The 2008 Property Guide

By Alex Brooks

It’s ba-ack. Sydney’s sluggish housing market has shown moderate price growth for the first time since 2003 – but warning bells are being sounded for the top end multi-million-dollar property market and cheaper suburban fringe housing.

Australian Property Monitors says average house prices went up five per cent to $553,000 and units up two per cent to $370,000 in 2007 – but price increases are not happening in all suburbs across Sydney.

As Australia’s largest and most expensive city, Sydney house price growth is lagging behind other capital cities, with Brisbane, Melbourne and Adelaide all recording 20 per cent-plus price increases.

Within Sydney, a great divide continues between the housing haves and have nots.  Well-located properties in the beachside and inner areas continue to boom in Sydney’s east, lower north shore and parts of the inner west.

But experts are warning that 2008 will be a tough year for the prestige housing market, with multi-million dollar properties likely to fall victim to volatile price drops.

 “The inner east was the standout area in 2007,” says Macquarie Bank’s head of property research Rod Cornish. “We’ll see that stabilisation continue and spread to the middle ring suburbs this year.”

During 2007, suburbs like Artarmon on the north shore rose by 19 per cent, Tamarama boomed by 41 per cent and inner western Rhodes increased by 39 per cent.

KPMG Demographer Bernard Salt predicts inner city and beach areas will continue to grow in price as Generation X and Y try to rent and buy in the same prime areas that Baby Boomers wish to live in.

But the story isn’t so shiny for suburbs on the fringes of Sydney, where price falls have already hit hard and could continue this year. Suburbs in the Blue Mountains, Central Coast and south and south-west of Sydney have seen falls, with many suburbs still not achieving the prices they registered in 2003 at the height of the last boom.

Residex CEO John Edwards says Sydney would be set for another boom year in 2008 if it wasn’t for uncertainty over the stockmarket crisis, interest rates and the world economy. “2008 is the hardest year I’ve ever had to predict in my 20 years in this business,” he says, suggesting that stockmarket fallout could lead to margin calls that force property sales in the upper and middle housing markets.

Rismark International’s head of research Dr Matthew Hardman warns that Sydney’s upper end property prices are set for a tough year. “People wanting to buy a new house priced around $1.5m would be using money they had in the stockmarket and now it won’t be there – that will keep a lid on prices in that upper bracket,” he says.

Cornish agrees, saying the volatility of the sharemarket will pull back the $2million-plus housing market which has been gaining strongly since 2001 and didn’t suffer any price falls after the 2003 boom ended.

“People think the share market only affects wealthy people who own shares, but in fact it has a broad impact on companies making employment decisions which impact the entire economy,” he says. “The longer the sharemarket volatility goes on, the more impact it will have on housing.”

BIS Shrapnel senior economist Jason Anderson says Sydney’s top 25 per cent of wage earners are forcing up property prices in sought after suburbs such as the north shore and eastern suburbs, while cheaper property on the fringes suffer price falls.

“People buying in places like Narrabeen or Cremorne are not first home buyers – they are on their third or fourth house and usually earning good money and most of these people are competing for the same type of property which forces up prices,” he says.

“This is the cheapest Sydney has been relative to the other capital cities since prior to 1993,” says Cornish. “It will be flat to moderate conditions for the year ahead.”

THE EASTERN SUBURBS

The city and eastern suburbs are set for a year of moderate growth during 2008 – but some property experts are warning of price volatility for expensive prestige homes worth more than $2 mkillion.

“The really high end beachfronts at Bronte and Tamarama may struggle – can people keep paying $4 million for those when there’s stockmarket problems?” says Rismark Internatiomal’s head of research Dr Matthew Hardman.

Macquarie Bank’s head of property research Rod Cornish agrees, saying top end prestige properties may not have as much growth as in previous years.

“The inner east was the standout area last year but the prestige market may not be as strong this year – some of the bonuses and gains people were spending on property won’t be there because of the sharemarket volatility,” he says.

“Within 10km of the city and the closer to the harbour or beach you are, generally the more standout and solid the growth has been. This year will see that growth spread into neighbouring suburbs – so look for suburbs within an easy drive of those that had double-digit growth in 2007.”

Cornish says suburbs with strong rental demand will be the same suburbs that have strong price increases this year.

“The property market is reverting back to the pattern it exhibited between 1910 and 1950 when the price increases are related more to rental income than capital gains,” says Residex CEO John Edwards. “People are getting used to the idea that they won’t get the capital growth they used to get, but they are happy with the rental income.”

KPMG Demographer Bernard Salt says 6500 people moved into the inner city of Sydney during 2007, pumping up demand for properties to rent and buy. “These people have a cultural attachment to the city and would rather die than not live there,” Salt says.

“Plenty of people have their claws firmly gripped around Bronte and Bondi and Paddington and they will stay in an apartment with kids and declare it’s a wonderful lifestyle even though they drive their neighbours mad with children crying.”

Sydney’s northern suburbs should continue to perform well in 2008, with experts saying strong buyer demand will underpin price growth in premium suburbs.

“The northside – lower north and upper north shore is strong. Those areas are practically impervious to market changes,” says L.J. Hooker CEO Warren McCarthy. “The northern beaches could be more steady as she goes.”

BIS Shrapnel’s senior economist Jason Anderson says the office development around Ryde and Epping, with the new rail link to Chatswood, is attracting workers to buy and rent in suburbs nearby.

“We’ve had double-digit growth in some areas and I don’t think we’ll have the same growth this year,” says Macquarie Bank’s head of property research Rod Cornish.

John McGrath Estate Agents CEO John McGrath says there is still value for buyers wanting a family home around Ryde and Marsfield, where the Lane Cove Tunnel has improved road access.

“Places like Cremorne and Mosman have a concentration of buyer demand and wealth and will always do well,” he says.

[w] estate agents’ Colin Craig says there aren’t enough houses for sale in the $1.5 million to $2.5 million price range on the lower north shore, and houses are selling within 24-hours of listing.

“There is so much demand in that price range from wealthy dual income couples to live in those areas,” he says. “It’s now put pressure on the prices for semis, which were selling for around a million last year but now sell for more like $1.2 million or $1.3 million.”

L.J. Hooker Pymble’s David Johnson says the upper north shore property market has been boosted by expatriate Australians working overseas keen to secure $3 million-plus family homes to return home and live in.

“What we’ve seen is that even houses that have been on the market for six months or more are selling,” he says. “There’s steady interest from buyers and they can afford to pay the prices.”

  SOUTHERN SUBURBS

 With waterways, a train line and clean beaches, Sydney’s southern suburbs offer some of the best lifestyle property in Sydney, according to L.J. Hooker CEO Warren McCarthy.

“The area between Cronulla and Menai closer to the waterways – the bays of Port Hacking such as Caringbah, Yowie Bay and Dolans Bay are all reasonably priced for improvement,” he says.

“You can get units around those areas for between $250,000 to $350,000 and waterfronts from $2.5million, which compared to the east and north is excellent value given the similar radiuses of travel.”

Australian Property Monitors’ Michael McNamara says the St George and Sutherland Shire suburbs are undervalued and priced for further growth.

“There is no logical reason for the south to be priced so much more affordably than the northern beaches, especially when you look at the problems the north has with public transport,” he says. “Arguably, the south has better public transport and nice beaches so I think there’s room for improvement.”

Waterside suburbs like Dolans Bay and Carrs Park have had 36 per cent and 17 per cent growth in house prices in the last year, with strong 10-year average price gains. “All of that points to those areas being highly desirable places to live,” McNamara says.

John McGrath Estate Agents CEO John McGrath says affordable suburbs close to the water – particularly Brighton le Sands, Kogarah and Bexley – are his pick for buyers looking to purchase for under $400,000.

 “It’s a good spot and the forgotten land. It has a high ethnic make-up and it’s not a traditional ground for Gen X and Gen Y but has most of the right elements – it’s close to the city and water and the ethnic mix creates great flavour with good food like Paddington used to have,” he says.

“You could buy a unit in those areas relatively affordably and know that they are priced for growth.”

WESTERN SUBURBS

It will be a mixed bag for western Sydney’s property market this year, with inner areas and middle ring suburbs between 10 and 20km from the CBD outperforming outerlying suburbs.

“All areas in trouble in the outer suburbs of Sydney in 2007 should be out of trouble by the end of 2008,” says Residex’s CEO John Edwards. “Those price falls should stop happening.”

But others – such as Rismark International’s head of research Matthew Hardman – warn that price falls in outer western Sydney and the Blue Mountains may continue this year.

The one bright spot is suburbs to the north of Blacktown such as Quakers Hill, Kellyville and Marsden Park which BIS Shrapnel senior economist Jason Anderson says have showed strength compared to surrounding suburbs.

“We’ve seen more middle management jobs move out to places like Epping, Ryde and Macquarie and those suburbs to the north of Blacktown with new houses have steady demand from cashed up executives,” he says. “Those suburbs with new houses and good transport access to employment are doing well. It’s surprised us how well they have done.”

Ray White Penrith’s David Turner says the financial crisis on the stockmarket and interest rate rises has buyers “freaked out” and the greatest demand is for properties under $400,000.

“The Baby Boomers are selling and moving on to something else and they might not be getting as much money as they thought, but it’s the young people starting out that are hurting,” he says.

“Investors are coming back because the rent returns are increasing, but it’s blue collar out here and with all the stories in the media, people are scared.”

In the Blue Mountains, Downer & Maher principal Annie Downer says the market is slow with the strongest demand around the $300,000 price point or at the luxury top end.

“The middle market between $300,000 and $600,000 is difficult here,” she says.

Theo Poulos Real Estate sales manager Bryan Hardy says that the mountains residential property market will be fine for properties under $350,000, where there is strong owner occupier demand and rising interest from investors.

John McGrath Estate Agents CEO John McGrath says suburbs close to inner west hotspots such as Annandale and Glebe will be the ones to watch this year. “Around Lilyfield and the back of Rozelle is good. Ashfield and Canterbury are interesting and as demand increases, those people that can’t afford Annandale will head to Petersham or Marrickville.”

CENTRAL COAST

With worries of interest rate rises and higher petrol prices, experts are predicting another tough year for Central Coast property price growth.

“The Central Coast has parts that have dropped by five per cent and that will probably continue this year,” says Rismark International’s director of research.

Premium beachside suburbs that rely on wealthy Sydneysiders to purchase holiday homes are faring better than suburbs further from the beach that contain generic housing stock, according to Australian Property Monitors’ Michael McNamara.

 “For inland Central Coast suburbs, it won’t be a great year and there are possibly more price falls to come,” he says. “The Central Coast is typical mum and dad battler territory and with all the economic uncertainty, it’s going to create problems.”

But Property Central principal Jamie Goddard says Sydneysiders fleeing higher interest rates have helped push the mid-range $500,000 market along.

“We’ve found a lot of people are leaving Sydney to buy out here and it works wonders for them – they are only an hour or so from the heart of Sydney, the lifestyle’s good and it’s more affordable,” he says.

The million-dollar-plus rural and beachhouse properties in areas like Matcham and Terrigal has shown more strength than it did earlier in 2007, Goddard says.

Starr Partners East Gosford principal Stephen Gittoes says the top end and bottom end of the Central Coast market have strong demand.

“We cannot get enough houses in that first home buyer price range. There are plenty of people out there waiting to buy something in the low to mid $300,000s,” he says.

“Investors are beginning to return to the market – which we haven’t seen here for a few years – and some properties are now getting five or six per cent returned.”

Goddard says rental demand has improved, with too few quality listings available for rent on the coast.