Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

A leading economic forecaster is warning that oversupply will cut Sydney apartment prices by up to 10 per cent.

The report by BIS Shrapnel estimates that 5,800 apartments are being built in inner-Sydney right now, with almost as many again planned to be completed over the next few years.

The report says the peak annual output of 4,500 units in 2016-17 is comparable to the last boom in 1999-2000, but the average of 3,800 new inner-city apartments per year over three years will be a record.

BIS Shrapnel's senior manager of residential property Angie Zigomanis, who wrote the report, says developers have been playing catch-up after a decade of undersupply in Sydney, but they look like soon getting ahead of themselves.

"The population growth in Sydney still stays pretty strong, rental demand will still be fairly strong, but it's just that the level of apartment construction now is moving up to a level that's probably approaching a level that's too high and that's unsustainable in the long-term," he told ABC News Online.

Mr Zigomanis does not expect this to occur in the short-term, but warns that the wave of new developments over the next few years is likely to result in supply exceeding demand.

"Once the market starts getting into oversupply then rents either flatten out or start falling," he said.

"This has the potential to also coincide with the Reserve Bank looking to start tightening interest rate policy as well and that combination will see the investment equation change and investors start becoming less confident about the market and prepared to pay lower prices for dwellings.

"So any new apartments that come back onto the market are likely to experience some sort of loss two or three years out from now."

Mr Zigomanis says the losses are unlikely to be large, but may prove a serious setback for those buying off-the-plan now expecting capital gains.

"Depends on location, etc, but I wouldn't be surprised if from their current purchase price they don't experience losses of perhaps 5 per cent, and perhaps selected developments up to 10 per cent."

In results released last week, property developer Mirvac said it planned to focus heavily on increasing apartment developments in the Sydney market, expecting that segment to remain strong for the next five years.

Mr Zigomanis says a lack of pre-sales a couple of years hence may force a rethink of such optimistic strategies.

"They require a certain level of pre-sales before they go ahead with construction," he said.

"Over the next couple of years we expect pre-sales will be pretty strong so it should be able to sustain the number Mirvac are talking about, but if they were assuming that demand would stay at current levels over the next say five years we suspect that won't be the case.

Chinese Investor Frenzy Adds Fuel to Inner-City Sydney Apartment Boom

THOUSANDS of Chinese investors piled into a property expo in Sydney’s Town Hall on the weekend as analysts tip overseas buyers will keep the city’s inner city apartment market booming for the next two years.

Close to 50 companies jockeyed for the attention of the cashed up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia

About 50 companies jockeyed for the attention of the cashed-up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia.

The property frenzy came as Sydney and Melbourne kicked off the spring auction season with strong results, posting clearance rates of 83.4 per cent and 75.3 per cent respectively on total sales of $545.7 million, according to preliminary figures released by Australian Property Monitors.

“The (auction) results were extraordinarily strong,” said APM senior economist Andrew Wilson. “The Sydney market just keeps rising. Certainly there is no sign of a waning of activity.”

He said a lot of the buyer ­action was driven by investors rather than owner-occupiers.

At the Sydney property expo Maggie Wang bought a house in Bellevue Hill, in Sydney’s east, for about $6m.

Ms Wang, who migrated three years ago, ran an IT and property development company in China and had recently started a wedding planner business in Australia. She said Chinese interest in Australian property was about more than just making money.

“People like the lifestyle, the country and the environment, it’s not just about investment,” Ms Wang said.

Another buyer, 26-year-old Crystal, bought a home in one of Sydney’s wealthiest suburbs, Vaucluse, for more than $5m, with plans to buy more Australian investment properties.

The expo also featured agencies, such as ABC World, which give Chinese investors advice on migrating to Australia through avenues such as the Significant Investor Visa. The visa, implemented by the former federal Labor government, allows foreigners who invest more than $5m in Australia the potential for permanent residency.

Black Diamondz director Monika Tu, who represents wealthy Chinese looking to buy Australian homes, said the visa’s introduction had led to a surge in interest for local trophy homes worth more than $5m.

Ms Tu said inquires to her agency from Chinese property hunters had increased by about 50 per cent this year.

Also at the expo, one of China’s largest developers, Greenland Holding Group, held expressions of interest for its second local project, the $200m ­Lucent apartment tower in North Sydney, while Singaporean-backed Frasers Property Australia marketed apartments at its $2 billion Central Park project at Sydney’s inner-city Chippendale.

The high investor demand for off-the-plan apartments is ­expected to keep Sydney’s inner-city market in boom mode for the next two years, according to forecaster BIS Shrapnel.

BIS Shrapnel said about 5800 apartments were under construction in Sydney while about 11,500 new apartments would be completed over the next three years — the biggest number in the city’s history. CBRE managing director of residential projects David Milton said the uplift in interest from Chinese investors allowed local apartment developments to stack up financially.

Australian Capital Cities: Where's Hot, Where's Not

DARWIN was Australia's best-performing capital city for property values during the past quarter - up 5.2 per cent - and showing year-on-year growth of 4.2 per cent, according to the latest figures from RP Data.

The RP Data-Rismark August Hedonic index shows Adelaide is the weakest performing capital city, with the change in dwelling values sliding 2.2 per cent during the past three months.

The monthly figures were more optimistic though for Adelaide, showing 1.4 per cent growth for August.

Sydney and Melbourne both recorded only 0.1 per cent growth for the month, but are performing better for the quarter, at 2.4 per cent and 2.5 per cent respectively.

RP Data research director Tim Lawless, said the figures showed a flat winter season that could be the foundation of a strengthening Spring.

Combined with the lowest transaction levels since the late 1990s, prices could also soon be expected to drift upwards after years in the doldrums.

"Spring is going to be better than last year,” Mr Lawless said.

"This is the first time that we have seen total listings across the capital cities the same as they were last year.”

Mr Lawless said lower listing levels were good news for vendors because it meant there was not as much choice in the market which could improve prices.

"In November last year, the listings were 30 per cent higher than they are now,” Mr Lawless said.
"They are currently only 0.5 per cent higher than last year, which means that we have a good benchmark level."

From a supply perspective, it’s a sign that there aren’t as many homes on the market at the moment and that means homes are selling a bit faster and vendors discounting a little less but transaction numbers stabilising.”

Mr Lawless said transaction volumes were at their lowest since 1998 - and were currently lower than during the Global Financial Crisis.

"At the moment based on June data, transaction volumes are 7 per cent lower than the same time last year,” Mr Lawless said.

"We’re averaging 30,000 sales each month and that’s fairly steady across 2012.”

But the lack of stock was being treated calmly by potential buyers who are showing patience about finding exactly the right home.

"A lot more people are attending local houses and showing interest in the market place but there is still not a level of urgency that will push buyers into making a purchase decision rapidly,” Mr Lawless said.

“Purchase decisions won’t be rushed, buyers are playing vendors off against each other and are negotiating pretty hard.”

Figures from the data showed:

- Hobart prices grew 3.9 per cent for the year to date
- Sydney prices grew 1.9 per cent for the year to date
- Darwin prices grew 8.4 per cent for the year to date
- Brisbane prices grew 0.6 per cent for the quarter
- Perth prices lifted just 0.2 per cent for the quarter

House Prices Flat in August

AUSTRALIAN house prices were flat in August, although Adelaide and Canberra experienced some growth.

House prices in Perth and Hobart fell more than one per cent in the month and there was little price movement in Sydney, Melbourne and Brisbane, the RP Data-Rismark August Index showed.
Adelaide and Canberra prices increased more than one per cent, while Darwin home values fell half a per cent.

The index posted a 1.6 per cent increase in Australian home values over the past three months but a fall of 2.4 per cent over the year to August.
During the quarter to August, Darwin was the best performing capital city, registering 5.2 per cent growth.

This was followed by Melbourne at 2.5 per cent, and Sydney at 2.4 per cent.
Perth and Brisbane recorded marginal growth of 0.2 per cent and 0.6 per cent respectively over the three-month period.

RP Data research director Tim Lawless said Sydney dwelling values increased in five of the past eight months, helping to provide a cumulative capital gain of 1.9 per cent over the year to date.
"Sydney is proving to be one of the most consistent performing capitals this year," he said.

A rebound in Melbourne was also encouraging, given more worrying signals earlier in the year.
"Improved affordability since June has helped dwelling values rise across every capital city over the three months ending August 2012, apart from Adelaide," Mr Lawless said.

"The big question is, can this growth be sustained?"

Mr Lawless said the spring selling season would be a good litmus test.

The highest rental yields for houses in the quarter were in Darwin at 5.8 per cent and the lowest yield were in Melbourne at 3.6 per cent.

Legacy of the Sydney Metro Line Land Grab

THE defunct Sydney Metro is still sitting on a $100 million property empire, with at least two office towers about to be demolished more than two years after the former Labor government pulled the pin on the project.
 
In late 2009 the department behind the short-lived Rozelle-to-city Metro line snapped up $124 million worth of property along the proposed route, including several CBD office blocks, and spent hundreds of thousands of dollars more to turf tenants out of some of the buildings.

In February the following year premier Kristina Keneally killed off the project, which by that stage had already cost the taxpayers $356 million.

However, instead of selling off the property portfolio - or at least releasing the properties to earn some much-needed income - the department has held on to the buildings, and two of them are about to be demolished.

Property records reveal Sydney Metro still owns at least seven buildings it bought during the spending spree; some of those are just standing empty.

The biggest single purchase, the $45 million building at 8 Castlereagh St, has since been relet. Two adjacent 11-storey office blocks in Clarence St, above Wynyard Station in the city - which cost taxpayers a whopping $39 million - have sat almost entirely vacant for the past 2 1/2 years.

At 30 Clarence St, just the ground floor retail space remains occupied after the former government spent more than $500,000 in compensation to tenants to end their leases.

Next door at No. 36 the last of the tenants moved out in July after the 10 other floors sat empty for months.

Both buildings are now set to be demolished to make way for the Wynyard Walk, an underground passage linking the station to Barangaroo.

In late 2010 Ms Keneally announced the $300 million Walk as an alternative link to Barangaroo after the Metro axing left the $6 billion redevelopment with limited public transport.

CBRE leasing agent Tim Molchanoff said similar B- and C-grade buildings rented for upwards of $520 a square metre, meaning the government had also missed out on $3.4 million in rent.
A spokesman for Transport for NSW said all the other buildings were leased.

"These seven properties were acquired by Sydney Metro and all are now owned and managed by Transport for NSW,"

Home Owners Forced to Take Super - Australia Mortgage

HOME owners have raided their superannuation funds of a record $100 million in last-ditch bids to avoid foreclosure, new government figures have shown.

The surge in mortgage-holders seeking emergency access to their savings has alarmed housing and social welfare groups, who warn many families are still struggling to meet loan repayments despite steep cuts in the interest rate

With distressed owners receiving an average of $15,250 each, there are also concerns some super accounts could be drained of more than a third of their value. The number of households in serious financial trouble has worsened despite mortgage lending rates falling about 1 per cent in the past six months and nearly 3 per cent since their peak in mid-2008.

Figures obtained by The Sun-Herald showed 6500 home owners were given emergency access to their super last financial year to prevent an imminent foreclosure.

A Commonwealth Department of Human Services report found $99.38 million was released, up 25 per cent on 2010-11 and well above the disbursements in the aftermath of the global financial crisis.
It also marks the third year in a row that the number of people applying for, and being granted access to, their nest-egg has increased.

A campaign manager for Australians for Affordable Housing, Sarah Toohey, said years of house price growth had seen debt balloon and forced households to devote an unsustainable amount of income to meeting mortgage repayments.

''It's alarming and it shows that housing affordability is about more than just interest rates,'' she said.
''The sheer size of what people have to borrow to get into the housing market now really puts household finances under strain.'

Sydney's Housing Market to Continue to Grow

Sydney is Australia's most populous city and its housing sector offers investors unique opportunities with the security that comes with investing in a large and rapidly expanding market.

Property prices in Sydney have increased 25 per cent in the last four years, during which many other housing markets around the world have stagnated or even gone backwards.

The reason that Sydney's housing prices have continued to rise is simple - more people want to live there. Famous for its landmark Harbour Bridge and Opera House, Sydney is the business and financial capital of Australia, with an ideal climate and a relaxed yet cosmopolitan lifestyle.

Sydney has nearly five million residents and its annual population growth rate of 1.6 per cent is higher than the Australian average. It is also higher than that of any major western city outside Australia, yet less than half of this increase comes from births.

Most new Sydneysiders are overseas arrivals who come to Australia to start a new or better life, seeking employment or education opportunities for themselves or their children. They have created a steady demand for around 30,000 more dwellings each year, pushing up prices and making Sydney the most expensive city in Australia to buy a house.

The median price of a Sydney house is now around A$620,000 (S$786,740) and it is rising. Landed properties can be purchased on the outskirts of Sydney for around half this amount, but they are located far from the city centre. Sydney's idyllic harbour side location brings problems, as much of the land is locked away in parks or reserves and there is less available for housing. The urban footprint has spread as far south, north and west as there is land available.

It is almost impossible for overseas arrivals to buy a home until they settle and establish themselves, which can take many years. This has led to a rise in Sydney's rents, which are higher than any other major city in Australia.

High rents and prices have changed Sydney's landscape. They have led to the abandonment of the dream of a landed home for many young Sydneysiders and led to a boom in apartment living. Over half of Sydney's dwellings are apartments or "home units" as the locals call them.

The new medium and high-rise apartment blocks contain gymnasiums, swimming pools and garden barbecue areas. The units are fitted out to attract renters, while their design lowers maintenance costs for investors. Many of the suburbs where this transformation is occurring - such as Pyrmont, Ultimo, Camperdown, Double Bay and Broadway - are located close to the central business district and in the urban centre itself.

What makes these dwellings ideal for investors is that prices for home units are still less than 70 per cent of those of similar sized houses.

The Sydney inner urban market is unique because there are fewer development projects in the pipeline than there are in other cities such as Melbourne even as the rental demand is far higher. Rents in these areas are escalating as a result and housing investors from Singapore can buy off-the-plan units with confidence, knowing that both the rental yield and the value of their investment are likely to rise in the coming years.