Sydney’s property market could be set for a significant change in 2017 according to Douglas Driscoll, CEO of award-winning real estate group Starr Partners.
1. Rate hikes on the horizon
There are already conversations bubbling over a possible rate rise in 2017 and I can almost guarantee that the banks will increase rates again at some point next year regardless of the RBA’s direction. For those buying property now, my advice is to choose a loan with a fixed interest rate because the reality is, rates won’t stay at record low levels for much longer.
2. Lenders becoming prudent
I think we can expect more macroprudential measures in 2017. Lenders will absolutely become more prudent and fussy on what they lend on – even the International Monetary Fund believes property affordability in Australian is an issue and homeowners are stretching themselves too far.
Half of our market is still made up of investors, although I expect some Sydney investors may head north to Brisbane or other areas for ‘perceived’ value. While there will be a migration out of Sydney, I would caution investors. All that glistens isn’t gold, and sometimes property is cheap for a reason.
3. Apartment oversupply continues but so does the need for more affordable detached homes
2016 was the first year on record that saw more apartments constructed than houses, and I fully expect this trend to continue into next year. The market is out of kilter though, as we now have an apartment oversupply and not enough detached dwellings. It’s time councils are made more accountable to ensure we have a more appropriate and evenly weighted housing mix. In some suburbs, it is likely that we will get to the point where the amount of units will exceed demand. Rental vacancy rates may start to climb, leaving more choice for tenants, but I think prices will remain steady because of the burgeoning population.
4. Fewer listings but more renos and granny flats
Sydney has witnessed another strong year and continues to outperform the other capital cities and it comes down to simple economics; demand heavily outweighs supply. Average dwelling values have increased by 13.1 per cent for the year to date, which compares to 15.6 per cent for the same period last year. The number of new properties being listed across Sydney is down by nearly 17 per cent by comparison to this last time year, yet the demand shows no signs of abating. In response to this, I expect that we are going to see even fewer listing in the new year, which might force councils to become more lenient when it comes to extending properties and building granny flats. More homeowners will renovate rather than move, which is easier and more affordable than ever before.
One of the other major reasons that we are experiencing a property shortage is that investors continue to snap-up approximately half of all properties across Sydney. So why is this a problem? The average owner-occupier now holds a property for approximately 11 years, whereas it is estimated that investors hold on to properties for nearly twice as long.
Another side effect of fewer listings will be fewer estate agents. Many entered the industry at the start of the cycle and landed on their feet. With reduced stock levels, I guarantee we will see agents starting to leave the industry. This is a prophecy not a prediction.
5. Emergence of people selling apartments purchased off-the-plan for a profit
Many people who put deposits on off-the-plan developments might decide to resell now that the bricks are in the ground. I think we will especially see this in the CBD and eastern suburbs such as Bondi. In the two-year period since putting their deposit down and the property being built, it could have gone up by 25-30 per cent and in some cases even more, making it a great time to sell for a profit.
6. More people renting through choice
Traditional thinking is that people who rent can’t afford to buy, but I think we will see more people renting through choice next year – even if they own property. These days, people like having freedom and flexibility and don’t need to own where they live. People may own property but choose to rent close to the city for a better lifestyle or close to their place of work for a better work/life balance, but also because people see the financial benefit of renting where they live and investing in properties, with most investment property expenses being tax-deductible.
7. Further social divide between investors and single-property owners
Australians treat property like a business, which is a fundamental issue, and I believe our mindset shifted to this with the introduction of negative gearing. At the end of the day, there are people who cannot get onto the property ladder and others who are but can’t make their next move because investors are snapping them up. We now have the ‘haves’, the ‘have-nots’ and the ‘have yachts’, and property shouldn’t be reserved for the rich because everyone needs a roof over their head. In a healthy market, investors should only represent 25-30 per cent of the market, not upwards of 50 per cent in Sydney. We keep talking about first home buyers not being able to get on the ladder, but second- and third-time buyers are also losing out to investors around the $800,000-900,000 price point.
I anticipate that market conditions will not change a great deal from what we’re currently experiencing. I anticipate that property prices will continue to rise, albeit at a much more subdued rate. In the absence of further macroprudential measures or an unexpected rise in interest rates, investors will continue to be prevalent; leaving scores of first home buyers still on the sidelines.
8. Continued foreign investment
We can also expect to see further significant investment from overseas buyers. With the political volatility in the United States, the retroactive foreign buyers' tax recently introduced in Canada and the uncertainty of Brexit, Australia looks like a relative haven by comparison.