Source: Property Observer
2013 will be remembered as the year the Sydney property market came back to life. After three tough years where prices went backwards, buyers were suddenly the ones on the back foot as a number of factors combined to create fierce buyer competition. The competition was most noticeable on inner city houses under $1.5 million and apartments under $700,000.
There are a number of factors that could be credited for causing such a stellar year in the property market. In reality, it was probably not one particular factor that caused the market rally, rather a number of factors combining to cause a perfect selling environment.
Interest rates hit an all time low during 2013 as the RBA cut the cash rate to 2.5% in August. This cycle of rate cuts has seen the cash rate go from 4.75% in November 2010 down to 2.5% within three years. Whilst there were other factors that assisted the housing market in 2013, nothing had the positive impact on property as the record low rates did. Commentary is split as to whether the next move in 2014 will be up or down though.
Unemployment held at reasonable levels throughout the year, peaking at 5.7%. This was lower than predicted and was a determining factor in supporting the property market. Low interest rates are not much good to someone whom is unemployed. Indeed, the weakest housing market in Australia is in Tasmania where unemployment is stuck above 8%. This proves that unemployment is a bigger determinant to the fortunes of the housing market than interest rates, a point that is often lost in commentary.
Self-managed super funds entered the market in dynamic fashion in 2013. As the returns on bank deposits went down, SMSFs went looking for risk. Many people have bought real estate now that their SMSFs can borrow against an asset. This added an influx of new buyers into the market competing with home buyers and traditional investors. More buyers entering the inner city market that already faces chronic supply issues helped pushed prices up. As prices went up, the sentiment toward property became more positive, creating a positive feedback loop.
Chinese buyers entered the Sydney market place in a big way in 2013. To see another sector of buyers enter the marketplace that was already experiencing near perfect conditions added further fuel to the market. Agents across Sydney reported amazing sale prices where Chinese buyers fixated on a particular location and just kept bidding the price up. The emergence of Chinese buyers entering the market place was no media beat up. One only had to witness an open house or two to realise the presence of strong Chinese buying.
The stock market’s performance is often under rated when it comes to the property market. The All Ordinaries begun the year at 4,664 and pushed up to over 5,200 by December 2013. In the middle of 2012, the All Ords was at 4,135, giving stock market investors a 30% return in 18 months. Whilst interest rates inspire many in the sub $1.5 million bracket to buy real estate, the prestige end of the market is more susceptible to the stock market performance. For the first time since 2007, the prestige end of the market came to life. Whilst many vendors of prestige properties actually sold for less than they had bought back in 2007, the mere fact that transactions were taking place was a positive sign.
Many were surprised to see the property market perform so well in 2013 in the face of a deteriorating economy, global uncertainty and increasing government debt. But perform well it did.