Sydney’s property market has been something of a miracle for the past five years. Since the current economic growth cycle began in early 2012, values climbed 74% to the end of 2017, CoreLogic figures show. The gains at the top end of the market were even higher, with the upper 25% of the market sometimes rising more than 7% per quarter.
Inevitably that’s come to an end, and values are creeping down. While few are expecting a market crash, industry watchers are expecting falls of 5% to 10% this year. For prospective buyers wanting to get a foot in, that could mean the opportunity to purchase a luxury property for a better price than the market peak.
For the best homes in areas like Sydney’s desirable eastern suburbs, cut-throat prices are unlikely, said Charles Tarbey, chairman of Century 21 Australia, but prices could drop a few percentage points. At the top end, that is potentially hundreds of thousands of dollars.
"I don’t think there are going to be any bargains," Mr. Tarbey told Mansion Global. "I think prices will come backward but I think people will still pay very good money for quality property in the eastern suburbs."
The only thing that might change that, he said "are a massive hike in interest rates or a decline in equity markets. If you start seeing those two things happening, that’s when the eastern suburbs will start to look very attractive."
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Further to fall at the top
Since peaking in August 2017, Sydney property values have broadly fallen by about 3.1% according to CoreLogic. When the numbers are carved into lower, middle and higher price bands, the expensive end of the market looks to be falling faster.
CoreLogic head of research Tim Lawless says the top 25% of the market is down 4.8% while the more affordable end is down only 0.9%. When the top 10% is isolated, the fall in values is more stark: 5.8% since the market peak.
"We are seeing more weakness around the top end of the market," Mr. Lawless said. "It’s very much skewed toward detached houses. So if we break this data down into houses versus apartments, regardless of the pricing tier, it does look like apartments are holding their value more firmly than what detached houses are."
Cutting the numbers further, detached houses are showing the greatest decline—5.8% for the top quarter. Meanwhile, the top quarter of apartments have only fallen 2%.
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In the years following the financial crisis, Sydney’s top end was among the hardest hit. Some suburbs like Vaucluse had prestige property value decrease by up to 20%. When buyers smelled blood, in cases such as mortgagee or distressed sales, the discounts were even greater.
But this time there isn’t the backdrop of corporate turmoil. Many attribute the falling market to tighter credit policies from the Australian Prudential Regulation Authority, which has forced banks to be stricter in mortgage lending to housing investors. Investors have played a strong role in supporting the Sydney market, Lawless says, and the regulator’s policies are starting to bite.
He expects aggregate values to fall between 5% and 10% peak to trough, and then flatline for a while as fundamentals catch up. It is unlikely to be a bloodbath.
"You will find in a lot of cases at the top of the market there is going to be shortage of stock, people simply sitting tight and not willing to put property on the market," Mr. Lawless said.
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Still some opportunities
But properties for various reasons still need to be bought and sold, and sellers are often willing to accept lower prices when they know they are buying another for a similarly discounted price, neutralizing their losses.
Chris Gray, who hosts "Your Property Empire" on the Sky Business channel and is the CEO of Sydney property agency Your Empire, said foreigners and overseas-living Australians have been hit particularly hard with the new regulations from Australian Prudential Regulation Authority.
So one of the biggest challenges for buyers interested in taking advantage of the current market will be borrowing money.
"Typically foreigners, or even if you’re Australian but you live overseas and you’ve got overseas income, they’ve been heavily hit with some banks not even lending a cent to them," Mr. Gray said.
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"That’s roughly been happening for a year or a year-and-a-half and it’s really hitting home now," he continued. "Lots of people just can’t borrow a cent whereas six months ago they might have been able to get 500 grand to a million, and 12 months ago they might have been able to get one or two million."
For those who can get in, Mr. Gray warned against bargain hunting, particularly for overseas investors who may not understand the reason why a property is discounted the way it is. He likens investing in volatile properties to riding the dot-com boom.
But solid properties could come back a little in value, he says. And unlike when the market was frothing, buyers now have the luxury to take their time on a purchase and potentially negotiate.
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"You definitely have got the luxury of time," Mr. Gray said. "The agents are ringing up again. The agents haven’t rung us for three or four years because they’ve had 101 buyers, whereas now they are ringing, but usually with properties that have got fleas in the way or zero buyers on, or have got something wrong with them."
"If you get too much of a discount, in a way you have got to question it. But that’s very much a generalization," Mr. Gray said. "If you know the local market or you have trusted advisers on the ground…and you have some time on your hands, sure there will be some genuine bargains over the next 12 or 18 months."