The Sydney market represents an opportunity for investors right now because the evidence suggests it’s less competitive than in 2021, so it’s becoming easier to buy well.
And vacancy rates are dropping fast and rents are rising, a situation that will be enhanced by the re-opening of international borders and the return of overseas migrants and students.
Let’s look at the background …
Sydney is the one capital city in Australia where there is some evidence that its property market has passed its peak.
Property prices seem to be hitting a plateau but it’s still too early to make a definitive call on whether its growth has stopped.
Sales activity appears to have tapered off in the early part of 2022 and CoreLogic figures suggest there was a small decline in the past two months in median prices for apartments and houses.
But there are many factors at play and it’s too soon to make a definitive call on where prices in Sydney might go for the remainder of 2022 and beyond.
We are still in the middle of a national property boom in Australia and there have been a number of occasions in the past 12 or 15 months when it appeared Sydney prices might have finally hit their peak – only for that to be subsequently disproven by new data.
Sydney still has the potential to have another surge in prices this year, particularly as it starts to feel the full impact of the reopening of international borders.
The city managed to achieve high price growth during the pandemic while its borders remained closed and it didn’t have access to its biggest source of population growth – which is overseas migrants.
With migrants and overseas students now starting to return, the vacancy rate has dropped sharply and is now below 1.5%.
It hasn’t been that low for a long time and there are some areas where it is considerably lower than the city-wide average.
Sydney is a very, very, big place and there are lots of postcodes where the vacancy rate is well under 1%.
That’s great news for investors, it means rising rents and strong tenancies.
In some of these Sydney locations, rents have risen by more than 20% in the past year.
That’s particularly so in suburbs in western Sydney.
Rising rents and low vacancies also frequently lead to more demand to buy housing which leads to further price growth.
The Sydney market has a few speed bumps to negotiate in the coming weeks, including the Federal election, rising interest rates and negative media about prices falling.
But we know from recent history that, once all those negatives are absorbed by the market, everyone tends to get on with it.
Sections of the Sydney market will benefit from the election commitments, from both sides of politics, to assist the housing market.
Both have announced schemes to help young buyers into the market, including the extension of the home loan deposit scheme and Labor’s promise to partner with buyers.
These schemes will probably have a bigger impact on the Sydney market than anywhere else, because it has a bigger issue with affordability than anywhere else.
We are going to see more activity from First Home Buyers, regardless of who wins the election.
And that, coupled with the impact of overseas migrants and students, means it’s possible Sydney prices will continue to rise.
The other big that will boost Sydney market is that more people are targeting apartments rather of houses.
There is huge gap between the price of houses and the price of units in Sydney – and that gap has become larger in the latest price boom.
Booming prices for houses in particular have seen the price differential between houses and units broaden further in Sydney.
In pure dollar terms, based on median values, the difference now is almost $570,000.
It’s significantly more so in popular upmarket suburbs.
In Bellevue Hill the median house price is $7.4 million while the median unit price is $6 million cheaper – at $1.4 million.
At iconic Bondi, the median house price is $3.6 million while the median apartment price is $1.3 million.
There are many other suburbs where typical units are half the price of houses or a third of the price of houses.
And we expect an increase in the number of people buying apartments in Sydney for affordability reasons.
And if you choose your location and type of apartment well. you can still achieve significant price growth, over time.