The CoreLogic hedonic indices released on the 3rd of April show that the Greater Sydney dwelling market has declined 3.9% from its peak value in July 2017. 

The recent boom in Sydney dwellings was characterised by consecutive monthly gains between March 2012 and October 2015, and again between May 2016 and July 2017. Over the whole period between March 2012 and July 2017, the annualised return on Sydney dwellings was an astonishing 10.7%. Following signs in early 2018 that growth was returning to negative, CoreLogic project data is highlighting a drastic pivot in construction across New South Wales. 

Investors were particularly active over the boom period, as highlighted by the 63% peak share of mortgage value held by investors across New South Wales in May 2015 (excluding re-financing). Within the emerging global city that had relatively low density, developers were quick to capitalise on the unit segment. 

While ABS publications show state-wide dwelling completions, CoreLogic project data provides geographically granular insights into Sydney unit completions. Across greater Sydney, CoreLogic project data suggests approximately 140,000 units were completed over the course of the Sydney housing boom. 

Graph 1.

 
According to CoreLogic Market Trends data, the median sale price of new units continued to rise over this time, from $545,000 at March 2012, to $708,000 as at December 2017. Average annual growth in unit completions was 25% a year. However, growth moderated to just 4% in 2017, as the pace in the growth of new unit prices also slowed. 

The City of Sydney and Parramatta Council saw the most completions over the course of the boom, with approximately 27,000 units added to these council regions. 

Top 20 CoreLogic completion estimates by Council - Greater Sydney Units, 2012-2017

 
Between 2012 and 2017, the construction sector in New South Wales was often led by Sydney-based apartment projects. The total value of unit projects commenced was $22.6 billion between 2012 and 2017. Over the same period, there were $16.7 billion worth of commencements in commercial buildings, and just $12.5 billion in community buildings like schools and hospitals. 

However, as growth in Sydney dwellings moves into negative territory, no further cash rate cuts are expected to sustain growth in the market. The latest GDP figures indicate that private demand in Australia is on the rebound, with private final consumption seeing its first positive, annual growth rate nationally (1.2%) since June 2014. Additionally, state and local government infrastructure investment and global economic recovery is supporting an upswing in Australian economic growth. 

With restrictions on investor and interest only lending, a growing outflow of interstate migrants and no further cash rate cuts to discount mortgage rates, it is almost certain that Sydney dwellings are entering the downswing phase of the cycle. 

CoreLogic project data is already detecting a shift in construction across New South Wales in response to slower dwelling growth and less activity.

The value of new apartment development is falling

Unit commencement values across New South Wales in 2017 were higher than ever, at $6.3 billion. However, the construction value of new project applications captured in 2017 was down 44.9% on the value of unit projects captured in 2016. 2017 saw just $13.8 billion worth of new residential projects added to the pipeline in NSW, as opposed to $25.1 billion in the previous year. 

Construction value of development applications captured over a 12 month period - NSW

 
As well as investment lending limitations and signs the Sydney dwelling market is starting to lose value, the Chinese government has increased scrutiny around domestic private companies taking on too much foreign debt. It was this scrutiny that resulted in the sale of the Goldfields site in Circular Quay by Wanda, a site which was to be developed into a luxury apartment tower and mixed-use site. 

Combined with Australian limitations on foreign investment handed down in the 2016-17 budget, as well as domestic banks less willing to lend to individuals who source their income from overseas, the sentiment is that foreign investment in Australian residential dwellings is dwindling. 

Other physical building construction is coming back into focus

While the value of apartment and unit construction has reduced in the development application stage over 2017, other areas are starting to show a resurgence. Industrial building applications rose 41.9% over 2017 to $2.4 billion, while community building applications totalled $6.3 billion over 2017, up 29% from the previous year. 

Erskine Park, Parramatta and the Sydney CBD saw the highest construction value of industrial and commercial development received through development applications over 2017. This reflects that as construction shifts away from residential, the three ‘future cities’ defined by the greater Sydney Commission may start to take shape through commercial development.

Some residential developers are still bullish, and in it for the long haul

Beyond the applications received over 2017, 2018 indicated that there were still large scale, residential developments coming through. In the new projects captured by CoreLogic, New South Wales saw a $3.5 billion project, the Wilton North Precinct. It may be that wider government frameworks have sustained bullish attitudes towards residential development, even in the context of falling dwelling prices. 

The aforementioned development falls within the Western Sydney City that has just formalized a City Deal across all levels of government and the private sector. The Wilton North Precinct package encompasses the construction of 5,500 homes, with 5,000 sqm of retail, townhouses, playing fields, open space, local centres and schools. The project is being led by Bradcorp Holdings Pty Ltd.
 
Mirvac has also submitted a rezoning application for the development of almost 3,000 units in the relatively under-developed, popular Sydney suburb of Marrickville. Pushing ahead with such a development signals anticipation of the next dwelling boom in Sydney in years to come.