You’ll need to update your browser so you can continue to log on to your online banking from 28th February. Update now.



Sydney slowdown impacts national property market

Sydney slowdown impacts national property market

Sydney has handed the mantle of best-performing property market to another city as it feels the squeeze of tighter restrictions on investment activity.

The days of runaway price growth in the Sydney property market are over, at least for now, with the latest CoreLogic figures pointing to a slowdown that suggests the nation's biggest city has passed its peak growth phase.

Sydney dwelling prices were once again flat for the month and rose by just 0.3% over the three months to 31 August, according to CoreLogic's Hedonic Value Index. The index, which in August overhauled its calculation methodology, found that while Sydney apartment prices did increase by 1.1% over the quarter, house prices were flat for the same period.

It was a different story in Melbourne, however, where dwelling prices were up almost 2% for the quarter. CoreLogic head of research, Tim Lawless, pointed to this, as well higher auction clearance rates and "exceptionally tight" inventory levels, to argue the Victorian capital's property market is more resilient than Sydney's. 

Why is Sydney slowing?

Sydney's weaker performance did more to drag down the overall national market than Melbourne could to bring it up, with quarterly growth of just 0.6% across the combined capitals. 

"We're seeing capital gains in markets like Sydney, which were previously very strong, now being weighed down by affordability constraints and tighter lending conditions," said Lawless. 

"The knock-on effect is a curb in investment credit growth and higher mortgage rates for investment and interest-only mortgages."

With NSW the state in which almost 60% of new housing finance commitments are for investment rather than owner-occupier purposes, Lawless argued Sydney is more vulnerable than any other capital to "tighter credit policies and higher mortgage rates for investors".

CommBank Senior Economist, Gareth Aird, pointed out that "from a policy perspective, a cooling in both dwelling price growth and credit growth is desired. It’s also wanted from a societal perspective". 

Beyond Melbourne and Sydney

Conditions remain very diverse in the property markets of the smaller capital cities. Hobart is still the star performer of 2017, with year-to-date (YTD) value growth of 7.1%, higher than Melbourne (7%) and Sydney (5.5%).

Hobart's annual (12-month) growth of 13.6% is the highest the capital has seen since 2004, according to Lawless, who cited "the sheer affordability of housing [as] likely one of the key drivers of Hobart's values appreciation". Despite solid performance this year, the median Hobart house price of $403,174 is still around half that of Melbourne's ($810,966) and almost a third of Sydney's ($1.079m). 

YTD growth ranged between 1.7% and 3.3% in Brisbane, Adelaide and Canberra, while Perth and Darwin continue to freefall, down 2.5% and 3% respectively over the year so far. Aird attributed the fall in Perth to "the combination of rising supply, elevated vacancy rates and soft economic activity".

Improved affordability

Lawless argues one "silver lining" of slowing property markets is increased affordability, particularly in Darwin, now the most affordable capital by dwelling price to income ratio.

Even in Sydney, where "affordability barriers are preventing some prospective buyers from participating in the market", recent stamp duty concessions announced by the NSW government should be able to provide some support for first home buyers there, Lawless says.

He cautions, however, that "a rise in first home buyer activity [is unlikely] to completely offset the demand gap left by fewer investors".

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. The commentary provided from external companies that are not a member of the Commonwealth Bank of Australia Group of Companies (the CBA Group) does not represent an endorsement, recommendation, guarantee or advice in regard to any matter. The CBA Group does not accept any liability for losses or damage arising from any reliance on external companies and their products, services and material.