Financial year end wrap and what does fiscal 2012 hold for the Sydney property market?

You did not have to look much further than the June 2011 Sydney real estate market for continuing evidence of a two speed economy right here in our back yard.

This was a month of conflicting economic data. For instance:

• while many Sydney retailers were downgrading profits in response to consumers allegedly ‘snapping their wallets shut’, on line retailers reported boom times
• for every restaurant that closed, another and often, expensive one seemed to open with others privately reporting the best trading results for 15 years
• according to a Fitch Ratings survey, Fairfield – Liverpool was the worst performing mortgage repayment region in the nation. In contrast, the same agency rated Sydney’s lower north shore and eastern suburbs as two of the best performing mortgage repayment regions in the nation
• at odds with that upbeat assessment of the eastern suburbs was the mortgagee sale of the prominent 157 Victoria Street in the up market and bellwether suburb of Potts Point which 12 registered bidders helped sell under the hammer on 30 June 2011 for $2.305 million
• as the Aussie dollar continued its recent dominance over the greenback and euro, Curtis Associates recorded a definite spike in the number of inquiries and instructions from committed buyers using those now relatively more expensive currencies
• whilst the doomsayers continued to refer, albeit less vocally, to a downturn in the Australian property market:
  • RP Data confirmed that the Sydney property market bucked a 2% fall in value nationally with Sydney recording an annual rise in value of 0.5%
  • auction clearance rates remained steady and even spiked to 60% in the last week of June 2011
• proving again the general unreliability of median prices as a measure of market performance, the median price reduction recorded by RP Data contradicted sales results achieved in disparate parts of Sydney such as Marrickville which continued to surge in popularity and in Bondi where the eye watering $1.307 million paid at auction for 20 Knowles Avenue, North Bondi set a new benchmark for well located, unrenovated semi detached houses in that pocket
• contrary to widespread predictions, the Reserve Bank of Australia continued to keep the official interest rate on hold
• while prestige Mosman properties were in plentiful supply off market, the same suburb this month recorded a $3.3 million sale at 8 Pearl Bay Avenue, Mosman and a $3.55 million sale at 32 Bay Street, Mosman.

In this article’s view, these conflicting observations suggest that the prevailing animal spirits are herding participants in the Sydney property market into two separate and distinct groups.

For the first group, confidence, resolve and in some cases, resources remain and have been sapped by global uncertainty including a looming Greek default, scepticism about China’s influence on Australia’s fortunes and about the role of debt in a new economic order.

For the second group, Armageddon is neither inevitable nor imminent and confidence is returning. Those in it may instead be inspired in part by the post GFC resilience of the Sydney property market and in part by a perception that as an investment destination, that market is a safe haven internationally and less risky than volatile equities markets. Throw in some long awaited stability at the Federal level such as the likelihood of a deal, whether wise or not, on carbon tax and an end of month spike in auction clearance rates is hardly surprising.

Whether the last week of June 2011 proves to be a dead cat bounce remains to be seen. This article leans towards the views shared by those in the first group and believes that the as economic conditions deteriorate in the US and Europe, as seems inevitable, the trend favouring the Sydney residential and commercial property market discussed earlier will continue aided by stable and perhaps falling interest rates as predicted in CurtiseCall December 2010.

The other sleeper which is likely to have a significant influence over that market in fiscal 2012 is the new State Government’s initiatives in the areas of planning, infrastructure and the environment.