The 2013 Sydney residential property market over $1 million – market wrap and predictions for 2014 – don’t pop the champagne just yet

December 19th, 2013

Here we are again at the last CurtiseCall for another year with our custom being to road test the predictions made in the previous year before sticking our neck out with prognostications for the next.

In December 2012, we first predicted that concerns about the US debt crisis and its impact on global equities would join the European debt crisis as a dampener on the prestige Sydney property market.

While the European debt crisis largely disappeared from front pages with even The Economist recently predicting growth for that region in 2014 (doubted by this article as the latest rumblings in France suggest), the US  debt crisis repeated earlier this year quickly reminded many top end buyers in 2013 that financial Armageddon remained more than just a theoretical possibility.

Tick.

The interest rate reductions on 7 May 2013 and 6 August 2013 vindicated our second prediction that interest rates would continue to fall this year.

Our related prediction that any stimulatory effects on the property market and construction industry would be offset by concerns over rising unemployment which would especially affect the $1 million to $1.5 million bracket was confirmed in the last two weeks and partially explained the 3% to 4% reduction in auction clearance rates in those which relative to the preceding 10 weeks.

Unblemished record so far.

Next, we went out on a limb with a prediction that the announcements made in late 2012 regarding the extension of light rail to the University of New South Wales via Moore Park and Surry Hills would prove hollow because then released sparse maps and images strongly suggested it would neither be financially nor politically feasible per se and for the revenue strapped State Government to run the line above ground through the densely populated Surry Hills squeezing all cars out of the high traffic Devonshire Street in the process.

Confident Government media releases since then suggest we have spectacularly flamed out with this one.

While they may be right, we are not ready yet to concede defeat.

Why?

First,  the fallout from an epic sized Environmental Impact Statement released in November 2013 is only just beginning to emerge with early political hot topics including safety concerns for schoolchildren crossing lines; the destruction of mature trees  and allegations of unspecified numbers of properties being compulsorily acquired at an undervalue.

Second and perhaps even more significant to the proposal’s economic viability is a forecast level of public spending which even the usually guarded Governor of the Reserve Bank of Australia acknowledged on 3 December 2013  would be “quite weak”.

Our next prediction concerned the State Government’s close affiliation with the coal seam gas mining which we suggested would be confirmed as a real threat to property values in parts of the Sydney metropolitan area and beyond including the Illawarra region.

Rather than having arrived, that day is still dawning as is the case with another of our predictions that 2012 would see a lifting of the blinkers regarding the real threat to property values caused by global warming and rising sea levels which will have an impact on properties located along all coastal fringes and low lying areas.

We also predicted that a decision linked to the Federal election in the second half of 2013 would be made on a second Sydney airport.

Tick – consistency as well as modesty nevertheless requiring us to acknowledge the vulnerability of this potential game changer to the previously discussed cuts in public spending.

Finally, we predicted that prices in Sydney’s prestige residential property market would show little movement over 2013; conditions would favour the property buyer; price falls would be confined to the margins and that a relatively straight road in 2013 with a series of speed bumps would lead to a  continuation of the low turnovers and generally stagnant conditions evident in December 2012.

If you believed what you read in the ‘paper and online, this would represent the most egregious of our failed predictions.

However and as our fellow property commentator, Terry Ryder observed with characteristic dryness on 12 December this year:

“2013 was the year of sensational events that never happened. [Although] Sydney produced its first year of meaningful growth in a decade, [it was] well short of the runaway boom depicted by an irrational media. All in all, it was a year that at no stage warranted the hysterical headlines it generated…[with]…the worst place to go for balanced and accurate information on real estate [being]  the metropolitan newspaper industry.”

What really happened at this end of Sydney’s prestige property market both in December 2013 and in the preceding quarter is discussed in CurtiseCall November 2013, CurtiseCall October 2013, CurtiseCall September 2013 which we invite you to read if you have not already done so.

The picture painted by those articles is consistent with the prediction we made and is inconsistent with there being any property bubble forming at this end of that market as even The Economist implicitly acknowledged when instancing what it described as Australia’s “substantially overvalued” property market in support of an article published on 11 December 2013 entitled ” Asset prices – not fully inflated – Many investments are becoming expensive. But there is little sign of the mania that accompanies most bubbles”.

A typical example of media hype from the December 2013 coalface occurred in relation to the sale at auction of 46/100 Barcom Avenue, Darlinghurst as featured in a Sun Herald article on 1 December 2013 which referred to the property having captured the hearts of 126 groups leading to the issuing of 37 contracts and a hammer price $1.291 million which was $241,000 over the reserve price.

Whilst all of the above was no doubt true, a more nuanced picture reveals that in fact only three parties bid at the auction with the third dropping out at $1.252 million; the low reserve reflected the vendor’s keenness to sell with the eventual price being on par with comparable sales evidence.

Predictions for the 2014 Sydney property market over $1 million

  • Buyers will have a choice of stock hanging over from this year; especially those properties whose owners, many of whom are downsizing baby boomers, have been caught with two properties
  • Increasingly fragile buyer sentiment from midyear onwards in response to a variety of confidence sapping influences including a continuation of the erratic behaviour so far displayed by the Federal Government culminating in an austere May federal budget, a fresh Senate election in Western Australia, a half Senate election in July and rising unemployment especially in New South Wales
  • Those influences will divert buyers’ attention from the more important issues of climate change and coal seam gas mining
  • Little change in interest rates with a possible increase in the official cash rate towards the second half of the year
  • Further uncertainty caused by proposed changes to planning laws in New South Wales which this year failed to pass both houses of parliament and will again be debated in the first session once parliament resumes
  • Confirmation of a second airport at Badgerys Creek
  • And as a final punt, that the proposed light rail extension to the University of New South Wales via Moore Park and Surry Hills will be scrapped.

In conclusion and to continue a theme we leave you with this quote from the 7 December 2013 edition of The Economist which is as eloquent as it is apposite to describe Sydney’s property market:

“A principle of healthy markets is that a cacophony of diverse actors come to different conclusions on the price of things, based on their own idiosyncratic analyses. The value of any asset is discovered by melding all these different opinions into a single price”.

We wish all of our loyal readers a happy and safe break until our return in February 2014.