‘A dire position’: 2022’s shock Sydney real estate warning

An entire real estate growth cycle has been squeezed into the last 18 months in Sydney which means a reckoning of sorts is likely, experts say.

Premium property is primed for another strong performance in 2022, with real estate agents reporting big crowds at the first open homes of the year, while online listings in the eastern suburbs, north shore and northern beaches are attracting more interest than listings anywhere else in Australia.

The promising start to the year shows that buyer demand remains strong, even as economists tip market slowdowns due to an influx of properties listed and an increasing likelihood of interest rate hikes.

Analysis of recent data from ­realestate.com.au suggests much of the pent-up buyer demand from last year is in the premium property sector.

The data found that over the past 12 months, Sydney had the top four most searched regions in Australia for property and three of those were prestige areas. The Northern Beaches region was in top spot with 10,534 views per listing (VPL) while the North Sydney and Hornsby region was third with 10,322 VPL and the Eastern Suburbs region fourth with 9936 VPL.

The interest in these locations was boosted by the fallout from the pandemic, according to REA economist Paul Ryan.

Premium property is primed for another strong performance in 2022.

“We’ve had a two-speed economy and while we had a decline in economic growth and activity, a lot of people at the higher end of the income spectrum have seen the opposite,” Ryan says.

“People in high-value, white-collar professions have done well out of Covid and reductions in immigration and the demand for highly skilled industries, particularly in IT and finance.

“On the wealth side of things, (low) interest rates have very much benefited people with assets. So those underlying economic drivers have been a key reason we’ve seen high-value regions perform so well over the past couple of years, despite some economic turmoil.”

Ryan points to significant wealth returning home from overseas with expats due to the pandemic as a factor putting upwards pressure on premium property, while the year ahead is likely to see a further increase in demand from abroad.

“We’re looking like coming into a strong period of economic growth, which these markets traditionally do very well from,” he says. “And the reintroduction of overseas demand is another positive.”

RBA INTEREST NOT RISE ‘NOT CERTAIN’

Ryan is not as convinced as other commentators on the likelihood of RBA rate rises.

“I don’t think the RBA is going to raise rates as soon or as quickly as others are expecting,” he says. “Most of the predictions around price corrections or flat growth are predicated on rates being raised, and I’m less sure.

There is still strong demand for eastern suburbs property. Picture: Destination NSW

“I think that because households have taken on so much debt in this low interest rate environment, the RBA is going to be reluctant to jack up rates really quickly.

“So I think the market is likely to rise for the next year or so, though not as strongly as we’ve seen for the last couple of years, and then likely to be flat rather than falling after that when interest rates are increasing.”

Ryan says the uncertainty around the pandemic means there is bound to be risk in future Covid variations and how the world economies react, but in general there is a lot of optimism around.

“One of the big things that drives prestige property is optimism for the future,” he says.

“If people are optimistic they’re more likely to want to spend a slice of their wealth and buy a $15m property.”

Rosalina Da Silva has owned her apartment at 8/33 Francis St, Bondi Beach since 1984. She recently made the tough decision to sell.

“It’s bittersweet. I’ve loved living in Bondi, but it’s time to move on to something different,” she says. Da Silva has taken comfort in the strength of the local market, which will see her apartment go to auction with a likely guide of $1.5m.

“My accountant always told me to buy where they can’t build around you, and it was good advice,” she says.

Rosalina Da Silva’s balcony has a view of Bondi Beach. Picture Renee Nowytarger

Her selling agent, Ron Bauer, of Ray White Bondi Beach, says apartments like Da Silva’s will enjoy growth conditions in 2022, but he also expects continuing upward pressure in the rest of the prestige market.

“Apartments are likely to rise as the ‘next step’ gets further away, but there have been countless success stories business-wise in the last 12 months and the big end of town has profited,” Bauer says.

“The eastern suburbs have stood the test of time. Growth is inevitable and likely to outpace (markets) just about anywhere.”

Bauer says market conditions have already picked up after a brief lull at the end of last year.

“Evidenced by a substantial spike in buyer inquiries and inspections, most of what was left behind in December has already sold and there is a clear hunger for new properties.

“We are confident that selling conditions will be very positive through February and March at least.”

The positive outlook for the eastern suburbs and north shore comes on the back of a boom year, in which separate CoreLogic data shows those markets outperformed the rest of Sydney.

The research places the value growth of greater Sydney houses at about 28 per cent for the middle market bracket, while eastern suburbs houses grew by 29 per cent and north shore houses by 38 per cent.

Da Silva has owned the apartment since 1984. Picture Renee Nowytarger

When it comes to units in the same brackets, Sydney’s 12 per cent growth is comfortably outstripped by the eastern suburbs’ 22 per cent and north shore’s 16 per cent.

CoreLogic’s head of residential research Eliza Owen says Sydney’s blue-chip apartment markets have benefited during lockdown periods.

“Units in these markets are lifestyle options, rather than the high-density, more affordable units that (were affected by lockdown),” she says, adding that the eastern suburbs’ upwards price pressure comes from lack of space for new property and therefore less supply.

“There are lower levels of development,” she says. “There were 520 dwellings approved in Sydney’s inner city, for example, over the past year, while Woollahra had none and there were very few in places like Bellevue Hill and Double Bay.”

GOALPOSTS SHIFT ON PRESTIGE PROPERTY

Look no further for proof of the demand for premium lifestyle apartments than a sale by Sotheby’s managing director Michael Pallier, who achieved more than $20m for a five-bedroom Darling Point garden apartment, about double what it last sold for in 2018.

“The prestige market is as strong as it’s ever been, it’s going to be a great year,” Pallier says.

Owen says the goalposts shifted on what is considered prestige property during the recent price surge.

“What we now know as the high end of the market has risen by a few million dollars,” she says.

Sotheby’s managing director Michael Pallier. Picture: Jonathan Ng

“I don’t see prestige markets avoiding a downswing phase, but amid all the fluctuations property is a long-term game and if you look at Sydney’s prestige market over time, you are likely to continue seeing strong performance.”

Ray White Group chief economist Nerida Conisbee believes the potential for rate rises will be offset by a positive economic outlook in general, which will boost premier property values.

“We know the next rate movement is up, so that’s probably having an impact (on confidence),” Conisbee says.

“However, overall we are expecting to see decent economic growth conditions.

“A lot of people have taken on more debt with low interest rates, but there are still a lot of people making a lot of money across a wide variety of industries, which will continue to prop up the luxury property market.

“Sydney is an international city and that plays a role.

“Certain types of job pay a lot more in Sydney than the rest of Australia. There is a lot of money in Sydney and a lot of confidence in property.”

However, Conisbee does not expect growth to continue at the same level as in the past 18 months, noting that we have had what seems like an entire growth cycle in a much shorter period than usual.

Ray White Group chief economist Nerida Conisbee. Picture: Supplied

“One thing that will moderate the top end of the market is how far prices shot up in 2021,” she says.

“Somewhere like Double Bay, the median has increased by close to $2m.

“I don’t think prices will fall, but they will begin to moderate.

“Sydney’s median has shot up by about 50 per cent since March 2020. I think values will hold up but I don’t think we’re going to see double-digit price growth again in 2022.

“It will give people more time to make decisions.

“Most sellers are also buyers in the same market and if you’re selling your home in a fast-moving market and want to use that cash to buy a new one, it’s very stressful.

“If you leave it three months in a fast-moving market you can end up in a dire position.

“A little bit more decision-making time and calmness in the market isn’t necessarily a bad thing. It’s just a little bit more power shifting back towards the buyers after a pretty tough couple of years.”