Sydney’s growth run is over in 2016

Sydney’s growth run is over in 2016

By Brad Caldwell-Eyles | 15-12-15 Brad Caldwell-Eyles comments on Sydney's property growth in 2016 in this article written by Domain's Jennifer Duke.

Sydney’s property prices grew 16 per cent over 2015, but the market is expected to slump to just 4 per cent growth next year, new forecasts show.

The harbour city is expected to slow dramatically as investors continue their exodus from the market, according to Domain Group’s State of the Market Report. If the forecasts come true, it will see Sydney lose its title of the strongest growing housing market to Melbourne, which is expected to grow 5 per cent over 2016.

First home buyers can breathe a sigh of relief as home prices stop outpacing them says Andrew Wilson from the Domain Group.

Sydney’s growth rate will match Hobart and Adelaide, while sitting 1 per cent to 2 per cent above Brisbane, Perth and Darwin.

Domain Group senior economist Andrew Wilson said Sydney had long been an “investor magnet” due to its strong economy and under-supply of homes. “But the days of two figure growth are well behind Sydney, there’s no rational case for more double figure growth,” Dr Wilson said.

With the lower levels of investor numbers as a result of changes from the Australian Prudential Regulation Authority (APRA), the capital city will enter a consolidation period where prices will slow, he said. “Sydney will remain one of the strongest cities through the cycles, but [the growth of 2015] is over,” he said.

The slowdown will be most apparent in the investor heartland areas, including the western suburbs, which are expected to struggle to reach 3 per cent growth over the next 12 months. Already, these regions have seen auction clearance rates plummet in late 2015.

“First home buyers can breathe a sigh of relief as home prices stop outpacing them by thousands of dollars a month,” Dr Wilson said. “The strongest markets are likely to be the higher priced inner-city suburbs, which performed best in the second-half of 2015,” he said.

Properties in the city, east and lower north shore are tipped to be the best performers of 2016 with 5 per cent growth on the cards.

Robert Simeon director of Richardson & Wrench Mosman/Neutral Bay expects the traditional housing market to remain strong due to a lack of stock. In 2014, there were 105 homes on the market each week.

“If we look at the traditional Mosman housing market in 2015 a glaring observation was a lack of stock where the weekly average was just 75 houses on the market each week,” Mr Simeon said. “It would not surprise me to see the weekly average in 2015 drop further in 2016, which means that prices will hold values up although there won’t be a boom,” he said.

Looking towards the eastern suburbs, 1st City principal Brad Caldwell-Eyles said he had already seen the clearance rates falling off, particularly when the banks decided to raise owner-occupier home loan rates.

“This had an immediate effect on regions that are more rate sensitive,” Mr Caldwell-Eyles said. “The eastern suburbs and other affluent areas are less prone to rate shock; however there was still a change in mood,” he said. As Sydney buyers become less speculative, he expects the eastern suburbs to remain strong as desirable, blue chip property. “It is safe, limited in supply, aspirational and always seems to have a buyer market,” he said.

Suburbs with numerous apartment buildings might see some stress, including some areas in the CBD, warned chief executive of Starr Partners, Douglas Driscoll. “As the investor boom is well and truly over, those properties are going to be far more difficult to sell heading into 2016,” Mr Driscoll said. ”The west, which constitutes the vast majority of the Sydney market, was being partially underpinned by the investment boom in recent times, so I certainly believe places like the lower north shore will do well because it is less susceptive to this kind of investment as it is more of a family-centric market, much like a majority of the east,” he said. “Now that the investor market has tailed off, I anticipate we will soon return to more normalised market conditions,” he said.