Flight to quality under way in Sydney

There is no question that Sydney market conditions are undergoing change, with fewer active buyers searching for property.

However, it might be interesting for you to learn that properties for sale still remain constrained compared to recent history.

In fact, according to SQM Research, the total number of property listings in Sydney were only 11 per cent higher in June this year compared to the same period last year, which was when we were recording sharply rising real estate prices.

Indeed, compared to November 2018, when listing numbers were at their greatest level in recent years, the number of properties for sale in Sydney this June were 25 per cent lower than that period of much softer market conditions.

The latest Lending Indicators from the Australia Bureau of Statistics is also highlighting a change in buyer types over the past year.

According to the ABS, the value of new borrower-accepted loan commitments showed fewer owner occupiers and more investors in the market in May. The value of owner-occupier loans was down nearly 10 per cent compared to May last year but had increased 23.7 per cent for investors over the same period.

Now, we need to remember that last year saw a record number of homebuyers transacting, but investors remained quite subdued.

The percentage of investors in May this year was about 34.5 per cent, which is in-line with the historical average, but investment activity had been below par for years and had reduced to just 22.9 per cent during the first year of the pandemic.

What does it all mean?

On the ground over recent weeks, we have witnessed this changed buyer mix in action, including via client enquiries to our agency.

It’s clear that with markets softening, and fewer emotional homebuyers to compete against, investors are making their move in the Sydney market.

However, they are being very selective, as they should be, with a flight to quality definitely under way.

For example, I recently attended an inspection at a renovated Torrens titled unit in Ryde, which was within walking distance to desirable Putney.

It would be a quality investment in any type of market condition, but I was still somewhat surprised to see about 20 groups at the inspection, with a mix of investors and homebuyers apparent.

Conversely, at properties that perhaps don’t have quite the same scarcity or desirability factor, it is common to only see about five groups in attendance at inspections at present.

According to SQM Research, asking sale prices in Sydney have reduced by about five per cent over the past quarter, no doubt due to this smaller volume of active buyers out there.

Opportunity ahead

In a rising interest rate environment such as now, the borrowing capacity of some potential buyers is being squeezed, which is clearly reducing competition in the marketplace.

There continues to be much conjecture about where interest rates will wind up in coming months and that is keeping many buyers on the sidelines, too.

This means that there are currently excellent opportunities for savvy investors and homebuyers, keen to transact in Sydney in the coming weeks or months.

In fact, compared to last year, some properties are selling for $100,000 to $200,000 less than they would have achieved at that point in time.

However, in changing market and lending conditions, it is more important than ever to target superior locations and dwellings to ensure you are future-proofing your property decisions and your capital growth results.