Recently the media has enjoyed reporting that residential real estate declined by some 3.3% in Sydney last year and further falls are predicted this year however not to the same magnitude as the US and UK.
We totally disagree, having witnessed buyers flood back into the market in volumes greater than 2007 when the market peaked. It is now standard for 40-50 groups of buyers to inspect properties listed for sale at or around $500 000.
Generation Y are often referred to as not having known anything but good times and are said to now be in for a rude awakening. Generation Y has actually seen the good times get better. Those who are gainfully employed, which is the vast majority, and who are used to paying high rents (if they have managed to leave home) are now finding the transition into property ownership very easy. If they have managed to save a 10% deposit coupled with the first home buyers grant and no stamp duty (under $500 000) they can actually buy a property and pay roughly the same for it as if they were renting. If the official cash rate gets down to the predicted 2% or lower we may find it is actually cheaper to own than to rent, that is of course if prices don’t rise.
Given this scenario and the volume of buyers entering the market prices are certain to show signs of growth.
And it’s not just generation Y buying, we have suddenly seen the investors re-enter the market — putting further pressure on supply and with each interest rates drop we’ll see an even bigger influx.
As owners are selling they are looking around for larger properties and this is creating a knock on effect. This may take 6-9 months to play out, but we do expect growth in all price ranges up to around $1,500,000 by the end of 2009. Already this year we are witnessing higher numbers of buyers in all prices ranges than we saw last year and have no reason to doubt that this will continue.
Contrary to popular belief the big banks are awash with cash and it appears the only people they are happy to lend it to are purchasers of residential property. The banks themselves can not afford to simply horde their cash, they need to lend it to continue to be profitable. The vast majority of buyers are not having difficulty in securing a loan.
We are extremely positive about the short term residential market and even more positive about the long term view. The various agents and developers I know around Sydney are all reporting exactly the same scenarios as I have highlighted above.
Michael Chatfield is Sales Manager for LJ Hooker Crows Nest