Timing an entry point into any market is difficult. Whilst we recognise that time in the market is more important than timing, those who assess risk and seize opportunities are often rewarded.
Are opportunities presenting themselves in the Sydney real estate market as the light at the end of the COVID tunnel nears?
To help us answer that question let’s look at how property markets are behaving in other countries farther advanced in their COVID recovery.
Data coming out of the United Kingdom reveals that July 2020 was the busiest month for home sales in ten years and in August 2020 sales were 60% higher in volume compared to August 2019. In fact in the last week of August the number of homes selling within a week of being listed also reached a ten year high.
Prices were generally up in middle-ring city suburbs and regional, country, and seaside areas, however, were down in CBD areas, notably in central London prices went backward.
The spike in transaction activity has been explained as a result of pent up demand from prior months, and low-interest rates as well as a hefty stamp duty concession, and the fact that many UK citizens forwent their Summer vacation and moved house instead. After all, buying, selling, and renovating property are amongst the few legal things citizens can do right now.
Closer to home in New Zealand, which is also ahead of Sydney in the COVID recovery stakes prices increased 12% nationally between August 2019 and August 2020.
Although both cities and regional areas have seen increases, more uplift is coming from outside of the cities with decreases mostly occurring in tourist affected areas.
Prices have been supported by demand outstripping supply and a key factor has been the return of 47,000 ex-pats since April, as well as increasing demand from international purchasors.
Factor in low interest rates and a scrapping of LVR (loan to value ratio) restrictions and there doesn’t appear to be a rebalancing any time soon. Although listings numbers are increasing, so are buyers. In August, property listing website www.realestate.co.nz saw a 21% increase in site visits compared to August last year, a number even higher than what is seen in New Zealand’s peak property buying month (1.2m in Feb 2020).
If the Sydney property market is to follow the lead of those regions ahead of us in the recovery, then we should see the continuation of a healthy market, supportive of prices but with some liquidity and opportunities to transact.
A favourable lending environment, returning ex-pats, and citizens spending more time at home with little else available to do, but buy, sell and renovate would explain Sydney’s current market stability.
Current downside risk comes from a potential increase in mortgage defaults which would cause the already nervous banks to tighten lending policy and assessment criteria. As we saw in 2017/18 this substantially reduces the borrowing capacity for most, making an upsize or investment purchase no longer feasible.
The softening of the CBD market may present an opportunity for those opportunistic buyers looking for a bargain, and willing to accept the risk of high vacancy rates.
Otherwise, it would seem that the benefits outweigh the risks to purchase a quality property in a well-chosen location in the short term whilst relatively easy access to credit and low-interest rates are still available, with evidence to validate the support of property prices in the short to medium term.