Updated: Jan 15
A new year, the same old question on everyone’s mind, what will happen in the Sydney property market?
Rather than falling, prices have reportedly increased last year in some areas - at least when you believe the Corelogic data e.g. cited in ABC. There is debate about how much withheld sales prices are affecting the statistics. Interesting explanation of how the industry reports sales in this article in Nestegg.
Federal and state government are determined to throw cash at buyers to soften the blow from demographic change and general economic weakness triggered by the COVID pandemic. Let’s take a closer look:
Government concerned about Australia’s household debt bomb
No doubt spooked by predictions that property prices could fall by as much as 30%, and the implications that would have for the most overleveraged nation on earth, the Federal Government and Federal Reserve Bank of Australia have agreed to unprecedented measures. This includes quantitative easing (aka printing money), propping up the banks and interest rates near zero. The answer to too much debt is clearly more debt aka “kicking the can down the road”.
While officially the purpose of flushing the economy with cheap money is to help the economy, businesses have taken a cautious approach to new debt. Instead, Australians are borrowing at record rates for home loans again, mostly driven by upgraders. There is the Federal HomeBuilder scheme, the extension of first home loan deposit scheme that allows borrowers to buy with 5% deposit and changes to borrowing rules are being considered which will allow people to borrow beyond their means.
NSW State Government pitches in
The NSW Government has much to lose, especially in terms of stamp duty. So it comes at little surprise that they are coming up with their own programs to keep the party going.
Touted as important investment to address rising need for social housing, the NSW Government is working on a buy back program for empty apartments around the city.
Surely, we do need more affordable and social housing, especially with low income earners squeezed out of the private rental market. From what I hear and see, more real estate agents are now asking if applicants are on JobKeeper or JobSeeker payments and filter them out straight away.
But the decision to buy oversupply in apartment stock rather than investing in new housing in the areas where the need is the greatest, the State Government program conveniently also helps property developers from going under.
The other sweetener are proposed changes to the stamp duty from a one-off payment due at the time of purchase to a recurring property tax. Same money for the government, but in the hope it will “free” capital so the buyer can spend more on the property itself.
Sydney’s population is shrinking
Sydney’s population has been swelling since the Sydney Olympics and the population growth has been one of the most cited ‘fundamentals’ for rising property prices. Fast forward to 2020, and the COVID border closures have essentially brought migration down to zero. This is especially significant when it comes to foreign students. Tensions with China are also playing into this, and will drive Chinese students away from Australian universities and cities.
At the same time, the flight to regional cities and towns is accelerating due to working from home arrangements making it possible to escape the traffic congestion in suburbia. With Sydneysiders making the sea and tree change, we are heading for an oversupply, especially in high rise apartments in the Ryde area, Mascot and the Inner West, and also the high density development corridors in the South West and North West being sold off by the State Government through Landcom.
Let’s see what happens after March
If you’re thinking of buying to escape the misery that is renting in Sydney, don’t feel pressured by media headlines. Most publishing houses have a vested interest in your FOMO as they depend on the property industry’s advertising revenue.
Instead, take the advice from bank insiders and wait for March when a number of things will happen: deferrals on loan repayments for both home loans and businesses must end on March 28; JobKeeper payments, after being reduced in January, will stop, and commercial tenancy relief schemes will be discontinued in NSW (The New Daily).
This is expected to have far reaching implications for the economy at large and in particular the property market. For many investors, a vacant Sydney rental means is going to make it tough to meet loan repayments. And almost half of home owners stated in this survey that they expect to struggle with mortgage repayments once JobKeeper payments are phased out. To make matters worse, there are sweeping changes coming to small business insolvency laws. The Australian Restructuring Insolvency & Turnaround Association estimates that as many as 24,000 small businesses will go under by the mid of the year (ABC).
Where there is a will, there is a way
Negative population growth, rising unemployment, a complete disconnect between people’s wages and property prices. The reality is, the ‘fundamentals’ haven’t been stacking up for a long time. But the Federal and State governments will do whatever it takes to keep the party going. The property market in general, and especially in Sydney, have become too big to fail and you can’t have more affordability without a massive price correction. This would send a seismic shock through the economy. The question is, how much more room they have left to maneuver.
Disclaimer: The contents of this blog are opinions and should not be considered financial advice. If I knew about money, I would have made millions from flipping investment properties and wouldn't be renting anymore.