09.27.2023 Selling Advice

Distressed Sales And Record Prices

Distressed Sales And Record Prices

The second half of 2023 has been an unusual market in Sydney’s eastern suburbs…

The second half of 2023 has been an unusual property market in Sydney’s eastern suburbs, with distressed sales sitting alongside suburb and city records. We explore the dynamics that are driving these differences.

The impact of interest rates

Earlier this year, we wrote about the potential fixed-rate mortgage cliff that could affect Australia’s property owners, including here in Sydney’s eastern suburbs.

This phenomenon is a result of many Australians taking advantage of low fixed-rate home loans during 2020 and 2021. At the time, banks were offering fixed-rate home loans at, or below, 2% interest rates.

With 800,000 of those fixed-rate terms ending in 2023 and another 450,000 in 2024, a lot of borrowers faced, or are about to face, the prospect of higher interest rates and significantly larger monthly payments.

While we expected to see the effects of this in 2023, the situation is nowhere near as severe as many believed. Our observation is that most of the properties coming to market as ‘distressed sales’ have been investment properties – at least so far.

Mortgage cliff or just mirage?

Domain’s data shows that in June 2023, distressed sales accounted for just 3.6% of Sydney property transactions. This was actually down from December 2022, when they hit 5.3%.

Importantly, numbers in the east are well below even this level. In June 2023, they accounted for just 0.4% of sales in the geographical area of ‘Eastern Suburbs – North’ and 0.7% in ‘Eastern Suburbs – South’.

That said, there is always the possibility that we may see a greater number as more mortgages come off fixed rates.

Trophy homes in high demand

At the same time as the media is talking about distressed sales, the top end of the market is charging ahead.

Sydney’s east is Australia’s most expensive property market. In June 2023 alone, three properties in our local areas sold for over $60 million, showing just how robust the prestige market is.

One reason for this is that Sydney has become a real destination for the world’s richest.

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In fact, a recent study showed Australia was now the number one destination worldwide for high-net-worth individuals, pushing the United Arab Emirates into second place. This, the study found, was a result of our climate and lifestyle but also of visa policies aimed at attracting skills and investment.

With Australia’s Dollar lower now than it has been in recent years, many of these new arrivals have significant money to spend on a home. So too, do many expats based around the world in centres such as New York, California, London and Hong Kong.

Locals remain primary buyers in the prestige market

That said, the primary buyers in Sydney’s prestige market remain locals. As we have mentioned before, buyers in this category tend to buy without a mortgage, so the interest rate rises of 2022 and 2023 never really had an impact.

Instead, local prestige buyers are being encouraged to also bid strongly due to a still reasonably strong economy and low supply levels. There is a real shortage of genuine prestige – and especially harbourside – homes within Sydney. On top of that, we’re seeing more local buyers fall into the prestige category, particularly prestige downsizers, who often look for penthouses or sub-penthouses – another category of property in short supply.

Prices going up, but market two-paced

As a whole, Sydney’s property market has been rising since January this year, with the median dwelling price rising 8.8%, according to CoreLogic. The pace of growth has remained relatively constant, with the citywide median price rising 3.8% last quarter alone.

However, as you may expect, given the reasons above, the market isn’t necessarily operating in unison. The top of the market, where there is strong demand and virtually no distressed sales, is easily outpacing the entry-level.

This can be seen in the fact that the median value of two-bedroom apartments in Bellevue Hill has actually fallen -4.1% this year at the same time as the value of five-bedroom homes in the same suburb has grown 7.7%, Domain data shows.

In short…

The property market in Sydney’s eastern suburbs rarely moves in unison, and right now, there are many factors at play. One thing that remains consistent is that this is always a high-demand area where people want to live.

That means, whether you’re a property investor or home buyer, eastern suburbs property almost always makes a sound long-term investment.

Want more?

If you’re thinking about buying or selling property in the Eastern Suburbs, don’t hesitate to get in touch with our team today.