Understanding the property cycle with the proof
Wouldn’t it be fantastic to find that all the information we are given by the real estate industry is totally true and utterly dependable? We do our best to assist clients in understanding the property cycle with the proof of what is actually happening in our markets.
This can be a very difficult task sometimes as one of the most powerful lobby groups in Australia, The Real Estate Industry, supply information to the media in such a way that it totally clouds the reality of what is happening in the actual market place.
Auction clearance rates are very high, but selling two properties out of 2 for auction is a 100% clearance rate!
It would be fantastic to see a property market that increased all the time by a nice 7%-8% on average each year. This would see property prices double every nine or ten years and would provide the property investor with the certainty so many seek. There is no doubt that good well-positioned property in the Sydney market has achieved growth of just under 8% for at least the last 40 years and after the last 5 years I believe that half the population of this great city now believe that property prices will just continue to grow year after year.
The same was true at the end of the last Sydney property growth cycle in 2003. The shock and surprise of many who bought off- plan investment property in particular, in 2002 and 2003, to settle in a market that was around 6% and more lower than its 2003 peak on completion in 2005/6 not only shocked but saw many lose tens of thousands of dollars in deposits on property they could no longer obtain a bank loan for as it was not worth the contracted purchase price.
Of course, we had a little ‘shock’ in Sydney when prices clearly went backwards in the first quarter of this year – an expected small correction at the end of a quite amazing growth period of almost 5 years. Since then we read every week of the fabulous clearance rates and the strength of the markets both in Sydney and Melbourne. This weekend’s headlines are very similar to the last 2 or 3 months Dr Andrew Wilson | Aug 28, 2016 1:48 pm Sydney spring auction market opens with more strong results for property sellers or maybe have a look at Melbourne Dr Andrew Wilson | Aug 28, 2016 12:49 pm Top start for Melbourne spring auction property market.
So all is looking fantastic for everlasting growth in these headlines. The reality is perhaps clearer to see in this little article published this weekend, http://goo.gl/cHfcMz. Receipts from residential stamp duty in July were 12 per cent lower than the same month last year, analysis by investment bank RBC Capital Markets shows. Year-on-year changes in monthly NSW stamp duty receipts were at the lowest mark in nearly five years.
Understanding the property cycle with the proof
So clearance rates may be high but we should understand that if only 2 properties are listed for auction and two properties sell by auction, then we have a 100% clearance rate. While current clearance rates are high, they are being calculated on around half the number of homes for auction than we had 12 months ago. The market is obviously significantly quieter when the State is seeing the lowest revenue on stamp duty in the last 5 years. This is nothing to worry about, it’s just another sign that the growth in the Sydney property market has almost certainly peaked and its maybe time to look towards another market that is more likely to be in its growth phase of the cycle.
