Australia’s property market is cooling, and the slowdown is being led by the previously red-hot Sydney market.
Business Insider has spoken to a number of real estate agents and property experts spanning the greater Sydney area to get a gauge on what they had to say about conditions on the ground.
David Walker, a real estate agent at Ray White in Wahroonga, in Sydney’s north shore, says some sellers have “unrealistic expectations” about the price they’d receive at auction, despite the downturn in the market.
His sentiments were shared by the other industry professionals, who also expect the cooling period to continue for the rest of the year before stabilising in early 2018.
Here’s what they had to say.
Conditions have changed
“It’s gone back to what you might call a normal market,” Walker said. “Where auctions have been passed in, it’s been where owners have unrealistic expectations using comparables from the price-action we saw earlier this year.
“For example, our team cleared 4/4 auctions on the weekend. We had a mid-level property in Turramurra which backs onto a busy arterial road. We chose a price-point of $1.4 million with seven registered bidders, the sale price was $1.545 million.
“Now, 3-6 months ago the price points may have been more like $1.6 million, and owners using those comparables as a listing price aren’t getting as much traction.”
Property expert Pete Wargent, whose business, AllenWargent Advisory, has a focus on Sydney’s North Shore and eastern suburbs, agreed.
“Early in 2017 we were seeing some eye-popping results at auctions, with competing bidders regularly sending prices hundreds of thousands of dollars over reserve,” he said.
“That’s happening far less commonly now, buyers are becoming pickier, and stock levels have notably risen from repressed levels.”
Tony Roumanous, who runs the Ray White office at Bankstown in western Sydney, said it was a similar story in the western suburbs.
“The difference now is buyers, they’re not rushing into it,” Roumanous said.
“On the vendor side, the market used to help them sell. So if you take those market conditions from earlier in the year, vendor expectations are not being met. What somebody wants and what it’s worth are two different things.”
The impact of Chinese buyers on the domestic property market is generally a hot topic, and research from Credit Suisse in October suggested that foreign buyers make up around 25% of the demand for new properties in NSW.
The three experts we spoke to all indicated that foreign investment was focused on new apartment developments.
Walker said the effect of recent measures to curb foreign buyer activity — such as the recent doubling of stamp duty –was only being felt acutely in that market.
“Looking at the market holistically I don’t think the recent measures will have a material impact,” he said.
“Within the unit market, the under-performance of new units off the plan has been well covered but we’ve seen units in 20/30 year old buildings still selling well. Buyers are wanting proof that the building works and functions effectively.”
Further west, Roumanous cited an example which shows the price pressures new apartment developments are facing.
“An investor called up asking for advice on an apartment they’d bought off the plan in Bankstown,” Roumanous explained. “They’d purchased it for 550,000 two years ago, and were looking to sell it for 550,000 – so in other words, they just wanted out.”
“I’d say the market for off-the-plan apartment developments has been tapering for a good year now. It’s not like it used to be.”
Wargent said the recent crackdown by Chinese authorities on capital outflows hasn’t been as bad as once feared, although he added that would be one area of the market to keep an eye on.
“The feared swathe of settlement defaults relating to foreign buyers don’t appear to have materialised, although some settlements have been pushed out, so that’s one trend to watch in 2018,” Wargent said.
A market correction
“Not fear, perhaps, but buyers have become considerably more circumspect, and there’s little doubt that this will continue for the remainder of 2017,” Wargent says.
Walker took a more relaxed view, and said talk of a market crash had been overblown.
“With the market cooling a little bit it creates more of a stress-free environment for people who are buying and selling within the same market,” Walker said.
“For example, six months ago you might get a slightly higher price for your property, but the market was so tight there was no guarantee you wouldn’t be priced out of another property you wanted.
“Now there’s a few more options on the market, as long as owners are a bit more realistic about the price-point they list their properties at.”
Similarly, Roumanous said there was no sense of panic about the potential for a sharp correction.
“As far as the market turning, I think it’s already happened,” Roumanous said. “I look at the data, I look at inspections every week. There’s no evidence that prices have come back sharply.”
The general consensus among the experts we spoke to was that cooling conditions in Sydney property would continue to grab headlines into the end of the year, before the market stabilises in 2018.
“On the buyer’s side, there’s not an expectation that Sydney prices will appreciate by, say, 5% over the next six months, so buyers have less urgency to rush into a purchase,” Roumanous said.
“Looking ahead, I reckon it will be stable. We’ve come out of the hype-phase, we’re looking at a steadier market going forward,” Roumanous said, adding there was a sense of anticipation in the market about interest rates.
“They’re at the lowest they’ve ever been, and they’ve been so low for so long. I think the general feeling is that if they’re going in any direction next year, they’re going up and that will put some people under pressure because there’s some big mortgages out there.”
“There was a similar situation late in 2015 where the market turned, and while I’m not saying the market will resume on its growth rate we’ve seen over the last two years, I think conditions will stabilise in the new year,” Walker added.
Both Roumanous and Wargent said the broader economic conditions in NSW were still supportive of the housing market, with Wargent citing the recent strong growth in population and employment.
“When I first started in the industry, interest rates were at 21/22%,” Roumanous said, “but properties still changed hands – why? Because people had jobs. If there’s job confidence, people will commit”.
Wargent concluded with a couple of key indicators investors should look out for in the new year — changes in the rental market, and politics.
“A couple of matters to watch out for in 2018 will include whether the rental market tightens following the crackdown on investor loans, leading to rising rents,” Wargent said.
Suggesting that investors would be wise to monitor opinion polls, Wargent added, “the next Australian federal election must be held by May 2019 or earlier, and a defeat for the incumbent Coalition is one outcome which could lead to an unsettling of the housing market, given the opposition’s proposed policies”.