Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 10 February 2016

East is east, west is west...

City and surf

...but which fares best?

I spent the day down in Sydney yesterday. 

Like most Anglo-Aussie migrants, I've tended to be found in the eastern suburbs more often than not over the years.

Naturally enough these are the suburbs which attract a dwelling price premium due to their proximity to the city and the surf (such as Clovelly, below).

And, of course, it is the lack of willingness of people such as myself to consider living anywhere west of the city which contributes to that very dynamic.

Two-speed Sydney

After a stellar run, there has been some talk of a Sydney property market correction.

Louis Christopher, Managing Director of SQM Research, has put out a warning note on a couple of Sydney's sub-regions, namely South Western Sydney and the Hills District, both of which have seen large price gains in recent times.

Sydney recorded a strong preliminary auction clearance rate of more than 70 per cent last week, but this largely reflected the health of the inner suburban market, where more properties are sold at auctiomn rather than by private treaty.

The number of listings in South Western Sydney is now tracking at close to its highest ever reading, near to what was seen during the brief panic of 2008.

Granted, in absolute terms there are more properties in the region these days following a spate of subdivision, construction, and house and land package release, but this dynamic does not appear to be too healthy.

Source: SQM Research

It's a similar story in the Hills District.

Source: SQM Research

It remains early days in the calendar year, but contrast this with what is playing out in the wealthier Eastern Suburbs, where listings are tracking at around just one third of levels seen previously in early 2009.

Source: SQM Research

The Eastern Suburbs have historically not been locations characterised by booms and busts, their relative desirability ensuring that valuations have remained more or less permanently stretched.

Traditionally it has also been said that the Western Suburbs have been more sensitive to interest rate hikes.

Summarises David Taylor at Yahoo7 finance:

"It seems that the wealthier parts of town, like the eastern suburbs, are doing much better than the less wealthy suburbs, like the south west.
[SQM Research's data] show Total Property Listings have risen significantly in Sydney’s south west since October, 2014. Conversely, listings in Sydney’s east, particularly in the last few months, have dropped off significantly.
“What this means is that Sydney's downturn seems to be most acute out in the South West right now,” SQM Research managing director Louis Christopher said.
He also notes that listings in Sydney’s south west are now as high as the “panic of 2008”.
So here’s the lowdown: despite the headlines, a property investment in Sydney’s south west doesn’t look like a good idea right now. On the flip-side, Sydney’s wealthier suburbs, despite the already inflated prices, continue to look price-resilient."

A good summary, which reflects why ove rthe long term and through the cycles the Eastern Suburbs tend to fare better. Slow and steady wins the race.

Another interesting Sydney trend to watch will be the major surge in international student numbers, which I discussed in more detail here.

This is already putting a strain on tight vacancy rates in a number of inner suburbs close to the UTS and the RPA.