Sydney property prices faltering as new home 'tsunami' hits

http://www.smh.com.au/business/the-...as-new-home-tsunami-hits-20150920-gjr39u.html

A home-building frenzy that is shoring up Australia's economy as the mining boom ends may also be what finally takes the steam out of one of the world's most expensive property markets.

The case in point: Green Square. Nearly 10,000 apartments will be built in one of Sydney's newest suburbs in the next four years to satisfy investor demand, which has already sent property prices in the city to the highest ever. It will also add to the record 213,000 new home starts across the country amid slowing population and economic growth, prompting Goldman Sachs to warn of a supply glut by 2017.

"There is a tsunami of home supply coming," said Nigel Stapledon, head of real estate research at the University of New South Wales Business School and former chief economist at Westpac.

"The market is going to be tested in accepting this sort of supply. It's not like there is economic growth to support it. Income growth has gone from boom time to the lowest in a number of years and population growth has eased back."

Housing and home prices have been the biggest beneficiaries of the central bank's 10 interest-rate cuts since November 2011 to a record low that made mortgages the cheapest they have been in five decades. Economic growth has remained below historical rates and capital spending and confidence have sagged.

Some cracks are starting to appear. Auction clearance rates in Sydney dropped to 75 per cent for the week ending September 13 from a peak of over 90 per cent in April, as buyers' tolerance for some of the most expensive property in the world and a median price that touched a record $773,000 cooled, according to property researcher CoreLogic Inc. Nationally, auction clearance rates, used to gauge buyers' demand, have dropped to just over 70 per cent from a high of more than 80 per cent in April.

At the same time, demand from investors, responsible for more than half the mortgage commitments since August 2014, a record, is being choked by tighter lending requirements to landlords. Investor loan growth dropped from 29.6 per cent in April to 16.5 per cent in July, the latest government data showed.

Homes are 20 per cent overvalued, according to Goldman Sachs, which is seeing a one in three chance of a recession in Australia in the coming year, according to a note this month, while Barclays Plc puts the overvaluation at 14 per cent.

Dwelling prices have climbed 24 per cent across the country in three years to September 1, with Sydney leading with a 46 per cent increase, according to CoreLogic.

A surge in supply as economic growth sputters may temper those gains. The economy, trying to navigate a transition from a mining boom, expanded 0.2 per cent in the June quarter, the slowest pace since 2013, while wages climbed 2.3 per cent from a year earlier, matching the weakest pace ever.

In the short-term "strong supply growth can create some negative impact on prices," David Cannington, a senior economist at ANZ, said. "With the current headwinds facing the Australian economy and the lack of consumer confidence in particular, a further step up in supply would likely test the depth of demand and face significant challenges in some markets."

Green Square, about 3.5 kilometres south of the Sydney business district, is on course to be the densest suburb in the country. Sprawled across 278 hectares, it will see about 10,000 apartments completed in the next four years, according to the City of Sydney website. They will join almost 59,000 homes across New South Wales state that will begin construction this year, according to the Housing Industry Association.

While new-home starts are forecast to decrease from 2016, they will remain above pre-2013 levels, HIA data show. It estimates there will be almost 720,000 housing starts across the country in the four years to 2019 with more than half of that in Sydney and Melbourne.

Goldman Sachs economists led by Tim Toohey expects an excess of 75,000 dwellings by 2017 rather than a previously forecast shortfall of 140,000.

Besides tighter lending, landlords are facing falling rental yields as the number of homes for rent rises, values increase and population growth slows. Gross rental yields were at a record low in both Sydney and Melbourne in August with a typical dwelling attracting a yield of just over 3 per cent in Australia's two largest cities, according to CoreLogic. Population growth slowed to 1.4 per cent in 2014 and is on course for the slowest growth in nine years, according to Macquarie Group Ltd.

"We may be approaching a broad peak in home prices," Kieran Davies, chief economist at Barclays said by phone. "The main uncertainty about the market is tougher regulatory steps to curb investor demand. It's been the driving force lately and there are some signs it is slowing."

http://www.smh.com.au/business/the-...as-new-home-tsunami-hits-20150920-gjr39u.html

 

Apartments may take a hit but I don't see the prices of houses falling. Population growth in Sydney for 13/14 was 84,000 people. Even with a slowing population it's still likely to achieve 50,000 people each year until the economy picks up again. Unless the Government intervenes we'll just see more of the same.

 

Sydney is an international city. Property is 'expensive' because there is demand to meet that price. That aint gonna change any time soon.

I agree with @2FAST4U, everything will be much the same and play out as expected. No big surprises here. Cycles go round and round.

 

Are you trying to compare Sydney to L.A, Beijing, Shanghai, Tokyo, London, Berlin, Paris, New York?
Oh I see, it must be because Sydney is one of the world's international financial centers? No, no that isn't it.
It must be because Sydney is one of the world's famous cultural centers? Nope, not that either.
Or maybe it's because Sydney is one of those "cities that never sleep"? Ah nah, lockout laws etc.
Hang on! Maybe it's because Sydney is the international leader in iron ore exports, with the highest quality ore and the greatest volume of product, capable of meeting any country's demands?! That's Perth.
How about because it's just as efficient as some of the European capitals? Ah crap, I forgot that we only have at most 2 incoming/outgoing traffic lanes; a rail network that is regularly shutdown for 2/7 days; and almost no infrastructure development since the early 1990s.


Ahhh Sydney! It's a lot of things, but it ain't an international city! And if you think it is, you're just fooling yourself and stroking your Sydneysider ego.
Just because house prices have eclipsed some of the prices in the (actual) international cities, it doesn't mean that Sydney has suddenly become one.
This market has been, since the end of the FHBers grant, been largely driven by cheap credit, irrational exuberance and a need by foreigners to expatriate their funds.

 

Do you have any reason/proof that can back up your statement.

What is the requirements of a city to be called a international city? Sydney population is 5 million and it's up there with the top of the big city like London, Tokyo, NY.

 

Whether it is or isn't an international city...open for debate...however, almost everyone will agree that its by far the most international city in Australia.

 

My humble apologies. You can keep being right, while I keep making money from Sydney, which is NOT an international city.

Can't wait until it is then! profits should quadruple

 

Ah, propernewd, i was just wandering, did you forget to invest in Sydney's real estate a couple years ago?

 

And Mumbai has a population of ~18 million people. Is it on the same level as London, Tokyo and NY?

This I can agree with.

But its is disingenuous to make the claim that Sydney is an international city on the same level as those mentioned above. It isn't. It can definitely be, but it just isn't there at the moment.

I didn't mention anything about money, but good on you for patting yourself on the back.

Point is, Sydney ain't on the same level as London, NY or Tokyo.

 

Nope, out of my price league so I'm looking at other areas.

Besides, Sydney is/will be changing too rapidly to be purchasing anything at this point in time.

 

^^^^ fair enough

 

Apparently an Alpha+ city somewhere in the top 15 of world cities
https://en.wikipedia.org/wiki/Global_city

 

Such a long rant just to be wrong:

Global Cities index - http://www.atkearney.com.au/research-studies/global-cities-index/2015
The race for global city status is accelerating. While European cities prevail today, North American cities show greater potential, especially in innovation. And although top cities in China significantly outperform those in India, competition is tightening. Today's “global elite” list—that is, those that made it to the top 25 in both performance and potential—comprises just 16 cities.

https://www.atkearney.com/documents/10192/5911137/Global+Cities+2015‹The+Race+Accelerates.pdf/7b239156-86ac-4bc6-8f30-048925997ac4

Sydney is ranked 15th.

In fact Sydney and Melbourne are considered part of the ''Global Elite'' top 16 cities of the world.

 

BOOM

 

@THX Sydney is not mate!!

too much fun

 

@THX & @radson, thanks for the links! It's good to see some form of objective measure being brought into the discussion.

Don't get me wrong - I want Sydney to be an International city, on the same level as NY & London. But suggesting that it currently is, purely because of the current cost of housing, is just nonsense.
Data published by The Economist has Australian prices ahead of those in the U.S, UK and many European nations. Does that suggest Australian cities are at or above the level of U.S, UK and European cities, purely because of house prices? I would hope not.

Returning to your posts above Sydney being a Global city. Even on the index that you provided, Australia is 15th. It is behind Moscow (14th) and ahead of Madrid (16th), neither of which are in the best political or economic shape. Meanwhile the actual international cities - Tokyo, London, NY & Paris are occupying the top 5 spots.

 

Well you can stop wanting it, it already is. It will never be on the level of NY and London but then again no one suggested it was and no one suggested it was based on housing price either. You have your cause and effect mixed up, Sydney is not an international city because of expensive real estate, it has expensive real estate partly because it is an international city.

The index is the global 25, Sydney is 15th. By every measure Sydney is an international city. You're just digging yourself deeper.

 

hey...how come country town Brisbane isn't on the list
I call BS to this...its rigged I say...

 

Dam your right...we need Brisbane's profile to be upped now....

Brisbane International City of the year 2015!!

 

I'm sorry JDP1, where is this Bris-Bane you speak off?