You might have thought that, if anything was going to bring about an abrupt halt to Sydney’s rising property prices, a 16-week lockdown might do the trick.
After all, as real estate agents, the way we did business was significantly curtailed. We were banned from holding live auctions and open homes. Even more importantly, many businesses were forced to close and a lot of employees had their hours reduced. And, as cases rose, returning to anything resembling normal seemed a long way off.
Usually, this would create the kind of economic uncertainty that would encourage people to pull back from the market and for prices to come down.
But one thing we’ve learned is that these are not normal times. Buyers have been completely undeterred by the lockdown. If anything, it seems to have encouraged more people to put their best foot forward, take advantage of low interest rates and secure a property before the economy reopens fully.
Rising property prices show no sign of ending
As a result, the Sydney median dwelling price rose 5.7% over the September quarter, according to CoreLogic data, even though the lockdown was in force for the entire period. This means the median Sydney property price has lifted 23.6% in the past 12 months and an incredible 22% so far over 2021. In other words, if you owned a Sydney property worth $1,000,000 at the start of the year you could now expect it to be worth $1,220,000.
As you might expect during a hot market like this one, (virtual) auction clearance rates remain high. Domain put the Sydney-wide auction clearance rate at 83% on the October long weekend. Meanwhile, the Wentworth Courier put the auction clearance rate in Sydney’s Eastern Suburbs over the same weekend at a perfect 100% – a rare thing.
This shows just how much demand is outstripping supply across the Sydney property market right now.
Action moves to apartments
At the start of the year, the pace of growth in the housing market was double the rate of growth in the apartment market. We’ve noticed that’s now changing. Last month, for instance, CoreLogic reported that Sydney apartment prices rose 1.5% while house prices rose 2.0%. And there are several reasons we expect this gap to close even further over the coming months.
First, investors are returning to the market. In August 2021, the Australian Bureau of Statistics (ABS) reported that investor loans were up 92% compared to the same time last year. Many of these investors are seeing real value in apartments, not only because the gap between apartment and house prices has widened but because yields tend to be higher. For instance, an investor can expect a yield of 3.6% on an apartment in Waterloo according to realestate.com.au while a house in Waterloo returns an average yield of 2.4%.
Thinking of selling?
Second, low-interest rates have made buying a home comparatively cheap – especially if it has only one bedroom. For a long time, our area has been one that’s popular with first home buyers. Now, more people seem to be taking advantage of generous government incentives as well as these record interest rates to enter the market for the first time. And why wouldn’t they be? With a 20% deposit, buying an apartment often costs a comparable amount of money or even less than renting in Rosebery, Alexandria or Waterloo, as the table below shows.
|Suburb||Median one-bedroom apartment price||Median rent per month one-bedroom apartment||Median cost of home loan per month at 2.25% interest*||Difference|
|Alexandria (including Green Square)||$680,000||$1,993||$2,093||$100|
* Assumes 20% deposit of median one-bedroom property’s value and 30-year principal and interest loan at 2.30% with zero fees. Data courtesy of Moneysmart and realestate.com.au
Third, the gap that’s opened between apartment and house prices makes this an attractive time to downsize. We expect more people will begin to notice this and start ‘cashing in’ the family home for an apartment closer to the city. Downsizers often tend to value good transport links, a vibrant cafe and restaurant scene and walkability. Our local area has each of these in abundance and we anticipate more and more downsizers will see the opportunity to relocate here, putting upwards pressure on property values.
Changes to lending criteria
With prices rising so rapidly, the Australian Prudential Regulatory Authority (APRA) has moved to introduce new lending requirements which it hopes will curb growth by restricting the amount banks can lend to prospective buyers.
On 6 October it announced that lenders would need to apply a buffer of 3% to borrowers’ home loans rather than the current 2.5%. In other words, if someone was looking to borrow at 2.5%, the bank now would have to be convinced that a borrower could continue to pay if interest rates rose 5.5% rather than the 5% they have been applying.
Our view is that the effect of this will probably be limited. Most borrowers don’t ‘max out’ their home loans to the full limit banks will allow them. Instead, they usually do their own budgeting. APRA’s move should, however, prevent the potential for more reckless loans to be made, and that should lead to a more stable property market.
If you’re interested in buying or selling in Green Square or Waterloo contact our team today.