As the Sydney property market recovers, experts predict good market movements for the NSW capital through to 2021. How can investors take advantage of wealth-creation opportunities in the capital city?
Domain’s Property Price Forecasts for February 2020 indicated that the rapid price rises seen across major capital cities at the end of 2019 won’t be stalling any time soon.
Combined capital city calculation shows that median house price of $809,349 could improve by 8 per cent by the end of 2020, and by a further 5 to 7 per cent in 2021.
In terms of units, the combined capital city median price of $565,024 set in December 2019 should see an average growth of 6 per cent in the next 12 months and 3 to 5 per cent more by next year.
As of December 2019, Sydney’s median house price was $1,142,212.
Domain forecasts a 10 per cent increase in value to occur in the NSW capital this year alone. A further 6 to 8 per cent boost is predicted for 2021.
For units, which currently see a median price of $735,387 at the end of last year, Domain predicts an 8 per cent increase in 2020 and an additional 3 to 5 per cent increase for 2021.
Still, despite the promising future of the major property markets, Right Property Group’s Victor Kumar reminded investors that not each of them follow the same market cycle.
Across Sydney and Melbourne, investors need to be careful about what they buy and where they buy them, as well as recognise that significant capital growth is unlikely to happen over the medium to long term.
In contrast, investors in more affordable markets may see potential for growth over the short and medium term if they are strategic about the selection of assets.
CoreLogic’s February 2020 Home Value Index has found a rebound in the pace of capital gains across the Australian housing market throughout the month, seeing the national index rise by 1.1 per cent.
Leading the charge, the strongest capital gains were recorded in Sydney at 1.7 per cent to $872,934, followed by Melbourne at 1.2 per cent to a median house value of $689,088.
Over the past 12 months, both cities have returned to double-digit annual growth rates, with values up by 10.9 per cent and 10.7 per cent, respectively, ultimately highlighting th recovery trend that began in June.
If current growth run rates are maintained, the national value index is likely to reach a new nominal high over the next two months.
However, despite having posted the fastest trend in recovery, Sydney property values are still 3.7 per cent below their previous 2017 peak. The capital city’s dwelling prices are expected to return to record growth by May, according to the analysis.
For those looking to get into the market but are on a tight budget, CoreLogic’s head of research Tim Lawless said that it might be more practical to narrow down their property search by examining lower quartile values.
According to him, the lower quartile or the most affordable 25 per cent of properties in a region could provide a better view of the market entry point, while the upper quartile could give investors an indication of premium values.
Taking this into account, Mr Lawless said that some areas that might seem out of budget based on the median value “may actually offer up some opportunities if buyers are willing to target properties at the lower end of the value range”.
In Sydney, for instance, the median house value is over $800,000. However, the median of the lower quartile sits at only $697,370.
Different regions across NSW see a difference between the median and lower quartile at more than half a million dollars, bringing the lower quartile house value below $600,000. These regions include the Central Coast ($525,590), Outer South West ($564,730) and Outer West and Blue Mountains ($575,890).
Following the May 2019 election, demand for residential land has increased by 45.9 per cent from their record low in March 2019, according to a joint report by HIA and Corelogic
Although the increased demand for residential land has not yet had a material impact on land prices, capitals already saw land value growth at 0.7 per cent during the past quarter, while regional land values increased by 0.6 per cent.
HIA economist Angela Lillicrap said an increase in desire for land could drive up prices like it has in the past.
“A shortage of land is one of the factors that has driven home prices to increase over the past decade. With demand for land picking up, it is important that an adequate supply is maintained each year to avoid undue pressure on housing affordability.”
Sydney remains the most expensive city for land in Australia with a median price of $445,000, while-Tweed has overtaken Melbourne for the title of Australia’s second most expensive city/region for land with a median price of $415,000.
Hobart continues to be the most affordable capital city for land and the most value for money with the largest median block sizes.
During the September quarter, the median lot size in Hobart was 685sqm. The second largest block size was Melbourne with a distant 484sqm.
According to CoreLogic’s head of residential research Eliza Owen, the election result as well as cheap credit are driving this change in consumer demand.
“Demand for land and dwellings has rebounded strongly from June last year, which is also reflected in a 6.7 per cent rebound in national dwelling values over the past 7 months.
“The strength of the rebound comes from a halved cash rate between June and October last year, the re-election of the Coalition government providing certainty around negative gearing and capital gains concessions, and ongoing demand for owner-occupier dwellings as the Millennial cohort moves through the first home buyer age bracket of 25-34,” Ms Owen said.
Despite higher volumes, preliminary reports showed that auctions are still hitting around the 80 per cent clearance mark in the biggest auction areas.
According to CoreLogic’s Market Activity Update, for the week concluding Sunday, 23 February 2020, 2,446 homes were taken to auction across the combined capital cities, returning a preliminary auction clearance rate of 77.7 per cent.
Zooming in on Melbourne, the CoreLogic market summary showed a preliminary auction clearance rate of 79.6 per cent, recorded across 1,215 auctions this week.
On the other hand, there were 938 auctions held in Sydney during the said week, returning a preliminary clearance rate of 81.5 per cent.
In comparison, the NSW capital saw 583 auctions held over the previous week and a final auction clearance rate of 75.4 per cent. One year ago, 801 auctions were held and the clearance rate came in at 50.2 per cent.
In terms of demand, the latest Herron Todd White report determined that Sydney is undergoing a tremendous shift, with larger properties making way for smaller, low-maintenance properties.
Broadly speaking, smaller properties including residential units, duplexes, townhouses and semi-detached dwelling are becoming more desirable, especially if they are new designs.
The shift has been largely driven by “two markets from the opposite ends of the spectrum”, as well as improving technologies, flexible workplaces and changing demographics, according to the report.
“Young professionals or new families tend to gravitate towards low-maintenance property to allow more time to focus on building careers, fostering a young family and, in many instances, a combination of both.
“At the other end of the spectrum, empty nesters who are either retired or approaching retirement have moved towards this style of living to allow for a simpler life and more time to reap the benefits of their hard work.”
The Shire, situated 20 kilometres outside the CBD, and the Northern Beaches of Sydney are both experiencing major geographical changes, thus experiencing more demand from first home buyers, families and downsizers
“The Shire has been transforming over the past decade or so as there has been changing demographics, ageing and increasing population, and particular areas becoming gentrified for various reasons,” Herron Todd White’s report said.
The number of first-time buyers across major property markets have generally increased beginning a year ago due to lower property prices as well as less conservative lending conditions.
In fact, according to the Australian Bureau of Statistics, the number of loans for first home buyers have increased by a staggering 38 per cent over the past year.
The Raine & Horne Group found that students are driving demand for rental accommodation by as much as 30 per cent this month as 1.4 million students across Australia return to university in February.
Taking a look at specific cities, co-principal of Raine & Horne Unley Jacky Yang said that the rental market of Adelaide, which is home to University of Adelaide and University of South Australia, remains tight, “with almost no vacant apartments available in the inner city in February”.
“Ninety per cent of international students prefer to live in an inner-city apartment when they first arrive in Adelaide to attend university, and this drives up demand for rental accommodation in February by up to 15 per cent than the annual average,” Mr Yang said.
“This level of demand puts the squeeze on the supply of rental apartments, with some students prepared to pay up to $50 more per week to secure accommodation close to the university.”
Meanwhile, rental accommodation in Sydney, home of widely popular UNSW, remains tight as well, particularly in the eastern suburbs.
“With vacancy rates of just 3.5 per cent and demand for accommodation in February about 30 per cent higher than the yearly average, any possible student accommodation in Kingsford and Randwick is being snapped up almost immediately,” according to principal of Raine & Horne Kingsford/Kensington Sam Karatasas.,
“That said, a two-bedroom apartment at Unit 4 Kennedy Lane, Kingsford, which is available for $550 a week is a rare opportunity for students to grab some rental digs just two minutes from UNSW.”
Featured as a joint priority initiative between the ACT and NSW governments, care of Infrastructure Australia (IA), an improved rail link between Canberra and Sydney will drastically cut down travel times and improve accessibility between the two cities.
According to the ACT’s Minister for Transport Chris Steel, investment in such a link “will not only make train travel a faster and more appealing option for Canberrans travelling to and from Sydney, but it will also provide better connections with regional towns”.
“The ACT government has been advocating for an improved rail service between Canberra and Sydney for a number of years, so we welcome the project being recognised in the 2020 Infrastructure Priority List.”
The Sydney-Canberra rail connectivity and capacity priority initiative has been given a problem time frame in the near term of zero to five years, noting that just 1 per cent of people travelling between Sydney and Canberra choose to travel by train.
At present, the train trip takes more than four hours. In comparison, air travel takes just one hour, while car journeys average around three hours.
The population of Canberra and Sydney is forecast to grow by 1.5 per cent each year to 2036, increasing pressure on the road network and airports.
“The opportunity is for a range of potential upgrades to enable faster rail services between Sydney and Canberra to improve the customer experience, increase productivity and provide a competitive alternative to driving or flying.”