Sydney property prices – trends 2011. Is there a change coming at the top end?

June 8th, 2011

Towards the end of May 2011, the $2 million to $3 million bracket of the Sydney property market departed from the trends above $2 million discussed in CurtiseCall February 2011.This shift may signal an end to the confidence depleted mood which has in 2011 afflicted many real estate

buyers as they responded to daily doses of property doom in the media, a perceived need to de leverage, wobbly share markets, the uninspiring antics of Federal politicians and global ructions both natural and man made.

Given shrinking executive bonuses and some patchy corporate profits, whether this trend could eliminate the buyers’ market that generally exists above $3 million is a moot point.

In a strong and clearly evident new trend, there were numerous reported sales this month of both residential and commercial real estate in the $2 million to $3 million bracket across Sydney of which the following are examples:

In the CBD:

  • The Hyde penthouse for around $14 million. Whilst far below the developer’s $20 million asking price for over a year, the timing of this purchase coinciding with a spike in other purchases this month above $2 million is significant.

In the previously dormant Woollahra including:

  • 115 Jersey Road for $5.5 million
  • 19 Ocean Street for $3.1 million
  • 60 Ocean Street for $2.99 million
  • 33 Jersey Road for $2.395 million
  • the Woollahra Hotel for an undisclosed sum thought to be in the vicinity of $16 million.

In other eastern suburbs including:

  • 12 Epping Road, Double Bay for $3 million
  • 55 South Dowling Street, Surry Hills for $2.175 million
  • 113 Hopetoun Avenue, Vaucluse for $2.52 million
  • 48 Bourke Street, Queens Park for $2.35 million
  • 40 Mermaid Avenue, Maroubra for $2.85 million
  • 113 Redfern Street, Redfern for $2.125 million – a modest return on the $1.9 million the owner paid in 2006 for this commercial property but a bullish result for a retail strip still facing challenges
  • a block of eight art deco units at 63 Wairoa Avenue, North Bondi for $3.71 million.

On the upper and lower north shores including:

  • 17 Cameron Avenue, Artarmon for $2.605 million
  • 26 Ryries Parade, Cremorne for $2.65 million
  • 2 Kangaroo Street, Manly for $2.275 million
  • 99 Springdale Road, East Killara for $2.95 million
  • 20 Duntroon Avenue, Roseville for $2.101 million
  • 151 Princes Street, Putney for $2.2 million.

In the Hills District including:

  • 28 Ulundri Drive, Castle Hill for $2.068 million.

In the inner west including:

  • 87 Llewellyn Street, Rhodes for $2.59 million
  • 42 Abbotsford Road, Homebush for $2.485 million
  • 6 Boden Avenue, Strathfield for $2.5 million
  • 22 Newton Road, Strathfield for $2.8 million
  • 84 Wallis Avenue, Strathfield for $2.875 million
  • a licensed boarding house comprising 24 studio apartments showing a 10% + gross yield at 14 Jersey Road, Strathfield for $3.201 million
  • 329 Livingstone Road, Marrickville which set a record for that suburb by selling prior to auction for $2.25 million.

In the Sutherland Shire including:

39 The Promenade, Sans Souci for $2.225 million.

As Sydney buyers’ agents, Curtis Associates believes that the following factors, arranged in no particular order of importance, have contributed to the emerging trend discussed above:

  • A retreat of the media doomsayers – Instead of predictions of Armageddon, bearish mainstream media commentary was more muted this month with descriptions of ‘an overvalued Sydney residential property market that has paused while real incomes catch up to make properties more affordable’. This trend was mirrored in the 16 page Special Report on Australia featured in the 28 May 2011 edition of The Economist which referred to Australian housing as something requiring “attention” (which regular CurtiseCall readers may recall was exactly the expression used by Professor Joseph Stiglitz as discussed in CurtiseCall August 2010). Conspicuously absent from that report was any reference to Australian house prices as the most overvalued in the world as has famously been reported in previous editions of the same newspaper.
  • A renewed faith in the fundamentals of the Sydney residential property market – even some of the most ardent doomsayers now appear reluctantly to accept that Sydney’s housing demand exceeds supply and is likely to worsen with an increase in Australian net overseas migration (estimated by the Federal Treasury to return to 180,000 in each of the next three years).
  • A sense that if it has fallen, the Sydney residential property market might have bottomed – although the existence of the confidence depleting mood mentioned earlier is undoubted, the same cannot be said about its influence on Sydney residential property prices. Whilst auction clearance rates may have fallen to around 55% from around 75% for the same time last year, there has not been a correlative collapse in residential property prices. Indeed, if this month’s RP Data – Rismark Home Value Index is any guide, despite falling clearance rates, Sydney dwelling values still managed a modest 1.2% increase over the 12 months to April 2011. Recognising that the cause of this in a relatively healthy underlying economy is the propensity of vendors to withdraw their properties from sale rather than accept reduced prices, some buyers may have given up waiting for a correction and decided it is time to re – enter the market.

If so, pubs represent a parallel case where, despite the regulatory uncertainty that still surrounds poker machines, several recent high profile purchases have breathed life into a previously stalled sector. The difference between this and the Sydney residential property market is that the pub purchases have been at substantial discounts.

  • A tentative optimism about the Australian economy – a growing sense that China’s demand for resources might just insulate Australia from a possible double dip recession in the US and sovereign default in Greece. The Economist report discussed earlier offers some support for that view with its upbeat “The Next Golden Stat title and unqualified conclusions that:

“…Australia’s economy – and with it, inflation, interest rates and house prices, although not the stockmarket – has decoupled from America’s… and the tyranny of distance…has been turned on its head. It is now the Antipodean advantage of adjacency”.

  • A sanguineness about interest rates – for the moment and whilst employment remains high. However, as the number of loans in arrears is now at its highest for 15 years, interest rate movements as well as any increases in the incidence of forced sales are obvious topics to watch.
  • A relief at a change of NSW State Government – dispatching the former State Labor Government alone provided a fillip to the entire market and although only early days, the incumbent Coalition Government has already repealed Part 3A of the Environmental Planning and Assessment Act and sent strong signals that topics having a direct bearing on the Sydney’s property market are high on its agenda including infrastructure improvements to ease traffic congestion (eg: CurtiseCall April 2011), the possible privatization of Sydney Ferries and a fast track inquiry into the Barangaroo project.

Whether this trend continues and the need arises to revise the predictions made in CurtiseCall December 2010 for this bracket remains to be seen. In the meantime, the other trends predicted in that article seem so far to be on track.