Is the Sydney Growth Rate Going to Decline?

rise in growth rate An article on The Adviser talks about the anticipated decline in fortunes of the Sydney market. Overcrowding and curtailed investor attention can result in a dip in the market growth to levels equivalent to 1/5th of the present growth level. To put it in figures, house price growth, which is running close to 17%, may come down to 3.4% in the year 2016.

The growth rate has to mellow down, after all

While the cycle has certainly been longer than the ones we had in the 1980s and 2000s, the fizz from the price growth scene may soon evaporate, contests the article. No one can yet put a finger and say when the market may permanently correct itself but “correct it may and correct it will” is the general voice.

Reasons offered for the decline in growth rate

The expected decline in price growth may also be put down to lower degree of infrastructure growth and our forced departure towards high-density living. Sydney may have just begun traversing the ‘overcrowded’ slope because the need to cater to speculative investment has become a lot more important than the need to offer good, livable houses.

Scene ahead for Australians, expats and overseas buyers

And if this brings us face to face with a situation where investors (and expats and overseas buyers) begin to realise that the safe haven (for expats) and the lovely cocoons of comfort (for us Australians) they are seeking in Sydney do not exist, prices may just begin to correct themselves fast.

The article however does not discount the possibility that low interest rates could well keep price growth on its path. And experts are in no mood to back out yet from their strong belief that the shortage of supply will always see demand proliferating.

You can read the original article here.

I have always been fond of a writer called Isaac Bashevis Singer. This gentleman made a serious case for vegetarianism. He said that even if God were to tell him the merits of non-vegetarianism he would not budge from his stance. I think I am equally convinced about the prospects of Sydney, I dare say.

Can we manage the show at such maddening levels

It is not to say that I don’t see the imminent threat at hand. No growth cycle can perhaps be sustained at such maddening levels. But if we think a little deeper we will find that the success of Sydney looks bigger than it actually is simply because it has come in the wake of a few disastrous years of property slumps or plateauing. So, when Sydney was applauded for its first phase of growth, it was actually in correction mode. Only now has it started to make terrific inroads.

Succour of low interest rates

The low interest scene (and I feel it has lasted more than expected so there is no reason why it can’t last longer….after all, there is no inflationary pressure yet) is going to continue for some time to come. Physical space is shrinking, making it difficult for the ‘supply’ side of the equation to catch up with the ‘demand’ side. The scene may not change much anytime soon.

And Sydney is resilient…way too resilient

Add to these streams of stats the resilient nature of the Sydney property market and its adherence to economic fundamentals. Who then can put his neck on the guillotine and say that the growth rate is going to decline? I don’t think there will be many takers for the challenge.