Sydney median prices continue to increase in the time of coronavirus crisis: HTW residential

Sydney median prices continue to increase in the time of coronavirus crisis: HTW residential
Sydney median prices continue to increase in the time of coronavirus crisis: HTW residential

The past five years have provided good evidence of the factors that drive the Sydney property market, according to the latest Herron Todd White (HTW) residential report.

The valuation firm took a look at what things traditionally matter to property markets and how current crisis is playing into decision making.

The report suggests fiscal, regulatory and monetary policies have all played their parts as the wider Sydney market went from strong growth to its largest decline in three decades before rebounding so quickly that the Sydney median price is already knocking on the door of the previous peak.

"Whilst traditional drivers such as employment levels and the national economic outlook do play a part, these have been fairly stable throughout that five year period as the market fluctuated wildly (in Sydney property price terms anyway).

"The current COVID-19 epidemic is going to have a negative impact on both of these drivers, so it will be interesting to see what impact this may have on the property market in the short to medium term," the valuation firm said.

Low interest rates were a big driver in the market climbing until mid-2017, despite growing affordability issues as many first home buyers were either priced out of the market or had to reconsider the type of property or the suburb they could afford to buy.

"We then experienced tighter lending policies as a result of APRA regulation and the banking Royal Commission which saw the market drop by around 15 percent across Sydney, with some areas dropping by more than 20 percent," the valuation firm said.

Houses were harder hit than units, while the top quartile, excluding the prestige end, experienced the largest falls.

There was a triple boost to the property market in mid-2019, as APRA weakened lending restrictions, the Reserve Bank lowered interest rates three times within a few months and the Coalition government was returned in the federal election.

The report notes the unexpected election result meant that the planned changes to capital gains tax and negative gearing policy proposed by the Labor opposition, would not eventuate.

These three factors saw the Sydney market stabilise between June and August and then rise quickly between September and December, recovering around two-thirds of the median price decline experienced during the downturn. Houses and those areas that saw larger decreases during the decline were generally those that rebounded the quickest.

First home owner incentives introduced in January have also seen these buyers re-enter the market in greater numbers, providing a boost to the lower quartile of the property market.

This was also the experience during the aftermath of the Global Financial Crisis as low interest rates and significant first home owner incentives saw this part of the market grow quickly at a time when the wider economy was struggling.

"The unit market in Sydney has had some additional challenges to deal with over the past couple of years. Whilst prices did not decline as fast as they did for houses, issues around flammable cladding and the highly publicised structural issues of several buildings throughout Sydney have meant increased buyer caution in the new unit market," the valuation firm said.

Certain suburbs also had a large supply of new units reaching settlement at the bottom of the market after being purchased off the plan at the height of the market.

More recently, the supply of new units has slowed and remaining developer stock in completed buildings is now more readily selling, in some cases at prices close to what they were achieving off the plan.

It should be noted though that some developers are resorting to incentives or rebates to clear this stock.

Infrastructure spending has also increased in Sydney over the past few years with a number of large projects still underway or planned for completion by the end of the decade. This has helped fuel the local economy and provide a boost to those suburbs which directly benefit from these infrastructure upgrades.

"Although clearance rates have remained high in recent weeks, there is no doubt that the COVID-19 outbreak will lead to a short term softening in market activity," the valuation firm said.

According to CoreLogic, there were 749 auctions in the wider Sydney region for the week ending 15 March, down 28 percent from the 1045 auctions held in the week ending 1 March. They also reported that the preliminary auction clearance rate has dropped from 82.6 percent to 74.6 percent over the past two weeks.

"Despite this, median prices have continued to increase throughout this period.

"It is likely that potential sellers will hold off listing their properties in the next few months as Australia goes through an increase and (hopefully) peak in COVID-19 cases. This lack of new stock on the market will likely help hold Up Property prices," the valuation firm said.

Sydney COVID-19

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