Sydney’s winter 2024 property market – a window of opportunity for astute buyers
June 28th, 2024
One word describes buyer and seller sentiment over the past few weeks: “uncertainty”.
Apart from a few top end residential property buyers who aren’t holidaying overseas and some of whom are swapping properties between themselves (much to the delight of a cash strapped State Treasurer), the uncertainty elsewhere has led to a subdued market.
Anecdotal evidence all over town in the past month has been consistent with our experience and is not just attributable to unseasonably cold snaps:
- in a self fulfilling prophecy, sellers are holding back partly because they believe they won’t find something else to buy leading to a compounding reduction in listings and lack of supply (which as buyers’ agents, we have been overcoming off market)
- unless the property is prime, open for inspections are often poorly attended and properties are offered for sale by auction without an auction date before being quietly ‘withdrawn’ from their non existent auctions
- buyers are generally tentative, unrushed and picky with anything less than prime either not selling or selling to the one interested buyer
- as our auction experience in this period confirmed, even on market prime properties are seldom selling for prices unsupported by previous sales evidence or vendor improvements.
One of two emerging exceptions is the big commercial end of town with some listed and unlisted institutional owners now succumbing to the need to sell all or a share of sub prime assets at a loss to book value to reduce gearing ratios in the face of looming lease expiries coinciding with higher commercial loan interest rates. Astute institutional overseas buyers are seeing value and a near bottom of that market as the WFH era recedes in Sydney which we predicted a year ago .
The second exception, as suggested by the millions of dollars worth of inquiry we have received in the past six weeks, is the emergence of similarly astute contrarian prestige residential buyers, both cashed up and leveraged, looking for bargains at that now wobbling top end.
Why the buyer uncertainty?
While the influences of the lowest GDP growth in 30 years (excluding the pandemic), sticky inflation, a chance of higher interest rates before they are lowered (as they inevitably will be), global uncertainty and climate issues obviously can’t be ignored, there have been three more immediate and direct influences on the winter mood:
- published auction clearance rates
Since the last of our many rants over 17 years about auction clearance rates, issues with this metric have worsened.
Let’s take the final Sydney auction clearance rates reported by CoreLogic and SQM Research for the week ending 16 June 2024 as a representative sample. (As Domain does not publish weekly figures, it is excluded from this part of the discussion).
CoreLogic’s 65.5% for Sydney signalled a clear sellers’ market whereas SQM Research’s 50.8% signalled the opposite.
Hardly any wonder Sydney property buyers are confused.
How can this be?
Given that both research houses claim to collect 99% of all auction results for the week and that the only difference in their respective methodologies is that Core Logic includes an immaterial number of sales after auction whereas SQM Research excludes such sales, the answer can only lie in the number of auctions recorded by each house for that and every other week.
In other words, the ‘devil is in the denominator’.
Whereas CoreLogic’s “number of auctions” denominator for that week was 829, SQM Research’s was 1,126. That’s a massive 36% gap between a buyers’ and a sellers’ market.
Assuming the mutual 99% claims aren’t a lie, the answer has to be what each of those research houses define as “Sydney.”
Good luck finding either definition.
And here, we bring Domain back into the discussion.
Our line by line analysis of Domain’s “Sydney Auction Results” for the week ending 15 June 2024 reveals over 30 suburbs which no Sydney property buyer would regard as being part of “Sydney.”
Even if Domain’s “Sydney” is based on the little known Greater Sydney Commission Act 2022 No 8 which commenced on 13 April 2022 and expanded the definition of “Greater Sydney”, it doesn’t explain why Domain’s results for that week included these “suburbs” outside that Act:
| Suburb | Distance from Sydney CBD (klms) |
| Bundanoon | 150 |
| Jerrabomberra | 300 |
| Karabar | 291 |
| Kempsey | 430 |
| Lennox Head | 749 |
| Moruya | 305 |
| Renwick | 131 |
| Surfside | 274 |
| Yenda | 340 |
| Young | 372 |
The auction clearance rate has always been revered not just by regulators but also by the media as well as buyers, sellers and financiers.
The above analysis and particularly, Domain’s patently absurd “Sydney auction clearance rates” methodology, again confirms the urgent need either to regulate or remove entirely responsibility for calculating that rate from the hands of private data providers.
- contradictory media reports
Compare these conflicting samples on six property related topics from this month’s media:
| Mortgage stress
| “The latest Roy Morgan data shows 1,514,000 mortgage holders were ‘At Risk’ of mortgage stress in May 2024, down 46,000 from April, and the lowest level so far this year. The pause in rate increases since November 2023 has reduced the pressure on mortgage holders and allowed growth in several areas of the economy to ‘catch up.’”
Even if the RBA increases interest rates by +0.25% to 4.6% in August, the level of mortgage stress would still drop by 34,000 to 1,480,000 mortgage holders (29.0%) considered ‘At Risk’ in the three months to August 2024. This would be the lowest level of mortgage stress for a year since June 2023”. Roy Morgan 25 June 2024
| “Highly leveraged borrowers are selling out of property as rising mortgage rates stretch budgets and prompt households to consolidate their savings into offset accounts, Reserve Bank of Australia assistant governor Christopher Kent says… Dr Kent pointed to rising mortgage discharges, which are running at a record $40 billion per quarter, as evidence high interest rates were causing borrowers to deleverage… New loans, in contrast, are valued at about $80 billion per quarter, which is 20 per cent lower than the peak in March 2022. The figures mean the ratio of discharges-to-new loans stands at 50 per cent, which is its highest rate since at least 2009. Taken together, the figures suggest that highly leveraged investors and homeowners are selling.” AFR 26 June 2024 |
| Unemployment
| “The employment market has been exceptionally strong over the last year (the latest Roy Morgan employment estimates show 603,000 new jobs created compared to a year ago) and this has underpinned rising household incomes that have helped to moderate the increases in mortgage stress since mid-2023.” Roy Morgan 25 June 2024 | …”the labour market is weakening. Not that it has always been easy to see… the pace of employment growth is falling. In the past six months annualised employment growth has almost halved compared to the first six months of 2023. It’s decreased from 3.7% to 2%. And other indicators show a more pronounced downward trend. Annual growth in monthly hours worked averaged close to 7% in the first six months of 2023, but only 0.8% in the past six months. Annual growth in the number of jobs reported to the Australian Tax Office payroll system over the same period fell from around 6% to 2%.” The Conversation 13 June 2024 |
| Listings
| “Property listings have surged during the past 12 months, reaching a four-year high as buyer confidence returns to most Australian markets…The ACT (up 32.4 per cent), Melbourne (up 24.7 per cent) and Sydney (up 17.7 per cent) have had the biggest increase in total listings during the past year among capital cities…“But other indicators—notably continued price growth—suggest buyer demand remains strong.” The Urban Developer 13 June 2024 | “-13.4% monthly change in May 2024 new listings and + 4.8% year on year.” Ray White 18 June 2024 |
| Savings ratios
| “Australian households are saving much less than their global peers as mortgage repayments and tax bracket creep eat into disposable incomes… [according to] research from RBC economists Su-Lin Ong and Robert Thompson…Households saved just 0.9 per cent of their disposable incomes in the three months to March, which was about 5.8 percentage points below the pre-pandemic average, RBC estimated.” AFR 24 June 2024 | “Mortgage holders are stashing more of their cash in offset accounts to help guard against higher-for-longer rates, with a record $271bn now driving down interest owed on home loans across the nation…The amount of money stashed in offsets rose by $6.27bn in the March quarter and is up $43.7bn, or 19 per cent, in just over two years.” The Australian Business Review 12 June 2024 |
| Foreign buyers | “Foreign cash flooding into Australian homes has surged by an additional $400 million, new figures show…. Data released by the Foreign Investment Review Board (FIRB) on Friday show 1580 residential real estate investment proposals worth $1.9 billion were approved in the October to December 2023 quarter, overwhelmingly from China at $800 million, with an additional $100 million from Hong Kong. India, Vietnam and Taiwan each saw $100 million worth of home purchases. The total was up from $1.5 billion in the previous three months”… News.com.au 22 June 2024 | “Overseas interest in Australian residential real estate softened in the six months to December, according to new Treasury figures of Foreign Investment Review Board applications, suggesting the post-pandemic recovery in transaction activity is on the wane. Approved housing purchases by overseas buyers softened to 2954 in the first half of FY24 from 3196 in the same period a year earlier, as sales to buyers from China, Hong Kong, Vietnam, Singapore, Indonesia, South Africa and the UK fell below half of their previous year’s total, the FIRB figures show.” AFR 21 June 2024 |
| Sydney property prices
| “Sydney house prices are poised to climb by up to 8 per cent in the next 12 months, taking the median to a new high of $1.76 million, Domain predicts. Sydney house prices are poised to climb by up to 8 per cent in the next 12 months, taking the median to a new high of $1.76 million”… AFR 20 June 2024
“Sydney Houses and Units “Rising Market” Heron Todd White Property Clock June 2024 | “Sydney’s property market has slowly come off the boil since the start of the year with fewer properties selling at auction as buyers are stretched to their limits….Westpac senior economist Matthew Hassan said buyer activity in Sydney was slowing…What we’ve seen today is consistent with a cooling market.” SMH 9 June 2024
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- politicians and regulators
This month has left the right minded scratching our heads.
At the State level, despite a proclaimed commitment to solving the housing affordability crisis, this government’s 18 June 2024 budget introduced two measures that will unarguably have the opposite effect as well as a major impact on Sydney’s commercial property market:
- freezing the land tax free threshold at the 2024 level of $1.075 million
- increasing the foreign purchaser duty surcharge from 8% to 9% and the foreign owner land tax surcharge from 4% to 5% making NSW the most expensive Australian State in each respect.
And if that isn’t enough, despite earlier bi partisan support, the State opposition has back flipped for reasons difficult to fathom and is now seeking cross bench support to scupper the Government’s higher density initiatives including transport oriented development (TOD).
All this while the Canberra luminaries are capping migration levels.
In this respect, we agree with Dr Shane Oliver as AFR reported on 21 June 2024:
“AMP head of investment strategy and chief economist Shane Oliver said restricting foreign housing purchases would not solve the housing affordability crisis. That, he said, was reflected in the failure to build enough homes to meet demand.
State-based surcharges and extra costs for foreign buyers could worsen Australia’s housing shortage, as the capital that offshore buyers contributed to off-the-plan developments helped make them viable for developers”…
Conclusion
It is said that “opportunity is often delivered in a fog of uncertainty.”
Contact us anytime to see how we can help you through that fog.
