Australian Property Market: Is now the time to buy in Sydney?

Now that the election is over, many people are asking if now is a good time to buy a property in Sydney. This eagerness has been heightened by two other aspects: the loosening of mortgage restrictions by APRA, as well as SQM’s latest data that we are in for a possible increase in prices.

So, is now a good time to buy in Sydney?

For those who want a simple and quick answer, that answer is NO.

However, for those who would like to understand why and what they should be looking for in the market, I have taken the time to explain what exactly happened and why we are looking at the largest fall in property prices any of us can remember.

Here’s what will happen in the Sydney property market next.

To understand what is likely to happen we first must look at what did happen. Between 2012 and 2015 we experienced a property boom in Sydney and saw units grow by 59% and houses by 42%. This cycle was due as the market had been suppressed for some time. When looking back at the previous boom its interesting to note that it lasted for just as long with similar results, units increasing by 61% and house by 40%. At this point things were following the normal ups and downs of a cycle, including a correction however this is where things took a different turn to previous cycles.

Off the back of 2 interests rate cuts one in May 2016 and another in August 2016 the market ran again with unit prices spiking 19.4% in houses by 14.9% all in just 18 months. Traditionally interest rate cuts were a sign of a poor economy and it would bring caution into the market, so why was this time so different.

2014 and beyond, had seen an enormous spike in transactions from foreign buyers, so much so that as soon as the correction in early 2016 was halted by the 25% underlying demand from foreign buyers the state government introduced a 4% tax in June of 2016. At the same time, the major banks stopped lending to foreign buyers without a domestic income. However, this seemed to not be a large enough deterrent and in July 2017 the state government introduced an 8% foreign buyer tax which literally stopped the price growth in its tracks. 

Following this, loans to investors become increasingly difficult as funders of loans wanted larger deposits and wanted purchasers to move towards interest and principal loans.

Construction and development is a large ship and not one you can turn around quickly and as such, whilst the demand had dropped dramatically many apartment blocks and land subdivisions were well past the stage of turning back. As a consequence, hundreds of apartments completed in 2018 and are completing in 2019 with very few buyers. This has seen prices fall but we really cannot be surprised as the market in Sydney really should have peaked in 2015 and after a small correction of 3.5% it jumped up 20% – so I’m not surprised if this current correction drops somewhere around the 16% mark to accommodate for the unjustified spike of 2016/2017.

There are many other factors unique to this cycle that play their part and that we as commentators really have not witnessed before. One of these is the low-interest rates. On one side of the argument, the low-interest rates could mean people can hold on for a very, very long time and as such, it takes a longer time to find the bottom of the market than if the interest rates were high. On the other side, because interest rates are so low and predicted to drop further people will be less scared to jump back in. We will have to wait and see how this one plays out.

However one thing we do know and we have already mentioned is that construction and development is not a ship that is easy to turn around and at the moment it is stationary. We can see over the last 6 that construction has fallen dramatically and this will continue for some time moving forward. This is the first step in the cycle recovery. This will allow the existing completed stock to be sold and limit the options for those who would like something brand new in the future. What we will find is at some point the demand for new housing will be there and the construction of new dwelling will not and as a consequence, this is when we will start to see prices move up again.

When will the Sydney market bottom out?

I do not believe this is any time soon, however, I do believe we are very close to the bottom of the market. There are still benefits to buying in today’s market the main one being that you can negotiate aggressively without a lot of competition. So if you have inherited money it will serve you better in property than in the bank, all you need to do is negotiate when you are buying.

One thing we do know is that the fear of missing out is not there and the fear of paying more by being indecisive is not there and as a consequence, the activity in the market is low.

Watch the video and don’t forget to subscribe.