Sydney 2016 property market forecast: Douglas Driscoll
GUEST OBSERVER
Sydney’s property market is set to show signs of change in 2016 as the market moves into a ‘transitional’ phase, and I predict the following market trends for 2016.
Consistent property prices.
Property prices remain quite consistent throughout 2016. There’s strong speculation that the Reserve Bank will reduce interest rates again, but if they do, I personally don’t envisage the banks passing it on to consumers. We’ll see a continued decline in investors which will coincide with an increase in owner occupiers. This is a very good long-term thing as it helps the market have a healthier balance.
More robust conversation on how to encourage first home buyers.
Home ownership is ingrained into Australian DNA: It’s not an entitlement but it’s always been encouraged. I would be saddened to see that change as I want to see more young people on the property ladder and experience the same things as previous generations.
The industry needs to focus on encouraging first home buyers to enter the market. Personally, I’m not convinced that throwing money at first home buyers through grants is the right way to go, nor am I convinced that allowing them to make purchases with their superannuation is the right way to go either. It will be nice to see some pressure applied to banks – for them to look at giving discounts or concessional rates to first home buyers. I would still love for first home buyers to continue to be offered deals with a five per cent deposit and a more competitive interest rate.
Developers to become nervous and less likely to take risks.
We have seen a general sense of nervousness from developers recently so I hope to see a greater sense of balance around approvals as a result. In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins. As market levels fall away slightly, some developers might struggle to cover costs.
Towards the end of 2016 we might start to see some investors potentially walk away from their deposits because they perceive that they paid too much for it in 2015 and see that it’s no longer worth the risk. Personally, I see this as very much a knee-jerk reaction as most investments should be viewed with a long-term strategy in mind.
2016 will be the year that Chinese developers really arrive in Sydney – and they’re going to aggressively market their developments in mainland China. I have no problem with foreign developers coming in but there should be a quota of stock that must be sold to Australian residents.
Changes to lending rules will freeze out some investors.
The early part of 2015 saw investors buying off-the-plan but as these developments start to take shape and bricks go into the ground. The recently introduced macroprudential measures will make it difficult for buyers to complete the purchase. Investors might have committed to an off-the-plan purchase as their mortgage lender considered them qualified to borrow at the time, but when it comes to the buyer needing the finance, there will be changes to lending rules, which – I think – is unfair.
Going into 2016, mortgage lenders will start freezing out investors, as lenders actually don’t have an obligation to provide the finance. They will simply say that they can’t provide the finance on the original terms (say, a 5% deposit) and that now much more is needed. Lenders might have said yes on a certain date in principle but the framework of their in-principle agreement should carry through.
Under-supply of housing.
I believe that while town planners and councils might be meeting their quota in terms of dwellings being built, they might not be the right dwellings for the demand. In my opinion, a disproportionate level of apartments are currently under construction – and now that the investor boom is over, we have an issue. Planners should take a responsible and sensible approach to what the demand looks like, and offer tangible solutions. We have to be careful we don’t build too many units and apartments because it will rob some suburbs of their identity.
Furthermore, I believe that there is a huge density problem. We know that Australians have more living space per capita than anywhere else in the world, so are apartments really what is needed? You’re not going to have a family of five on the 32nd floor of a high rise, are you? Now that the investor market is slowing down, I want to know who’s going to be buying because the stock being built does not necessarily correlate to demand.
Suburb desirability and price changes from council amalgamations.
When councils amalgamate in 2016, certain suburbs will be impacted on more than others in their desirability and/or price. Look at somewhere like Botany for example, all of a sudden it could become part of an enlarged eastern suburbs council. Of course it’s going to become a lot more desirable and expensive.
On the flip side, look at what happened when the government tried to divide Mosman into five suburbs – the sentiment was so strong against it that the call was rejected. You really need to think about what’s in a postcode, in a suburb, in a council area because there could certainly be an impact on desirability for the better or the worse. Just look at the conversation about the Woollahra, Hunters Hill, Ryde and Lane Cove councils right now.
More disruptors, disintermediation and ‘uberisation’ – but unlikely to take off.
More disruptors will try to enter the market and shake things up for real estate but that they will be less likely to survive in the new landscape. Disruptors are more likely to thrive in a strong seller’s market when vendors struggle to see value for money. These start-ups might have all the key ingredients to disrupt the traditional model, but in a softer market, like the one we are transitioning into, these new players will struggle to succeed.
As the market returns to something that resembles an ‘everyday market’ in 2016, we will see a lot of agents leave the industry. Those who were in it for a quick buck will quickly realise that they now have to work for their money and this hopefully means that the quality and standard will improve across the board. It’s a great opportunity to raise the bar for the next boom. This will allow us to improve entry level education standards so it will be far more difficult for the fly- by-nights to get a job in the industry.
Sydney to become a spider’s web.
I really think that we will start to see Sydney become more of a spider’s web in 2016. Regions of Sydney have always been so disconnected but for the first time ever we will see a joining of the dots. Some areas currently considered as outposts will benefit from the construction of four new metro train stations, the south-west rail link, and the development of eight new stations in the north-west.
To give credit where credit’s due, the planning of Sydney’s transport system has vastly improved. With the new developments underway, it’s going to open up some key suburbs and make them more desirable. As transport infrastructure improves, we will slowly start to see the divide between east and west fade as a result of greater accessibility. Starr Partners’ buying data already proves these divides are softening right across Sydney.
Semi-abandonment of the auction process.
As the market grew more robust over the past year or so, more people opted for auctions, but as it softens, I anticipate that people will start walking away from the process.
As experts, agents need to start assessing the what, the why and the where, and what works best for the individual property and people involved rather than resolutely sticking to just the one method of sale. In a strong market, vendors are very prepared to follow the auction path but when things soften or when clearance rates fall, we can expect a semi-abandonment of the auction process.
DOUGLAS DRISCOLL is CEO of real estate agency Starr Partners.