Sydney house prices in 2010 – heading Up, down or nowhere fast?

made the move to australia

I should preface this article by saying that unfortunately the crystal ball to tell us how Sydney house prices will weather the next 12 months has not yet been discovered.

So, if you are looking for someone to tell you this with certainty – keep looking – and tell me if you find that magic crystal ball.   But, if you are interested to read my perspective on the Spring market – and the factors that help some properties to outperform others – then read on.

SYDNEY housing market in spring 2009

Spring in Sydney is traditionally accompanied by prodigious listings of homes for sale – particularly in its more affluent eastern and northern suburbs.   2009 proved no exception, with many homes being offered for sale in September and October – with some more recent listings hoping to sell before the Christmas slowdown.   The Domain North supplement in Tuesday’s Sydney Morning Herald is a good indicator; traditionally comprising one section, over the last month it has yielded two bulging sections of homes for sale.

The difference with Spring 2009, however, is that there is still some pent-up demand and supply working through the market.   Since 2008 many people have been sitting on their hands, not wanting to sell their property for a less than optimum price – and many buyers likewise have played a waiting game – to see where the market is heading, to avoid over-paying in a potentially declining market.

Now, some of the negative thoughts have left the forefront of people’s minds; people are less worried about losing their jobs, their share portfolios have recovered somewhat and Australian house prices have proven relatively resilient during the Global Financial Crisis.   The local media is telling us it’s a good time to upgrade and to take advantage of low interest rates.   But how has this impacted the Sydney housing market?

I have anecdotally noticed a significant increase at open home inspections in the last few months.   Some friends happily reported that 33 groups attended their first open-house last Saturday.   So there are a lot of people out there – to match the large number of listings.

But this isn’t necessarily resulting in prices being bid up by competing parties.   In fact, some homes are selling for prices slightly lower than the selling agents’ initial price guides.   And many homes are being sold in the week preceding their auction – which is often a sign of a lack of competing bidders and a nervous seller.   And some properties continue on the market, unsold.

I put this down to a lingering air of caution.   People are out there, and there are properties for sale – but not everyone is willing to transact.

This, though, can be good news for buyers; it is still possible to find and buy a property without having its price bid up too high by competing parties.

factors to look out for when buying a house in Sydney

But if you are ready to buy – what factors can you look out for that may help you to find a relatively good property investment?

I categorise the factors that influence property prices (demand and supply) into three groups.   Firstly, macro influences includes factors outside our control, such as interest rates, the performance of the economy and government policies.   Secondly, the market or region in which a property is located will influence the demand from renters and other buyers.   This may include population trends, demographics, local infrastructure and government spending.   And the third grouping of factors are the property specific factors, including the property type, its location, aspect, size and quality of presentation.

So, it is critically important to select an area that will support an ongoing demand from people wanting to live there.   In Sydney, this largely means proximity to Sydney city – the largest employment hub.   Next best are areas that are close to local infrastructure and good transport connections.   Hospitals, for example, provide an ongoing source of rental demand for the surrounding areas.   And good schools create demand for nearby houses.

Areas closest to the city may be undesirable due to their mix of inhabitants – but these areas may undergo a process of gentrification as their proximity to Sydney city becomes more and more in demand.   It is when these areas are relatively out of favour that good buying opportunities exist.   It is still possible to buy a terrace house – with parking – within 5kms of Sydney city for under $700,000 – if you know where to look!

In selecting a property for maximum capital growth, it is worth remembering that it is the land component that appreciates most – whilst the building will depreciate over time.   For that reason, I instinctively prefer houses to apartments for investment.   And more specifically character houses.   Whilst they may have higher maintenance costs during the period of ownership, they are increasing in their relative scarcity, as more and more homes get demolished to make way for modern, generic apartment developments.

There are several property-specific factors that make one home more desirable than the next.   These include proximity to local amenities, whether they are lifestyle factors, such as beaches or the harbour – or local parks, shops, cafes and restaurants, as well as proximity to reliable public transport.   A quiet street is always preferable to a busy street.   And homes with a North aspect will enjoy more winter sunlight than others.   Whilst many aspects of a property can be changed over time (paint, carpet, light fittings) – the inherent attributes cannot.   The size of a property, the quality of its construction, its age of fit-out and available parking are all factors which will further influence its price.

So – arm yourself with as much local market knowledge and price research as possible, and keep in mind the attributes that make some areas and some properties inherently more desirable than others.   These properties stand a good chance of outperforming others in the medium to long term.

Ian Macintosh

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