Top ten articles for the Sydney real estate market, November 2024

This month, Sydney’s real estate market reflected its ongoing complexities, shaped by economic pressures, policy shifts, and evolving buyer behaviours. Articles highlighted affordability challenges exacerbated by high interest rates, innovative approaches to housing supply, and the resilience of high-end market segments. From the rise in cash purchases to the delicate balance between affordable housing targets and development feasibility, these stories capture the multifaceted nature of Sydney’s housing landscape. The interplay of government initiatives, private sector strategies, and market conditions continues to influence accessibility, affordability, and investment opportunities across the city.

Rising Interest Rates and Borrowing Challenges Stymie Homebuyers

https://www.domain.com.au/news/how-and-why-it-just-got-even-harder-to-buy-a-home-in-australia-1332673/

The Australian property market has become increasingly inaccessible for would-be homebuyers, as falling borrowing capacities vastly outpace modest house price declines. Canstar modelling reveals that dual-income households have seen their borrowing capacity drop by 24 per cent, equivalent to $307,000, since May 2022, when the Reserve Bank began raising rates. For singles, borrowing capacity has also fallen by 24 per cent, amounting to $132,000. While Hobart recorded the sharpest house price decline among capital cities at 13.1 per cent, other cities like Sydney and Melbourne experienced price movements that did not match these reductions in capacity. This mismatch has made purchasing homes more challenging, even for those earning above-average incomes.

Experts, including AMP Capital’s Dr Shane Oliver, note that house prices remain about 26 per cent higher than borrowing capacities would suggest, despite improvements in household income and stable interest rates. Buyers now face not only higher deposit requirements but also steeper mortgage repayments, pushing many to explore alternative housing types or less desirable suburbs. Equilibria Finance broker Anthony Landahl highlights how this situation is reshaping buyer behaviour, with potential homeowners opting for units over houses or seeking properties far from their preferred locations. Meanwhile, intergenerational wealth transfers are becoming more common, exacerbating the gap between borrowing capacities and property prices. As rates are unlikely to return to pre-pandemic lows, the affordability crisis may persist, reshaping the dynamics of Australia’s housing market.

Horizontal stripes on Kogarah Hospital

Vertical stripes on Northern Beaches Hospital

The Impact of Negative Gearing on Housing Ownership

https://theconversation.com/more-than-430-000-australians-could-have-owned-their-own-home-today-if-not-for-7-prime-ministers-inaction-240107

Negative gearing continues to shape Australia’s housing market, fostering heated debate over its effects on housing affordability and ownership. Introduced to allow property investors to offset losses against their taxable income, negative gearing has been criticised for exacerbating inequities in the market. Despite its prevalence—one in six taxpayers are landlords, with 40% negatively gearing—analysts like Peter Martin highlight its peculiarities. Countries such as the United States, United Kingdom, and Canada impose stricter regulations on offsetting rental losses, with Australian policies appearing lenient in comparison. Modelling by the Parliamentary Budget Office suggests abolishing negative gearing and its complementary 50% capital gains tax discount could generate $13.6 billion annually, potentially redirecting funds toward public benefits or tax reforms.

The broader implications of negative gearing are evident in declining homeownership rates. Since the halving of the capital gains tax headline rate in 1999, homeownership has dropped from 70% to 66%. Modelling by Deloitte Access Economics and NSW Treasury indicates limiting negative gearing could boost owner-occupancy rates by up to 4.7 percentage points, equating to over 500,000 additional homes owned by occupants. Experts propose potential reforms, including capping the number of negatively geared properties per investor, phasing out the practice, or incentivising investment in new housing construction. However, successive governments have avoided substantive action, leaving the Albanese administration facing mounting pressure to address a policy long seen as a barrier to more equitable housing opportunities.

Downsizing for Financial Freedom and Lifestyle Enhancement

https://www.domain.com.au/news/how-to-get-the-most-out-of-your-downsizing-your-home-1332464/

For Australians approaching retirement, downsizing can offer a streamlined lifestyle while unlocking substantial financial benefits. Rising property values, which have surged by over 380 per cent in the past three decades, provide significant equity for homeowners aged 55 and over. The federal government’s Downsizer Contribution Scheme (SDC) enables retirees to contribute up to $300,000—$600,000 for couples—from the sale of their home into superannuation without impacting regular contribution caps or the $1.9 million total super balance test. This scheme can be a powerful tool for funding a more comfortable retirement, especially when combined with other contribution strategies. However, the SDC requires that contributions be made within 90 days of the sale, and eligibility is limited to Australian properties owned for at least 10 years.

Effective planning is essential to maximise the proceeds from downsizing. Homeowners need to account for costs like agent fees, legal expenses, and potential capital gains tax before reinvesting their equity. The transition also demands due diligence, including building inspections and understanding owner corporation rules for new properties. Strategic financial advice can help retirees transform their unlocked equity into an income-generating portfolio. Wealth advisers like those at Ord Minnett create customised investment plans to ensure retirees can enjoy consistent cash flow while protecting their lifetime savings. This holistic approach not only helps retirees meet their income goals but also fosters financial peace of mind in the golden years.

Urban Renewal: Key Drivers of Popularity Among Younger Buyers

https://www.therealestateconversation.com.au/news/2024/11/11/generation-shift-ray-white/1731274763

Generational shifts in suburb demographics are shaped by factors that make neighbourhoods attractive to younger buyers. Suburbs with strong urban renewal efforts often see an influx of younger residents, driven by characteristics such as higher-density housing, robust transport infrastructure, and vibrant mixed-use spaces. These features create affordability and connectivity while offering amenities that align with younger buyers’ lifestyle preferences. Ray White’s analysis identifies suburbs that combine these elements with significant urban regeneration markers like infrastructure improvements, industrial area conversions, social infrastructure upgrades, and business district transformations.

Examples of successful renewal include industrial conversions in Rosebery-Beaconsfield and Altona North, which transform industrial heritage sites into vibrant mixed-use precincts with residential, retail, and cultural spaces. Public housing upgrades and social amenity enhancements in suburbs like Waterloo and Fawkner create inclusive communities, attracting younger demographics. Similarly, projects like Cross River Rail and business district revitalisations in areas such as Redfern enhance connectivity and integrate work-life spaces. These transformative efforts not only rejuvenate neighbourhoods but also drive demand and property value growth, ensuring their continued popularity among younger buyers.

Suburbs Join the Million-Dollar Median Club

https://www.domain.com.au/news/32-more-suburbs-hit-a-1-million-median-this-past-3-months-1332534/

Thirty-two suburbs across Australia’s capital cities have reached a $1 million median house price over the past three months, with Sydney leading the charge. The latest Domain House Price Report reveals that other cities, including Brisbane, Adelaide, Perth, and Melbourne, are also seeing suburbs pass this milestone. In Adelaide, Magill joined the ranks, driven by high demand for its proximity to top schools and large, subdividable blocks. Melbourne’s Maribyrnong saw a 7.2 per cent price increase, finally cementing its status as a sought-after inner-city suburb, while South Wentworthville in Sydney recorded a 14.4 per cent jump, thanks to infrastructure developments around Parramatta. These price surges are often tied to a mix of demographic shifts, urban renewal, and improved local amenities.

Meanwhile, Brisbane suburbs such as Aspley and Chermside West reached the $1 million mark, buoyed by young families moving in and rejuvenating older neighbourhoods. Chermside West has undergone a dramatic demographic shift, with Baby Boomers making way for younger generations who are updating properties and driving prices higher. The $2 million club also saw four new entrants, including Brisbane’s St Lucia, renowned for its riverfront views, leafy streets, and proximity to the CBD. With only 671 suburbs remaining under the $1 million median across capital cities, the trend underscores the increasing pressure on affordability in the Australian housing market.

The Rise of High LVR Loans Amid Housing Pressures

https://www.domain.com.au/news/like-going-to-a-casino-more-home-buyers-turn-to-risky-strategy-2-1334920/

Homebuyers and investors are increasingly turning to high loan-to-valuation ratio (LVR) loans, with 9.2 per cent of owner-occupier loans in the June quarter featuring an LVR of 90 per cent or higher, up from 6.1 per cent a year ago. For investors, this figure rose from 2.3 per cent to 3.22 per cent during the same period, according to CoreLogic data. Experts attribute this trend to shrinking borrowing capacities caused by high interest rates, paired with ongoing house price increases. Many buyers are eager to enter the market sooner rather than later, fearing that saving for a larger deposit could leave them priced out in the future. Programs such as the federal government’s first home guarantee scheme, allowing deposits as low as 5 per cent without lenders mortgage insurance, have further incentivised low-deposit purchases.

While these strategies offer a way into the market, they are not without risks. Buyers are betting heavily on continued property price growth, but any downturn could leave them financially vulnerable. CoreLogic economist Kaytlin Ezzy notes that many are factoring in potential interest rate cuts and the resultant price surges when making borrowing decisions. Meanwhile, banks’ relaxed lending criteria and competitive market conditions have also made high LVR loans more accessible. Mortgage experts caution that this approach resembles gambling, with the reliance on steady price growth posing significant risks if market conditions falter. This high-stakes strategy underscores the tension between affordability challenges and the drive to secure property ownership in a volatile market.

The Generational Impact of Australia’s Rental Crisis

https://www.domain.com.au/news/the-hidden-side-of-the-australian-rental-crisis-1334848/

Australia’s rental crisis is not only reshaping housing aspirations but is also poised to create long-term challenges for multiple generations. A collaborative report by leading Australian universities highlights the growing number of lower-income, older renters with insufficient superannuation, predicting a surge in housing insecurity among elderly Australians. This trend marks a departure from traditional perceptions of homeownership as an attainable goal for most renters. While 78 per cent of renters still aspire to own a home, only 59 per cent believe they will achieve this in their lifetime, signalling a seismic shift in housing expectations.

The report underscores the multigenerational nature of the crisis, with younger and older renters alike facing growing barriers to secure housing. Professor Emma Baker of the University of Adelaide notes the stark reality many renters now face: the increasing recognition that homeownership may remain out of reach for a significant portion of the population. With Australia ill-prepared to support the growing demographic of lifelong renters, the findings call for urgent reforms to address the structural issues underpinning the crisis and ensure housing stability for future generations.

Private Credit: Bridging the Gap in Housing Supply

https://www.therealestateconversation.com.au/news/2024/11/12/private-credit-providing-missing-piece-housing-supply-says-cbc/1731368155

New research from Centuria Bass Credit (CBC) highlights the pivotal role private credit is playing in addressing Australia’s housing undersupply. The 2024 Centuria Bass Australian Property Development and Finance Index reveals that developers are increasingly relying on private lending as traditional bank loans fail to meet their capital needs. With construction costs rising and sales prices yet to stabilise, 75 per cent of surveyed developers report higher average loan sizes, now typically between $10 million and $20 million. Nick Goh, CBC’s Joint CEO, notes that the average loan size for Centuria Bass has surged from $8.35 million in 2019 to $30.7 million in 2024, underlining the growing reliance on non-bank funding to overcome stalled projects.

Private lenders are stepping in to fill equity gaps, offering flexible solutions that help developers secure sites and advance projects. This approach is particularly valuable in niche markets, such as high-end luxury apartments, where traditional pre-sales requirements often hinder financing. SPG Founder Wayne Sun credits private lending with enabling his Toorak project, The Brookville, which caters to affluent downsizers seeking bespoke apartments. Industry leaders also anticipate a turning point as easing interest rates and government initiatives, such as Victoria’s reduced stamp duty on off-the-plan purchases, stimulate demand. With developers preparing for the market cycle to shift, private credit is emerging as an essential driver of Australia’s housing supply.

Cash Buyers Dominate in Sydney’s Prestige Property Market

https://www.domain.com.au/news/no-mortgage-no-worries-sydney-suburbs-where-home-buyers-pay-cash-2-1336205/

Sydney’s high-end property market has seen a surge in cash purchases, with $61 billion worth of property bought outright in NSW during the 2024 financial year, marking a 22.7 per cent increase from the previous year. Sought-after suburbs such as Mosman, Darling Point, Bondi Beach, and Randwick recorded significant volumes of cash sales, driven by affluent downsizers, investors, and expats returning to Australia. In Mosman, the median cash purchase reached $2.7 million, while Darling Point’s stood at $2.5 million, underscoring the dominance of wealthier buyers who often draw from family trusts, equity in other properties, or accumulated wealth.

This trend extends beyond urban areas, with regional towns like Gloucester experiencing over two-thirds of property purchases in cash, largely by retirees. Greenfield suburbs, where buyers often acquire land before building homes, also report high cash purchase rates. Experts attribute the trend to generational wealth, with older homeowners capitalising on decades of property value growth. For instance, some owners who bought homes for $3 million decades ago are now selling for $30 million, funding downsized homes and bolstering retirement savings. While cash buying offers financial freedom and the ability to assist younger family members, rising property prices in sought-after areas may still limit options for downsizers.

Sydney’s Accelerated Precincts: A Step Forward, but Affordable Housing Falls Short

https://www.abc.net.au/news/2024-11-27/sydney-transport-oriented-development-accelerated-precincts/104645038

Sydney’s new Transport Oriented Development (TOD) Accelerated Precincts promise to deliver 60,000 homes near metro and train stations in seven key suburbs, along with schools, health services, and public parks. While the NSW government aims to address the city’s housing crisis, critics argue the affordable housing targets—starting at a base rate of 3 per cent—are insufficient. Advocates like Shelter NSW’s Cathryn Callaghan acknowledge the initiative as a crucial step but express disappointment in the reduced quotas, particularly in areas like Bankstown and Kellyville. Meanwhile, Planning Minister Paul Scully defends the approach, suggesting that overly ambitious targets could deter developers and stall progress.

Experts, including Dr Ryan van den Nouwelant of UNSW, highlight the delicate balance between feasibility for developers and meeting the housing needs of low-income residents. Dr van den Nouwelant recommends a minimum of 10 per cent affordable housing, emphasising the need for stronger government mechanisms to ensure social equity. While the government projects these precincts as transformative, delivering up to 18 per cent affordable housing in select areas, concerns persist that the modest targets may not adequately address Sydney’s affordability crisis. Critics, including Opposition spokesperson Scott Farlow, contend that the government has diluted its original commitment, risking unmet housing goals for the city’s vulnerable populations.

Summary

Sydney’s housing market remains a focal point for economic and social discussions, underscoring the challenges of affordability and the responses required to address them. Articles this month highlighted the growing difficulty for first-home buyers due to reduced borrowing capacities, the generational impact of Australia’s rental crisis, and the rise of high-risk strategies like high-LVR loans. Despite – or perhaps as a result of – these challenges, private credit is emerging as a vital tool for developers to bridge funding gaps and support residential construction.

Simultaneously, Sydney’s high-end market is witnessing a surge in cash purchases, driven by downsizers, expats, and affluent buyers. However, the push for housing supply in new precincts near transport hubs has drawn criticism for falling short of affordable housing needs, illustrating the delicate balance between developer feasibility and social equity. These developments reveal a market that is not only striving to meet immediate demands but also grappling with long-term structural challenges, making it a dynamic yet contentious arena in the broader Australian property landscape.