As The Age reported today, in a paper reflecting his personal views rather than those of his boss, ASIC’s Chief Economist also thinks there is a case to be made for ASIC’s regulation of the Australian housing market.

This article is well worth a read: ” ASIC as the safe house” - The Age 20 July 2010.

Has that chill turned to tundra or was it just the Sydney property market returning to more normal levels as the effects of historically very low interest rates began to wear off? In this article’s view, it is the latter and any residual signs of buyer tentativeness are now more a function of chilly seasonal factors, school holidays and a looming Federal election which for some reason always shakes buyers’ confidence. Whilst there is also a niggling uncertainty about the health of world financial and equity markets with the concomitant risk of a GFC Mark II, the perception, rightly or wrongly, is that those risks are offset by Australia’s minerals boom, China’s economic growth and low domestic unemployment.

Aided by the Reserve Bank of Australia’s decision on 6 July 2010 to keep interest rates on hold, Sydney’s residential market also seems to have adjusted quickly to variable interest rates being closer to 7.5%

Readers of the popular press would however be forgiven for choosing the tundra option.

Even in the usually upbeat (and usually biased) local community newspapers, watchers of Sydney’s property market are greeted by auction obsessed daily headlines like these in the 5 and 12 July 2010 editions of the Sydney Morning Herald :

“Clearance rates slump as supply surges” and

“Buyers expected to favour private sales over auctions as growth slows”.

As this article’s analysis suggests, headlines like these do not accurately reflect the state of the mid 2010 property market in Sydney especially over $1 million. They are also difficult to reconcile with other objective evidence including figures from the Australian Bureau of Statistics showing a 2.3% rise in May 2010 in loan approvals to New South Wales home owner occupiers. Nationally, the rise was 1.9% and was the first such movement in eight months.

Whereas the 12 July 2010 article correctly referred to an RP Data’s report that real estate listings across Australia are now at their highest level since December 2008, of greater relevance to Sydney property buyers (and consistent with the wafer thin real estate sections of the city’s newspapers), is that the same RP Data report also revealed that total advertised listings in New South Wales for the month ending 4 July 2010 were nearly 7% lower than the same time last year and that the national listings figure was driven by an opposite trend in Queensland and West Australia.

As RP Data’s research director Tim Lawless put it:

“The most surprising factor is that volumes remain so buoyant, despite the fact that clearance rates have been trending down for 11 weeks now”.

To get a clearer idea of the trends in Sydney’s $1 million plus residential property market in the two quarters to 30 June 2010, researchers at Curtis Associates have analysed and graphed all reported sales during that period in seven suburbs which can fairly be regarded as representative samples of the districts in which those suburbs are located namely Sydney’s eastern suburbs, inner west and lower north shore.

Sources: domain.com.au; realestate.com.au and RP Data

The general trend revealed in those graphs is of a gradual restoration in sales volumes after a sharp post Easter slow down with strong activity in May 2010 especially in Mosman. It is not a trend looking anything like a tundra.

The pre Easter frenzy screeched to a halt in the past three weeks as the market finally succumbed to:

• six increases in the official cash rate since October 2009
• the average home loan variable interest rate having now hit the traditional pain threshold of around 7.5%
• the exodus of first home buyers
• stock market gyrations and
• the spectre of a second GFC flowing from the sovereign debt crisis in Greece.

The falling auction clearance rates and successive drops in fresh owner occupier loan applications reported in the popular press understate what is occurring in the Sydney property market. For those at the coalface all over Sydney on a daily basis such as Sydney buyers’ agents, Curtis Associates, the trends are much clearer. The past month has seen:

• A spike in the number of properties selling prior to auction

Reflecting vendor nervousness, it is now common for half or more properties in an order of sale to sell prior to auction.

• A significant increase in the number of properties available off market

Several of these opportunities are motivated by financial or other stresses.

• Savvy vendors cashing up

Take for example the quaint and usually tightly held Watkins Street, Bondi where the $1.406 million sale of 36 Watkins Street, Bondi at auction on 29 April 2010 triggered a domino effect with 8 and 24 Watkins Street, Bondi each selling within the next fortnight for $1.08 million and $1.13 million respectively.

• Horror stories for some vendors at auction through no fault of the selling agents

Consider the auction on 4 May 2010 of 17 Rush Street, Woollahra, 702/72 – 78 Bayswater Road, Rushcutters Bay , 77 and 79 Windsor Street, Paddington, 21 Hampson Street, Maroubra and 6 Ocean Street, Woollahra. None of those properties sold at auction and of the four bids made that night, one was a vendor’s bid and two were questionable. Those vendors fared better than the owner of 11 Bellevue Street, Surry Hills whose auction last Saturday failed even to attract an onlooker.

• On line advertisements being revised or re-run

This is especially evident in Sydney’s penthouse market and parts of the ultra top end such as 10 Bay Street, Mosman.

• Downward trends in Paddington which is regarded as a bellwether by those predicting trends in the Sydney housing market 2010 including:

If these trends continue and spread throughout the Sydney property market, CurtiseCall predicts that prices will inevitably stabilise if not fall.

Some commentators have attributed Sydney’s rising real estate prices to unsubstantiated claims that more than 30% of homes were purchased by foreign speculators fuelled by recent changes to Australia’s foreign investment rules – which has not been the experience of Curtis Associates who are in the auction rooms on a weekly basis.

Others such as Moody’s Analytics’ Matt Robinson see five months of declining house finance applications as a possible light at the end of the tunnel of rising property prices. Mr. Robinson may well be right.

Original contributions over the period included an unusual 29 March 2010 appearance by the Governor of the Reserve Bank of Australia on early morning commercial TV, cautioning viewers that it was “a mistake to assume that a riskless, easy, guaranteed way to prosperity is just to be leveraged up into property”; a remark interpreted by the markets as signaling further interest rate rises and which a week later proved correct when the cash rate was raised 0.25% to 4.25% with more rises being inevitable.

Also wading into the debate was the Stocklands CEO, Matthew Quinn with an address on 16 March 2010 which, for those present, was refreshingly more caustic and incisive than reported in the mainstream press. One of Mr. Quinn’s main complaints was of a failure at all levels of government to appreciate what he described as the housing time bomb caused by Australian urban population growth outstripping housing supply.

Other pundits this month went around in well worn circles search for answers to these issues with a commendable conviction nevertheless that the madness being experienced in some parts of the Sydney and Melbourne property markets cannot and will not continue.

None of these commentators mentioned what, to thinking insiders, is an elephant in the room of the Sydney property market; namely, that despite the advent of resources such as online research tools, it is a market lacking transparency and efficiency.

Distortions are everywhere.

For example, at the top end, it is common practice for real estate agents, buyers and sellers to keep sales prices confidential. Although such a practice would be anathema, indeed illegal, in the stock and futures markets, it remains an accepted and mostly unchallenged part of Sydney’s real estate scene.

Often this confidentiality is driven by nothing more than an irrational desire by one or both parties to retain privacy for as long as possible after the dust of the transaction settles. Theoretically that delusion typically has a 42 day shelf life after which the details become a matter of public record when transfers are registered.

In reality however, few prospective buyers have the time or would even know how to incur the effort and expense of searching those records. Instead, they are forced to inform themselves about the market via real estate portals and real estate sections of the media dependant for their content on agents who choose, largely for their own marketing purposes, to provide (or not to provide) such media with data. If such selectivity in providing information were to occur on the stock exchange, the regulators might consider it to be market manipulation.

In any event it is anything other than rigorous data gathering conducive to an efficient and functioning market.

Hardly any wonder that unrepresented buyers in a low interest rate environment, denied access to masses of data revealing the true state of the market in which they participate on average once every 7.5 years, continue to smash reserves every weekend.

A prime example of this was the sale at auction on 6 March 2010 of 44 Addison Avenue, Roseville for $1.517 million. That was a scorcher of a price for a north to the rear Federation in poor condition with possible structural problems.

No doubt its purchaser and the many under bidders who helped to push the price over its $1.225 million reserve, would have been interested to know that 52 Earl Street, Roseville around the corner had sold a day earlier for $1.46 million. Sitting on similar land, the latter included a near faultless and liveable home offering plenty of upside, a swimming pool and golf course views.

The practice of keeping sales prices confidential is also discriminatory which, as any economist will tell you, also distorts market and destabilises prices. For those who might have been at the auctions, the sales information is not only freely available, it is often a source of entertainment culminating in applause. On the other hand, for those buyers confined to seeking the same information online, frustration and ignorance replace entertainment when the searching returns a “Price Withheld” result.

So, for example, those who attended the auction on 25 March 2010 in the rooms of a prominent eastern suburbs agency would have known that around 10 registered bidders hammered each other in rapid succession to buy 28 Imperial Avenue, Bondi for $2.82 million. Equally informative was the knowledge that twenty minutes earlier, 6 Loombah Road, Dover Heights and 83 Bellevue Road, Bellevue Hill had sold under the same hammer for $4.71 million and $5 million respectively. As it happened, those sales were reported in that week’s edition of the local eastern suburbs community newspaper.

Not so in the cases of 16 Chamberlain Avenue, Rose Bay and 41 Suttie Road, Bellevue Hill which also sold under the same hammer that evening and for which, it is presently impossible to ascertain their sale prices online.

This phenomenon occurs weekly across the spectrum of Sydney property prices and from Sutherland Shire to the northern beaches.

The above transactions are examples of information which buyers in Sydney’s property market are entitled to know and which, at the top end, paints a rather different picture to the one conveyed by this headline in the 11 March 2010 edition of the Australian Financial Review: “Prestige end bottoms“.

Similarly, buyers in Sydney’s property market are entitled to further information with which to reconcile for example, the $1.55 million loss incurred in the enforced sale of the two beachfront apartments at 4 and 5 of 2 Notts Avenue, Bondi Beach, with sales such as these since the February 2010 edition of CurtiseCall:

• 801 / 1A Tusculum Street, Potts Point for $4.5 million
• 18a Ginahgulla Road, Bellevue Hill for $4 million
• 691 New South Head Road, Rose Bay for $4.45 million
• 17 Iluka Road, Mosman for $6.15 million
• 95a Cammeray Road, Cammeray for $4.85 million
• 6 William Street, Henley for $4.13 million
• 34 – 36 Thomson Street, Darlinghurst for $1.64 million
• 33 Hopetoun Street, Camperdown for $2.9 million.

Such disinformation is also often perpetuated by other stakeholders including community newspapers whose advertising revenues largely depend upon every week conveying the impression of a consistent and buoyant local real estate market.

Examples in the past five weeks include two sales reported in the 7 April 2010 edition of the same eastern suburbs community newspaper referred to above. Appearing under the heading “This week’s top 10 sales” are the sales of 1B Tara Street, Woollahra for $3.25 million and of 87 Barcom Avenue, Darlinghurst for $4.15 million. In fact, each of those sales occurred not in the week ending 7 April 2010 but on 29 March 2010. Similarly, 8 Court Road, Double Bay is said to have sold in the week ending 14 April 2010 when in fact it is sold on 31 March 2010. There are many other such examples.

With real estate transactions, as in politics, a week can be a long time.

Much like the media’s preoccupation with practically useless median sale prices (CurtiseCall, October 2008), such distortions impede the development of an informed and transparent property market.

The solution?

For a start, why not make it mandatory for all real estate agents and buyers’ agents to report transactions, (excluding parties’ names) online and to a central authority within 24 hours of contracts being exchanged? Why not publish the reserve prices and the number of registered bidders? What could be the harm? Why does that not happen now? Surely, it would promote a more efficient market less prone to price distortions?

Answers to those questions will inevitably explore the existence or otherwise of a political will to do so: in NSW alone, for the eight months to 28 February 2010, ad valorem stamp duty revenue on property transactions was a massive $1.86 billion which, when compared to the same period last year, represented an increase of 37.8%.

Buoyed by the Reserve Bank of Australia’s surprise decision on 2 February 2010 not to increase the official cash rate, bobsleigh teams of investors, self managed superannuation funds and resilient first home buyers are driving up prices in the sub $1 million bracket of the Sydney property market. There seems little doubt that this is generally occurring at a rate consistent with the 4.63% rise in established house prices recorded by the Australian Bureau of Statistics (ABS) in the December 2009 quarter.

The trend in this bracket is particularly clear throughout suburbs within five kilometres of Sydney’s CBD. Take for example, the sale at auction of a derelict two bedroom semi detached house at 26 Wilford Street, Newtown. Facing a graffiti art wall and overlooked to the rear by new apartments with next to no chance of gaining off street parking, the $602,000 winning bid was $122,000 or 26% above the vendor’s reserve.

This trend is not confined to the inner city and has spread to middle ring suburbs such as Bexley and Arncliffe. An example was the sale on 13 February 2010 of 4 Percival Street, Carlton for $581,000 which far exceeded the price suggested by the comparable sales evidence.

In the eastern suburbs, a dark one bedroom apartment up four flights of stairs and accessed via undercover garages at 98 / 127 – 147 Cook Road, Centennial Park sold on 5 February 2010 for $516,000 which was about 15% higher than the selling agents price guide. That result pales when compared to the $805,000 paid for a one bedroom, 77m2 unit at 2 / 1 Eastbourne Avenue, Clovelly on 13 February 2010. At a rate of $10,455 per square metre for an unrenovated property with no parking, this sale illustrates the premium Sydney property buyers place on water views and direct beach access.

On the upper north shore, a cheeky pre auction offer of $1.03 million thwarted a herd of parties trying to buy a dilapidated two bedroom cottage without parking at 5 Nithdale Street, Pymble. Not so long ago, that property would have been lucky to fetch $850,000.

In the southern suburbs of Sydney, especially around Cronulla, modest two bedroom units have sold within days of being listed and for inflated prices. In these and other suburbs in Sydney’s property market, as predicted in the December 2009 CurtiseCall, there have been more buying opportunities so far in 2010 as sellers trade up and move closer to the city. However, the increase in supply is more than matched by the insatiable demand.

The upward pressure on prices in the sub $1 million segment will continue as a result of the NSW State Government’s announcement last week that work will start immediately on a 5.6 kilometre extension of the light rail network from Lilyfield to Dulwich Hill. Although sensible, this project will nevertheless increase housing demand and therefore, prices along that line.

At the prestige end of Sydney’s property market where Curtis Associates specialises, despite the traditional four week Christmas shut down, there were signs of increasing turnover with around 160 sales over $2 million being reported since 21 December 2009.

The northern suburbs drove this trend and accounted for at least 80 of those sales which was more than double the number of sales recorded in this bracket over the same period in the eastern suburbs.

North shore and northern beaches sales of interest (for example, because of the views they command, some of the ‘confidential’ prices which have been achieved or the infrequency with which they trade), have included:

• 46 Milner Crescent, Wollstonecraft - $2.07 million
• 19 Nelson Street, Gordon - $2.167 million
• 50 Bower Street, Manly - price confidential
• 69 Ku-ring-gai Avenue, Turramurra - price confidential
• 160 Whale Beach Road, Whale Beach - price confidential
• 8 Baden Road, Neutral Bay - price confidential

In the eastern suburbs, notable property sales during this period have included:

• 349 Edgecliff Road, Edgecliff - $3.995 million
• 91 Queen Street, Woollahra - $3.75 million
• 48 Arcadia Street, Coogee - $4.8 million
• 130 Bellevue Road, Bellevue Hill - price confidential
• 24 Suffolk Street, Paddington - $2.025 million
• 25 Mackenzie Street, Bondi Junction - $3 million
• 35 Fairfax Road, Bellevue Hill - price confidential
• 39 Robertson Road, Centennial Park - price confidential

In the southern suburbs, there were 19 top end sales including some deep waterfrontages which represent better value for money than their counterparts in the north and east. Such sales have included:

• 26 Pleasant Way, Blakehurst - price confidential
• 63 Vista Street, Sans Souci - $4.518 million
• 109 Kangaroo Point Road, Kangaroo Point - $3.7 million
• 41 Townson Street, Blakehurst - $2.6 million
• 17 Boorroo Street, Kangaroo Point - $3.425 million
• 9 Llewellyn Street. Oatley - $1.97 million
• 20 Orana Crescent, Blakehurst - price confidential

In the trendy inner west, there were 15 such recorded sales including the following trophy homes:

• 41 Abbotsford Parade, Abbotsford - $4.025 million
• 37 Kingston Street, Haberfield - $2.16 million

Although hard to believe, another 12 months in Sydney’s property market is drawing to a close and compared to this time last year, what a year it has been!

2009 – the year that was

As the global financial crisis quickly receded from view, buyers in the sub $1 million bracket returned to the auction rooms encouraged by the historically low interest rate environment, resilient employment rates and government largesse in the form of the first home owners’ boost scheme. Since the last CurtiseCall on 1 November 2009, these factors have combined to produce some of the strongest clearance rates on record particularly in Sydney’s inner west.
The story above $1 million has been the same throughout Sydney: plenty of buyers but a chronic shortage of quality housing stock; particularly in Sydney’s upper and lower north shores and eastern suburbs.

A narrow window of buying opportunity on the lower north shore closed in the past six weeks with prices heading north in response to the imbalance between supply and demand. On the lower north shore, that trend began in Neutral Bay and Cremorne before reaching Mosman.

A Federation home at 25 Queen Street, Mosman which sold on 5 August 2008 for $2.285 million traded again on 5 September 2009 for $2.15 million whereas 50 Cowles Road, Mosman which sold for $2.6 million on 11 June 2008 delivered that owner a capital loss on 17 September 2009 when it sold for $2.4 million.

Starting with 36 Aubin Street, Neutral Bay which sold on 14 November 2009 for just under $3.2 million – (well above the highest bid of $2.91 million at auction on 1 October 2009), the trend continued to reverse this month with two bidders pushing 45 Upper Avenue Road, Mosman to $2.477 million on 5 December 2009. That figure was $77,000 over the reserve and represented a $277,000 capital gain on its purchase price on 9 May 2008.

Two transactions in the bellwether Sydney suburb of Paddington revealed a similar trend across the Harbour Bridge.

The first was the highly publicised sale of a derelict terrace in a prime location at 40 Windsor Street, Paddington which sold on 23 November 2009 for a staggering $1.895 million.

The second was a 1970’s town house down the hill in a mosquito infested gully at 18B Harris Street, Paddington. With north to the rear bush and a Balinese inspired makeover, this property sold without fanfare at auction on 28 November 2009 for $1.805 million which was $300,000 above the price range being quoted four hours before the auction. Before leaping to report a suspected case of under quoting, the sale of 4 Harris Street, Paddington on 5 May 2009 for $1.345 million should be considered.

Balinese themed architecture also helped the sale of 1 Neild Avenue, Paddington on 30 November 2009 for $3.331 million.

Closer to the City at 71 Womerah Street, Darlinghurst, a four level terrace with DA approved parking and internal access on the high side in the suburb’s prime street sold for $1.85 million on 5 December 2009.

The big eastern suburbs news item in this period was of course, Lachlan Murdoch’s purchase on 5 November 2009 of La Manoir at 93 Victoria Road, Bellevue Hill for $23 million. This was followed by the sale of the iconic, but nearly dilapidated Jenner House at 2 Macleay Street, Potts Point for $15 million on 5 December 2009; a property that has been on and off the market for at least four years. The other glamour transaction was of the four bedroom penthouse with panoramic views of Bondi Beach at 16/16 Notts Avenue, Bondi which sold for $8 million on 12 December 2009.

Not everything in Potts Point’s top end was buoyant. In a move reflecting the slump in Sydney’s ultra top end penthouse market, Ashington eventually conceded defeat by advertising its DA approved development site at 10 Wylde Street, Potts Point for sale on 3 November 2009.

A similar fate met the block of seven apartments at 8 St Neot Avenue, Potts Point. A reduction during the sales campaign in the initially suggested $4 million price tag was apparently insufficient to prevent this property being withdrawn from its scheduled 3 December 2009 auction.

Above $3 million in the Sydney prestige property market, quality stock remained in tight supply and turnover thin relative to previous years.

In Sydney’s inner west, activity above $3 million was more patchy than elsewhere in the Sydney prestige property market apart from two transactions. The sale of 272 Johnston Street, Annandale on 7 November 2009 for $4.86 million made headlines whilst the quiet achieving Haberfield continued to set records with 14 Waratah Street selling on 28 November 2009 for $3.452 million. Haberfield in fact has enjoyed the highest turnover of inner west properties in this bracket since 1 November 2009.

Another solid sale occurred on 14 November 2009 with 11 Northcote Road, Glebe going under the hammer for $1.7 million.

Newtown was relatively subdued with 7 Warren Ball Avenue, Newtown North generating surprisingly little excitement being passed in at auction on 5 December 2009 for $1.605 million - a long way short of the vendors’ $1.8 million expectations shortly before that auction. The property is still on the market.

On the north side, 12 Parkes Street, Kirribilli sold on 5 December 2009 for $4.7 million and 30a Addison Road, Manly sold on the same day for $4.265 million.

2010 – the year to come

Curtis Associates predicts these trends for next year:

• The short supply of quality housing will more than offset increases in interest rates.
• Consistent with recent remarks made by the Deputy Governor of the Reserve Bank of Australia, buyers will continue to regard Sydney property as offering an affordable investment destination once low interest rates and rising disposable incomes are taken into account.
• During the first quarter of 2010 in the sub $1 million bracket, there will be relatively more buying opportunities for both owner occupiers and investors as the first home owners’ grant further reduces.
• Turnover as well as prices will increase in the $1 million to $3 million bracket as confidence returns especially to those employed in the financial and professional service sectors.
• The last mentioned trend will see big ticket buyers above $3 million tempted back into the Sydney prestige property market later in the year.
• As part of the emerging trend, 2010 will be busier than 2009 which was much busier than 2008 especially at the top end.

Curtis Associates wishes to thank all of our loyal readers and clients throughout 2009.

The next CurtiseCall will be published in February 2010. Until then, we wish you all a happy and safe festive season.

In the shoot out between east and north, it has been a tale of two cities with the lower north shore suburb of Mosman recording at least twenty-one sales above $2 million in the past six weeks which is more than triple the number of sales in the same bracket in its eastern suburbs rival, Woollahra.

The Mosman sales have included:

• 1/65 The Esplanade - $5.25 million
• 7 Harbour Street - $2.33 million
• 15/8 Earl Street - $2.15 million
• 59 Bay Street - price undisclosed
• 26 Euryalus Street - around $2.85 million
• 14 Awaba Street - $2.3 million
• 29 Congewoi Road - price undisclosed
• 25 Bradleys Head Rd - $2.775 million
• 4 Effingham Street - $2.45 m
• 28 Upper Avenue Road - $2 million
• 68 Glover Street - $2.05m
• 4 Moruben Road - price undisclosed
• 27 Ryrie Street - under $2.45 million
• 25 Queen Street - $2.25 million
• 4/20 Parriwi Road - $4.35 million
• 14 Amaroo Crescent - price undisclosed
• 24 Ruby Street - $2.625 million
• 21 Kardinia Road - $4.025 million
• 13A Elfrida Street - over $4 million
• 68 Cabramatta Road - $2.24 million
• 14 Kirkoswald Avenue - $2.6 million.

The Woollahra sales have included:

• 2 Russell Street - price undisclosed
• 91 John Street - $2.9 million
• 96 Holdsworth Street - price undisclosed
• 35 Ocean Street - price undisclosed
• 10-12 Ocean Street - $2.43 million
• 319A Edgecliff Road - $2.5 million
• 49 Queen Street - $2.4 million.

The significant difference in top end sales volumes between these two blue ribbon suburbs reveals a lot about how Sydney’s prestige real estate market performs through the economic cycles.

Possibly because Mosman has a higher concentration of leveraged and aspirant wealth types than Woollahra, it was one of the first suburbs to feel the brunt of the now almost forgotten global financial crisis.

If the above sales evidence is any guide, Mosman is becoming the first suburb to re-boot after the general malaise which that crisis produced at the top end.

The main reason for this is simple: Prices. They have moved down in Mosman but are still showing signs of resistance across the Harbour Bridge.

Whilst some market commentators quibble about the fall in median house prices for Mosman, regular readers of CurtiseCall will know that we prefer analysis from the coal face on a case by case basis rather than analysis of movements in median prices - CurtiseCall October 2008.

At that micro level, there is little doubt that people lost money in Mosman during the global financial crisis with 14 Kirkoswald Avenue, Mosman being a recent example. It sold for $2.6 million which chalked up a loss of $400,000 in two years.

As buyers agents and buyers advocates in Sydney, the experience of Curtis Associates in the past six weeks has been that buyers of prestige property on the lower north shore are returning. These buyers are enticed by a sense that with the improvement in nearly all key economic indicators and despite an earlier than expected 0.25% hike in the official interest rate with further increases certain, the market has bottomed.

Those purchasers have been met by vendors for whom the global financial crisis had postponed indefinitely their selling plans but who now have more realistic expectations.

This trend began in Mosman in the $1 million to $2 million bracket.

A prime example is 1A Earl Street, Mosman. With an asking price of $1.5 million, this property languished on the market for 111 days before a change of selling agent and vendor expectations produced a fast sale for $1.4 million prior to its scheduled 24 October 2009 auction.

In the past six weeks, this trend has quickly spread to the $2 million to $3 million bracket in which fifteen of the twenty one Mosman sales mentioned above occurred.

Above $3 million, activity in Mosman, as in other parts of the lower north shore, tapers off with vendors either refusing to accept or being ignorant of the current trends in the Sydney prestige property market. Presumably, they also do not know about the number of quality properties now becoming available off market in this bracket.

Examples of vendor intransigence at this level have included:

• 36 Aubin Street, Neutral Bay which is still on the market with $3 million plus expectations having passed in at a poorly attended auction on 1 October 2009 for $2.91 million
• 47 Spruson Street, Neutral Bay where a $3.1 million dollar offer was rejected despite the fact that the property had been on the market for over six months.

Buyers of prestige Sydney real estate above $4 million - $5 million are relatively scarce on both sides of the Harbour Bridge with the appreciating Australian dollar contributing to that trend especially at the ultra top end.

On the north side, sales in this bracket in the past six weeks have included:

• 143 High Street, Kirribilli - $4.075 million
• 13A Elfrida Street, Mosman - over $4 million
• 31 Carrington Road, Mosman - $5.625 million.

In the eastern suburbs and of which CurtiseCall regards Woollahra to be the bellwether, the re-boot has yet to occur in the $2 million plus bracket with the result that activity at the top end is still relatively subdued.

Examples of prestige real estate sales in the past six weeks in those areas are:

• 16 Oswald Street, Randwick - $2.755 million
• 1 Streatfield Road, Bellevue Hill - $3.65 million
• 13 Boambillee Avenue, Vaucluse - $ 4.66 million
• 424 Bronte Road, Bronte - $5.3 million
• 112 Hopetoun Avenue, Vaucluse - $ 5.65 million
• 76 Wolseley Road, Point Piper - $ 13.2 million.

Elsewhere in the east, parts of the very top end of Sydney’s luxury property market remain trapped by the post global financial crisis malaise with prime offerings such as the top floor penthouse on the north west corner of Rockwall Apartments at 2001 / 7 Rockwall Crescent, Potts Point attracting little buyer interest. Two years ago, a top end buyer would have been bowled over in the rush to acquire that penthouse.

In this market, the Rockwall penthouse joins Ashington Development’s apparently stalled penthouse development at 10 Wylde Street, Potts Point.

CurtiseCall predicts that things will remain that way throughout the eastern suburbs - unless that is, a little bit of Mosman dust gets sprinkled.

As one of the most hectic winter selling seasons in parts of the Sydney residential property market draws to a close, it is appropriate to reflect on the turbulent trends since the September 2008 collapse of Lehman Brothers in an attempt to predict the likely trends in the Sydney property market leading up to the 2009 spring / summer selling seasons.

The four key electrons orbiting the nucleus that is the Sydney property market since September 2008 have been:

• fear
• government stimulus packages
• lowest interest rates in history
• chronic shortage of supply in all price brackets.

The effects of the first electron – fear – has mostly been at the top end with transactions in the prestige property market (defined as sales over $2 million) having tapered off in the past six weeks. With a relative handful of forced sales out of the way, it seems that surviving owners of prestige real estate have decided to shed lifestyle assets and to retain quality real estate closer to the City.

Whilst some property reports including the Knight Frank global house price index have suggested that prices in the Sydney prestige residential market had fallen, the reality is that there have not been enough transactions to pick an accurate trend.

The second electron – government stimulus packages – refers to the first home owners’ grant scheme which has driven frenetic activity in the $500,000 to $1 million price bracket that is only now showing signs of easing. The effects of the first home owners’ grant have primarily been in the secondary market rather than the new home market.

It is in the $500,000 and up to $2 million bracket where evidence of the global economy stabilising, China’s strong growth, rebounding stock markets, rising levels of confidence and deceptively resilient local employment rates have all combined to create the appearance of a buoyant property housing market in Sydney.

Prices in this bracket have inevitably risen over the quarter ended 30 June 2009. For those at the coalface such as Curtis Associates, the anecdotal evidence in relation to high quality properties is consistent with the price figures released by the Australian Bureau of Statistics on 4 August 2009 showing that Sydney house prices rose 4.9% for the quarter ended 30 June 2009 which represented their best performance since September 2003.

The third electron has been historically low interest rates. Throughout the past winter, Sydney property buyers in the $500,000 to $2 million bracket with secure employment seem almost to have forgotten that the low interest rates are an historical aberration. Many of those buyers have fought through layers of red tape, pre-settlement valuations, other tightening credit standards and overworked mortgage brokers to increase their borrowing limits. As a result, the number of loans for owner occupied housing has risen by more than 32% since September 2008. The high auction clearance rates reported in the media are mainly in this bracket.

Time will tell if this upbeat news in that bracket proves to have been a false dawn.

The fourth electron has been a chronic shortage of supply at all levels and in particular below $2 million. Here again, quality stock is in short supply especially in the inner city suburbs as owners cling to the safe haven of quality real estate. The main source of supply has been deceased estates and those trading up.

What to expect

In our view, over the forthcoming spring, rising interest rates (caused in part by major lenders having to raise mortgage rates to cover higher funding costs which in turn, is caused by Australians spending more than they save) and the shortage of supply will prove to be the most influential of the electrons discussed above.

Fear and government stimulus packages are likely to recede as energetic electrons.

Buyers remain nervous about interest rates. And with good reason given this statement by the Governor of the Reserve Bank of Australia on 4 August 2009:

“The present accommodative setting of monetary policy is appropriate given the economy’s circumstances.”

That remark has been widely interpreted by commentators and the foreign exchange markets as meaning that the next movement in Australian interest rates is up.

Any downward effect on Sydney house prices caused by falling demand in response to rising interest rates and reduced government stimulus packages should continue to be offset by the underlying short supply of quality housing stock in the secondary market. Whether investors and in particular, self funded retirees, contribute to that demand will also depend to an extent on the strength of the share market’s recovery.

Unemployment is the dormant electron. Whilst advertised job vacancies in the last quarter have been robust and unemployment levels defy earlier dire forecasts, the devil is in the detail. Those statistics disguise the level of under-employment in the economy as employers choose to share work rather than shed employees.

Local infrastructure upgrades is the other sleepy electron likely to influence house prices in certain parts of Sydney. One of the best examples of this is Green Square where an additional 2500 dwellings are due to be built with supporting commercial premises. The tension between this development and the wishes of others such as supermarket operators wanting to develop around Green Square has already spawned substantial litigation.

Other examples which, in our view, are likely to have an adverse effect on values in Rozelle, Balmain, Birchgrove and Lilyfield are the absurd NSW State Government plans for the CBD Metro, White Bay Overseas Shipping Terminal and Iron Cove Bridge widening. If you think the Anzac Bridge is congested now, just wait until those projects are completed.

Regulators may also emerge as another and significant electron. This will include Commonwealth legislation relating to under-quoting by selling agents which, as the principal of Curtis Associates has commented elsewhere, (SMH news article) will hopefully lead to a more efficient and less wasteful real estate market.

Finally, there is the recent threat, denied by the Federal Treasurer, of a capital gains tax on family homes that sell for more than $2 million. If this were to occur, the effects are likely to extend well beyond the Sydney property market: a similar scare in 1980 was enough to stop a change of Government in that year’s Federal election!