The Sydney property in 2012 over $1 million – end of year market wrap and a peak at the speed bumps that lie ahead in 2013 but first…

January 18th, 2013
Yellow sign road - Speed hump

Yellow sign road – Speed hump

…how did we fare with our predictions for the 2012 Sydney residential property market over $1 million which, to recap’, were:

  • “the European sovereign debt crisis will continue to be the most significant influence on buyer sentiment and confidence
  • interest rates will continue to fall despite increasing resistance by the four major lenders to pass on cuts in the official cash rate
  • announcements by the NSW State Government later in 2012 regarding heavy and light rail projects will influence prices of properties in close proximity to those projects
  • there will be a growing appreciation of the threat to Sydney property prices posed by coal seam gas mining
  • if the European sovereign debt crisis is not resolved (most likely in this article’s view), there will be little change from this year in buying opportunities, turnover, price levels and frequency of mortgagee sales
  • if that crisis is resolved, large numbers of finance approved but presently hesitant buyers will enter the market with there being a return to the heady days of late 2009 and 60+% auction clearance rates”.

Tempering the inevitable risk of hubris with a dose of modesty, whilst it would be fair to say that most of those predictions were fulfilled by December 2012, the main departure between what this article predicted and what in fact occurred related to the impact of the so called European crisis on the Sydney property market as referred to in the last bulleted prediction above.

Although the predicted 60+% auction clearance rates eventuated, it was the result not of that crisis being resolved and buyers entering the market but of the inverted phenomenon discussed in  CurtiseCall November 2012.

The reality was that apart from an apparent myopia regarding the European debt crisis in the second last quarter of 2012, as this article predicted, that crisis continued to cast a long shadow over most of Sydney’s prestige residential property market. It, together with the reminder of Armageddon posed by the US fiscal cliff, explained not only a continuation but a worsening in December 2012 of the low turnover above $1 million discussed in earlier 2012 editions of this article.

Even a slightly surprising 0.25% cut in the official cash rate in December 2012 was not enough to prevent the results which, for some of the more popular suburbs, are summarised in the table below. And regardless of where you were in Sydney, being near a beach at the start of summer offered little solace with suburbs beside the sea such as Bondi Beach, Tamarama, Coogee and Cronulla being amongst the suburbs to suffer the largest falls in turnover relative to the same period last year.

Sydney Region Suburb Sampled Turnover 29/11/11-31/12/11 Turnover 29/11/12-31/12/12 % fall
City and East Paddington 25 10 60
Bellevue Hill 7 3 57
Woollahra 11 5 55
Bondi 6 0 100
Bondi Beach 13 2 85
North Bondi 9 1 89
Tamarama 6 1 83
Vaucluse 7 1 86
Coogee 10 2 80
Inner West Rozelle 8 1 88
Lilyfield 6 1 83
Balmain 11 3 73
Drummoyne 14 1 93
Strathfield 12 6 50
Concord 14 6 57
Lower North Shore Cammeray 10 4 60
Lane Cove 13 1 92
Mosman 31 6 81
Upper North Shore Roseville 19 2 89
Lindfield 11 3 73
Killara 12 1 92
Pymble 12 3 75
Turramurra 12 2 83
South Hurstville 10 2 80
Caringbah South 10 1 90
Cronulla 7 0 100

Sources: Australian Property Monitors, Pricefinder, RP Data, realestate.com.au, domain.com.au, Curtis Associates

Despite the statistically very significant fall in turnover relative to the same period last year and as this article also predicted last year, there was little change in  general price levels over the year as other research houses have widely reported.

There were nevertheless the occasional exceptions to that prediction in the period 29 November 2012 to 31 December 2012 ; the worst of which apparently being 3 Tara Street, Woollahra which, having been purchased on 2 November 2010 for $5.85 million, sold on 19 December 2012 for $4.8 million.

Other but less severe price falls in that period included:

  • 48 Johnston Parade, South Coogee which sold on 8 December 2012 for $2.45 million having been purchased on 17 September 2006 for $2.475 million and
  • 10 Baroona Road, Northbridge where that vendor on 29 November 2011 crystallised a $135,000 capital loss on the $2.85 million paid on 13 August 2009.

In other cases, rather than incurring clearly quantifiable capital losses, vendors eventually and inevitably responded to the generally unconfident animal spirits above $1 million and met the market. Examples included:

  • 60 Wallangra Road, Dover Heights which languished on the market for 297 days with initial $3.8 million expectations before selling on 5 December 2012 for $2.7 million and
  • having hit the market on 7 August 2012 with $3.5 million expectations, 14 Louisa Road, Birchgrove which finally sold on 8 December 2012 for $3.075 million.

Bucking the trend in that period and proving what a fickle  thing even a lacklustre prestige Sydney property market can be as well as what can and did happen when buyers do not hold the line:

  • the purchaser of 1005/157 Liverpool Street on 29 November 2012 delivered that savvy vendor a $390,000 capital gain on the $1.1 million originally paid off the plan on 21 October 2006
  • three parties who refused to bid at the 1 December 2012 auction of 8 Warren Road, Bellevue Hill participated after that auction in a sealed envelope blind auction which saw the sale price rocket to $2.7 million; a figure at least $200,000 above the comparable sales evidence and
  • the attractive and unusual warehouse conversion at 11 – 13 Phelps Street, Surry Hills sold in December 2012 for a massive $2.56 million.

Predictions for the 2013 Sydney residential property market over $1 million

  • concerns about the US debt crisis and its impact on global equities will join the European debt crisis as a dampener on the prestige Sydney property market
  • although interest rates will continue to fall, any hoped for stimulatory effects on the property market and construction industry will be off set by concerns over rising unemployment which will especially affect the $1 million to $1.5 million bracket
  • while the announcements made by the NSW State Government regarding the light rail extension have certainly had a positive influence on property prices (the record breaking $1.45 million paid on 17 November 2012 for 5 Hugh Avenue, Dulwich Hill being one such example – see also CurtiseCall April 2011), the further announcements made in late 2012 regarding the extension of light rail to the University of New South Wales via Moore Park and Surry Hills will prove hollow. An examination of the sparse maps and images released to date strongly suggests that it will neither be financially nor politically feasible per se and for that revenue strapped 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
  • the New South Wales State Government’s close affiliation with the coal seam gas mining industry and its already broken election promises in that regard will be confirmed as a real threat to property values in parts of the Sydney metropolitan area and beyond including the Illawarra region (see CurtiseCall August 2011)
  • a decision being made on a second Sydney airport perhaps linked to the Federal election in the second half of 2013; the latter of which is likely to subdue the Spring 2013 property market for at least six weeks
  • 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
  • with the global financial crisis nearly half a decade behind us and the bubble busting doomsayers firmly in retreat (with one even rumoured to be heading overseas), absent presently unknown exogenous shocks, prices in Sydney’s prestige residential property market will show little movement over 2013. Although conditions will favour the property buyer, price falls will be confined to the margins. Those who had to sell did so ages ago. The rest have de leveraged to comfortable levels of housing affordability. The net effect of all this is likely to be a relatively straight road in 2013 with a series of speed bumps leading to a  continuation of the low turnovers and generally stagnant conditions evident in December 2012.