Living with an avalanche of high density development: Robert Simeon

That pesky property bubble is mainly contained to the investors chasing yields and taking advantage of a chronic under-supply which is driving up rents – well it was however, we are now starting to see rents flat lining given supply has significantly increased.

New lending initiatives are quickly changing the investor landscape where I suspect it will be a very long time before we see lenders offering 90 per cent loans as we are now seeing lending ratios sitting more around the 70% mark. Overseas buyers will support Sydney house prices during APRA crackdown: NAB; it is fair to say that the federal government won’t be tweaking the foreign buyer ratios (presently at 100 per cent) anytime soon.

There is a reason for this; Australia’s population is set to hit 40 million people by 2056. In order to meet this demand we will see the greatest infrastructure spending in Australia’s history given it’s been calculated that by 2056 Australia will need a further 1,100,000 apartments. Across Australia that means an additional 27,000 apartments each year for the next 41 years, it is expected Sydney and Melbourne will do the majority of the heavy lifting. This also plainly identifies why the Baird government wants to amalgamate the councils to ensure that these new developments keep getting approved.

The message is quite clear that if you want to reside in close proximity to the CBD you will have to live with an avalanche of high density developments.

This week the residential data from the 34th Property Directions Survey was released which is an industry based group comprising property experts – Valuers, Fund Managers, Property Analysts and Property Financiers.

• 58% of respondents stated that Sydney residential property was in or entering a bubble, while 53%t of the respondents believe that the Melbourne property market is in the same position. Seventy per cent of the survey respondents do not believe that the Brisbane residential market was in a bubble.
• The majority of the respondents also believe residential property prices will continue to rise for 6 to 12 months. Fifty – three per cent of respondents believe that Sydney residential property prices will continue to rise for either 6 or 12 months with 26% stating 18 months. Respondents are more certain in their predictions for Melbourne residential property with 76%seeing prices continuing to rise for 6 to 12 months.
• In 2016, Sydney residential property is seen as reaching the top of the property cycle and moving past the top in 2017. In 2016 respondents see Melbourne residential property having passed the top of the cycle but remaining close to the top through to 2017. Brisbane residential property is seen to be just nearing the top of the cycle.
• All respondents to the Property Directions Survey see low interest rates as either a significant or very significant driver of demand for residential property in Sydney, while 95% also point to foreign investment being significant or very significant.
• Respondents list a number of other factors they also believe play a role in increasing demand in Sydney, such as population growth, low supply over the past decade and the trend towards smaller households.
• The major drivers are considered to be similar for the Melbourne residential property market however 94% see foreign investment as a significant or very significant driver and 87% sight low interest rates as significant to very significant.
• A large majority of respondents see low interest rates as the main driver of demand and prices for Brisbane and Perth residential property; however this view is not as strong as it is for Sydney and Melbourne. The majority of survey respondents do not view foreign investment as a significant or very significant factor in driving demand in Brisbane or Perth, but believe negative gearing plays a bigger role.
• Most respondents believe both interest rates and inflation will remain similar for next year, while moving higher in the next three years.
• It’s a different story with foreign investment, with a small majority of respondents believing levels will remain similar for the next six months. Respondents are less certain over the next 12 months, but most see foreign investment at similar or higher levels. Respondents are even more uncertain about the outlook for 2018,
• Some respondents listed current or emerging factors which they believe may have an impact on the Australian property market. Factors listed include a slowing Chinese economy, any increase in the unemployment rate and potential changes to foreign investment or immigration rules.

So the eastern seaboard is where we will see the majority of the new developments with NSW leading the way. This again will be investor led although it would be reasonable to suggest that with such a huge apartment platform the house prices will continue to rise with less single residential housing being built.

With that in mind it’s scary to think where prices will go for houses within a 15 kilometre radius of the Sydney CBD. Through the roof springs to mind.

As for that pesky property bubble – it won’t be doing any damage when the vast majority of suburbs across Sydney are posting record low stock levels. When markets are booming (or bubbling along) you see record stock levels which is the complete opposite to what we are seeing across Sydney at the present.

MOSMAN – 2088

• Number of houses on the market this time last year – 85

• Number of houses on the market last week – 55

• Number of houses on the market this week – 46

• Number of apartments on the market this time last year – 63

• Number of apartments on the market last week – 41

• Number of apartments on the market this week – 43

CREMORNE – 2090

• Number of houses on the market this time last year – 8

• Number of houses on the market last week – 7

• Number of houses on the market this week – 2

• Number of apartments on the market this time last year – 9

• Number of apartments on the market last week – 11

• Number of apartments on the market this week – 8

NEUTRAL BAY – 2089

• Number of houses on the market this time last year – 9

• Number of houses on the market last week – 3

• Number of houses on the market this week – 2

• Number of apartments on the market this time last year– 42

• Number of apartments on the market last week – 29

• Number of apartments on the market this week – 30

ROBERT SIMEON is a director of Richardson Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. 
He has also been writing real estate blog Virtual Realty News since 2000.