Monthly Sydney Property Insights


With the onset of warm weather, the latest noise from the property commentariat has been deafening.

This month the obsessions were less with foreign buyers edging out local first home buyers and more with old chestnuts like negative gearing; property bubbles; auction clearance rates holding the line and being seen to use new jargon like “macro prudential reforms” in discussing what the regulators might do to cool down allegedly exuberant Sydney property market investors.

Rushing to see that market not as a prolonged test cricket series but as a one day international with fortunes won or lost on every ball delivered and catch dropped, such commentary missed several important trends.

In addition to providing some clearer insights into the current state of the market and where it may go over the medium to longer term, an analysis of those trends and the evidence supporting them once again confirms the chronic need for better data both for property buyers and before policy makers start interfering with that market with any macro prudential reforms.

They are also consistent with the views expressed in CurtiseCall September 2014 and in earlier editions this year:

The trends:

  • In the three months to September 2014 relative to the same period last year:
    • the number of Sydney residential property recorded by the NSW Office of State Revenue fell by 0.6% with  a downward trend beginning in August 2014 and
    • total value of stamp duty paid rose by 18.6% with a sharp spike recorded in July 2014 before a downward trend also beginning in August 2014

The following table reproduces figures released by that Office on 8 October 2014.

MonthNumber of transactionsDuty Paid $
July 201317,616435,476442
August 201316,562399,103,601
September 201316,624446,346,891
July 201417,952581,053,862
August 201416,420483,418,285
September 201416,127454,909,272

The comfort with such data is that it records the entire population of transactions in the relevant periods. It is therefore hard and reliable  evidence free from the sampling biases inherent in the weekly sales volumes published by the major research houses caused by selling agents not reporting all transactions – a trend that becomes more pronounced when, as now, possible falls in a peaked property market need to be disguised.

One discomfort is that because buyers in NSW have up to three months after exchange of contracts to pay stamp duty and up to 15 months if purchasing  ‘off the plan’, the data is not current at the time of publication.

Another is the inability to segment the data to ascertain those sectors of the property market which are most influencing otherwise clearly observable trends. For example, the extent to which the spike in stamp duty paid in July 2014 was caused by:

  • price rises generally
  • the number of prestige properties being purchased (especially recently bought mega mansions in Mosman, Point Piper and Bellevue Hill) on which, because stamp duty is levied ad valorem, the government revenues are higher versus
  • deferred stamp duty on ‘off the plan’ purchases following earlier spikes in the supply of new home units especially in the Sydney’s inner south corridor.

Similarly, to understand the broader real estate market, the equivalent figures for non residential property transfers should also be available but have not been released at the time of writing.

Property buyers and policy makers should not be left guessing about this information. Given the fundamental integrity of such data, it is incumbent on the Stamp Duties Office to devise tools to make such analyses possible.

The Department of Planning and Environment has initiated something similar with its ePlanning portal.

The Stamp Duties Office should do likewise.

With all the stamp duty revenue raised from property transactions, it can surely afford it!

  • There was a material fall in auction clearance rates over the five weekends to 25 October 2014

Headlines only report raw clearance rates that always exaggerate the true picture. During the last five weeks they heaved a sigh of relief when that clearance rate rallied to a healthy 80%+ after dipping around the October long weekend.

However, even the adjusted clearance rates published by APM reveal a much lower 76.6% average over those five weeks with the rate falling as low as 74% on 11 October 2014.

Whether coincidental or not and regardless of any timing differences, it is hard to ignore the correlation between the trends established by the stamp duty evidence discussed earlier and its poor cousin metric; the adjusted auction clearance rate. That observation is reinforced by the many asking price reductions this month of which this article is aware especially in the upper northern and eastern suburbs.

  • Continuing uncertainty about the role debt has played in raising some property prices this year

As with so called Chinese buyers, in trying to understand the demand for Sydney property, two central questions are: who are the real buyers and how are they funded?

Whilst the ratios of Australian household and housing debt relative to income and rents are notoriously high and have been that way for 10 years since the shift to low interest rates began turbo charging property values, there are signs from the current market that a de-coupling could be underway.

If so, then the cause of such a de-coupling together with the ability of the market to meet the demands of a growing population, may emerge as key indicators of longer term property values.

The problem, as usual, is conflicting perspectives emerging from the data.

On the one hand, according to the RBA’a Financial Stability Review for the June 2014 quarter, the ratio of housing debt to disposable income is at a record high.

On the other, the percentage of new debt going to owner occupiers is on a downward trend whereas the debt going to investors is trending the other way.

As RP Data’s Cameron Kusher noted this month:

“Although the ratio of housing debt to disposable income is rising it is doing so at a much more moderate pace than it has in the past despite quite strong growth in home values. It is difficult to know exactly why this is happening however, the RBA has reported…that the typical mortgagee (sic) has more than 2 years’ worth of mortgage repayments sitting in mortgage offset or redraw facilities. This may go some way to explaining the moderate rise. Alternatively, a rise in foreign buyers could also be a contributing factor. Other potential reasons include lower loan to value ratios or investors purchasing using significant equity in their principal place of residence.” (emphasis added)

There is obviously money in circulation that is contributing to price movements; the sources of which are neither debt nor wages which have declined in real terms.

Our best guess is that much of this wealth is private equity generated from successfully speculating on the property market after the GFC. Some of it may also be wealth shifted from the lacklustre equities and bond markets into real estate.

That guess is partly based on the hoard of cashed up buyers of which Curtis Associates is aware who, discouraged by all the talk of froth and bubble in the media, are rightly waiting in the wings for a market correction which, because all markets move in cycles (see below), will inevitably occur – perhaps sooner than later.

Whatever the sources, it may be changing the game  by confining demand to second and subsequent generation property buyers.

As Residex’s John Edwards noted in his 24 September 2014 Property Market Update:

“Historically, at these levels our markets would fall in value. It is this high level of un-affordability that probably leads many to suggest that we are in a “housing bubble”. However, something has changed: The buyers in our markets. Our measure is likely no longer as valid as it once was, because the current buyers are no longer median income families. Median income families living in the median value areas of Sydney are largely renting. Buyers of house and land are now second and third time housing buyers, with income levels which are much higher than the median income wage.”

  • Continuing increases in the prices paid by foreign investors  for Sydney development sites

Huge prices continued to be paid Sydney wide by Chinese developers for multi and high density development sites.

In a presentation given to the Australian Property Institute on 9 October 2014, JLL noted that the average land content cost of a home unit in the CBD and immediate surrounds currently stands at around $390,000/m2. This equates to a year on year increase of between 40% – 70%.

Similarly, this article is also aware of local land bankers who have this month doubled their money in less than two years on development sites sold to developers sourcing finance from China.

As increases in this magnitude of development costs will inevitably translate into higher prices for the finished product, they can only be sustained by selling direct to foreign buyers which is invariably the fall back, if not primary business strategy of such developers.

Again, this trend will pose some interesting challenges for the regulators.

  • Renewed concerns were expressed that developed economies are at risk of becoming trapped into a debt ridden cycle of low growth and stagflation

Such was the view expressed this month in the Geneva Report by the International Centre for Monetary and Banking Studies (ICMB) and the London based Centre for Economic Policy Research (CEPR).

It  echoed the dire sentiments published on 25 September 2014 by The Economist in its lead article  entitled “The world’s biggest economic problem. Deflation in the euro zone is all too close and extremely dangerous.”

If these predictions prove right and interest rates are again lowered to stimulate domestic demand, what follows will be an interesting test of the de-coupling notion discussed earlier in this article.

  • A reminder: everything moves in cycles

We conclude with a tiny anecdote from the field which suggests that at least some things stay the same. In this case, that property markets, like others always move in cycles.

We have previously written about the purchase of 11A Jennings Street, Alexandria on 23 June 2012 which inflicted a $15,000 loss on the vendor who had purchased it on 1 May 2010 for $1,110 million (CurtiseCall November 2012).

The interesting aspect is that apart from a few coats of paint, this house, essentially forgotten by time for 22 years, has traded a remarkable seven times.

Also remarkable and eliminating possible variables , the same two selling agents have sold it five of those seven times.

Most remarkable is that almost every purchase coincided exactly with the peaks and troughs of the property cycle.

The results speak for themselves and illustrate both the importance of timing and time in the market as well as the notorious tendency of Sydney’s residential property to double in value every 10 years:

Sale dateCyclePrice $000
3 March 1992Low240,000
1 December 1999410,000
12 June 2002Peak639,500
23 March 2006Low675,000
1 May 2010Peak1,110,000
23 June 2012Low1,095,000
18 October 2014Peak?1,350,000



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