Mixed Fortunes in Sydney Property Markets

Mixed Fortunes in Sydney Property Markets
August 8, 2019 Tony Lenord

At the July 2019 meeting, the Reserve Bank of Australia decided to lower the cash rate by 25 basis points from 1.25% to 1.00%. The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target.

After the announcement was made ANZ was the first major bank to announce that it would pass on the 25 basis point rate cut in full to all of its variable home loan customers. Commonwealth Bank of Australia, NAB (National Australian Bank) and Westpac have all passed on rate cuts to owner occupiers and investors for principal and interest loans.

The impact of this on the property market is considered to be significant as a lot of people, who were sitting on the sidelines, whether they were investors or owner occupiers, may now consider upgrading or coming back into the property market.

Recent negative sentiment including the findings of the Banking Royal Commission, political uncertainty, tighter lending standards, changes to negative gearing and capital gains tax, unit oversupply and large falls in dwelling commencements have all had a huge impact on the Australian property market.

In the residential property market, conditions over the next twelve months are expected to remain soft/relatively static, although in some markets the rate of price decline has slowed and auction clearance rates have increased. Growth in housing credit has also stabilised over recent years. Credit conditions have been tightened and the demand for credit by investors has been subdued for some time. But this is now starting to ease with APRA starting to loosen requirements. Quality properties in tightly held areas should maintain value and sell within a reasonable time period while areas of high supply and undesirable properties may expect to experience further price reductions and extended selling periods.

In the commercial property market, the Sydney office market’s lead indicators show that over the past 6 months tenancy demand in the Sydney CBD has continued to gain traction with an overall net absorption of 22,216 square metres. It can also be seen that the overall vacancy rate tightened from a peak of 6.2% in January 2017 to 4.1% a record low in January 2019.

In the industrial property market, Sydney industrial property prices have seen continued strong growth underpinned by further yield compression coupled with the growing trend for developers paying a premium for rezoned or underdeveloped land. Smaller modern industrial units with leases are attractive to smaller investors and regularly reflect yields of circa 5%. There is also a high demand from developers looking to optimise outdated and underutilised properties.

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