Buyers swoop in on Sydney
Prices soar across the metropolitan area as low vacancy rates, affordable mortgages and overseas investors perpetuate demand, writes Peta Tomlinson
Sdney might be joining New York, London and Hong Kong as world cities with the most expensive housing. That's the Aussie buzz following a white-hot, late-autumn auction period, where even "a dilapidated terrace with rotting carpets and holes in the ceiling" was auctioned for A$800,000 (HK$6.01 million).
Not so long ago, a million dollars would buy a palace in Australia, but those days are gone. At the end of last year, there were 246 suburbs across Australia with a median house or unit value greater than A$1 million - over half of them in Sydney, according to RP Data.
Vacancy rates at near record lows across the metropolitan area, combined with successive interest rate drops, are spurring Sydneysiders into what agents describe as a buying frenzy. Auction clearance rates are regarded as an indicator of a healthy market and, according to Savills, they reached 78.6 per cent in May - a level not seen since September 2010.
Yet, even those underlying factors did not prepare the selling agent for the blow-out price achieved for the derelict house on a 125-square-metre block at 182 Denison St, Newtown. Before the auction, "no-one was talking above the mid-sixes", says Jonathan Viewey, of Raine & Horne Newtown. Six bidders on the day pushed the price well above the A$685,000 reserve.
A fully renovated property in this location, 3km from the central business district, close to the University of Sydney, a major hospital and sought-after schools, might cost around A$1.25 million, Viewey says. "Unrenovated properties here are in high demand - people like to create what they want," he says.
People also crave ready-built luxury. Sydney ranks in the top 10 cities in Savills' World Class Index of premier global property locations and, according to Tony Leong, of Savills Australia Asia desk, competitive bidding for properties over A$10 million is coming from local and international buyers. So far this year, one Point Piper property sold for over A$50 million, and two for more than A$30 million, with two of the buyers reportedly being Chinese, he says.
"Foreign investment is fuelling the market," Leong explains. "With restrictions on buying investment property in Singapore, China and Hong Kong, buyers are now switching their focus to places such as Australia, and this has become even more advantageous with the weakening of the Australian dollar."
Shayne Harris, head of Savills Residential, says Sydney has four of the five wealthiest regions in Australia, and an internationally-recognised luxury residential market. "Sydney is seen as a desirable destination to live, coupled with Australia being one of only eight countries to have retained its AAA credit rating," he says. The city is also faced with a shortfall in housing supply, and this undersupply gap is continuing to grow, Harris adds. "With an expected increase of 1.5 million people to be living in Sydney in 2031, this will fuel the demand for housing," he says. While recent auction activity has led some to talk of a "boom", according to buyer's agent Patrick Bright, of EPS Property Search, Sydney's boom cycle hasn't even started yet.
"When it does - watch out," he says. Developers have been holding off on new projects until profits are back in their favour - a pendulum being swung by a rental squeeze and increasing property prices, Bright says. "Rents are going up, and this impacts yield. Yields impact asset value. When the price point is right, then we will see a building boom."
The under-A$1-million-sector is "very hot", especially for investors and first-home buyers, but pickings are slim, Bright says. He gets lots of inquiries from Hong Kong and Chinese buyers wanting to invest in Sydney, but he works solely with permanent residents.
"I don't agree with the Foreign Investment Review Board (FIRB) rule [which allows 100 per cent of approved new-build residential properties to be owned by overseas nationals], as I just don't see how this helps the local buyers get into the market," Bright says.
Besides, he says he "won't help people to buy overpriced real estate".
Not every building is FIRB-approved and, if a developer can sell to non-residents, "he can name a price above what a local would pay", he says. "I still see property selling now at what they should be in five or 10 years' time."
Not necessarily, argues
Rich Harvey, CEO of propertybuyer.com.au, who describes this view as "a whitewash statement".
"Certainly, some of that does go on, but just because a property is FIRB-approved, doesn't mean it is overpriced," he says.
The key is to get independent advice, Harvey adds. "A selling agent is not objective, but by using a buyer's agent, you pay a flat fee for advice, regardless of which property you buy," he says. "Our team targets areas that meet our investment criteria - some we will recommend, others we stay away from."
What you can buy for A$10 million (HK$75.17 million)
5 Ithaca Road, Elizabeth Bay, a harbourside suburb in eastern Sydney. The landmark Georgian Revival/Spanish Mission-style home, built in 1926, has been strata-titled as four apartments. Suitable for a luxury redevelopment, or revert to one palatial home.
What you can buy for A$500,000
A new apartment at Trieste, Ultimo, 2km from Sydney's CBD. Featuring European-styled interiors, the building is FIRB-approved, and within walking distance of Chinatown, Haymarket and Darling Harbour.