The Importance of Being Selective

Last newsletter we covered the general softening of the Sydney property market which began over 6 months ago. Many would now agree we have been travelling in a ‘flat’ market for a number of months, and this could be an ongoing trend for a while to come.

Much has been made of low auction clearance rates, and many are now asking if prices have dropped across the board or are likely to drop in the near future. On the contrary, what we are seeing on the ground in the established inner-ring suburbs which we buy in is much more complex and polarising. Clearance rates have been relatively strong in particular areas, with many of the better properties enjoying solid gains.

A combination of fundamental and localised factors is at play which we have not experienced for some time.

Fundamental property characteristics

As prices have plateaued, buyers for the first time in many years are taking their time and purchasing for the long-term. With immediate capital gains no longer so obviously achievable, property shortcomings that were once casually overlooked, are getting much harder for buyers to stomach. Problems that cannot be readily fixed, are being seen for what they are – serious problems. As experienced Buyers Agents, we are constantly and unemotionally evaluating core criteria ranging from floor plan, aspect, overall proportions etc. We do this to maximise liveability/rentability, but also to ensure maximum capital growth and minimum exposure in a downturn.

Sometimes the fundamental question can be as simple as “is this property typical of others in the area” – ie. Is this the sort of property people in this suburb aspire to live in?

A great example of these subtle influences at work was witnessed a couple of weeks ago in Elizabeth Bay where apartments have enjoyed average growth of +3.6% year-to-date (YTD).

Back in March 2017 investors and owner occupiers alike would have scrambled to purchase the well-located and original two bedroom apartment with parking at 204/12 Ithaca Road, Elizabeth Bay. In this more competitive market, the fact that it was in a fairly utilitarian block by iconic architect Harry Seidler did not deter bids reaching $1,500,000. Jump less than a year later to a more fickle market, and even the warm sympathetic styling could not motivate buyers beyond $1,390,000. That’s a whooping -7% drop, in a suburb that rose +3.6% on average over the same period!

As Buyers Agents we cannot emphasise this point enough. Investors can speculate at length about suburbs that will likely grow, but if they get the fundamental property characteristics wrong, things can really turn for the worst. Likewise, if you get your fundaments right, the reward will likely be above-average price growth.

Localised factors

It’s been a long time since Sydney has undertaken so many infrastructure upgrades. Almost all at once we are seeing major extensions of the light rail network, building a whole new Metro train line (complete with brand new stations), and implementing the complex Westconnex road system right across Sydney. While many localised parts of Sydney are affected, plenty of buyers and sellers are seeing opportunities; while others are fleeing the upheaval.

In Kensington and Kingsford along Anzac Parade we have witnessed investors paying a premium for average stock just to be next to the new light rail. Will a busy and noisy road already well served by public transport be so greatly enhanced by a tram line? And what are your rental expectations during the next two years of noisy and congested construction? Our feeling is a busy road is always something to be avoided.

In Rozelle the impending maze of Westconnex tunnel construction has sent the most affected streets into a spin. Many are getting out before the works have even begun, creating a property glut and slump in prices. However, the overall growth rate for Rozelle still stands at a respectable +3.1% (YTD). This indicates the better located stock is fairing very well despite localised issues.

As infrastructure works are completed, we would expect prices in those areas affected to recover – as they have done in Frenchs Forest. While still under construction, the new Northern Beaches Hospital and adjacent road works initially threw the nearby streets into turmoil. Many there left in a hurry too and created a sales price downturn. However, today it’s a very different story with the suburb enjoying +7.8% growth (YTD).

Outlook for 2018

Despite much of the gloom and doom we have experienced recently in the real estate media, we are optimistic about price growth in the established suburbs we operate in around the North Shore, Eastern Suburbs, Inner West and Northern Beaches. Even in this ‘flat’ market we are still seeing solid gains for good property but are also noting with interest the difficulties sub-standard stock now faces.

Taking a more long-term view, we see this slowing of growth as an ideal opportunity for owners to upgrade, or for first home buyers to finally get into the market. With the right advice and expert negotiation, buyers can really concentrate now on finding the best property at the right price. As we see more than ever, doing well in real estate is all about making the right purchase.