“APM’s senior economist, Dr Andrew Wilson, said the market above $2 million was still tough. “But the low level and middle level is certainly flying””. Sydney property ‘flying’. Stephen Nicholls

There have been a number of articles recently pointing to strength in the Sydney property market. These articles have focused on high auction clearance rates, and noted that the inner-west has been the most notably strong.

However, the strength has not been isolated to the inner-west, and there are signs of strength, and this strength is definitely starting to show up in the higher-end (in the Eastern Suburbs).

Evidencing this is the sale of Altona in Point Piper, for a price of over $50 million, and breaking the previous highest home price of $45 million.

So the bigger question is why the strength and will it continue?

First up you have interest rate cuts. The Reserve Bank has cut official interest rates to a record low of 2.75%. [Some believe rates could be as low as 2% by 2014].

Secondly you have positive signs out of the US. The US housing market has turned the corner [The 20 city composite increased by 10.9% in the year to March 2013]. The US is also experiencing a boom in “Shale oil”, which promises to lower energy prices, potentially make the US the cheapest energy country, create millions of jobs, and see continued “reshoring” [ie manufacturing moving back to the US].

Third, you have financial markets rising strongly, and most Australians are seeing their “beaten-up” super and investment portfolios replenished.

Finally and probably most importantly the Australian dollar has started to fall like a rock (falling around 8% to 96 US cents in barely a month). The Australian dollar is at a 19 month low, and looks likely to head lower. Unlike previous falls, where the currency bounced, this time there appears little to prevent it falling towards it’s fair value [80-85 cents?].

I would argue that all of the above, are contributing factors to the strength in Sydney property. While a weak Australian dollar might not do your forthcoming holiday plans any favours, it has rekindled “expat” demand for property. And certainly at this point I am seeing the biggest driver, being the “expat” dollar.

However strong investment markets have boosted confidence, and particularly those employed in the finance sector, seem more confident. So adding to the expat demand are local buyers who have been emboldened by combination of interest rate cuts and sharemarket gains.

Add in a healthier global economy and it is hard to find too many negatives.

Yes, it is true we have an Australian Federal election, later in the year, and this does offer some potential to be a source of uncertainty, but my “feeling” is that things will only improve as the year unfolds, and once we put the election behind us, we will have more certainty and local investor confidence will follow the lead of “expat” buyers.
Until next time…..Danny Doff Principal Laing + Simmons Double Bay