Sydney home values continues to decline: HTW residential
Auction numbers and new listings in Sydney property market continue to remain fairly strong for this time of year, according to the latest Herron Todd White (HTW) residential report.
The valuation firm presented a "investor playbook" of real estate performance within each service area.
The report notes the last few weeks has seen an increasing number of COVID-19 community transmissions in Melbourne and then Sydney.
"Whilst, at the time of writing, Sydney has not seen a return to the lockdowns experienced in March and April, there is no doubt consumer confidence is again starting to decline as a result of an apparent ‘second wave’," the valuation firm said.
Home values across Sydney have continued to decline over the past month, dropping by 0.9% over that time according to CoreLogic.
Whilst values are still up by 2.8% since the beginning of 2020, if the current trend continues, it would mean prices falling a further 5 to 6% by the end of the year, the report noted.
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"Auction numbers and new listings continue to remain fairly strong for this time of year, although auction clearance rates have eased to around 60% over the past few weeks," the valuation firm said.
The clearance rate at in the same period last year was above 70%, although with a lower number of auctions, as the market began its recovery at the time.
"And now onto the property investors playbook," the valuation firm continued.
The residential property investor market has had some significant hurdles placed in front of it in recent years.
Tougher lender and regulatory requirements around investor loans, and the threat of removal of negative gearing and capital gains tax allowances prior to the federal election in May last year, significantly reduced the number of investors looking to get into the market, the report noted.
As these lending restrictions eased and the threat to tax allowances was extinguished, the investor market began to recover along with the wider market as prices started to rise.
That recovery has now come to an abrupt halt as a result of COVID-19, as asking rents have fallen sharply, while vacancy rates have climbed, across many parts of Sydney.
According to CoreLogic, across the financial year to June, Sydney dwellings saw an average 16.7% return with 13.3% of that through capital growth.
Houses enjoyed a 17.7% return with 14.5% capital growth, while units had a 14.7% return with 10.6% of that being capital growth.
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However with prices now falling and rental yields also under downward pressure, returns in the current financial year are likely to be significantly leaner.
As can be seen from the table below, vacancy rates in the Inner and Middle ring suburbs have been particularly hard hit since March, while the Outer suburbs have continued to see a tightening vacancy rate, the report noted.
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The Inner ring suburbs have seen an increasing supply of properties, particularly units, as previous holiday-stay properties were switched over to the long term rental market, and new unit completions have continued to hit the market.
New unit completions are also impacting supply in some middle ring suburbs.
The report notes demand levels are not increasing at the same levels as supply as immigration has been stopped and is likely to be impacted for some time to come.
Demand from international students has also dropped dramatically as a result of COVD-19.
"With values at the lower end of the market holding up better than other price points, and vacancy rates continuing to tighten in the outer ring, Western Sydney is looking like the best place for investors for returns in the short to medium term."