The State of the Sydney Market

Paul Wilcox
The Sydney Market

Over the past 12 months I have noted an increase in property price of around 20% across the inner Sydney ring (0-15 kms radius from the CBD). Everyone from respected commentators to armchair experts alike, seems to have a theory as to why prices have increased so much over such a short period of time. These theories include; a growing population and a chronic undersupply of property; an increase in foreign investors, stable economic and political climates low& stable interest rates and relatively low levels of unemployment. Whilst a combination of all these factors is obviously at play, I believe that there is another and relatively new aspect which is helping to drive property prices higher at such an alarming rate.

Whilst I am reluctant to mention this, from what I have observed, buyer attitudes and behaviour is a key driver for this phenomenon. Today’s buyers face a predicament. They are fearful of missing out on their ideal property; in fact with auction clearance rates at an all-time high of over 80%, they have probably missed out on a number of properties before they finally purchase a home. This disappointment coupled with interest rates at an historical low means that they are prepared to risk taking on higher levels of debt to secure a property. By taking this gamble on interest rates remaining stable indefinitely, buyers are ignoring the ‘real’ value of a property and are now prepared to pay almost anything to secure it. This attitude of course further increases competition and as a result, selling prices.

Let me describe two very recent examples of this so called ‘hothouse’ phenomena:

1. A reasonably well presented 3 bedroom timber home in North Balgowlah last sold in 2012 for $1.272. Just last month it was offered for sale with nothing new added other than a fresh coat of paint. It was marketed at around $1.3 million. A number of young families turned up to bid at the auction. It sold for an incredible $1.55 million. This property although well presented was located in an inferior location (road noise, lacked privacy) and should therefore have reached $1.4 to $1.45 maximum as at this price, there were a number of ‘better’ options that could be found in the area and surrounds

2. A semi in Cairo St Cammeray last sold (unrenovated) for $1.010m in 2009. The owners renovated and it was placed on the market earlier this month with an auction estimate of $1.3m plus. Allowing for the renovation and increase in the market, I valued this property at around $1.6-$1.65m. It sold under the hammer for a bullish $1.803 million. At this price, a freestanding house could be secured.

The media would have us believe that this discrepancy in pricing is a result of agents misleading buyers. They are having a field day berating the industry for under quoting. And to some extent, they are right. However, under quoting has always been an issue; it is just more apparent now given that real estate is such a hot topic.

The Sydney market is dynamic and transacting in this market can be a challenge. To minimise frustration, I recommend the following:

• It is a matter of being patient and striking quickly once you find something that ticks your boxes.
• Keep in mind that it is not always only the ‘dollars’ that motivate vendors. Try and find out why the vendor is selling; what are their motivations. You may be able to build an offer that is more attractive than other buyers, whether it be a longer or shorter term settlement or even a lease back option. Remember, vendors may be finding it just as challenging purchasing their next property in this market.

• Don’t be led by agents when it comes to pricing. Buyers need to become experts in their geographical areas of choice. Do your own research; visit as many open houses as possible and keep track of sale prices. Keep your notes.

• Attend as many auctions in your budget/ area’s of interest and study the auctioneer and how others bid, we can bid for any buyer that is not available or not confident on the day to do so.

Lastly, don’t despair! Try not to buy into the ‘hot house phenomena. It is possible to secure a good property at a reasonable price in this market. By way of example, I purchased a property in the booming inner west earlier this year. It was advertised for auction with a guide of $700k plus. As to be expected, numerous people turned up to bid. The property passed in with only one bid – mine. I made it a strong one of $815,000. Needless to say, many bidders walked away frustrated and disappointed. The vendors reserve was $840,000, a figure that we had already discussed with our client as being likely. We negotiated with the vendor and purchased the purchased the property under reserve and under our appraised figure. Patience and readiness will pay dividends