Sydney Property Market Update October 2020

By Herron Todd White
October 2020

Sydney Spring is upon us, traditionally a popular time for vendors to take established property to the market in Sydney, but how is the vacant land and construction market holding up? Given the current economic climate surrounding COVID, government incentives are coming to the fore to help and encourage stimulus to both the housing and construction markets. There are various incentives for first home buyers, new builds and renovation of existing dwellings, too many to individually mention so we thought this link may be handy:

https://www.revenue.nsw.gov.au/grants-schemes/ homebuilder

In the built-up parts of inner Sydney where there is a scarcity of vacant land, the trend currently is to head down the home renovation path. In the search for new land to build the dream home within Sydney, inevitably the search will find its way to the outer suburbs of north-west and south-west Sydney. It is here that the growth precincts are located and where there is a large pipeline of land to be delivered over the next decade. There is no better place to start.

North and South-West Sydney

The north and south-west growth centres are comprised of what was previously rural and agricultural land on the outskirts of already developed locations. These areas are often based around large, master planned estates providing new schools, parks, shops and transport links. These master planned estates and communities provide a one stop shop for their residents and young families have flooded to these locations in droves. In some cases, families can live, shop, play sport, attend school and work, all in one convenient location. These planned communities provide a semblance of simplicity in what can be a complex and time-poor world.

The supply of ready to build land and turnkey house and land packages are predominantly in the hands of the developers who release lots in stages to ensure constant levels of demand and to guard against the market being flooded with new stock. A flooded market can occur on occasions as demand fluctuates and outside influences such as lending restrictions, interest rates, infrastructure announcements and international pandemics make their own impact on the wider market.

Our investigations reveal that demand is strong for house and land packages under $750,000 and for ready to build land that can result in a completed product for under that same amount. This is due to recent government incentives, sustained low interest rates and an achievable price point. In addition, developers held off releasing stock for fears that COVID-19 would further reduce demand. What has occurred is that this lack of stock has held this section of the market up in the short term.

We have also seen a trend for builders to offer discounts of up to $50,000 for some builds in order to sign up more clients. This is on the back of a declining market suffering the impacts of COVID-19. These project style builders rely on quantity and turnover of clients to maximise their economies of scale and profit margins.

Whilst we saw a drop in approvals at the beginning of the pandemic, there appears to be a rebounding effect in play currently, in part thanks to the aforementioned government incentives and low interest rates.

Whilst demand is still relatively strong, it has to be at the right price. We have seen a number of recent sales sell for less than what they were purchased for in stronger market conditions. Examples of this include:

• 26 Blazer Street, Box Hill – a rectangular shaped 404 square metre parcel selling for $550,000 off the plan in September 2017 and reselling for $510,000 in August 2020 after being marketed for over 100 days with a local agent.
• 133 Longerenong Avenue, Box Hill – a rectangular shaped 299 square metre parcel selling for $360,000 off the plan in August 2016 and reselling for $350,000 in March 2020 after being marketed for 40 days with a local agent.

A number of land releases have sharpened their prices in recent times, with the biggest risk for landowners being the sheer volume of future supply proposed for the wider region. This may be the great leveller for years to come.

When building your dream home, the last thing you want is for the end value to be less than the cost. Overcapitalisation can catch people out and potentially be the catalyst for mortgage stress.

A property at 24 Constellation Avenue, Box Hill recently sold for $930,000. This is a twostorey, five-bedroom, three-bathroom dwelling with a single garage. The land is a regular 345 square metre parcel. After acquiring the land for $480,000 in July 2017, the owner will have made a profit if the total build cost and any additional costs were less than $450,000.

North Kellyville is located within north-western Sydney and appears to be faring well given the current climate. The recent sale of 10 Blue Wren Way for $1.98 million highlights that great results are still being achieved for the right properties. This property is a gigantic 87 square, nine-bedroom, four-bathroom dwelling with a high level of inclusions. The property was under contract after 24 days of being marketed.

Further west in the Penrith LGA are the estates of Caddens, Glenmore Park and Mulgoa. Our enquiries indicate strong demand for land or new dwellings in this area. This can be attributed to the price point being more affordable than estates situated closer to Sydney.

The last land release at Caddens Hill is all but sold out with strong interest for more land in the local area.

Agents are noting that the level of interest in western Sydney has risen since COVID-19 as city dwellers look to decentralise as the need to be located close to work has reduced and the idea of a modern family home with dedicated study and multiple living areas is becoming more appealing.

Hillrise is the next land release in Glenmore Park. 140 lots of the 400 in the current release have sold so far with prices of:

• 350 square metres for $410,000, reflecting $1,171 per square metre;
• 375 square metres for $440,000, reflecting $1,173 per square metre;
• 450 square metres for $530,000, reflecting $1,177 per square metre.

Within south-western Sydney, there are a number of housing estates, some more established than others. From our investigations, demand has remained constant due to the management of supply levels and all-round housing affordability, however we are starting to see the property market and values within estates perform independently and differently from each other. There appears to be a direct correlation between value and the development of an estate such as Oran Park as a fully functional community with facilities and services growing with the demands of the community versus the scatter gun development approach currently seen in Austral.

Oran Park is a well-planned estate with a town centre, parks and schools, etc. Over the coming years the retail precinct will be expanded and introduction of office space and a proposed train line will make this estate a fully functional community space. Recent land sales have shown that although there is plenty of competition from competing estates, land values have generally increased year on year as buyers are seeing the value in a well thought out community hub. For example, a vacant land allotment in Power Ridge sold in May 2020 for $423,000. Its previous sale occurred off the plan in March 2017 for $408,500 in what many would remember was a The Ridgeway at Barden Ridge Source: Realestate.com.au very heated market. Same again for another vacant block in Power Ridge which sold in July 2020 for $470,000. The previous sale occurred off the plan February 2018 for $451,500. The current vacant land market is painting a very different picture in Austral. For an up and coming suburb next to the Aerotropolis with fantastic accessibility from all areas of Sydney via the M4, M7 and M5 networks, the area has seen minimal infrastructure and services which has correlated with no growth in land values from the height of sales in 2017. The current scatter gun approach to the development of vacant land is far removed from the planned out community vibe of Oran Park.

For example, a vacant land allotment in Cocherell Street sold in May 2020 for $384,000. Its previous sale off the plan occurred in June 2017 for $409,900. Another sale in Bolac Road in October 2019 was $460,000. Its previous sale off the plan in June 2017 was for the same price.

Moving away from the vacant land market, we look at valuations on completion of new dwellings. It appears more common that construction contracts are missing key items that render the dwelling complete. These items can include driveways, fencing, landscaping, window coverings and, in some instances, floor coverings as well.

More often than not, the incomplete nature of the dwelling will result in the improvements value being less than the cost to construct, as similar recent sales of completed dwellings won’t allow the full realisation of the cost unless the dwelling is fully completed. In general, the market wants a completed home to move directly into and not have to fork out additional expenses and time to complete the dwelling when there are options to buy similar completed stock.

South

The Sutherland Shire currently only has one new housing estate, The Ridgeway at Barden Ridge. The Ridgeway consists of 136 vacant land lots in a community title estate ranging from approximately 550 to 890 square metres. The majority of the lots were sold off the plan in 2018 with only 20 lots left for sale. The contract prices range from about $750,000 to $1 million and are generally considered to be on par with value levels within the area. Vacant land in the Sutherland Shire is not overly common and therefore usually does sell quickly with a relatively high level of demand, however it does not appear that the recent government incentives for vacant land and newly built products have had a significant impact on this estate. Given that there is limited vacant land within the Sutherland Shire, our opinion is that these products will hold their value in both the short and long term, albeit impacts from COVID-19 and wider economic conditions could obviously affect value levels in general.

Recently we have noticed an increase in homeowners renovating their primary residences. Renovations range from minor landscaping to completely gutting the dwelling. There does not appear to be many knock down and rebuilds in the current climate. There also seems to be a slight decline in the development of duplex pairs in the Sutherland Shire with the shift going towards renovating and updating a single dwelling, which may be reflective of the risk appetite of this market and the fact that renovating the family home is considered to be a safer choice. Anecdotal information and conversations with local homeowners suggest that the renovations are being completed for the purpose of personal preference and to update the properties in general rather than specifically to prepare the property for selling.

Inner West/Inner South-West

The inner west region of Sydney comprises a vast range of property types, from older character dwellings through to modern apartment buildings. Many of the older dwellings have some level of heritage overlay under local planning regulations. These regulations are generally not too restrictive and mostly relate to maintaining the façade of the property to keep it in line with the heritage style of the area. Due to this, the majority of renovation work is either internal or extending the property to the rear or a first floor.

We have recently noticed an increase in requests for valuations for the purpose of applying for the New South Wales Home Builder Grant. As per information from Revenue NSW, a valuation is required to show the value of the property (house and land) in the three months before commencement of renovation.

A recent example of this was an enquiry on an older style terrace house in Enmore. The property was purchased in 2014 for approximately $1 million and the owner of the property required a valuation to determine whether the current value (prior to renovation) would be less than or equal to $1.5 million in order to meet the eligibility requirements for the New South Wales Home Builder Grant.

Notwithstanding wider economic conditions and the COVID-19 pandemic, we anticipate that this trend of renovating single dwellings will continue throughout the remainder of 2020 and into 2021. Some of the key elements that may might drive the renovation demand include: relatively cheaper building rates than in recent years; record low interest rates; government stimulus packages; tax incentives (in some situations); and the continued preference to renovate the home rather than upgrade or downsize in these unprecedented times.

Northern Beaches

Warriewood is currently the only Northern Beaches suburb that provides the opportunity to buy land in a large-scale housing estate. Karinya and Avora are two of the last remaining estates, located off Warriewood Road and Garden Street respectively. Land sizes in each of these estates typically range between 290 and 450 square metres and are around $3,00 to $3800 per square metre.

A recent example of a vacant land sale is 17 Bubalo Street, Warriewood. A 290 square metre vacant block that was previously sold in January 2017 for $995,000 has recently resold for $992,000 in May 2020 through Raine & Horne, Mona Vale.

The market value of a new home typically equates to the unimproved land value and construction cost. There are a number of established estates in the area that keep a steady supply of competing stock available, providing transparency to the market and options for prospective buyers.

The key driving factors include value for money and an improved quality of life. Buying a level block of land for less than $1.5 million in an established Northern Beaches suburb is a pretty tough ask. These new estates provide the opportunity to buy a smaller, low-maintenance block of land and build a new home for the price of an older three-bedroom home on twice the land size in a comparable suburb.

Matthew Halse
Director

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