Sydney’s property correction will see stagnation, not short sharp drop: Richard Wakelin

Any Sydney property correction will be one of stagnation not a short sharp drop, the Melbourne buyer’s agent Richard Wakelin has forecast.

Describing the run-up in Sydney prices as “rational”, the director of Wakelin Property Advisory suggests it was “reasonable to assume they will stop pushing up prices once a point is reached where valuations can’t be justified based on rental returns or mortgage servicing costs”.

“Yes, we might see an overshoot and a correction, but the correction will probably be characterised by a period of stagnant prices for several quarters rather than a short sharp drop in prices,” he told the Australian Financial Reviewnoting Sydney property prices rose 29% over the two years to December 2014.

The growth in Melbourne was 14% while most other capitals saw price growth in single figures.

He notes much of the strong price growth in Sydney had been “catch-up” with prices in Sydney only up 57% since September 2003, based on ABS data, while Melbourne was up 89%.

“To some extent, we may well be seeing a return to normal circumstances where Sydney property enjoys a 20% premium over its southern counterpart due to higher incomes, a larger population and a greater scarcity of land.”

But he warns any RBA policy mistake in relation to Sydney property carried greater consequences than elsewhere noting, with the media concentrated in Sydney, any downturn could be amplified in a manner that could damage confidence nationwide.