By John Symond, Executive Chairman of Aussie Home Loans
The entire Sydney real estate market is experiencing a healthy cooling as previous years’ growth levels were unsustainable.
The Reserve Bank’s decision to lift rates late last year is contributing to the softening of the housing market, which will lead to property becoming more affordable.
Unemployment levels remain low and GDP growth continues apace in the New Year, which might put pressure on rates later in the year.
I expect house prices to be solid in the price range of under $1 million across Sydney, while those above that point will continue to be soft.
More affordable houses and units will experience stronger demand as the First Home Buyers are still receiving State and Federal incentives to purchase.
New first home buyers’ benefits of up to $24,990 (being $7,000 for first home buyers as a grant with a stamp duty exemption of up to $17,990) became available for purchases of up to $835,000.
Dwellings within 15km of Sydney’s CBD will perform the strongest, especially if they are located close to major infrastructure – especially public transport.
However houses in the upper price range, especially in the Eastern Suburbs and Northern Beaches, will continue to experience softness – with many prices paid in recent months at least 20 per cent below their peaks of a few years ago.
Banks continue to favour home lending over small businesses and commercial lending and that will further fuel growth.
I expect house price will grow this year on average from 5 to 8 per cent, however they will lag behind unit price growth.
Units under the NSW stamp duty threshold of $835,000 will be strongest performers, especially new dwellings where depreciation can also be claimed by investors.
Investors have returned to the market following the Global Financial Crisis and they are fueling demand in the lower price range.
Again new units located close to the CBD and public transport links will be the winners in 2011 – easily beating older units and homes.
The supply of new rental properties continues to be slow, leading to an acceleration in rents – creating further pressure on those who are keen to get into the property market for the first time.
Many young people are now effectively priced out of Sydney property ownership and face accelerating rental payments. This problem of affordability should be urgently addressed at both a Federal and State level, with new housing lots and units required.
Also fueling demand for units are empty nesters, who are leaving their homes for townhouse or apartment living.
I expect units to experience average price growth in 2011 of up to 8 per cent, especially as unemployment levels remain low and demand continues to outpace supply.