Sydney’s boom lacks substance

Sydney appears to be having a property boom without substance.
The more I look behind the headlines, the more I find less. Those participating based on the FOMO syndrome (fear of missing out) need to ask: what is it that I’m afraid of missing out on?
The two leading cities for price growth this year are Perth and Sydney – and there’s a stark contrast between the two in terms of fundamentals underpinning the rise in values.
Perth is capital of the nation’s leading economy, driven primarily by the resources sector. Despite claims (like Sydney’s boom, without substance) that the resources boom is over, WA’s mining and gas industries continue to thrive, with exports at record levels and key participants like Rio Tinto and BHP Billiton expanding production. Population growth is the highest in nation, almost double the national average.
Perth’s property market began to deliver demand-driven rental increases in 2012 and this was followed by rising demand from home-buyers. Increases in sales volumes usually lead to price rises and, throughout the Perth metropolitan area, there are precincts where there have been marked increases in the number of houses sold over three or four successive quarters. This has provided a solid underpinning for price increases.
The suburbs of the Belmont LGA, an affordable precinct nicely positioned between the Perth CBD and the airport, has seen sales numbers escalate since late in 2012. Over nine months the number of sales in Ascot has risen 44%, Carlisle is up 52% and Kewdale is up 92%. As a result, most of the suburbs in this precinct have had double-digit annual price growth.
None of that has happened in Sydney. There is no economic boom nor a population explosion. According to the Rental Report from Australian Property Monitors, there has been very little growth in residential rentals in Sydney in the past 12 months: a small rise for apartments and zero change for houses.
An examination of sales data for the suburbs of Sydney reveals very few with an increase in sales volumes. In suburbs where you pay well over $1 million for a home, markets have been going sideways, with no uplift in demand. They include Paddington, Cronulla, North Sydney, Milsons Point, Mosman, Neutral Bay, Manly, Kirribilli, Cremorne, Turramurra and Vaucluse. There are many more where price rises are being driven by something other than an uplift in buyer demand.
The exceptions are in the more affordable markets in the Sydney metropolitan area where there is genuine ongoing demand. There have been significant rises in sales volumes in the markets for Auburn (median prices $$530,000 for houses and $342,000 for units), Bankstown (houses $544,000 and units $335,000), Bexley (houses $685,000 and units $420,000), Kogarah (units $440,000), Mascot (houses $800,000 and units $590,000), Moorebank (houses $520,000) and Parramatta (houses $588,000 and units $410,000), among others.
But these examples are rare exceptions.
It’s a hallmark of rising markets that the participation of investors increases. Nationwide, loans to home-buyers have risen 6.3% in the past 12 months while loans to investors are up 18.7%. In WA, loans to both home-buyers (up 12%) and investors (up 21%) have risen significantly. It’s similar in Victoria, where home loans are up 8% and investor loans 14%. In some areas, including the ACT and Queensland, home loans are rising faster than investor loans.
But in New South Wales (read Sydney), there’s a marked imbalance. Home loans have risen only 1.3% but investor loans are up 30%. Sydney’s property market is being driven by an investor stampede, generated by hype and headlines.
It’s a media-driven avalanche of silliness. Fortunately, it’s happening only in Sydney and a small portion of the Melbourne market.