17th April 2009
After a rise of nearly 18% during the 2008 period, Sydney's rental market appears to have entered a correction.
Experts say the strong rental growth seen in Sydney during 2008 is unlikely to be repeated this year as more renters become home owners.
The high interest rate environment in 2008 has prevented many renters from buying their own home, but a 4% drop in variable rates since September last year combined with government incentives has opened the door again.
Sandra Peachey, certified practicing valuer and associate director of Herron Todd White Sydney says the first home owner grant boost has given renters the added incentive to become property owners themselves. She says this has contributed to higher vacancy rates and the beginning of a slowdown of growth in Sydney's rental market.
"Sydney will experience around 8% growth in overall rental values across 2009," Peachey says. "This is around half of the growth experienced during 2008."
Pino Tedesco, director of Metropole Buyers Agency Sydney believes a yearly increase of around the 8% is realistic and says investors can expect to see this growth to continue well into 2010, with the exception of more tightly held inner city rental areas of Sydney producing stronger returns.
Cash flow positive investments becoming harder to resist
Tedesco says investors are beginning to take advantage of low interest rates by chasing cash flow neutral or cash flow positive properties, available in many of Sydney's top performing rental suburbs.
"We recently found a property in Bondi for a client which we secured for $530,000 and rents for $600 a week, meaning a 5.9% gross rental yield for the investor," says Tedesco.
"Those sorts of yields are fantastic at the moment. If you get interest rates at just above 5% with a 5.9% gross rental yield you're laughing."
Tedesco says a lot of investors are looking at using favourable yields to "asset bank", sometimes buying several properties at a time, which they plan to hold for the long term.
He says investors are doing the numbers and they know that during times of low interest rates and subdued prices, the rent is likely to take care of the majority of their mortgage.
Tedesco says this could lead to a big surge of investors over the 2009 period and is likely to push Sydney property values forward significantly.
"The First Home Owners Grant is not going to be the only thing pushing Sydney prices forward in 2009," he says.
Areas to watch
Peachey says there are two segments of the Sydney market which are currently presenting good opportunities for growth - the western regions and those suburbs recently boosted by new infrastructure projects.
"In the western regions of Sydney, there is potential for an upswing in growth for suburbs such as Blacktown, Rooty Hill, Fairfield, Penrith and Liverpool because they are starting from such a low base in terms of median prices," says Peachey.
She also says yields are good out in these western regions as well, improving potential for investors.
PRD Nationwide NSW research analyst, Mathew Tiller agrees with Peachey, saying Liverpool in particular is undergoing a rapid transformation into a major CBD.
"The growth in infrastructure projects and a growing local economy and population will place upward demand for properties over the coming years. This combined with current affordability levels with houses well under the current Sydney median house price provides a solid base for property in the area," says Tiller.
According to Peachey, infrastructure strong suburbs along the new Epping to Chatswood rail line such as Epping, Macquarie Park, North Ryde and Chatswood also present potential for growth 2009/10.
Tiller also earmarked Macquarie Park and North Ryde as two of his Sydney hotspots for 2009.
For a long term buy and hold prospect, Peachey has emphasised the new north-west suburb of The Ponds.
The Ponds is Sydney's newest suburb, located adjacent to Kellyville Ridge in the north west region of the capital city. This master planned community is 360 hectares in size, with 80 hectares designated as a nature corridor.
Andrew Thornburn, a sales consultant for the Kalina Estate at The Ponds says the suburb has attracted many owner occupiers who have moved to the area to work either in the Norwest Business Park or the New Rouse Hill Regional Centre about 10 minutes drive away.
"There are also some home owners looking to upgrade from areas such as Quakers Hill into a bigger and newer home," says Thornburn.
"The future looks bright for the entire north west region of Sydney in terms of investment and growth," he says.
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