Episode 1: Overview of the Sydney Housing Market
In this episode, we discuss the Sydney housing market, real estate macro trends and key considerations investors should keep in mind when approaching this asset class.
|Time Stamp||Topic Reference|
|0:25||Overview of Sydney Housing Market|
|1:53||Reasons for Increases in House Prices|
|3:41||Further Growth in the Future|
|4:58||Housing Trends and Changes|
|5:56||Key Considerations and Risks|
You’re listening to “The RealVantage Podcast.” The show provides investors with a better viewpoint into the real estate market with your host, Victoria Au.
So today I’m joined by Keith, who is the CEO of RealVantage.
Hi Keith. So, well, RealVantage has just launched a Sydney residential project. I believe our investors would be interested to hear our take on this. Perhaps, we could start with an overview of the Sydney housing market?
Sure. Sydney’s housing market has been doing extremely well. It has been one of the strongest and most consistent performers compared to the other cities in Australia for many years. Currently, Sydney’s housing value has hit a record high and prices are up by approximately 8.5% in the first quarter of 2021. This increase is the largest quarterly increase in almost three decades. That’s pretty amazing. The city's median house prices rose from AUD1.2 million in December last year to a record AUD1.31 million in March this year.
But growth is not just restricted to the key cities. In Wollongong, south of Sydney, property prices saw a massive 34% spike where they are now at an average of AUD1.2 million. And in Byron Bay, on north coast of New South Wales, the average increase in property prices was 31%. So, it is amazing to see how strong the Sydney market is and it’s not just in New South Wales and Sydney, other capital cities also recorded large upswings during the quarter. Melbourne saw a 4.8% rise and Darwin saw a 9.1% increase.
Those are some big positive numbers! Which is really interesting, considering we’re still living in COVID-19 times. What do you think could be some of the reasons behind rising property prices in Sydney and Australia during the pandemic?
Yup, that’s a very good question, Victoria. Well, firstly, the strong economic outlook. Australia’s economy expanded 1.8% in Q1 this year and it’s expected to do very well for the rest of the year. Employment rates have also risen and they are now past pre-pandemic levels. And consumer spending has gone up. And, investor sentiment has slowly gone up as well. More importantly, the low-interest rate environment. For new housing loans, the rates are now at an all-time low of 2.7% as of March 2021.
In addition to that, the government has introduced several tax cuts; they rolled out a AUD7.8 billion personal income tax cut and a AUD20.7 billion tax relief for businesses to aid the COVID-19 recovery. And also, there’s another important factor that has contributed to the growth which is for first-time home buyers wherein they get a leg up with a AUD25,000 home grant from the government. So, all these factors are also supported by the government’s ability to effectively and efficiently contain the COVID-19 pandemic. And this has helped to generate very strong sentiments throughout the housing market.
Hmm, so low-interest rates, tax cuts, a couple of initiatives by the Australian government and the ability to contain the COVID-19 pandemic. So yeah, that really does help explain the strong performance of the Sydney residential real estate asset class thus far. So the next question on our investors’ minds would then be: “Is there still room for further growth?”
Well, there are a lot of other smarter people out there who can predict better than I. Well, ANZ, for one, predicted that Sydney housing prices will rise by a strong 19% in 2021 and a further increase of 6% in 2022. The National Australia Bank predicts that Sydney’s housing prices will go up by 17.5% this year and Commerzbank has predicted a rise of 16%. So, all of them are demonstrating a double-digit growth rate for the rest of 2021 up to 2022. More importantly, population growth has also been projected to boom post-pandemic. This will be fuelled by an influx of immigrants as Australia reopens its borders.
Right, so, maybe we can zoom out a little to understand in terms of, you know, housing trends. How has that changed specifically to our current pandemic times? How do you feel COVID-19 has changed the housing market in Sydney and elsewhere?
Well, the changes are not just in Sydney but I think, also in the rest of the world. Firstly, there is a change in preference for housing locations, obviously fuelled by work-from-home. People are moving away from downtown areas to outlying areas with bigger spaces. That’s one trend we have seen. Secondly, there is also a willingness to spend more on housing. While people spend more time at home, they treasure bigger home spaces now more than ever. So I think these changes have also fuelled a short-term demand squeeze. However, this will likely ease over time as supply starts to catch up.
Right, so, in short, the Sydney residential market has been performing well and is expected to maintain its robustness. What are some key considerations and risks investors should be aware of?
I think that’s a very important consideration for investors. Firstly, they should be clear about where they are investing and the changing demand patterns. So, every market is affected differently by broader economic conditions and the changes to the way we live and work. The “working from home and escape from the city” phenomenon that we saw in 2022 will likely continue. Lifestyle will take precedence and attract more premium over locations, that’s one.
While the key element in the reversal of fortunes is likely to be the increase in interest rates. The Reserve Bank of Australia (RBA) recently announced that they have always been fixated on generating inflation in the economy. But this could take some time. Probably by 2023, rate hikes could gain beyond the table for the RBA. Well, even if they remain low by historical standards, any rise would likely represent a deterioration in current conditions. This will affect the affordability of properties, and once that starts to happen and starts to persist, it may finally start to kick in for potential buyers.
But the other point to note is, the housing boom in the last 25 years has been fuelled not only by low interest rates, but also by chronic undersupply that has developed between the years 2005 to 2015 when population growth surged ahead of new dwelling constructions.
So, I think two factors are now working to mitigate this. Number one, supply has been steadily increasing to catch up with demand over the last five years. Secondly, immigration has stalled in the wake of border closures and this may take some time to recover. Well, I think the important point, the bottom line, is that all these might not happen imminently but conditions are likely to line up at some point for some sort of more sustained slowing in the Australian housing market.
Well, the good news is that we have heard that the RBA has acknowledged an excessive heating up of the property market in the near term, as a concern but not a pressing one at the moment. So investors, nonetheless, should take note of this.
Thanks for all the explanations and insights, Keith.
Thank you, Victoria.
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