Farewell fiscal 2009. The view from the coalface

For a change, some of the market commentators such as RP Data/Rismark International are getting it right when reporting a jump in Sydney house property prices over the past few months. According to RP Data, there has been a 5.1% growth in Sydney house prices and a 5.4% growth in Sydney unit prices in the five months to May 2009. These macro based statistics with which Curtis Associates sometimes has a problem, disguise some of the activity occurring at the coalface since our last CurtiseCall on 15 May 2009.

While there are those still predicting the end of capitalism, there is no doubt that the spectre of a post Lehmann Brothers Armageddon has well and truly receded at fiscal stumps on 30 June 2009.

In our last CurtiseCall, we divided the Sydney property market into segments from $700,000 – $2 million and from $2 million and above. This has proven very helpful when analysing activity in the Sydney property market over the past six weeks.

The $700,000 to $2 million bracket is on fire, especially when it comes to high quality properties in the inner suburbs on both sides of Sydney Harbour Bridge. The on and off market transactions listed below illustrate the point.

Most of these properties have sold for up to 20% over their reserves or quoted prices. Those disparities are often not a function of deliberate under-quoting by selling agents and raise concerns that some of these buyers have over paid.

One of the most extreme examples was 20 Ridge Street, Surry Hills; a dilapidated north to the rear terrace in a tightly held fillet of Surry Hills which sold for a massive $1.12 million – 24% more than the $900,000 the agent was suggesting up to the Friday before the auction. In a sure sign that share market wary investors are quickly returning to the safe haven of the Sydney property market, the open for inspections at that property were ‘take a ticket and stand in line’ events.

Other properties in this category include:

• 2 Munni Street, Newtown. A beautifully built and presented two bedroom terrace with no parking and south to the rear which defied all expectations. Not only was the $825,000 sale price about 10% over expectations, there were at least three genuine under-bidders over $800,000
• 8 Ruthven Street, Bondi Junction. This exchanged last night for $1.25 million – which was about $150,000 over the vendor’s initial and on the comparable sales evidence, quite reasonable expectations
• 5 Stewart Street, Paddington. Once the vendor’s $2 million expectations were reduced after a failed auction, there was a mad rush to secure this high yielding duplex with masses of upside for $1.705 million
• 519 Bourke Street, Surry Hills. Sitting on an unusually large block of land for the district, this large terrace in need of renovation was one of the first sales significantly to exceed its $1.1 million expectations by selling for $1.325 million
• 7 Stewart Street, Randwick. All the comparable sales evidence suggested around $900,000 for this one which was a long way short of the $1 million paid pre-auction to secure it
• 23/14 Edward Street, Bondi. A spacious two bedroom unit with parking in the tired 1970’s building, but with panoramic north-eastern ocean and Bondi Beach views sold at auction for $70,000 over the reserve for $770,000
• 712/1A Tusculum Street, Potts Point. A one-off, spacious, north facing two bedroom unit with water glimpses was snared off-market by a canny investor for a keen $1.25 million
• 80 Windsor Street, Paddington. The selling agents were quoting $1.5 million for this dilapidated north to the rear terrace in one of Paddington’s best streets. The result: $1.79 million at auction. If Paddington is the bellwether of the Sydney property market as some commentators believe, then this transaction may be a sign of things to come
• 7/6 Clifton Reserve, Surry Hills. A bullish $965,000 was needed to secure this large, open-plan north facing warehouse conversion apartment with no balcony in a tucked away cul-de-sac off Crown Street, Surry Hills
• 16 Kellett Street, Potts Point. A commercial property that sold 10 days ago for $1.891 million
• 5/4 Milson Road, Cremorne Point. A three bedroom apartment with panoramic Harbour views which sold in mid June 2009 for $1.9 million
• 59 Ourimbah Road, Mosman. A three bedroom north to the rear semi with DA approval for a complete makeover sold for $840,000 which, considering the property was on a four lane thoroughfare, represented a decent capital gain on the $732,500 the vendors outlaid in May 2007.

This phenomenon is a function of supply and demand. In addition to an underlying excess of demand over supply, there is a chronic shortage of high quality Sydney residential properties under $2 million. The return to the market of investors, including overseas investors and of buyers trading up, have all contributed to the recent commotion.

In addition to the multiplier effects of the First Home Owner Grant which continues to inflate the sub $1 million Sydney property market, interest rates are 4.5% lower than they were 12 months ago which has improved housing affordability; the Australian economy is generally regarded as the notable exception to the northern hemisphere rule having just received another tick from the OECD; consumer and business confidence is improving; employment is proving to be surprisingly resilient and China is still seen as offering Australia a powerful buffer against the global recession.

At the coalface of the Sydney property market and contrary to the views expressed by some commentators, the key driver is interest rates not employment. This is so despite a firming in fixed interest rates by the four major banks. The generally low interest rate environment is, in our view, the main contributor to the spike in prices for good quality properties seen in the six weeks to 30 June 2009.

Although heated, not all properties in the sub $2 million bracket have benefitted. Poorer quality properties and especially those purchased in the recent boom are still being punished.

The house at 8 Richards Avenue, Surry Hills which we referred to in our last CurtiseCall eventually sold for $1.26 million. On its $1.6 million purchase price in November 2007, that price represented a staggering loss of $340,000 to which $73,490 worth of stamp duty has to be added.

On the north side, an attractive offering with a few traffic problems at 12 Grafton Street, Cremorne struggled to attract bids over $1.6 million.

There are also some horror stories down on the water in Pyrmont. Curtis Associates is aware of a Pirrama Road, Pyrmont waterfront apartment being quietly marketed for $1.7 million – a far cry from the $3.329 million the vendor paid for it in 2008. As we advise clients, off-the-plan purchases can be risky propositions especially where the land is held under a Crown lease.

Perhaps the biggest surprise in the last six weeks has been the renewed signs of life in the Sydney prestige property market above $2 million.

In Surry Hills, the boom time record was bettered by nearly 50% when 3 Bennett Place, Surry Hills sold on 17 June 2009 for around $3 million.

Down at Woolloomooloo wharf, the vendor of 33/10 Lincoln Crescent, Woolloomooloo was having a better time than some of his Pyrmont counterparts. This slightly north facing three bedroom apartment with marina sold for $5.1 million. Not much growth after stamp duty but still a healthy result considering the substantial waterproofing works that complex is and was undergoing at the time.

There was a swag of other sales in the inner east in this period, including:

• 17 Trelawney Street, Woollahra for nearly $8 million
• 14 Trelawney Street, Woollahra for an undisclosed price
• 100 Lang Road, Centennial Park for $5.9 million
• 25B Nelson Street, Woollahra for $4.5 million
• 82 Ocean Street, Woollahra for $4.5 million
• 82 Liverpool Street, Paddington for $3.5 million
• 78 Liverpool Street, Paddington for $3.8 million
• 9 Gurner Street, Paddington for $2.52 million
• 23 Windsor Street, Paddington for $2.815 million
• 17/104 Elizabeth Bay Road, Elizabeth Bay for $2.03 million – a healthy $16,111m2.

Further out, but still in the east, buyers flexed financial muscle in these transactions:

• 23A March Street, Bellevue Hill for $4.731 million
• 37 Hewlett Street, Bronte for $3.21 million
• 41 Edward Street, North Bondi where $2.3 million was paid for a block of
  six units with DA approval for improvements and strata conversion
• 40 Beaumont Street, Rose Bay for $5.103 million
• Greenoaks Avenue, Darling Point for $5 million
• 20 Clairvaux Road, Vaucluse for $3.02 million.

Some of the biggest surprises were on the north side.

There have been at least 10 sales in Hunters Hill, Longueville and Riverview over $2 million including $6 million outlaid for 11 Lloyd Avenue, Hunters Hill and $3.88 million for 5 Lloyd Avenue, Hunters Hill.

To the east of that district, the five bedroom contemporary lifestyle home at 7 Wollombi Road, Northbridge sold for $3.28 million.
Between 25 May 2009 and 3 June 2009, five other substantial homes changed hands in Northbridge including the deep water front with 180 degree views at 19 Coolawin Road, Northbridge which traded for $5 million 25 May 2009.

On the lower north shore, a one off penthouse at 6/112 Milson Road, Cremorne Point sold last week for $4.15 million.

In what has for most of 2008 been the ‘Vaucluse of the north’ with several quietly listed properties remaining unsold, the top end in Mosman suddenly sprang to life in late May 2009.

Between 27 May 2009 and 3 June 2009 there were at least 23 reported sales in Mosman and Balmoral over $2 million including a healthy $2.19 million for a north to the rear free standing home in a favourite Mosman entry point street at 43 Spencer Road, Mosman and $4.05 million for 5 Pearl Bay Avenue, Mosman.

The inner west was generally quieter in the six weeks to 30 June 2009 than other districts with the stand out being the sale of 20-22 Annandale Street, Annandale in early June for $2.025 million.

The buyers’ market CurtiseCall proclaimed in the first quarter of 2009 ended almost as quickly as it arrived. Buyers now need more skill than ever before to come out in front.