A survival guide to buying in the Spring/Summer 2013 Sydney property market over $1 million

November 22nd, 2013

Apparently unable to resist the lure of the auction room despite analyses such as CurtiseCall April 2013 and in an indication that four interest rate reductions since October 2012 were beginning to work their way through the system, Sydney property buyers in October and  so far in November 2013 continued to drive auction clearance rates to unprecedented levels especially in the sub $1million bracket.

The press had a field day of which this headline in the 10 November 2013 edition of the Sun Herald was an example: “Sydney Property Records Smashed. Biggest auction day ever as median house price hits all time high”.

In contrast to the last such boom in 2007 and despite the continuing shortage of housing stock, such activity tapered off sharply over $1.5 million unless and as occurred  more frequently this year than in the same period last year, the property was a diamond in the rough in which case, demand from picky buyers  saw some vendors sell for prices far in excess of vendor expectations and comparable sales evidence.

To put the above headline in perspective from the top end, an analysis of APM’s auction results for Saturday 9 November 2013 reveals that of the 394 properties reported sold, 23 or just under 6% were over $1.7 million throughout the entire Sydney metropolitan area; of which only five or 1% of all properties reported sold were in the eastern suburbs. Although the overall reported clearance rate might have been 84%, the reported clearance rate in the eastern suburbs over $1.7 million was a mere 45%.

Diamonds in the rough were more prevalent in the inner west than elsewhere in the Sydney property market with examples, (other than those occurring in the consistently performing Strathfield mansion belt), including:

  • 67 Station Street, Petersham – $2.4 million on 12 October 2013
  • 9 Cannon Street, Stanmore – $1.81 million on 9 November 2013
  • 40 Percival Road, Stanmore – $1.765 million on 16 November 2013 and
  • 8 Douglas Street, Stanmore – $1.86 million on 19 October 2013.

In the east, Randwick proved to be Strathfield’s counterpart recording  four sales on  16 November 2013 over $1.5 million. There was also the sale  on 9 November 2013 of the un renovated warehouse at 8 Marlborough Street, Surry Hills for $5.7 million which, in addition to being way in excess of the vendors’  expectations a year ago, came close to setting a suburb record. The wisdom or otherwise of the latter investment will be tested once the light rail starts to hurtle past its front door within the next half decade.

As a sobering reminder of the need for restraint in such a potentially frothy environment, the attractive north to rear property at 19 Boyce Street, Glebe sold for $1.87 million on 2 November 2013 which, after stamp duty , delivered that vendor a miserable  0.9% per annum on the $1.705 million outlaid  in May 2008.

To help unrepresented and represented Sydney property buyers protect themselves from a similar fate in such a market, we have put together the following non exhaustive survival guide.

(A) Future proof your property  investment

Historically and as discussed in CurtiseCall September 2011 the chances of making a capital gain on a property acquisition improve significantly after a period of seven years; often doubling after 10 years.

In deciding where to buy and how much to pay, it is important for property buyers therefore to consider, as best they can, what the property landscape could look like in the next decade.

Given the changes that are planned and are occurring both in the natural and man made environments, it is surely no understatement to say that the present market poses a range of threats and opportunities for property buyers which are unprecedented and to which many buyers were certainly oblivious.

They include:

Climate change

Considering the extreme weather events, including bushfires over the past month, only the most ardent climate sceptic could continue to ignore the risks of inundation of low-lying and coastal areas of the Sydney property market posed by the greenhouse effect. As such, those contemplating property near sea level  all the way from the northern beaches through to Rockdale and Rose Bay would be well advised to be exhaustive in their research.

Federal Government initiatives

Barely rating a mention but coinciding with Macquarie Group’s decision to sell out of Sydney Airport, the new Federal Government this month apparently resolved to build a second airport at Badgery’s Creek.

In addition to having significant economic and other implications for greater Western Sydney, this decision once implemented has the potential materially to influence property values in those inner suburbs presently affected by the existing Kingsford Smith Airport at Mascot if, for example, the latter were fated to become a low volume terminal such as Avalon in Melbourne.

State Government initiatives

After a slow start, a series of initiatives by the  current State Government  now seem to be generating momentum as this comment from the Planning Minister suggests:  …” we are prepared to start at a sprint – the redevelopment of the Convention Centre, our investment in light rail, the North West Rail Link, Barangaroo and WestConnex – all signal the transformation of Sydney”.

These initiatives include the introduction into Parliament on 22 October 2013 of the Planning Bill 2013 intended to overhaul  town planning in New South Wales and which, according to Urban Development Institute of Australia – New South Wales Branch chief executive, Stephen Albin, this Bill is  “crucial that the [s]tate can adequately cater to [the 9.2 million people projected to be living in NSW] by 2026 through the delivery of much-needed infrastructure and housing” and that “[t]he introduction of the proposed Act will certainly help streamline that”.

Of potentially even greater importance to redressing the  imbalance between the supply of and demand for housing which, historically, has underpinned much of the price growth in the Sydney property market, is the Draft Metropolitan Strategy For Sydney To 2031 which is due to be finalised this month and prior to the release also this year of a Land Release Policy which will focus on supporting new housing near existing city centres.

If implemented, such initiatives might challenge the conventional wisdom amongst some property analysts that the highest future capital gains will be enjoyed by those suburbs closest to the Sydney CBD.

Although not described as such, the essential tenet of this Strategy is decentralisation in order to cater for population increases and a forecast 625,000 new jobs by 2031. The object evidently is to locate those jobs in and around nine so called ‘key city shaper’ areas and corridors also allowing people to work closer to 545,000 new homes throughout Sydney by 2031.

Located within some of those corridors will be a number of new Urban Activation Precincts in which more housing, public spaces, schools and other structure is proposed. Such precincts include North Ryde Station, Epping Town Centre, Wentworth Point, Carter Street Homebush, Herring Road Macquarie Park, Mascot Station, Anzac Parade South and Randwick. The Draft Strategy proposes to deliver more housing in these areas by increasing permissible residential densities.

Local Government initiatives

One such example being propounded by the City of Sydney is the proposed Eveleigh to Central Station proposal which, if implemented, might also have an impact  on the values of existing and future medium density housing stock in this part of the inner city.

Transportation generally and the role of the car in particular

Historically, properties with off street parking usually command a premium. With such real  estate adding between $50,000 up to $120,000 to the price of some properties, many buyers faced with increasing median prices are now following the lead suggested by several local councils and eschewing private car ownership and usage in favour of car share and public transportation. Extrapolated over the longer term, this trend might call into question the wisdom of insisting upon properties with off street parking.

(B) Do your research

There is no substitute for close analyses of comparable sales and detailed due diligence to uncover risks and which should include everything from speaking to neighbours and the local post person to looking for nearby graffiti. Know also when to enlist expert assistance.

(C) Know your enemy

Sometimes impossible to ascertain, in addition to avoiding impulse buying, property buyers should avoid being led, especially at auctions, by cashed up overseas buyers  who, in not  understanding the local property market drive up prices to unsustainable levels.

The other emerging force in this context  are the ‘new grey’  – cashed up and downsized  baby boomers  prepared to pay sometimes way above market value in pursuit of a retirement lifestyle. An example of this occurred last month with the quality offering at 34a Carlisle Street, Rose Bay; a $1.7 million property snapped up by baby boomers  within a week on 11 November 2013  for $2,000,050.

(D) Don’t  believe everything you read in the ‘paper

As the opening paragraphs of this article illustrate.

(E) Remember that what’s gone down will go up

Property markets run in cycles and while low interest rates are part of the current cyclical upswing, they almost certainly will not remain a fixture over the life of a longer and possibly even medium term property holding.

(F) Avoid auctions without overpaying

Always preferable but often easier said than done especially where quality offerings are involved in which case and provided emotional bidding is avoided, an auction can be the most transparent way of being fair to all parties.

(G) Never bid against yourself

For the same reason property buyers should avoid expressions of interest campaigns and other such blind auction tactics, if a vendor persists in not committing to a price or a counter offer, reciprocate by walking away – safe in the knowledge that there is always another property.

(H) Don’t telegraph your punches

If you are going to break away from the peloton by, for example, making a pre auction offer, be decisive and do it in way that puts you in control without letting vendors use such an initiative against you.

(I) Add at least 10% to every Price Guide

Although not widely known, a 10% or so underquote is permissible at law and nine out of 10 selling agents will exploit that leeway to generate interest in the property they are marketing.

Happy property hunting!