The report should provide the following:
Broad overview of residential properties in Capital Cities in Australia.
Sydney Market Focus
Median House & Attached/Apartment market prices
Auction Clearance Rates analysis
Rental Values
Volume of sale transactions
Investment Yields
After the above review has been completed. Select a suburb of Sydney (subject to approval first from Peter Raptis) and provide a more localised analysis for that suburb:
Typical house/apartment prices for different bedrooms
Properties for currently for sale
Historic sales volumes for past 5 years.
Finally provide a conclusion providing commentary as where you consider the current market to be in the property cycle and your outlook for the next 2-3 year period. You should also consider economic data to supplement your property data with discussion on the relationship between the 2 sectors.
Solution
1.
Introduction
There is a huge gap between the supply of residential
housing as well as the demand of housing required by the ever growing
individuals (NHSC 2012). Supply of upcoming developed housing is being
continuously soaked up by the residents, this state is very prominent in Sydney
and Melbourne because of their rapid growth population. This state is more
likely to progress in the upcoming months (Ironfish, 2017).
Miles et al. (2007), stated that this condition of
undersupply of the housing could be due to a number of things, but the most
unnoticed thing and probably the most prominent reason of this undersupply is
the financing of those developments. Such
developments are mostly about the funding of the projects. In a lot of
situations, due to financing such developments aren’t possible. Hence, the
undersupply keeps on prolonging. Along with that, NSW Developer also stated
that the most curcial thing required for the development of properties is the
funding.
Ironfish (2017), also evaluated the property markets of
different major cities of Australia and it stated that Australia’s property
market is performine very well globally. It is outperforming the other markets
of the world. The growth values of different major cities of Australia are
given below:
Growth of Housing Market:
Source:
Ironfish (2017)
Growth of Apartment Markets:
Source:
Ironfish (2017)
1.
Discussion
1.1.
Sydney Market
Focus of this report is on the property market of
Sydney. The property market of Sydney has seen a lot of ups and down in prices,
supply as well as the demand of the residentials. Since, from 2011 Sydney has
been among the cities of the Australia having most apartment approvals, from
the regulatory bodies, as shown in the figure below (Shoory, 2016).
The population of Sydney is an evergrowing
population of the world. Globally, among all the housing markets, Sydney is among
the most unaffordable property markets. While ranking those markets, Hong Kong
was on the top whereas Sydney is on second rank, whereas Hong Kong is on the
top of the list (Ironfish, 2017). Due to that, along with domestic developers,
foreign developers are also coming to acquire the apartment projects in Sydney
(RBA, 2016).
In the present era, Sydney is entering the phase
of slow growth. This slow growth of the market could be due to unaffordability Unaffordability
is the biggest issue mostly for the people who are buying home for the first
time. Hence, a lot of regulatory bodies such as, Reserve Bank of Australia, FIRB,
APRA and federal and federal governments are interfearing in this matter by
bringing different policies which makes the housing affordable for
everyone.Such as, NSWS government introduced a package, in which they
eliminated the stamp duties on the property buyers (AEPR, 2017). Along with
that, the grant of $10,000 was made possible for the people who were buying a
home for the first time. Morever, they are trying to make the affordability of
houses by increasing the the supply (NSW, 2017).
1.1.
Median House &
Attached/Apartment market prices
It is true that the growth of Sydney in the property
market is making the highlights but at the same time prices of Sydney housing
have been decreased by 7.4% as compared to last year, while the property prices
of Hobart, capital of Australia, are increasing by 16.1% (Conisbee, 2018).
Furthermore, Conisbee (2018) stated that Sydney has been
hit by the decreasing demand for the property and all the local and foreign
investors are pulling back from the market of Sydney. This is not shocking at
all because most investors want the prices of property to be around $850,000,
but the number of properties, in Sydney, having such rates is very small. Moreover,
prices of the properties of Sydney has also declined more than 7% and around 22%
of demand of properties have been pulled by individuals. Due to all that, it
has been evaluated that the prices might keep on further decreasing this year.
Meridian Price of all the residences situated in Sydney is around $815,000. It has been
estimated that these prices will keep on falling at 7.4% yearly and 0.6%
quarterly. But the demand of eastern sububers haven’t shown much of the decline
, infact they are keeping a rapid pace in growth. Those suburbs are having two
states of growth, either property is being sold rapidly in those areas or the
prices are increasing. NSW region is having mixed demand, some parts are having
rapid growth in the demand whereas in some of the parts demand is declining (Conisbee,
2018).
Coinsbee further (2018), stated that the meridian price
of houses in Sydney is $925,000 and the meridian price of apartments in Sydney
is $700,000.
Here are some more states regarding the residential
market of Sydney:
Top 10 most in demand suburbs in Sydney are:
Source: Conisbee, 2018
1.1.
Auction Clearance Rates
analysis
According to CoreLogic (2018), Auction Clearance
is selling your property on the basis of bidding. Interested buyers bid on the
property and the one with the highest bid wins and is able to buy the property.
According to APM (2017), Auction Clearance Rate is calcaulated through this
formula:
ACR= Sold
at Auction + Sold prior divided by the sum of All reported + withdrawn.
Accumulated auction clearance rate of the capital
cities decreased ti 62.3% from 67.8%. Sydney’s rate is among the cities having
the largest fall. It fell from 66.8% to 57.7%. The clearance rate is falling
yet, Sydney is having the highest number of auctions. More stats of the
auctions are given below.
Source: AEPR (2017)
1.1.
Rental Values
When new property is purchased by national investors then
it is more likely to rise the supply of rental residentails. Because , if a person
is moving from the house of their parents than this increases the demand of residentials
but if the person is shifting from a rented house than this creates a gap in
the supply and demand of rental properties (RBA, 2016).
In March, 2018, rental rates of weekly houses and unit
rents are on peak in Sydney. Median price of weekly rent of a house was stable
at $550 per week but the weekly rent for units has risen by $5 (Domain, 2018).
Domain (2018), further stated that the price of renting in
most part of Sydney hasn’t changed much but the cost of the rent of the house has seen a lot of ups
and down in Blue Mountains, the west of Sydnet and Central Coast.
1.2.
Volume of sale transactions
According to the presentation of CoreLogic on Housing
Market Update (2018), residential market is having about 7.5 trillion dollar
share of the wealth of the Australia. In 2017, Sydney was the one of the three
countries having a lower annual change in residential market. Below are the
stats of Sydney compared with Adelaide and Canberra.
Source: CoreLogic (2018).
Annual change in the residence market have fallen by 2.1%
but in last two months they have risen as shown in the figure below.
Source: CoreLogice (2018)
Some more stats of the residential market of Sydney ,
provided by CoreLogic (2018) are:
Source: CoreLogice (2018)
Here is a graph showing the annual rate change of capital
cities of Australia, including Sydney.
Source: CoreLogic (2018).
Gross rental yields have also shown a rise in this year because
rental housing market of Australia is
growing rapidly.
Source: CoreLogic (2018).
1.1.
Investment Yields
An
estimated or actual net income ratio, which has been earned annually to the
principal value that was express through a particular valuation of an
investment from the consideration of a percentage return annually. Therefore,
an investor considers investment yield as the measure to analyze the benefits
and risk attached with an investment. However, when there would be lower risks
and higher benefits than there would be lower yields expected and the principal
value would be greater (Moneycontrol, 2018).
Nevertheless,
as far as the investment yields of the residential properties in Sydney are
concern, POWELL (2017) has observed that high yields could be achieved through
apartments than the houses in Sydney. In addition, it has been observed in the
third quarter of 2017, that a rock bottom was hit by the gross rental yields in
Sydney, as it was the lowest from the past years i.e. 3.86 per cent and 3.12
percent for a unit and a house respectively. Hence, there has been a gap of
0.73 per cent between the rental yields of units and houses. Still, it could be
define as the 5th highest gap until now.
2.
Suburb of Sydney: Localised
Analysis of Suburb of Sydney
Though,
to understand the suburb of Sydney in a better way a localised analysis was
undertaken that could also be helpful in making property investments in Sydney.
Moreover, this analysis consists of different factors such as, Prices of the houses
or apartments for different bedrooms, Properties currently available for sale,
and the Historic sales volume for past five years of Sydney NSW.
2.1.
Prices of Houses or Apartments
for Different Bedrooms
Source: CoreLogic (2018)
On
the other hand, it could be identified from the above chart that the prices of
the properties in Sydney have been significantly increasing. Moreover, there
were four periods when the prices faced a downfall but the long term price of
the property has been enjoying a constant growth (Scutt, 2017). As a matter of fact, there have been variations in the prices of
the apartments depending upon the rooms, place, view and facilities, etc. On
the other hand, this fact has been also applied to the residential market of
Sydney NSW. An analysis was undertaken for the apartments in this market based
on the number of bedroom and other factors kept constant. Furthermore, a range
of price has been identified for different bedroom apartment’s i.e. $795,000 to
$ 1,100,000 for two bedrooms and it varies due to the number parking or
bathroom availability. Hence, it was observed that the range of prices of three
bedrooms apartments was from $1.4 million to $3 million and the prices could
also go beyond the range because of some other factors such as, number of
bathrooms, area of the apartment, and number of car parking, etc. Nevertheless, the availability of the houses
than apartments was relatively very low. Moreover, it has been identified that
people prefer apartment as the cost of living in this suburb was too high and
there were no space for the houses in this suburb due to its urbanity (realestateVIEW,
2018).
1.1.
Properties Currently Available
for Sale
Moreover, it has
been identified that the market demand of this area has been relatively high
from the overall Sydney as numerically the average visit per property of a
property in Sydney was 353 and the average in Sydney NSW was 847 visits per
property. Yet, it has been observed that the availability of the property for
sale in this was getting low as people were opting to this area from different
region. The statistics showed that more than 50% of the population of this area
was independent youth and there was 1407 properties sold in the past year.
Moreover, there were 208 properties currently available for sale and as far as
the rental properties were concern there have been 270 properties for rent. Nevertheless,
the demand was increasing for properties were increasing in this area rapidly (realestateVIEW,
2018).
1.2.
Historic Sales Volume for Past
Years
Source: ABC News (2017)
Property is the
most significant asset of all. Yet, the investments in the property have been
increasing over the past few years all over the world. Furthermore, the
property acquisition and investment has also been towards growth in the suburb
of Sydney NSW too. The population of this area has been independent youth
mostly because of the urbanization of the area. On the other hand, people from
different states have been migrated in Sydney NSW that is the reason behind the
growth and increasing sales of the property in this area (Kohler
and van der Merwe, 2015).
The sales volumes
were at a boom in the past years as more people are acquiring property in this
area. However, it has been observed that the sales have been slower from the
last 12 months in this area. In addition, it has also been identified that it
was also moving towards the financial crisis level that has been faced in the
past. In addition, the report indicates that there has been a decline of 7.7
per cent in the sales on May 2018 from the past year. Moreover, there has been
a decline of 13.5 per cent in the settled sales in this area. Hence, it has
been observed that this fall will continue in the future. Nevertheless, one of
the reasons for this change was that people were choosing to rent out their
properties instead of selling it because of the higher demand of the area that
result into higher return (Scutt, 2018).
1.
Conclusion
After a critical
analysis of the Sydnet NSW residential market it could be identified that the
market is at its growth level. However, the market could be divided into two portions
i.e. Sale and Rental market. Furthermore, it has been observed that both the
markets were facing a constant growth in the past but in the recent time the
sale portion has been decline and the rental portion was though increasing.
Moreover, the ultimate reason for this change would be the fact that people has
been focused towards the investment and the return theory, as the urbanization
in the area has been increasing more people have been migrated to this area.
Hence, people who owned the property in this area were opting to rent out of
their property instead of selling it as it would provide them higher returns
that would also exceed the principal value of the property. Moreover, the
market would be facing the same trend in the future as the demand for property
has been increasing constantly. Nevertheless, more new propertries would be
developed having higher prices because of the increasing demand that will
result in the increase of sale and rental volumes of the market. On the other
hand, rental would be above from the sale portion in respect with the transactions.
Though, it would be a good time to invest in the residential market of Sydney
NSW as it would provide high returns that would cover all the principal amount
plus the cost too.
2.
3.
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