May 2019

This is the 13th in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

The results are in:

Changes to the negative gearing laws will not be going ahead.

According to The Real Estate Conversation, the property market breathed a collective sigh of relief on the news of the Coalition win in the Federal election. After months of campaigning by the Real Estate Institute of Australia, the uncertainty of the effect of these potential changes is over. The REIA however has been heavily criticised for using scare tactics to influence voters. Dodgy tactics or not, the REIA is claiming the campaign reached over 10 million people. Was it a primary reason for the unexpected Coalition win?

Domain reports a similar kind of sigh of relief from the property market, quoting AMP capital chief economist Shane Oliver and Domain economist Trent Wiltshire, anticipating an earlier return to a bullish market. Pragmatically, Mr Wiltshire is reported as predicting that market activity “was always likely to pick up post-election as buyers and sellers would have more certainty on housing policy.”

Less based in feelings and more in data, the Core Logic monthly report with Tim Lawless demonstrates that overall the market appears to be continuing its slow recovery regardless. In the week before the election, he says:

“Another indicator of a subtle improvement in the housing market can be seen in auction clearance rates that are holding around the mid to low 50% range, albeit on low volumes relative to a year ago.”

Lawless goes on to suggest that this shows that buyers and vendors expectations are finding a stronger common ground. Since the beginning of the downturn almost 15% has been wiped from Sydney’s property values, and signs point towards the possibility of a further equilibrium being reached. April final results showed the downturn in values has slowed for the 4th consecutive month.

Interestingly, in the same monthly report, Lawless also shows that the value of new housing commitment for February has kicked up slightly, indicating that the tighter credit limits and scrutiny around debt levels which have been reported widely as having a negative effect on housing affordability (on the back of the Banking Royal Commission) may also be reaching a new equilibrium. He says the ABS are likely to report this in their next quarterly report.

Attribution: CoreLogic

In further good news for the market, The Sydney Morning Herald reports (and many others) that APRA has proposed removing an interest floor rate of 7%. The story says that this threshold was introduced in 2014, but now interest rates are far below that, making it redundant. Removal of the constraint would mean that borrowers might be able to access larger amounts of finance.

“With interest rates at record lows, and likely to remain at historically low levels for some time, the gap between the 7 per cent floor and actual rates paid has become quite wide in some cases – possibly unnecessarily so,” chairman Wayne Byres said.

“The changes, while likely to increase the maximum borrowing capacity for a given borrower, are not intended to signify any lessening in the importance that APRA places on the maintenance of sound lending standards. Rather, it is simply recognition that the current interest rate environment does not warrant a uniform mandated interest rate floor of 7 per cent across all products,” he said.

Despite the increased wiggle room for borrowers, The APRA change also slightly increases the buffer that lenders must add when assessing customers’ ability to service a loan from 2.25% to 2.5%

Definite Upswing

On the final weekend of May, Sydney recorded one of the best clearance rates since the downturn began, with auction volumes doubling nationwide. The Real Estate Conversation reported that in Sydney, 69.9% of the 697 auctions were successful. Some of the reasons attributed to the improvement included revised APRA and ‘strongly hinted’ RBA policy changes, as well as a reported rebound in consumer confidence as a result of the unexpected Federal Coalition win.

Illustrating how the weekend went, Real featured a story about a 4 bedroom house in Dee Why selling at auction for $310k over its reserve. Total statistics included that the family home attracted 117 inspections, 37 contract requests, there were 12 registered buyers on the day, and that the auction took a total of 16 minutes. Such was the excitement around the property, the auctioneer said it reminded him of the property market at its height in 2017.

Lastly, and in the 20/20 vision in hindsight category, Justin Nickerson discusses how perception has been the only thing really depressing the market. It’s an interesting (if reductionist) point. The economy is in reasonable shape, unemployment isn’t through the roof; so why are people wearing their doom shoes when discussing the property market? Perhaps this is simply the correction we had to have. A hiccup as a result of the outrageous asking prices, Banking Royal commission outcomes and ill timed APRA investor changes. That is, after all, what market pundits have been saying the whole time.

Attribution: CoreLogic