Following interest rate cuts and the relaxation of credit policies, investors are once again turning their sights to Sydney, ultimately anticipating a significant rebound in the near future. Will the NSW capital live up to their expectations?
According to the latest PIPA Annual Investor Sentiment Survey, 14 per cent of investors consider Sydney as the state capital with the best investment prospects – up from last year’s 9 per cent.
Apart from historically low interest rates and reduced loan serviceability calculations, the conclusion of the federal election in May also played a big part in the sentiment change across the capital city market, Strand Property Group director and northern beaches specialist buyer’s agent Michael Ossitt said.
Several lenders have dropped their floor rates for home loan serviceability assessments in response to the Australian Prudential Regulation Authority’s (APRA) decision to scrap its 7 per cent interest floor and raise its buffer to 2.5 per cent.
As a result, buyers at open homes and auctions had increased considerably.
Northern Beaches suburbs, in particular, have begun to attract families and investors who are keen to secure a home or investment for prices that are significantly lower than the price peak a few years ago.
“They recognised that the price of such desirable real estate was not going to stay at that level for long, so they moved early to stake their claim,” according to Mr Ossitt.
As of October 2019, Sydney’s median dwelling price is $805,000 – an amount considered by investors and buyers as “palatable”.
The number of listings falling more than 20 per cent over the year further proves the continuous strengthening of the Sydney property market and the high probability of it taking off again soon, the property professional said.
In fact, some experts have predicted that Sydney property prices could return to peak levels by 2022.
Domain’s economists said that prices in the NSW capital have rebounded more strongly than expected, so much so that they believe that Sydney will witness growth between 5 per cent to 10 per cent over the next 12 months.
According to Patrick Leo’s James Nihill: “Sydney property continues to outperform other capital cities due to its strong population growth, relatively low levels of unemployment and abundant job prospects.”
“Investor appetite also remains strongest in Sydney with recent housing figures showing that 32 per cent of mortgage demand in NSW is from investors – much higher than that of any other state.”
Together with Melbourne, Sydney is leading the national property recovery, he said.
Further price growth is set to be fuelled by a drop in the supply of new homes, with building approval numbers down, as well as improvements to transport and infrastructure across the capital city.
Over the next quarter, Right Property Group’s Victor Kumar said that the best markets for investors would be Sydney and Melbourne as there is currently an upswing underway in these capital cities, highlighted by early signs of price pressures with more people now able to access finance.
However, he still warned investors about the potential risks in these still recovering markets.
“The fundamentals of Sydney and Melbourne were still sound over the past few years, but cash flow became a problem at the peak of their respective markets. Restricted access to finance, as well as affordability issues meant potential buyers and investors had to wait it out on the sidelines,” according to Mr Kumar.
Domain’s latest House Price Report revealed that capital cities are experiencing growth at the moment, with potential bargain buys remaining in some location pockets.
According to the report, Sydney’s steepest downturn since 1980 is officially over.
In October, Sydney’s median house asking price has increased by 1.9 per cent for houses and 0.8 per cent for units.
Median prices in the Harbour City are now $1.305 million – not far-off January 2018’s peak of $1.39 million.
“Houses have regained almost one-third of the price falls that occurred during the recent downturn, and units have regained roughly one-fifth of the price lost over the recent slump,” Domain’s senior research analyst Dr Nicola Powell said.
According to SQM’s managing director Louis Christopher, Sydney might as well be entering another period of property boom.
“Turning to Sydney, the evidence, by way of the fall in listings, the rise in auction clearance rates, and the accelerated rise in asking prices, all suggest that the city has indeed entered into a new housing boom,” the property professional highlighted.
Australia-wide, the median unit asking price in is now $568,300, while a house will set an investor back $942,400.
CoreLogic’s Property Market Indicator Summary for the week ending 20 October 2019 showed that 11 out the 15 sub-regions in Sydney recorded clearance rates above 80 per cent, leading to an overall preliminary success rate of 84.3 per cent.
In contrast, the capital city market only returned a 44.6 per cent clearance rate during the same weekend in 2018.
Blacktown and the Inner West recorded the highest clearance rates at 90 per cent, with 14 auctions and 68 auctions, respectively, followed by North Sydney and Hornsby recording an 88.3 per cent clearance rate from 97 homes that went to auction, and Eastern suburbs with an 87.8 per cent clearance rate made possible by 109 total auctions.
Other regions in Sydney also performed strongly, with clearance rates ranging from 66.7 per cent to 83.9 per cent.
According to a new survey conducted by RateMyAgent, nationwide vendor sales price happiness has increased since April 2019, ultimately recording the highest level since July 2018.
RateMyAgent CEO and co-founder Mark Armstrong said: “The smiles are coming back to the property market, and this quarter’s report demonstrates that, quite literally, price expectation continues to recover from a low at the end of 2018.”
“Sydney and Melbourne are the engines of the recovery, while the smiles are widest in Tasmania. And, as we look to the spring market, there are plenty of reasons for optimism.”
As the Sydney property market recovers, the demand for old homes built between the 1960s and the 1990s has started to increase, according to Ray White NSW chief auctioneer Alex Pattaro.
The auctioneer said that buyers are turning into the older unit market in search of both value and character, as well as the opportunity to flip in the future.
Recently, the auction of a two-bedroom, one-bathroom unit in Artarmon drew 16 registered bidders, and it sold for $1,002,000. Further away from the CBD, a recently refurbished two-bedroom, one-bathroom unit in Meadowbank sold for $570,000, with eight bidders after the property.
“The market’s going to continue to get better, so if you’re sitting on an older unit and thinking about testing the market with it, there really has been no better time,” Mr Pattaro said.
Despite the ongoing recovery of the property market, new data from Domain revealed that rents are going down in the NSW capital, with house rentals dropping across two-thirds of Sydney suburbs over the year, while about 70 per cent had unit price falls.
In houses, Greenwich saw the most change, dropping 24.8 per cent, while units in the suburb of in Sydney’s western region experienced a drop of 14.3 per cent.
“It’s the strongest annual decline in about 15 years,” according to Domain research analyst Eliza Owen.
Domain’s latest Rental Report said that the Sydney market is adjusting to an overhang of rental property supply from the investment boom between 2013 and 2017. This corresponds with Sydney’s rental vacancy rate being the second highest of all capital cities.
Landlords in Greenwich have lost up to $340 per property, with the average rent now sitting at $940 a week.
Still, Ms Owen remains hopeful that the rental market will feel the effect of the overall recovery of the Sydney property market.
“I do think we’re at a point where rents may start to go back up. There’s strong email inquiry for rental properties, the vacancy rate has trended down and purchase prices are starting to rise, so landlords might seek stronger returns,” she highlighted.
The Domain report further revealed: “Despite falls in median asking rents, rent yields improved due to significant property price falls over the past year. September quarter rental yields were 3.4 per cent for houses and 4.1 per cent for units.”
“However, this trend of rising yields is likely to turn, as prices rise and interest rates fall. The Sydney property market is moving into an upswing, with sale prices rebounding in recent months.”
Ultimately, with the median weekly house rent at $525 and median weekly unit rent at $520, Sydney remains the most expensive for apartment rentals and the second most expensive for house rentals across Australia.
The transformation of the suburb of Redfern has allowed it to become one of Sydney’s most desirable locations to live, work and play, according to Stuart Cox, director, residential site sales at Savills Australia.
Redfern has been revamped from a low socio-economic suburb into a “vibrant, trendy suburb often used as an idol for gentrifying suburbs”, making it desirable for both young professionals and families who are looking to invest in properties close to the Sydney central business district.
Apart from proximity to the CBD, Redfern also offers access to transport from Redfern railway station and amenities in the form of schools, universities, health facilities, retail centres and strip shopping as well as sport and entertainment destinations.
“Redfern has undergone significant gentrification in the last decade and now proudly presents as one of Sydney’s most desirable city fringe suburbs adjoining the affluent Surry Hills” Mr Cox said.
Further, according to Neil Cooke, director, residential site sales at Savills Australia: “The suburb boasts an endless list of bars and restaurants, is a short level stroll from Sydney Entertainment Quarter and moments from the Sydney CBD and Darling Harbour,” Mr Cooke said.
“These immeasurable conveniences and associated lifestyle are what keep Redfern residents so captivated through an exciting period of transformation.”
Meanwhile, Sound Property Group’s latest State Profile report identified 20 Sydney suburbs as the most in-demand in terms of houses and units purchase.