Sydney market ‘starting to decline’, Melbourne peaking

Property valuers are now calling the end of the Sydney real estate boom after years of double-digit price growth, claiming at the same time that the Melbourne market is reaching its peak.

In its Month in Review paper for August, Herron Todd White identified Sydney as a market beginning to decline, falling from its peak last month for both units and apartments.

The agency noted that new houses in Sydney were almost never sold for prices exceeding their potential resale value, while the volume of house sales was increasing and new house construction remained steady. Additionally, demand for new units was ‘soft’ in August, down from ‘fair’ the month before, while the volume of unit sales was also increasing.

Melbourne’s status for the house market remained at “approaching peak of market” over July and August, while its unit market also remained unchanged, sitting at “peak of market”.

Darwin fell from a declining market to a market approaching the bottom for units, but held at the bottom of market for houses. Herron Todd White reported that Darwin was experiencing an oversupply of houses while new house construction continued to decline.

Investor profile

According to the agency, investors in the Sydney market are really competing against first home buyers, as government initiatives to help first home buyers come into play.

“While it is still too early to track the success of these initiatives introduced on 1 July 2017," Herron Todd White said, "the tightening of lending ratios and terms for investors has been slowly occurring since early this year, and our queries with both agents and brokers are telling us that the impact is starting to take effect.” It added that long-term market effects were unknown.

Among the areas of interest identified by Herron Todd White, Kings Cross was noted for attracting increased investor interest following changes to laws governing entertainment establishments in the area.

In Melbourne, investors are more commonly looking to entry-level or builder’s range fixtures. “There has been a moderate increase in overall investor activity over the past few years as investors seek to take advantage of negative gearing, depreciation and superannuation arrangements,” Herron Todd White said.

Issuing a warning, the agency added that investors need to beware of the current phenomenon of the value at settlement for off-the-plan purchases not matching the contract price, as well at recent legislation which limits stamp duty concessions to owner-occupiers and properties valued at less than $550,000.

When it comes to Brisbane, Herron Todd White said: “Our city has always been a ‘safe bet’ for long-term gains, but dreams of double-digit value growth over the past five years have remained just that . . . dreams.” The agency added that non-local property investors had “bolstered” demand for new units to the point of oversupply.

The Adelaide market has remained fairly stable over the past few years, Herron Todd White said, but noted that the difficulty first home buyers face going up against investors in that market could contribute to a general slowing in the future.

Heading further south, the agency said: “It appears Tassie’s secret is out.” It commented that low interest rates, rental vacancy rates and capital entry levels, along with stable rents, had produced good investment yields and contributed to growing investor participation.

On the other hand, Herron Todd White predicted that Darwin would have limited investment as the Sydney and Melbourne hotspots “continue to explode”.

[Related: 74% think ‘rentvesting’ is a good strategy]

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Lucy Dean

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