I am almost certain that the banks will increase rates at some point next year regardless of the RBA’s direction. For those buying property now, my advice is to choose a loan with a fixed interest rate because the reality is, rates won’t stay at record-low levels for much longer.
We can expect more macroprudential measures in 2017. Lenders will become more prudent and fussy about what they lend on. Even the International Monetary Fund believes property affordability in Australia is an issue and home owners are stretching themselves too far.
Half of our market is still made up of investors, although I expect some Sydney investors may head north to Brisbane or other areas for perceived value. While there will be a migration out of Sydney, I would caution investors that all that glitters is not gold and sometimes property is cheap for a reason.
Need for affordable detached homes
2016 was the first year on record that saw more apartments constructed than houses and I expect this trend to continue in 2017. The market is out of kilter though, as we now have an apartment oversupply and not enough detached dwellings. It’s time councils are made accountable to ensure we have a more appropriate and evenly weighted housing mix. In some suburbs, it is likely that we will get to the point where the number of units will exceed demand. Rental vacancy rates may start to climb, leaving more choice for tenants, but I think prices will remain steady because of the burgeoning population.
Build quality under the spotlight
There needs to be more regulation and quality control in construction, especially for units. I am convinced that it will come under the spotlight in 2017 and I hope the government will review legislation before a tragic event forces them to.
In areas where people cannot build outwards, more will start building upwards by one or two additional storeys. This is already happening in places with spectacular views, such as Bondi Beach in Sydney, but less so in suburbs like Parramatta, in the western suburbs. These new additions are modern and fresh, and contrast surprisingly well against existing properties.
Fewer listings, more renovation and granny flats
Sydney has witnessed another strong year and continues to outperform the other capital cities. It comes down to simple economics – demand heavily outweighs supply.
Average dwelling values have increased by 13.1 per cent for the year to date, which compares to 15.6 per cent for the same period last year. The number of new properties being listed across Sydney is down by nearly 17 per cent in comparison to this last time year.
Yet, the demand shows no signs of abating. I expect that we are going to see even fewer listings in the new year, which might force councils to be more lenient when they issue permits to extend properties and build granny flats. More home owners will renovate rather than move.
One of the other major reasons we are experiencing a property shortage is that investors continue to snap up approximately half of all properties across Sydney. Why is this a problem? The average owner-occupier now holds a property for approximately 11 years, whereas it is estimated that investors hold on to properties for nearly twice as long.
Another side effect of fewer listings will be fewer estate agents. Many entered the industry at the start of the cycle and landed on their feet. With reduced stock levels, I guarantee we will see agents starting to leave the industry.
People selling apartments purchased off-the-plan for a profit
Many people who put deposits on off-the-plan developments might decide to resell now that the bricks are in the ground. I think we will especially see this in the CBD and eastern suburbs in Sydney. In the two-year period since putting their deposit down and the property being built, it could have gone up by 25 to 30 per cent, and in some cases even more, making it a great time to sell for a profit.
More people renting through choice
Traditional thinking is that people who rent can’t afford to buy, but I think we will see more people renting by choice next year, even if they own property. People like having freedom and flexibility, and do not need to own where they live. People may own property but choose to rent close to the city for a better lifestyle or close to their place of work. They also see the financial benefit of renting where they live and investing in properties, with most investment property expenses being tax-deductible.
Rise of e-changers and tree changers
So much of our lives, both personally and professionally, can be done electronically and therefore, remotely. In 2017, we will see more people, especially families, move to areas like the Hawkesbury District and Central Coast.
Sydney is vying to become the start-up capital of the southern hemisphere and I think it’s in a strong position due to the government’s commitment in this area. The Turnbull government is very much for start-ups and other tech-based companies, and Sydney is a central hub to Australia and the rest of the world. In 2017, we’ll see even more tech start-ups popping up on Sydney’s fringe in places like the Central Coast and similar areas that boast a more relaxed pace of life.
The new Sydney Metro Northwest link will make commuting from areas like the Hills and the Hawkesbury easier, and will result in more people accepting a longer commute for a better quality of family life. It was recently revealed that Sydney commuting times are longer than some of America’s biggest cities, with almost a third of Sydneysiders travelling more than 90 minutes to and from work each day.
Marsden Park is fast becoming one of Sydney’s largest commercial centres and we may see more businesses move their offices there to ease commuting times. The fact that Marsden Park will be accessible to the new Badgerys Creek airport is also a major drawcard.
Social divide between investors and single-property owners
Australians treat property like a business. I believe our mindset shifted to this with the introduction of negative gearing. At the end of the day, there are people who cannot get on the property ladder and others who are but can’t make their next move because investors are snapping up houses and flats.
We now have the ‘haves’, the ‘have nots’ and the ‘have yachts’. Property should not be reserved for the rich because everyone needs a roof over their heads. In a healthy market, investors should only represent 25 to 30 per cent of the market, not upwards of 50 per cent as is the case in Sydney. We keep talking about first home buyers not being able to get on the ladder, but second- and third-time buyers are also losing out to investors around the $800,000-900,000 price point.
I anticipate that market conditions will not change a great deal. I anticipate that property prices will continue to rise, albeit at a more subdued rate. In the absence of further macroprudential measures or an unexpected rise in interest rates, investors will continue to dominate, leaving scores of first home buyers on the sidelines.
We can also expect to see further significant investment from overseas buyers. With the political volatility in the US, the retroactive foreign buyers tax recently introduced in Canada and the uncertainty of Brexit, Australia looks like a relative haven in comparison.
Douglas Driscoll, chief executive, Starr Partners