So far it’s good news for the property market this year – both in our local area and across Sydney more broadly.
Since February this year, our city’s median price has grown 5.3% to $1,052,810, according to CoreLogic’s latest data. And the pace of growth seems to be strengthening – in May 2023 alone, Sydney’s median dwelling value rose 1.8%.
In line with this, Domain is reporting that the citywide auction clearance rate has persistently been over 70% since the end of April. Anecdotally, we’re noticing more registered bidders per auction and generally more interest in properties when they do hit the market.
The main challenge we’re seeing right now is that there aren’t enough properties to satisfy buyer demand.
Where did all the sellers go?
SQM Research shows that the number of listings in postcode 2011 has been dwindling for some time. A decade ago, it was common to have close to 300 properties for sale at any one time. Now, we rarely have half that amount.
While this helped us cushion many of the price falls that occurred across the city and country in 2022, it poses a major challenge for people wanting to buy into the market as prices begin rising again. This lack of stock is most notable in the market for larger and premium apartments.
Potts Point, Elizabeth Bay and surrounding areas are attracting many downsizers, prestige buyers and professionals who want to live near the city and enjoy the cosmopolitan life on offer.
As our recent strong results show, there’s enormous demand for houses and terraces, and only a finite supply. Even though we’ve seen several commercial buildings converted to residential over the past few decades, and more apartments moving in like Billyard Ave, the pace of development in our area simply can’t keep up with the growing pace of demand to move here – especially for top-end properties.
Three-bedroom apartments outperform the market
As a result, we’ve seen the value of three-bedroom apartments in our area seriously outperform the average.
While the Sydney market has experienced price growth over the past few months, it is still down -8.2% on this time last year. However, that’s not at all the case for three-bedroom apartments in many local suburbs, as the table below shows.
|Suburb||Three-bedroom apartment value*||12-month growth|
|Potts Point||$5.25 million||7.9%|
|Surry Hills||$2.615 million||21.6%|
|Darling Point||$5.57 million||21.2%|
|Elizabeth Bay||$6.4 million||43%|
* Source: Domain.com.au (Surry Hills + Darling Point) & realestate.com.au (Potts Point and Elizabeth Bay) suburb profiles.
The impact of interest rate rises
What’s notable based on the data above, the pockets of the market performing best are those where interest rates play little role in buyer behaviour.
As previously mentioned, the market for three-bedroom apartments in our area is dominated by downsizers and prestige buyers (who are increasingly one-and-the-same). These buyers tend not to require finance, having recently sold the family home.
This trend of cash buyers becoming a major influence across the market was also identified by PEXA, which found that over a quarter of sales across Australia last year were to cash buyers.
Where interest rate rises are being felt is in the first homeowner market. These buyers tend to have comparatively large mortgages, and many have found that rate rises have significantly curtailed their borrowing and spending power.
For example, if we look at Elizabeth Bay, which experienced a phenomenal 43% growth for three-bedroom apartments according to realestate.com.au, it’s a very different story for mid-range and entry level properties. One-bedroom apartments plateaued at -1.2%, and two-bedroom apartments were slightly down by -3.7% over the past year.
How the rental market could begin to influence buyer behaviour
That said, there could be one factor that encourages first home buyers into the market in large numbers over the coming year – rapidly rising rents.
Over the past 12 months, Sydney’s median rent has risen 27.5%, according to REIA. That means, for instance, an apartment that was rented for $800 a year ago could now be expected to rent for $1,020.
These rises could encourage many renters to consider entering the property market for the first time, even in the face of rising interest rates. They should also encourage investors to add to their property portfolios – especially those looking for income.
How will the remainder of 2023 play out?
With these factors in mind, we’re expecting the next 12 months to play out in a similar way to the year so far – with demand continuing to exceed supply. This is especially true given that the market segments propelling local property prices forward tend not to be as impacted by interest rate rises.
That said, if the RBA continues to lift rates and people are forced to sell, we could see supply finally increase, which may act as a drag on growth. If this happens, it will likely be at the entry-level, where a disproportionate number of homes are investor-owned.
If you’re interested in buying or selling in Potts Point and the eastern suburbs, contact my team today.