Propertyology research and analysis into Sydney’s property market history over the past 30 years has revealed a story of three booms, four downturns, and findings that are quite contrary to popular opinion. 

“Sydney’s market peaked in mid-2017 and, according to the latest ABS data, the June 2017 median house price of $1,075,000 had declined by $175,000 to $900,000 by September 2018, with even more softening since then,” Propertyology Head of Research, Simon Pressley, said. 

“If the various analysts who are forecasting an additional 10 per cent drop during the 2019 calendar year are correct, Sydney’s median house price will be sitting at circa $780,000 by Christmas 2019. And, if the Sydney market were to bottom at that price, it would equate to a $295,000 decline since its peak. That’s a big hit on a standard house.” 

“If the trajectory of Sydney’s future growth cycle is anything like what history has taught us, the probability is someone who purchased a stock-standard Sydney property during 2017 may find their asset to be worth the same or less than what they paid for it in five, or even 10, years from now.

Property markets do have a habit of tracking sideways for several years after a significant boom period,” Pressley said. 

Propertyology’s analysis confirms there are many learnings money can’t buy. For anyone who cares to understand more about real estate, here are eight lessons we can learn from Sydney’s property market history. 

1. Population growth doesn’t mean price growth 

Mr Pressley said maybe now a few more people will appreciate that there are several factors associated with ‘housing demand’, with the primary one being affordability, not population growth. 

2. Infrastructure isn’t a ticket to wealth 

“Yes, infrastructure investment can influence property prices, however, a new hospital, university, train station or airport precinct is by no means a money train to Australia’s best-performed location without all of the other dots lining up,” Mr Pressley said. 

3. Housing supply part of the problem 

“From 2013 onwards, record building approval volumes provided leading indicators that this day of reckoning was on the cards,” he said. “The proof of it arriving lies in the large increase in properties listed for sale today, rising vacancy rates, some awful auction clearance rates and, of course, falling property prices.” 

4. Growth cycles don’t last forever 

Mr Pressley said while Sydney property prices increased by 70 per cent before the downturn started, they’re now back to mid-2016 levels. 

“A large percentage of the circa 200,000 properties purchased in Sydney since then are now worth less than what the owners paid for them. That’s a comparable volume of dwellings for a city bigger than Canberra.” 

Propertyology research suggested that, historically, a prolonged flat period almost always follows growth cycles. 

5. Big isn’t better for capital growth 

Propertyology believes a common misconception was property in the largest cities always produced the biggest price growth, but analysis of the evidence from the past three decades did not support this myth. 

“Property prices do different things in different cities at different times. But better performances are often produced in various other capital cities and literally dozens of strong regional cities. Those who remove the confirmation bias and look at proper fundamentals will discover a plethora of locations with diverse economies, solid job growth, a long history of controlled housing supply, and median house prices of $350,000 to $450,000,” he said. 

6. Cash flow matters 

Mr Pressley said recent investors in the Sydney market were now faced with astronomical holding costs. Propertyology’s research suggested investments in standard houses in some northern suburbs like Frenchs Forrest have pre-tax holding costs, after rental income and expenses, of about $26,000 per annum. In locations like Parramatta it was $31,000, and in Ryde it was $40,000. 

“For those who foolishly think being near water or the inner-city makes properties grow more, a basic house in Bondi now has annual holding costs of $57,000 per year and Balmain has a $42,000 hit to the back pocket,” Mr Pressley said. “A standard apartment in those two suburbs still costs $16,000 and $21,000 in holding costs per annum, respectively.” 

“On the other hand, a standard house in a middle-ring Brisbane suburb such as Nundah has a pre-tax cost, after rental income and all expenses, of $11,000 per annum. Meanwhile, the holding cost in middle-ring Hobart, Australia’s best- performed capital city for the last few years, is a mere $1,000.” 

Mr Pressley said markets change quickly, as can personal incomes. He therefore encouraged all property investors to respect the importance of individual properties not costing a five-figure sum to hold each year. 

7. The credit squeeze didn’t help 

One of the confluence of factors that contributed to Sydney’s price downturn was the current credit squeeze. 

In fact, Mr Pressley believed Australian real estate prices, in generally, may well have increased by a further five to seven per cent in 2018 if it wasn’t for the ‘overzealous’ round of credit tightening by APRA. 

“Credit, along with the RBA cash rate, is a national policy, however the biggest mortgages are always affected the most, so Sydney’s property market is in the firing line,” he said.

“Sydney’s current downturn was caused by over-supply of housing and then accentuated by the lack of credit supply.” 

8. Don’t keep all your eggs in one basket 

Mr Pressley said investors could make money in multitude locations across the country, but too many people still believed in religiously buying in big name cities like Sydney. 

“Of course, property investors can make money in Sydney. There’s money to be made in literally every city and town in Australia,” he said. “However, what has transpired over the last couple of years should teach people Sydney isn’t ‘safer’, and its bulging population is far from the goose that laid the golden egg.” 

Conclusion 

Mr Pressley said Propertyology’s research and analysis showed every location has its peak and fallow times and, while it was impossible to say when, Sydney will boom again at some point in the future. 

“It’s as good as guaranteed that it won’t be anytime soon and may well be as far down the road as a decade or more,” Mr Pressley said. 

“Perhaps the biggest learning of all for investors is, instead of throwing everything on black, spread your investment capital across multiple more affordable property assets in a variety of different towns and cities.” 

Propertyology is a national property market research firm and buyers agency. They help everyday people to invest in strategically-chosen locations all over Australia. The multi-award-winning firm’s success includes being 2018 winner of Buyers Agency of the Year in REIQ Awards For Excellence and a finalist in the 2017 Telstra Business Awards. 

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