By Alex Howlett
With some 100 beaches and Australia’s biggest financial hub, Sydney mixes business and pleasure. The New South Wales capital also has one of the fastest-growing populations of the country’s cities — almost 2 per cent a year, according to Australian Bureau of Statistics (ABS) data — which is increasing demand for housing.
This March, Mercer’s Quality of Living ranking named Sydney as the 11th best city in the world for expats. Michael Pallier, managing director at estate agent Sotheby’s International Realty in Sydney, points to its virtues of “clean air, a stable political environment [and] great schools”.
Australia’s economy remains stable: employment rose 2.3 per cent in the year to February 2019 and growth over that period was around the same figure, according to the Reserve Bank of Australia. However, even here things can go awry.
Last year brought a housing downturn in the city, with prices dropping 7.8 per cent year on year in the last quarter of 2018, according to the ABS. Previously, house prices had been rising steeply — the ABS reported a 68 per cent increase in the five years to December 2017.
“There was a protracted boom in the last five years and median house prices increased 60-70 per cent in and around Sydney and Melbourne,” says Robert Klaric, founder of real estate advisory The Property Expert in Sydney.
This rise proved to be unsustainable. A year-long royal commission into misconduct in banking and financial services, which presented its final report in February, accelerated the tightening of restrictions on home loans. This, combined with a drop in overseas investment due to factors such as higher application fees and tighter control of foreign investment — particularly from China — triggered the fall in house prices during 2018.
The financial regulator, the Australian Prudential Regulation Authority, imposed a limit on new interest-only mortgages in 2017 to reduce lending risk; only 30 per cent of new residential mortgages were permitted to be interest-only. The policy was revoked at the end of 2018, but so far this has had little effect on the downward spiral of house prices: economists predict they will continue to fall into 2020.
Shane Oliver, chief economist at investment management group AMP Capital, predicts prices could fall up to 25 per cent over the next year. Klaric, however, is less pessimistic. “By 2020 we’ll see further reductions of 5-10 per cent,” he says. “It’ll be higher than 10 per cent for apartments, and lower for houses with land in the suburbs.”
There is a surplus of new apartments in areas such as Alexandria in south Sydney. In January, it was reported that 61 off-plan apartments in a new 130-unit project in Epping, north Sydney, were to be sold by the receiver and manager Newport Advisory after developer Gondon had failed to attract buyers.
Rental rates in Sydney dropped for the first time in 12 years in January this year, with the median rent for houses costing A$540 ($385) a week, according to digital property platform Domain. “Available rental stock continued to increase over the year, with development completions adding to the pipeline of supply,” says Nicola Powell, a research analyst at Domain.
Not everyone in Sydney is experiencing a slump, however. The downturn has hardly touched the prime end of the market in affluent suburbs such as Mosman and Manly, says Klaric. “Mosman saw 20 sales above $10m in 2018,” adds Pallier of Sotheby’s. “It has been a safe haven for the smart investors.”
Median-priced suburbs are expected to continue to see price drops and a slow market for sellers. Klaric predicts prices will fall further before plateauing within the next five years. “The gap has widened more than it ever has before; the rich [are] becoming richer and the poor becoming poorer,” he says.
Photographs: Dreamstime; Getty Images/iStockphoto; Bloomberg; Taras Vyshnya