2023 Property Market Wrap

December 2023

As 2023 draws to a close, we look back on the year that was in the Property Market and what lies ahead in 2024.

Despite experiencing 5-interest rate rises during 2023 the Australian property market has once again proved its resilience. Against a backdrop of rising interest rates, increased cost of living pressures, high inflation and the much talked about ‘mortgage cliff’ the Australian property market erased the losses of 2022 and finished the year in relatively good shape. Property prices not only stopped falling, but they have been on the rise since early 2023.

CoreLogic’s National Home Value Index (HVI) across the combined capitals reached a new record high in November 2023. After falling -7.5% from a peak in April 2022 to a trough in January 2023, housing values have bounced 8.3% higher over the past 10 months.

The main driving forces were high immigration, low rental vacancies, strong demand, and limited supply. Add to this the large number of expats and foreign buyers returning to the Australian property market after being absent during the Covid years.

Interesting to note that the National HVI for November rose only 0.6% - this was the smallest monthly gain since the growth cycle commenced in February and is well below the recent high of 1.5% in May. This slowdown in growth reflects higher interest rates, a rise in total listing volumes in Q3/Q4 and stretched affordability. Whilst the rate of growth has been slowing, we still expect to see moderate price growth nationally in 2024.

All eyes will be on the RBA on the 6th of February 2024 when they meet to discuss monetary policy.

“Extract from RBA Statement 5th Dec 2023 - Whether further tightening of monetary policy is required to ensure that inflation returns to target (2%-3%) in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Let’s look a bit closer at some key market indicators

Fixed Loans Expire: So much for the ‘Mortgage Cliff’. This much publicised and talked about event was really a non-event. The major banks have reported a modest rise in arrears, which suggests that interest rate rises, and the erosion of savings buffers may be starting to impact ­consumers. This rise however, ­remains small and from a record low base, demonstrating the resilience of Australian consumers.

As fixed loans expire, borrowers are facing a 3.5%-4.5% rise in their mortgage rate and we expect to see increased mortgage stress, a rise in arrears and some forced sales in the first half of 2024.

Whilst mortgage rates for owner-occupiers are still below the long-term average of 7%, it is likely that the rate hiking cycle has peaked. This outlook is providing impetus in many suburban markets where buyers are hoping to take advantage of new values as rates are eased in late 2024.

Housing Supply Down: With the risk of sounding like a broken record – ‘low stock levels’ were a feature of 2023. The shortage of properties for sale amid strong buyer demand at the start of the year saw the capital city markets return to growth sooner than expected.

This limited supply of houses and units was met with strong migration growth under the new Labor Govt. and it was certainly a feature of this year’s housing market and we believe will continue for some time. Many migrants opted to buy instead of renting because the rental market is so tight and weekly rents have risen exponentially.

On the supply side, dwelling approvals trended lower in 2023 due to high construction costs and ongoing labour shortages. With fewer people building their dream homes, this created extra competition in the established houses market and pushed up prices.

The same issue exists in the apartment sector, with approvals recently falling more than 50% below their decade average

Australian Dollar Luring Overseas Buyers: The Australian dollar declined from 72 cents in late January to 63 cents by October against the US dollar.  Australia’s low dollar value and the high probability that it will rise again in the near future, is another major draw for overseas buyers according to Steve Douglas of SMATS Group.

“In many countries around Asia, property prices are relatively flat, or like Hong Kong, falling, so Australia’s promise of capital growth is only enhanced when buyers factor in the potential for their Aussie property asset delivering a currency-linked dividend as well”.

“Add in interest rates at or near a peak, and I foresee Australian property being in high demand from international and expatriate buyers,” says Mr Douglas.

Rental Market Tight: 2023 was marked by staggering levels of net overseas migration. While this added upward pressure to home values, the most obvious response in housing metrics was in the rental market.

Strong rental growth was experienced in most capital cities, particularly those with historically high exposure to overseas migration.

Nationally, Kensington in Sydney’s Eastern suburbs had the highest house rent growth in the year to November, up 24.9%. In the unit segment, Lakemba in Sydney’s Inner South West saw rents soar 28.1%, closely followed by Wiley Park up 28.0%.

Let’s look at what is happening in different segments of the Sydney property market

Top End – Strong

The prestige sector has been leading the capital city market recovery. Prestige buyers are less interest rate sensitive and are facing stiff competition from returning foreign investors and expats. This increased demand and competition is creating a fear of missing out and top end prices continue to astound, particularly in Sydney’s Eastern Suburbs.

The top 20 house sales alone totalled more than $845 million worth of real estate, nudging last year’s all-time high of $864 million, and there were a record 55 deals worth more than $20 million.

2023’s top sale price was Bellevue Hill’s Queen Anne Federation mansion Leura, which was bought by flower wholesaler Leo Lynch for $76m mansion and requires a full renovation.  No.2 was the Spanish Mission property, Mainhead in Wunulla Rd, Point Piper, that was bought for  for $68m by LaserClinics co-founder Alistair Champion. It also requires a full renovation. No. 3 on the list was a beautifully renovated home in Kambala Rd, Bellevue Hill, which was bought by the freight boss Arthur Tzaneros, furniture and all for  $61.5m. No. 4 was Akuna, on the Point Piper waterfront that Sydney FC owner Scott Barlow sold for $60m  - the price was $15m more than what Barlow purchased it for a year earlier.

Buyer of No.5, fintech entrepreneur Stephen Dash paid a total of $47.8m for a mansion and two townhouses that made up the Breuer estate in Bellevue Hill. He intends to demolish the lot and build a designer mansion for his young family on the 3288sqm block. Bellevue Hill emerged as the highest growth suburb and had at least 16 sales for $20 million or more this year.

Rag traders Daniel and Georgia Contos purchased three houses in Vaucluse for $37.5 million, $26 million and $25 million that they plan to knock-down and build a new compound.

The top sale of the year in Mosman was the $21m waterfront that former Qantas chief Alan Joyce – he never actually lived in the trophy home with private jetty, berths and netted sea pool but they did extensively renovate the Musgrave St property, which they had purchased in March last year for $19m.

Two sales in the top 20 were apartments sold off-the-plan for $37.5 and $33.5m in the One Circular Quay development. Over 2023 we have seen continued strengthening of demand for premium and super prime apartments throughout Sydney premium suburbs. Lock up and leave apartments in Mosman have proved super popular this year with local downsizers looking for convenience and comfort. An off-the-plan development in Myahgah Rd called Reverie sold out in two hours with downsizers competing for the 20 units. Sales opened at 8am and by 10am all the units had gone with the penthouse selling for more than $15m – the highest price paid for a unit in Mosman.  The Manly beachfront development Aurora sold its units like hot cakes. One 212 sqm unit sold for $16m – that’s $75,000 per square metre and a record for Manly. The 58 units were being grabbed primarily by downsizing locals wanting a beach view and central Manly position.

Mid-Range – Moderate Softening

Higher interest rates are starting to affect borrowing capacity in the mid-range market. We are seeing a moderate softening in prices of family homes in the $5-$8 million range especially for Tier II properties. Teir I family properties are still in short supply and are keeping prices strong in the market sector.

Lower End – Softening

The lower end of the market in the sub-$3 million range is starting to show signs of softening due to cost of living pressures and increased borrowing costs. In this market we have seen increased vendor discounting and days on market. Buyers are being more cautious and definitely more patient.

In this market sector there has been an increase in short-term reselling at a loss due to the pressure of interest rates rises on mortgage serviceability.  More than one in 10 property sellers in both Sydney (10.7 per cent) sold for a loss — the cities’ highest rates in 14 years. In Sydney, the highest share of loss-making sales were in Sydney’s unit-heavy councils, the Ryde council area (24.2 per cent), followed by Burwood (23.7 per cent), Strathfield (22.8 per cent) and Parramatta (22.5 per cent).

Apartment owners were more likely to sell at a loss, as 15.4% of units resold for a price cut compared to 3.8% for houses. The trend is more likely to impact investment properties, with investors (12.6%) three times more likely to cop a loss than owner-occupiers (4%). Frist home buyers who might not have experienced rising interest rates before make up a large proportion of these owner occupiers.

What are we expecting for 2024?

Interest rates remain the most important factor for the housing market with the RBA closely monitoring consumer spending and inflation.

We believe the cash rate will remain at 4.35% for the first half of 2024 and we then expect the RBA to ease rates in the second half of 2024 and into 2025.

The National property market should consolidate in the first half of 2024 before the RBA eases monetary policy and the scheduled Stage 3 tax cuts come into effect on the 1st July 2024.

National growth of between 5% to 7% can be expected in house and unit prices by the end of 2024. Domain are predicting the strongest increases in house prices in Brisbane 7-9%, Sydney 7-9% and Adelaide 7-8%.

Strong population growth is set to remain a feature of the housing market. The recent temporary record strength in migration will continue influencing our housing markets. Australia’s projected population by 2029 is 28,946,317, an increase of close to 3 million people.

Many industry experts, including Steve Douglas, Chairman of SMATS Group, are forecasting house prices to boom in 2024, largely due to a lack of supply and an immigration boom.

However, these aren’t the only factors driving property prices in 2024, with affordability being one of the biggest variables, as well as the RBA’s decision on interest rates.

We would like to thank you all for your continued support and loyalty.

The SydneySlice Team would like to wish you and your family a safe and prosperous 2024.

Stephen Smith
Principal & Buyers Agent