Sydney has yet to catch a break this July as property values decline and vacancy rates rise across the city. However, experts believe that, with the right strategy, investors will reap significant returns on their investments in the New South Wales capital.
While median house prices are still over $1.1 million, the capital city saw a huge 4.5 per cent drop in house prices and a 3.5 per cent drop in unit prices over the past 12 months—the largest annual fall since 2008 for houses and 2006 for units.
Meanwhile, land prices put Sydney to the top, with the price of $467,000 per lot deemed as the most expensive across the land markets in capital cities, followed only by Melbourne and Perth. The price growth percentage in the NSW capital sits at 73.1 per cent, lagging behind Melbourne.
According to Domain’s Dr Nicola Powell, the softening conditions evident in Sydney and other capital cities are common in areas where the median prices are high compared to the average income.
“With more choice and less urgency, there are fewer active buyers in the market, and those who are in the market are being restricted by tightening lending standards and the availability of credit,” she said.
Despite the less-than-stellar data across the city, some parts of Sydney recorded good growth. In fact, Sydney’s South West and Parramatta were among the top four fastest-growing regions, growing by 111.2 per cent and 107.4 per cent, respectively.
However, regional areas are still looking more promising as investment areas than capital cities.
CoreLogic’s Cameron Kusher highlighted: “While the last 10 years is not predictive of the future, dwelling values are already falling in Sydney and Melbourne and regional markets are currently outperforming capital cities.”
Sydney experienced the biggest fall in listings recorded in the past month, followed by Adelaide and other capital cities, with only Hobart and Darwin experiencing rises at 10.8 per cent and 3 per cent, respectively.
Over the last month, new listings were down by 13.1 per cent to 5,601. The total number of listings sit at 26,103, which is 21.7 per cent higher than the previous month.
While houses are generally more popular than units across capital cities, Sydney emerged among the top cities in terms of average time on the market for units at only 44 days.
Across capital cities, vendor discounting sits between 4.9 per cent and 6.8 per cent for houses and between 5.8 per cent and 9.2 per cent for units.
Despite the falling figures, total listings are still higher, highlighting the difficulty in selling stocks.
Considering the tightening credit and the generally weaker housing market across the country, the continued oversupply may pose a negative effect on investors.
Mr Kusher said: “The real litmus test for the housing market will be what happens in spring, particularly in Sydney and Melbourne. If, as usually occurs, new listings ramp-up and a lot more stock becomes available for sale, this could create further downwards pressure on values.”
“Don’t be surprised though if with tightened credit and an already weakening housing market, that spring this year is a lot more muted than what we’ve seen over recent years,” he added.
As a result of the imbalance between supply and demand for dwelling, the Sydney rental market has consistently slowed in the past months.
Vacancy rate rose by 0.3 percent in the capital city, with 3.0 per cent and 2.8 per cent rises in inner and middle Sydney while outer Sydney remained steady with a vacancy rate at 2.4 per cent.
According to data recorded by SQM Research, the rental vacancy rates in Sydney are at their highest levels in 13 years.
Buyer’s agent Steve Waters said: “While immigration and population growth within Sydney very, very healthy, so too is the amount of construction that we've had over the last four or so years—you can build a lot quicker than the population grows.”
“Even though there's a lot of people moving out to that area, we're starting to see that in other areas throughout Sydney, the rents are coming off, which is what we have modelled and we allow for. However, we're also seeing the price decline as well,” he added.
Truly, experts believe that Sydney might have just become a buyer’s market and a renter’s market simultaneously.
House and unit prices in Sydney fell over the month by 0.8 per cent to $709 a week for a three-bedroom house and by 0.2 per cent to $522 a week for units.
In terms of demand, Sydney was among the slowest moving capital city for time on market to rent, declining by 9 per cent to 25.1 days.
Rental growth across the country are generally slowing down for both houses and units, but it the slow down has become more evident in bigger markets such as Sydney and Melbourne, where progress has deteriorated over the past few years.
The record high residential vacancy rates in Sydney will prove to be a unique opportunity for investors to up their marketing game.
Given the large number of available stock in the rental market, investors must be able to transcend traditional forms of marketing, where appropriate, and allow their property to stand out through other marketing strategies.
Some of the more innovative tools are marketing packages on major portals, targeted social media campaigns and illuminated or picture signboards.
Experts also remind investors that there is no need to panic since June and July are normally periods with the highest vacancies across Sydney.
DiJONES’ Kylie Walsh said: “Strategies to combat this includes signing tenants for 9 or 18-month leases rather than the standard 6 or 12 months so investors are not exposed to seasonal fluctuations.”
Doom-and-gloom headlines may fixate on the months of decline seen in Sydney and other major markets across Australia, but property experts believe that there are always opportunities to create wealth through property.
Propertyology’s Simon Pressley encouraged investors to forget the negativity and remind themselves why they want to invest in the first place.
According to him: “You won’t feel it now, but when you get older and even no longer want to work, or your health doesn’t allow you to work, that's when they’ll be a massive consequence for you not being proactive when you're in the workforce and able to invest.”
The current state of the Australian property market is, in fact, ripe with opportunities, so much so that Mr Pressley regarded it as ‘one of the most exciting eras to invest in Australian real estate’.
“It’s always a good time to invest. The key question is never when, it’s always where, and right throughout Australia, there are wonderful opportunities to be investing in right now,” he highlighted.
Sydney has recorded a declining level buyer activity in the past months, meaning there is less competition in the market. This will allow investors to take their time in finding the right location and the right property and even negotiate a good deal.
Mr Pressley also considers the decline of interest rates and the recovery of large economies across the country after the Global Financial Crisis as tell-tale signs that Australia provides a great investing environment.
Naturally, buying in a flat market will not lead immediate results, but the property expert reminded investors that, at the end of the day, property investment is a long-term game.
When you think back to 2011, the property market in every capital in Australia was performing terribly. Then came the property boom.
Mr Pressley said: “Those who made the most money out of Sydney's recent boom weren't the ones who didn’t buy. In 2015 and 2016, after we’re continually hearing about prices rising, they were already in the market.”
“That doesn’t mean invest in any market, but there’s an opportunity now to buy when there’s less competition, pick markets with solid fundamentals; that’s affordable housing, control and supply and an improving economy. Look for those things, get in, be patient. There are good times ahead,” he added.
Despite the turbulence in Sydney, some areas still carry a strong demand for dwelling and, thus, a good potential for wealth creation.
Among the most in-demand suburbs in Sydney for houses are:
For apartments, the most in-demand suburbs include:
Median prices across Metro Sydney sit at $650,000 to $1,370,000, with Outer West & Blue Mountains being the most affordable and the Northern Beaches being the most expensive.
Aside from the suburbs mentioned above, Badgerys Creek have also gained the interest of investors and developers as it offers a unique opportunity for investors to purchase unimproved farmland and convert it to residential.
Experts consider the suburb as the ‘last frontier for land in Sydney’ after the rest of the capital city has undergone a transformation in the past three decades.
Various infrastructure projects set to commence all over Badgerys Creek are expected to push the prices up soon.
Track the major market movements in Sydney and get to know more about the capital city’s growth drivers and hotspots through Smart Property Investment’s April 2018, May 2018 and June 2018 market updates.