Government – a key player in Sydney’s property market

July 31st, 2014

040814The results for the financial year ended 30 June 2014 are in with all major research houses expressing a conclusion similar to Residex that the Sydney property market during that year achieved a “staggering 15.37% growth rate in the housing market and 13.3% growth in unit values”.

A year on year comparison of the auction clearance results compiled by APM suggests a continuation of the same trend in the six weeks since our last CurtiseCall. Relative to the same six weeks last year, in the six weeks to 20 July 2014:

  • the number of properties sold increased by 19% to an average of 298 properties per week
  • auction clearance rates dipped by a slight 2.6% to a weekly average of 76% and
  • consistent with the above conclusion, average weekly auction turnover increased by a significant 55%  to $266,119,365.

Attributing those results solely to historically low interest rates is not the answer. If it were, then the same interest rates would not have produced a 1.1% decline in the value of Darwin’s housing market and a 0.21% fall in the value of Tasmania’s unit market. In any event, credit growth over that period remained subdued and further, three of the four major banks reported that an average 79% of their mortgage customers were ahead in their repayments.

Whilst interest rates, unemployment rates and other key macroeconomic factors undoubtedly play a major role, such disparate national results really illustrate the influence of local short and longer term influences on individual city and regional property cycles.

Which is what makes Sydney’s result most recently and over the past twelve months all the more remarkable as the animal spirits driving the growth in prices moved either in defiance of or oblivious to a series of announcements and developments over the same period which are unprecedented in scope and value and when considered individually or as an apparently unco-ordinated whole, will have positive and negative implications for property buyers across all Sydney regions.

Some of these are discussed in the table below which shows that many involve infrastructure; unfortunately more of the car dependent rather than public transport variety and nearly all have a common element which adds to the uncertainty and risk – one or more layers of government.

Announcement or development Date announced Proponent Region(s) affected and possible risks involved 
Possible changes to the $13 billion Westconnex motorway project to defer building the M4 East tunnel from Strathfield to Ashfield and to build tunnels connecting the Anzac Bridge and Victoria Road with Tempe and Camperdown Late June 2014 Commonwealth and NSW State Governments Inner west along proposed routes and especially homes and businesses ear marked for resumption
Bays Precinct Urban Renewal Programme – described by Elizabeth Farrelly as a “crime” dwarfing those at Barngaroo and Darling Harbour 17 July 2014 NSW State Government All of Sydney as far as public spaces are concerned as well as exacerbating  (as has occurred with the Green Square urban renewal project) already choked roads servicing all suburbs west of Anzac Bridge  as well as Glebe, Annandale and Camperdown
Extension of north west rail link to Bankstown via Chatswood 17 June 2014 NSW State Government All suburbs along and surrounding that route with properties within 250 metres of this line being adversely affected but improved accesss for Bankstown residents
Second Sydney Harbour crossing 17 June 2014 NSW State Government All of Sydney especially suburbs in the north west corridor
North Connex three lane tunnel linking the M1 and M2 motorways 17 June 2014 NSW State Government All suburbs along and surrounding that route
Northern Beaches Transport Action Plan to create a rapid bus corridor from Mona Vale to Sydney and to be considered in conjunction with yet another feasibility study into the Northern Beaches Motorway Tunnel beneath Military Road 17 June 2014 NSW State Government An improvement for all northern beaches suburbs, potentially adverse impacts on Mosman, Cremorne and Neutral Bay with the risk of decimating the retail strips along Military Road as occurred along Parramatta Road
Withdrawal of Balfour Beatty from South East Light Rail Project apparently over concerns about feasibility of digging up George Street as well as continuing controversy regarding the route and loss of car parking from Randwick and along Anzac Parade Late June 2104 and continuing NSW State Government Either or both issues may have implications for the cost and ultimate feasibility of this Project and in turn, the increase in property values along that route from Maroubra that has already been factored into some property values
Legislative Council Inquiry to report on the performance of the NSW Environment Protection Authority 19 June 2014 NSW State Government Potentially serious implications for several sites throughout Sydney which may not have been properly remediated for contamination and for neighbouring sites  including but not limited to land specifically mentioned in the terms of reference in Botany and Hillsdale. Adding to the above announcements and developments having implications for the Bay Precinct, this Inquiry is also to consider the regulation of cruise passenger ships at the White Bay Cruise Terminal in Balmain
City of Sydney Employment Lands Strategy 2014 – 2019 17 June 2014 City of Sydney Major commercial re zoning affecting three large precincts being circa 265 hectares south west of Green Square bordered by Gardeners Road to the south, Euston/McEvoy Street to the west and Mentore Avenue/Botany Road to the east; South Dowling Street including the Moore Park Supacentre land and several lots in Glebe bordered by Arundel Street and Parramatta Road and divided by Ross Street

Conclusion:

In a sustained low interest rate environment of the present type and which will no doubt continue for as long as Europe stagnates, increases in Sydney property values will be harder to achieve in the next 10 years than they were in the last 10. The winners will be those who keep abreast of the risks and opportunities posed by this increasingly complex and intrusive regulatory environment.