Five key drivers in Sydney's apartment market: Peter Chittenden
As outlined in my earlier post The Property Council of Australia’s Outlook Series aims to encourage informed debate and in Project Agenda’s perspective that refers to residential markets in 2013.
Here I look at some of the most important drivers of Sydney’s apartment market as we continue to consider how to ‘bridge the gap.’
What will 2013 bring?
To start this topic we need to check-off what is required for any apartment project to be a success. I think that there are five key drivers, they are clear-cut and they apply to all markets and none should come as any surprise. They are: convenience, infrastructure and amenity, transport, education and employment, and affordability.
All of these are constants in the market and from my direct experience all were very important to buyers in 2012 as they been for many years.
However before we look at how these points are impacting the market, I want to take a few steps back and look more closely into the minds of our current buyers. Already we have discussed how much more conservative buyers have become and even with very low interest rates, they are hesitant and not very keen to go head over heels in debt.
Part of the reason for this I think can be found by answering the question: what will my property be worth in five years and what will be my return?
Buyers of all kinds – and this includes investors – are very sensitive to these questions and over the past few years there has been a shift in the balance of how much buyers will borrow and what future equity growth they expect. Lets take the view of a pre-GFC buyer, they anticipated that over say five years their equity might increase from a starting point of $50,000 to $150,000, and on a $500,000 purchase they were happy to take on a loan of $450,000 because after five years their property had jumped in value to say $600,000 – and at times they were even happy to ‘spend’ that equity.
Now the picture is somewhat changed, capital growth may have slowed so that our example of a $500,000 purchase shows a value in 2013 of a more conservative $520,000, but the buyer’s equity is being used to sustain a smaller loan, the equity is seen more as a means of saving. These savings are not being chased out partly because of the much more conservative nature of the market. This is a major shift towards a more ‘normal’ market.
Who are the buyers?
While first-time buyers might be in a state of flux, they are still an important part of the market, and doubtless there may soon be more incentives on offer. However the full definition of who are the buyers for Sydney in 2013 covers these core groups:
Generation X & Y – They steer away from long-term obligations and are a challenging group to please on the sales path as they are very attuned to propaganda growing up in the world of marketing. However, their property requirements are typically simpler – lifestyle and convenience.
Divorcees – this is a major driver in the Sydney market and whilst they have similar property needs to the Gen X & Y they cover a very wide range of age brackets and are more driven around location due to their dual-lifestyle.
Local Asian buyers – strongly driven by infrastructure and location. This group wants fast, efficient sales assistance and will respond quickly. They have also been known to buy as ‘contended tribes’ – one buys, a family buys.
International buyers – these buyers tend to be very sensitive to the price point, exchange rates and location. It’s all about the numbers to them. With sometimes being later aligned to factors such as access to a select schools or universities.
Investor Networks – as I have already outlined this is a very important group moving into 2013, and is very tied into the demand for rental accommodation, which I will cover in a post later this week and our investors are ever more demanding. These networks take experience and dedication when managing and servicing to deliver successful results.
Retirees – we know this group well and have been selling to their needs for the last 10-15 years. Now the question to ask is who are they buying for? A new home for themselves, their kids to help them into the market or for their retirement via a SMSF.
Marketing into 2013 and beyond
It is clear that our buyers are a complex lot!
More demanding, more market savvy and in some cases in no particular hurry and this all adds up to a marketing environment where there will be a number of imperatives for success and all must be meet head-on.
Above all it is essential to know and understand inside out the audience you need to reach and engage. Marketing plans will also need to be refined to capture a critical mass of off-the-plan sales in a setting that is more critical than ever from a funding perspective, but also securing sales where urgency is not driving buyers.
If sales at completion are the better plan then again the pressures will be very different and the financial pressures will again have to be factored in. In combination all of these factors lead us to more than ever appreciate how important it is to have a full detailed and effective sales environment. Once we have the buyer interested in our project the right sales environment will pay dividends.
Where will development occur in Sydney?
Against the criteria I have outlined let’s look at the market ahead for 2013 in two areas – inner and outer and in each case what will drive demand.
Because of the concentration of apartment projects lets start with the inner suburbs. In this group, and because they meet the points outlined earlier I think that some of the key inner locations will include: North Sydney, Wolli Creek, Eastwood, Gladesville, Cronulla, Sydney CBD, Bondi Junction, Waterloo and Botany.
As a group these locations all offer three key incentives that buyers are after, convenience, amenities (in particular transport & education) and existing infrastructure.
When we turn to look at the outer areas the picture is less clear, just this weekend there has been another announcement of 170,000 homes.
The New South Wales Government has unveiled what look like a somewhat ambitious plan to supply the more 170,000 new homes across greater Sydney. The plan also nominates eight existing suburbs that will be re-zoned for 30,000 new high-density apartment blocks.
However the key drivers of demand in outer markets will be those areas aligned with both existing and new rail corridors, with only one new link, the south west link actually underway that area should benefit.
Sydney’s motorway upgrades are also key but so far they have not delivered and a racing to catch-up. While where essential services are not available development will lag and this will give in-fill sites the upper hand in marketing and buyer demand.
Stamp duty must go
As frequently stated here in Project Agenda, by others and myself and by the PCA stamp duty is a regressive tax. Just stop for a minute and think about how much GST is tied up in a development project and how that is double taxed in the hands of the buyer, and how do Baby Boomers move when every step they take is also caught by stamp duty.
Looking at all of the drivers I think that 2013 will see improved sales volumes, there will be a clear and much more critical focus among all buyers on central locations. Off-shore in particular Asian buyers will be key as will singles and double income buyers – the ‘Sinks’ and ‘Dinks’ may well dominate as they are less financially conservative.
Peter Chittenden is managing director for residential of Colliers International.