Insider Strategies: Predicting the Future of the Sydney Property Market

Perhaps more time is spent in this country talking about, and speculating on what the future holds for the property market than on any other single topic.


Seasoned pros, armchair investors and doomsday economists all have something to say.


However no one can know with certainty how things will play out.


Not the RBA chief economist, not your friendly Uber driver.


All we have to deal with are the facts and circumstances of the present, the lens through which we perceive those facts, and the actions we take (or don’t) as a result.


Let’s start with the facts.


As a nation we have weathered this pandemic quite well so far and have done so off the back of devastating bushfires and floods.


However it has exposed underlying weakness in several areas of our economy ranging from persistent stagnant wage growth to an over reliance on foreign trade.


We are already experiencing the fallout from zero migration and tourism.


The massive stimulus means we are stockpiling a national debt likely to wind up at 50-60% of GDP and we are yet unsure how it will be repaid.


2020 will be a reset year for the hospitality, travel & tourism, construction and retail sectors.


Whilst not a fact, it is a safe assumption that many segments of the Australian residential property market will suffer.


We are already seeing the off plan apartment market tanking as purchasers fail to settle on their property due to low bank valuations, fear, or both.


New building starts have ground to a halt. Large swathes of the rental market have reset 5-15% lower which should theoretically force prices down to produce a sufficiently attractive yield.


Whilst debt is still cheap all lenders are cautious, with tougher assessments, lengthy approval times and unpredictable valuations.


An atmosphere of uncertainty and hesitation prevails as current and would be buyers and sellers grapple for a read on the rapidly evolving landscape


Our current situation can present a problem or an opportunity depending on your lens.


Do you believe Australia is the best place on Earth to live, with our abundant beauty, natural resources, food security, democratic governance and standard of living?


I do, and so does much of the rest of the planet. Increasingly so perhaps, in light of recent events.


We will re-open our borders as soon as is practically safe. We must. Australia will rely an a steady flow of productive educated migrants to pay our stimulus induced debt through taxes. They’re also necessary to care for our ageing population and support a tertiary education system that relies heavily on foreign enrolments.


Once Australia has re-opened its borders we will see an increased intake across all visa classes that will be without precedent.


Where will they all live?


Prior to COVID, national housing starts for free standing houses and units were in decline and predicted to slide from 223000 completions in 2019 to an estimated 176000 in 2023.


This weeks ABS issue for building approvals reveals a 16% fall in May with the ABS noting this will significantly accelerate in the future. Whilst it is challenging to comment on the capacity of our current dwelling stock to absorb a spike in population, a case may be made for undersupply in the foreseeable future.


Add to this scenario the possible scrapping of stamp (transfer) duty in NSW & Victoria and a persistent low interest rate environment with easing credit conditions and we could well see a significant uplift in property market activity and values.


One might argue that now more than ever you have the power to predict the future of the property market – as it affects you.


Whilst timing the market is rarely a good strategy, current economic circumstance makes a compelling case for a favourable entry point in the near term with plenty of evidence to support an uplift in the medium term.


Should you choose to see opportunity instead of challenge the future for the property market does indeed look rosy.


Sources: ABS | Housing Industry Association Au | Master Builders Association | Ernst & Young | RBA | Population.Id


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