A set of numbers released recently are alarming us when it comes to Sydney property market. We are trying to break these down and explain why we think the numbers paint a bleak picture for Sydney property market. We highlighted for a while, that we think Sydney market overall is not exciting us. We also highlighted the importance of understanding that there is no one single property market. There is no such thing as Sydney market, as there are markets within markets.
Building completions and approvals
Building approvals have decreased, however the decrease and forecasted decline is unlikely to be near the equilibrium. We think that the pipeline of building approvals is still significantly above the demand for Sydney. We are expecting property supply to remain elevated.
As we can see from above graph, Sydney supply is projected to be above the demand for a while. We don’t see how this could support prices, especially with the affordability story in the city.
Supply is significant in detached properties and multi-dwelling units
While we are seeing oversupply mostly in units in other states (example Victoria and Queensland), Sydney has been seeing significant supply of both detached houses and units. The saving grace is that majority of detached houses are in greenfield in far west of the city. However, we continue to be cautious with fringe properties. Demand in these areas could be not as strong as in inner city pockets
State revenue is dropping
NSW state has been an excellent story when it comes to job creation of the back of strong infrastructure spend by the state government. We are seeing reduced funding ability as the review from transfer duty starts to decrease due to current situation in Sydney property market. Reduction in volumes of houses sold and significant decline in property prices are likely to flow through as reduced stamp duty for the state. NSW has already revised down its transfer duty by $393.0 million. While dwelling price declines have been closely in line with the Half-Yearly Review forecast, residential transaction volumes in recent months have been weaker than expected.