuable lesson and shall be seeking suitable revenge.