October 2021

This is the 39th in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

APRA steps in

According to the ABC, APRA has now increased the mortgage loan buffer by a few percentage points in some effort of correcting the rampant rise in values over the last few months without hopefully upsetting the plans of too many first homebuyers.

Analysis by the Sydney Morning Herald of what the APRA tightening of loan requirements might mean, says that a household would need an income of $200,000 to get a foot in the door for a $1.5m median Sydney house, and that more than 500 suburbs would require a minimum of $100 000 income to buy a median home for their particular area.

Having said that, the Australian property market reached a new milestone valuation of $9.1 trillion in the middle of the month. According to Core Logic this is after having already set a new milestone in March of $8 trillion.

In fact, the question has arisen as to whether home ownership has currently become so expensive that it may be on its way to becoming hereditary. This is the suggestion by Peter Martin writing for domain. In relation, Domain reports that settlement variations such as extending settlement or leasebacks are on the rise as new property stock seems to be dwindling.

Interest rates

This SMH article discusses that whilst the RBA’s record lowering of interest rates mid 2020 was intended to jump start the economy after many flat months and an ongoing fear of recession, it turns out that it may have also been the impetus for the spiralling property value rises, and that these rises have now more than wiped out their benefit.

Does this situation suggest that perhaps we are just seeking to be more mobile in an economic infrastructure that assumes that a house is for life, or is the RBA out of step with the economy? This latter is clearly the opinion of Alan Kohler who notes that inflation is already starting to spike above the minimum level the RBA would require in order to start thinking about rate rises, even though the RBA is not forecasting one till 2024.

Apartment blues

According to this article in the Herald, there’s more bad press for the off-the-plan apartment market, with Imperial Towers in Parramatta having been found to have serious defects, and as a result apparently catching contractually bound buyers in what appears to be a checkmate. They can’t sell, and they can’t move in. The article quotes Greens MP David Shoebridge as saying, “There needs to be an escape clause and some protection for purchasers.”

In regards to this type of situation, Domain reports that The NSW building commissioner has reported that 40% of new apartment buildings have serious defects. Which, as he understates is, “… nothing to be proud about.”

The article details a survey conducted jointly by the Strata Community Association NSW, and NSW Building Commissioner which returned some seriously underwhelming results such as that the average cost of repairs for defective builds breached $330k, and likely as not it took 12 months or more to resolve. Not exactly a sterling result in any terms.

In addition to all this, and possibly symbolic of it, as reported by core logic, upgrading from an apartment to a house is also becoming more of a stretch as housing market values are scaling more and more sharply away from unit values.