Sydney market at end of cycle, says McGrath

Speaking at the AussieThink conference in the Gold Coast on Monday (28 August), John McGrath emphasised that there are “two housing markets” in Australia, and that he believed that the one that incorporated the two major cities of Sydney and Melbourne was at the end of its cycle.

Mr McGrath said: “There are two markets in Australia, the Sydney/Melbourne market being one and the rest of Australia, and that could be broken into regionals and other capitals. If you look at the last 10 years, we have seen Sydney/Melbourne [prices] have doubled and we’ve seen most of the other capital cities increase by 10–20 per cent, so it really is a big separation of the two markets."

Addressing the Sydney/Melbourne market first, the founder of the real estate agency said that he believed the two cities were “at least 95 per cent through their current cycle”, adding that “it could be 100 per cent in Sydney”.

He explained: “I don’t see any material capital growth in the next few years and, equally confidently, I don’t see any material drop either. I’ve been through five cycles and each time the market does see significant growth over a two- to three-year period.... We think the Sydney market is 40 per cent overvalued.”

‘Small correction’ on the cards in Sydney and Melbourne

According to the industry thought leader, the end of the property cycle generally involves a “calming or plateauing”, or even a “small correction while the market catches its breath”, which he said was “a healthy thing”.

He said: “We say internally [at McGrath] what a good thing it is the market is settling down in Sydney and Melbourne, and we think that over the next few years there will be a short, small correction in small single digits — 3, 4, 5 per cent — but we see nothing worse than that.”

Suggesting that some pockets of the two cities could still see “a few percentage points of growth in the years to come”, he said that, overall, he was “not concerned about it falling off the cliff for any one market”.

“We have population growth, a strong economy, overseas investment, a number of things that have driven [the price increases] and I believe that it will continue to drive strong markets especially in these cities," he explained. "Couple that with relatively low interest rates as well, so that’s helpful.”

Looking outside of these cities, Mr McGrath said that other capital cities were “well and truly overdue for some form of growth”.

He particularly noted that he thought South East Queensland was “a sleeper” that would have “strong growth market going forward”.

“If you look at the traditional gap in value between Sydney and Brisbane (being the two major east coast markets in close proximity), it’s certainly greater now than I’ve ever seen in the 35 years of real estate history."

He added: "I think Brisbane and SE QLD are undervalued.”

Mr McGrath said that major regionals would also be “beneficiaries” going forward; such as Wollongong, the central coast and Newcastle in NSW, where there is “strong lifestyle”.

He continued: “From a real estate perspective, I don’t think there will be anything dramatic in the next year. I think it will just be calming of the market ... But I think no matter what goes up and down, there is lots of opportunity and this industry will be at the forefront of taking the bacon.”

'We are not going to hit a property bubble'

Likewise, John Symond, executive chairman and founder of Aussie, said that he thought there will “always be pockets in the popular areas where prices will continue to edge up” and had “no doubt that there are pockets in Sydney and Melbourne that will go up 5, 6, 7, 8 per cent over the next year”.

However, Mr Symond emphasised that the property market is often touted as being in a “bubble”, but highlighted that Sydney was the worst performing capital city for housing growth in the decade of 2002–2012.

“It effectively had zero growth,” he explained. “The growth was less than inflation for 10 straight years ... [but media] focuses on what happened from 2012. On average, if you look at it over the last 15 years, it’s a different story.

“So, I’ve got no doubt that we are not going to hit a property bubble, we’re not going to a bust. The fundamental is that Australia is one of the best countries in the world.”

Mr Symond said that he thought that there will continue to be “a shortage [of housing] in certain areas”, but that, fundamentally, he thought the next 12 months would still have “low, affordable interest rates, an economy that is doing pretty well, and a global market that is in better shape than it was”.

The title of this article was amended on 30th August 2017

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