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Property Market Forecast, Sydney 2017: Douglas Driscoll

Sydney’s property market could be set for change in 2017 according to Douglas Driscoll, CEO of award-winning real estate group Starr Partners. Read his forecasted market trends for Sydney for 2017.

Rate hikes on the horizon. There are already conversations bubbling over a possible rate rise in 2017 and I can almost guarantee that the banks will increase rates again 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.

Lenders becoming prudent. I think we can expect more macroprudential measures in 2017. Lenders will absolutely become more prudent and fussy on what they lend on – even the International Monetary Fund believes property affordability in Australian is an issue and homeowners 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. All that glistens isn’t gold, and sometimes property is cheap for a reason.

Apartment oversupply continues but so does the need for more affordable detached homes. 2016 was the first year on record that saw more apartments constructed than houses, and I fully expect this trend to continue into next year. 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 more 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 amount 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 to come under the spotlight. There needs to be more regulation and quality control when it comes to building properties, especially when it comes to units. I’m convinced that it will come under the spotlight in 2017 and hope that the Government will review legislation before a tragic event forces them to.

An emergence of innovative design. In areas where people can’t build outwards, more will start building upwards by one or two additional storeys. This is already happening in places with spectacular views – like Bondi – but less-so in areas like Parramatta. These new additions are modern and fresh, and contrast surprisingly well against existing properties.

Fewer listings but more renos and granny flats. Sydney has witnessed another strong year and continues to outperform the other capital cities and 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 by comparison to this last time year, yet the demand shows no signs of abating. In response to this, I expect that we are going to see even fewer listing in the new year, which might force councils to become more lenient when it comes to extending properties and building granny flats. More homeowners will renovate rather than move, which is easier and more affordable than ever before.

One of the other major reasons that we are experiencing a property shortage is that investors continue to snap-up approximately half of all properties across Sydney. So 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. This is a prophecy not a prediction.

Emergence of 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 such as Bondi. In the two-year period since putting their deposit down and the property being built, it could have gone up by 25-30 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 through choice next year – even if they own property. These days, people like having freedom and flexibility and don’t 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 for a better work-life balance, but also because people see the financial benefit of renting where they live and investing in properties, with most investment property expenses being tax-deductible.

The rise of e-changers and tree-changers. Today so much of our lives – both personally and professionally – can be done electronically and therefore, remotely. In 2017, I think we will see more people move to areas like the Hawkesbury District and Central Coast, particularly families because of the ability to work from home or elsewhere outside of a physical office.

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 and benevolence in this area. Our current 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 North West rail link will make commuting from areas like the Hills and the Hawkesbury easier, meaning many people will start to come to terms with 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[1]. Marsden Park is fast becoming one of Sydney’s largest commercial epicentres and I expect we may even see more businesses move their offices there to ease commuting times if it puts a large stress on the business. The fact that it will be very accessible to the new Badgerys Creek airport is also a major drawcard.

Further social divide between investors and single-property owners. Australians treat property like a business, which is a fundamental issue, and 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 onto the property ladder and others who are but can’t make their next move because investors are snapping them up. We now have the ‘haves’, the ‘have nots’ and the ‘have yachts’, and property shouldn’t be reserved for the rich because everyone needs a roof over their head. In a healthy market, investors should only represent 25-30 per cent of the market, not upwards of 50 per cent in Sydney. We keep talking about first homebuyers 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 from what we’re currently experiencing. I anticipate that property prices will continue to rise, albeit at a much more subdued rate. In the absence of further macroprudential measures or an unexpected rise in interest rates, investors will continue to be prevalent; leaving scores of first homebuyers still on the sidelines.

Continued foreign investment. We can also expect to see further significant investment from overseas buyers. With the political volatility in the United States, the retroactive foreign buyers tax recently introduced in Canada and the uncertainty of Brexit, Australia looks like a relative haven by comparison.

Photo credit: sebr via VisualHunt / CC BY-NC-SA

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Douglas Driscoll

Douglas Driscoll is the CEO of award winning real estate group Starr Partners. Originally from the UK, Douglas is widely regarded as one of the industry’s preeminent thought leaders, and is lauded for his dynamic and pioneering approach.