Losses in Western Sydney OTP resales could trigger market correction

Losses in Western Sydney OTP resales could trigger market correction
Losses in Western Sydney OTP resales could trigger market correction

Well presented and high-quality properties in Sydney’s west are still achieving relatively strong results, however less desirable and average quality stock is being discounted, according to the June update on residential prices by the valuation firm, Herron Todd White (htw).

It says western Sydney buyers have more options and aren’t willing to pay strong money for average stock.

Interest in new land releases, whether vacant land or house and land packages, remains steady, it noted, with developers continuing to stage releases to ensure demand remains relatively strong.

"This has resulted in a consistent level of demand for master-planned subdivisions," HTW suggested.

"We have noticed a number of settlement valuations for new units not meeting their off the plan prices when purchased during stronger market conditions, mostly in 2015 and 2016.

"Whilst mostly occurring for overseas buyers, this could trigger a flow of sales post-settlement due to difficulties obtaining nance and rental yields not meeting expectations thanks to high investor participation.

HTW gave an example in Parramatta with an off the plan sale in October 2014 of $672,000 and recent resale in March 2018 at for $630,000.

"Whilst not an indication of the wider Parramatta market, it does highlight that discounting does occur and if a large number of vendors have to offload property at the same time, it could lead to a market correction as new benchmarks are set.

"Market drivers to keep an eye on during the remainder of the year are interest rates, any tightening of lending criteria and property supply. Any signi cant increases to the cash rate may have flow-on effects to the home loan market, leading to the potential for more distressed sales as homeowners and investors may struggle to meet the larger repayments on highly geared mortgages.

"This has the potential for some pockets of Sydney to experience sharp decreases in values in the short term.

HTW warned any large volume of supply flooding a particular market sector combined with an overall slowdown, tougher lending criteria and possibly higher interest rates will eventually lead to a sharper slowing of the market.

"We believe this is more likely with high-density units as investor participation is higher and as densities increase markets can be supplied quickly."

HTW advised another area to keep an eye on for the remainder of the year was suburbs that allow dual occupancy development following the recent release of the NSW Government’s new Low Rise Medium Density Housing Code. 

"This will allow one and two storey dual occupancies, manor houses and terraces to be constructed under a fast track complying development approval.

"With duplex style development popular in some areas of western Sydney, this fast tracking of approvals may lead to more interest and participation in the market resulting in a boost to owners of blocks meeting the new minimum requirements," the June report suggested.

Tags: 
Off the plan Western Sydney

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