Sydney prices ‘must plateau, or even subside’: Bernard Salt

Author, columnist and KPMG partner Bernard Salt has said that the growth rate in Sydney property prices since 2011 has been “quite extraordinary”, but believes that they “must plateau, or even subside” in the near future.

Speaking to the Smart Property Investment Show (the podcast of Mortgage Business’ sister title, Smart Property Investment), Mr Salt noted how property prices in the NSW capital have risen exponentially in recent years, adding that he thought prices would “subside” and then “simply go sideways”.

When asked whether he believed property was overpriced in Australia, Mr Salt said: “I certainly do think that Sydney is an extreme market. It’s unlike any other market on the Australian continent. And to be fair, I think it always has been. You can still buy a house and land in Melbourne, 14 kilometres from the CBD (in a place like Sunshine West), with a six in front of it, [for] around about 600-and-something thousand. You can get a separate house and a separate block of land. You can’t do that in Sydney, anywhere up to (I would think) 100 kilometres from the CBD. Not in Penrith, not in Wyalong and not in Campbelltown, in fact.”

According to the columnist, the high property prices are due to the fact that “Sydney is genuinely Australia’s portal to the global economy”.

Noting that Sydney Airport has the greatest connectivity in Australia, the Reserve Bank and several leading banks are headquartered there, and “corporate Australia” and the highest paying jobs are found there, Mr Salt said that having high property prices was “the cold, hard reality of a market economy”.

He continued: “When you have the best jobs, the highest paying jobs on the Australia continent concentrated into the inner CBD of Sydney and in the suburbs, then the residential property around that is going to be valued accordingly.

“And I suppose the question is, how do we actually deliver up more property? How do we actually create… pathways for that next generation to get access to that property market? This, of course, is the eternal debate. This is the issue that everyone is trying to search for; we’re trying to find out what that solution might be.”

However, the social commentator said that he did not believe the rising prices could last forever. (Indeed, the September State of the Market report from Domain showed that the median Sydney property price had dropped by 1.9 per cent over the quarter.)

Mr Salt explained: “I certainly think that the rate of growth in Sydney property price over the last, since 2011–2012, has been quite extraordinary. I think there has been overseas influences in that as well. Those figures can’t keep going up at that exponential rate forever; it must plateau, or even subside.

“And I think what has actually happened in the last 12 months is that the Sydney market in some areas has subsided gently.”

He suggested that Sydney could go the way of Melbourne property prices following the “1992 recession”, in which prices subsided by around 5 per cent and “then they just went sideways” for five years before taking off again.

“That would be my expectation of how things would pan out in Sydney. I don’t see a major collapse… not across the entire city. The reason is that it fundamentally comes down to our rates of growth: Sydney’s adding about 85,000 people per year. As long as Australia retains that big picture policy of high-level immigration, those immigrants will come in through Melbourne and Sydney, and demand property, one way or another. That will underpin the market.”

He added: “Sydney now has five million people. By 2050 it will have eight million people, or thereabouts. It’s not a doubling of population in 30 years, but it is a significant increase. And that means that there will be even more people competing for residential property in Sydney over that time frame. [But] that does mean there won’t be periods and places where the market is soft, or even falls, in some areas… there will be places of oversupply where values soften and fall. I don’t say plummet, but subside is more the way I would look at it. And then simply go sideways.”

WA market to ‘come back’ in 2020s

Mr Salt also predicted that despite the downturn in property prices in WA, following the mining downturn, the market there would “come back”.

“It’s a third of the Australian continent, incredibly rich with resources,” the columnist said. “It has energy, it has minerals, it has agribusiness — it has all of what Asia and the world will want, increasingly. It’s just a question of how long.

“Perth can lay dormant for maybe 10 years. But at some point — I suspect in the 2020s, or maybe towards the middle of the 2020s — then Perth will go through its next phase of growth and development.”

‘Avocado gate’ resulted in ‘positive outcome’

The columnist also touched on “avocado gate” in the podcast (and revealed he actually found smashed avo “pretty tasty”), emphasising that the 2016 column was meant as a tongue-in-cheek article “parodying Baby Boomers for their conservatism” but was taken out of context.

“It was all done as a parody on middle age… [but] this issue went global, viral and feral absolutely immediately,” Mr Salt said.

“It made page three of the Stuttgart German newspaper; it made the newspapers in Caracas, Venezuela. It was raised in the Australian Parliament by the following Thursday. A politician brought in an avocado. And it ignited the most extraordinary debate. And it’s still going on. In fact, it’s fact it’s right throughout America. They will refer now to the ‘avocado toast generation.’ So, inadvertently, I have triggered this intergenerational debate around housing affordability.

“I will say that I think a positive outcome from it was that it has raised the issue of housing affordability. And the fact that it was raised in Parliament within a week. When the New South Wales premier, the new New South Wales premier came into office in early 2017, Gladys Berejiklian, she said her first point of order, first priority was in fact addressing housing affordability.

“So, in many respects, I think that the positive outcome is that it has raised the issue of housing affordability in Australia.”

Listen to the Bernard Salt episode of the Smart Property Investment Show below.

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Annie Kane

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