What should be a feast market has ended up as a famine

Just like many others I have been trying to make some sense of our property markets – so I went back to 1990 (yes I was selling way back then) to look at what the market was doing.

Why, you might ask?

Well, back then the Reserve Bank of Australia (RBA) had the cash rate at 17.50% (today, it's at 2.50%). Back then we were selling un-renovated mansions on Prince Albert Street for $1,050,000 (that was the top-end back then) with semi-detacheds on Dalton Road fetching $275,000. A nice home on Wolseley Road with Balmoral views would set you back $485,000 and an apartment on Mandolong Road sold for $125,000; and yes, all these homes were in Mosman.

Pause for a moment and your attention would be diverted to the prices of the real estate – with little attention to the highest ever cash rate in Australia’s history – 17.50%. A cash rate seven times higher than the cash rate today – and even more frightening, it was just before the “recession we had to have”. This saw the cash rate in January 1990 drop from 17.50% to 4.75% in July 1993.

My point being that with a cash rate of 2.50%, why are there not more sellers in the market engaging in their long-term real estate strategies? Sydney property listings reach post-GFC low, according to SQM Research – January saw 20,080 listings in the city, a decrease of 3–4% from December. The previous low in listings for Sydney was recorded by SQM in January 2010, when 20,687 properties were listed. So the mystery is that the market in January 2014 is much stronger than back in January 2010 – so why are there fewer vendors?

The cash rate in January 2010 was 3.75% then in March it went to 4.00% to then peak in November 2010 at 4.75% with the RBA then easing the cash rate down in November 2011 to 4.50% to now where it sits at 2.50%.

Only when one actually extrapolates this data that the question is just how much attention the consumer pays to the cash rate – given it does not appear to be reflective in market sentiment. Based on that analysis it is clear that there is not a strong argument/interest for which direction the RBA will go when they next meet. Rather why are property owners ignoring the strongest selling conditions we have seen (in Sydney) since 2004?

Now there are a thousand upon thousand conspiracy theories – I prefer to call them myths, mysteries and market manipulations. The dominant buyer appears to be very high on the discussion index at the moment and that is the Chinese buyer. I looked at our deal book for 2013 and our sales to Chinese buyers made up less than 5% of our total transactions in that year. We don’t do any project marketing of new blocks of apartments, where in that demographic they make up over 80% of the transactions.

Maybe we should take a closer examination of the Significant Investor Visa (SIV) that was launched on November 24, 2012? 

From an article entitled "China’s great wall of visa money "– "new analysis from real estate advisory arm of Korda Mentha has revealed that the government’s significant investment visa scheme is booming, with the numbers of approved visas growing exponentially in the second half of 2013."

There has been a significant spike in the number of SIV approvals since the Coalition government came into power last September. There were only 15 approvals in the first eight months of 2013 under the Labor government. The number of approvals surged nearly 600% in the first two months of the new government. Is it a mystery or a myth that this is because the Abbott government does not have a Housing Minister and these statistics will go unchecked?

In 2013, the highest house sale was Altona – Wunulla Road Point Piper for $52 million. For the first time in years the only other property to sell outside the Eastern Suburbs for Sydney’s Top 20 sales in 2013 was Julian Street, Mosman which was sold by Richardson & Wrench Mosman & Neutral Bay (RWM) for $13.9 million. From the Sydney Top 20 sales in 2013 just four went to Chinese buyers – so don’t believe everything you read in the newspapers, or hear from real estate agents for that matter. I would call that market manipulation.

In 2014, we have seen three houses listed with 60 million plus price expectations in Sydney’s Eastern Suburbs with a common theme in the media that they are chasing the Chinese buyers.

Nobody knows with any great certainty what lies ahead for our property markets in 2014. Rest assured there will be plenty of myths, mysteries and market manipulations. We do know from anecdotal evidence that at the top-end they don’t pay any attention to the cash rate either. On the other end of the market spectrum the lower end of the markets are fixated by the cash rate for obvious financial reasons.

Nothing can still explain why what should be a feast market has ended up as a famine.

Robert Simeon is a director of Richardson  Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985.

He has also been writing real estate blog Virtual Realty News since 2000.

The RWM real estate model has sold in excess of $1 billion in database sales globally.