A helicopter view of the Winter 2012 Sydney property market for hibernating buyers

July 31st, 2012

Media reports of rising clearance rates disguised the fact that relative to the same month last year, turnover in Sydney’s property market plummeted this month. As a comparison between statistics compiled by Australian Property Monitors for each of those months confirms, reported turnover of houses fell by 38% and for units, the reduction was 54%.

bustling_city

Apart from cashed up and in particular, Chinese buyers and mining magnates at the top end, the market elsewhere was propped up by a low interest rate environment as continued by the Reserve Bank’s decision again to keep the official cash rate on hold.

Of 38 Sydney Local Government Areas (LGA’s), the fall in turnover of houses was highest in Manly which recorded a 64% reduction. Sydney was the only LGA to record an increase in turnover of houses and then only a modest 3% increase between the two months.

As for units, the Botany Bay LGA led the fall with turnover between the two months having dropped 83%. Mosman was the only LGA to record an increase in activity with 14% more units selling this month than in July 2011.

Contrary to the opinions of some economists, the cause of this trend is not a sustained move in favour of deleveraging but and as predicted in CurtiseCall December 2011, the confidence sapping effects of the European debt crisis. In this article’s view, once that pall lifts – which will probably only occur after the breakup of the Euro – the appetite for debt will return leading to an increased appetite for both Sydney residential property and the relatively high yielding commercial and prime retail spaces that are currently available.

With those events likely to be some way off, it seemed like an ideal time to abandon the pre occupation with Europe and turn instead to existing initiatives, projects and trends closer to home which are almost certain to have a profound bearing on the risks, opportunities and returns associated with the Sydney property market that will endure long after the Euro crisis has passed.

What follows is an attempt to draw together some of these various initiatives, projects and trends in the one place so as to identify their potential cumulative effect at both the local level and on that market as a whole. It is a ‘helicopter view’ defined as the process of “[rising] above the specifics of a particular situation and to see it in its overall context and environment. It is…not only to see the forest for the trees, but…also…to see the big picture without losing sight of the details and their implications” 1

Attention is confined to actual rather than rumoured or pending initiatives, projects and trends. As such, the table includes only those initiatives and projects which have been approved as at July 2012. Several projects, such as Barangaroo, the light rail extension to Dulwich Hill and Central Park are already under construction.

It is hoped that this helicopter view will also provide readers with a context within which to place other pending initiatives and projects; some of the most significant of which include the proposed:

  • light rail extension from Randwick/ University of New South Wales along George Street, Sydney to Barangaroo and the Rocks
  • M4 East link between North Strathfield and the City
  • Rozelle Village project. If it proceeds, this project, which is on the site of the Balmain Tigers Leagues Club, will add to the existing traffic congestion in and around the Anzac Bridge precinct which will be further exacerbated by the proposed M4 East Link and the White Bay Cruise Passenger Terminal once operational
  • second Sydney airport at Wilton in Sydney’s South West district
  • draft Sydney Local Environmental Plan 2012 which, if passed in its current draft form, will result in significant reductions in on site car parking for new projects close to public transport and
  • overhaul of the entire NSW State Government planning system that has been in operation since 1979. Currently at the Green Paper and community consultation stages, it represents a radical and largely root and branch review designed to de politicize and hasten development approvals. Expected by this article to provoke  fireworks from many local Councillors, some of  the more interesting initiatives under consideration include:
    • the notion that innovative projects meeting new development guidelines cannot be refused and
    • the creation of Suburban Character Zones within suburbs by which communities may decide to preclude developments such as medium or high density projects if that community considers such developments would adversely affect the character of an area.

    The analysis below also excludes natural environmental risks such as inundation of property caused by rising sea levels and climate change.

    As the buyer bears will find, a lot is and has been going on during their hibernation.

    District Initiative/project/trend Possible effect and implications for property
    All districts Sydney’s population is forecast to grow from just under 4.4 million in 2008 to 7 million in 20562 Increased demand for  medium density accommodation  and  freight infrastructure
    Decentralisation leading to growth centres in the north west (around Schofields) and in the South West district (around Leppington)
    Ageing population and retiring baby boomers Increased demand for  medium density accommodation, health care facilities and accommodation for growing numbers of health care workers
    On line retailing Continued consolidation of retail shopping precincts in favour of major malls in prime locations and smaller numbers of higher quality bricks and mortar retail outlets as part of the trend which has seen bank branches re open
    Coal seam gas mining Contamination risks especially to underground aquifers and water supplies (see CurtiseCall August 2011)
    Four fold increase in capacity of Kingsford Smith Airport by 2030 Increased aircraft noise all over Sydney attenuated by possible advances in technology making aircraft quieter
    City and eastern suburbs Green and Victoria Squares, Zetland urban re development projects Potential oversupply of generic accommodation as occurred with Docklands, Melbourne
    Access roads likely to be inadequate and congested
    Central Park, Chippendale urban re development project Potential oversupply of generic accommodation as occurred with Docklands, Melbourne
    Four fold increase in capacity of Kingsford Smith Airport by 2030 Access roads likely to be inadequate and congested
    Barangaroo Potential oversupply of commercial and other office space
    Vehicular road access and pedestrian access from Wynyard Railway Station likely to be inadequate and congested
    Potential for ground contamination issues to emerge as an issue for buyers and tenants
    Light and view loss as well as some overshadowing for northern Sydney CBD residential precinct
    Goldfields House re development together with the residential component of the Barangaroo development,  will test the depth of the high end residential Sydney CBD  apartment market both built and off the plan
    Inner West Light rail extension to Dulwich Hill Capital growth especially 1 kilometre from new stations at Dulwich Hill, Leichhardt and Haberfield (see CurtiseCall April 2011)
    White Bay Cruise Passenger Terminal Access roads likely to be inadequate and congested
    Harold Park urban re development project Access roads likely to be inadequate and congested
    Ashmore Precinct urban re development project Access roads likely to be inadequate and congested
    Four fold increase in capacity of Kingsford Smith Airport by 2030 Access roads to and from Alexandria, Newtown and Erskineville likely to be further congested
    Barangaroo Light and view loss from Pyrmont and parts of Balmain East
    Upper and lower north shore North West Rail Link from Rouse Hill to Chatswood via Epping Growth in business centre/ commuter destinations such as Chatswood, Macquarie Park and North Sydney and at the proposed Chatswood Interchange
    Hills District North West Rail Link Disruption around Rouse Hill for at least five years during excavation and spoil removal followed by capital growth especially 1 kilometre from eight new stations at Cherrybrook, Castle Hill, Hills Centre, Norwest, Bella Vista, Kellyville, Rouse Hill and Cudgegong Road (see CurtiseCall April 2011)
    South West Decentralisation Increased demand for property in response to short falls in infrastructure providing access to city centres

    End Notes:

    • Dr. F A. Muna, January 2010
    • Australian Bureau of Statistics, Series B