Sydney’s property market heats up
One of the main drivers pushing the Sydney market forward is the growing gap between supply and demand, says Louis Christopher, SQM Research founder and managing director.
SQM Research data for January shows a significant decline in listings in Sydney, with the capital city recording a 6% fall in stock levels on a month-on-month basis and 13.1% on a year-on-year basis.
It’s all good news for homebuyers, says Christopher, who believes a recovery is now well and truly underway in the ‘Harbour City’.
“There are a number of signals now that the market is gaining some traction,” he confirms.
“I think the interest rate cuts are now working and that a housing recovery is occurring. I now place the bottom of this market at the beginning of the December quarter, 2012.”
Of course, Sydney’s broader property market is comprised of hundreds of smaller micro-markets, each impacted on by their own local drivers. In Christopher’s view, investors would be best served by avoiding premium locations and instead buying in affordable suburbs where demand is growing.
“The outer rings will outperform the affluent locations, due to this being an affordability-led recovery,” he says.
“It is possible that prestige real estate may start to rise if the economy gets better traction later in the year, but that is still just an ‘if ’. The sustainability of this recovery is largely dependent upon the level of interest rates and a stable economic environment with no massive economic crashes overseas.”
Growth and prosperity in Sydney’s property market is not quite a done deal, he adds. While signs of a recovery are evident, the Australian economy and property market are still closely tied to the global economy, meaning volatility overseas can have a huge impact closer to home.
“We are big believers that the housing market still has too much debt in the system, making it highly susceptible to a credit shock,” Christopher says.
This means that now more than ever, investing with your head and not over it is crucial. Buying within your budget and having a buffer of cash to deal with emergencies is not just recommended but is downright necessary, to ensure you don’t end up financially compromised if interest rates rise or property prices regress.
“The market is sensitive to only marginally more expensive credit,” Christopher adds. “Does anyone really believe that the market could handle interest rates back at 7% again?”
Inner city suburbs a safe bet?
For a long time, capital cities were considered the plum investment destination for property investors, as rapid value appreciation was traditionally a given.
But the landscape has changed and in some capital cities, such as Sydney, capital growth rates languished for much of the last decade.
Mortgage broker and investment advisor Medine Simmons from MFSimmons Property Investment Services says that after “two and a half years of almost no growth” it’s understandable that investors are cautious about sinking their funds into our nation’s biggest cities.
Still, there are plenty of experts who believe that our metropolitan hubs are the safest place to park your cash.
“Most of the big market commentators are expecting conservative growth of 5% to 6% across the capital cities in 2013,” Simmons explains.
“I think it’s early days and we need to see what happens [by mid-year], to see if that consumer confidence will flow back into the property market this year.”
With a median property price of $611,000, Sydney’s property market may not fit with every investor’s budget, but those who are looking in this price range will be able to take advantage of ever-increasing rents in the region.
“I’ll be keeping a close eye on the traditionally strong areas in capital city inner suburbs,” Simmons adds, “and I’ll make an assessment of property market sentiment from there.”
Apartment investments for higher yields
There’s no denying that Sydney’s property market is making headway, with a number of signs pointing to a rising market – and for those investors seeking decent upfront returns by way of high rental returns, the city’s apartment market could be the way to go.
“As our population grows, there is no doubt that we will need to embrace the apartment culture even more, and this has started already as we’ve noticed in Sydney that for the past few years that apartments have been outperforming houses from a capital growth perspective,” says George Raptis, director of Metropole Property Strategists Sydney.
A small, inner-city suburb of Sydney, Chippendale has long been on the radar of property investors, with median property prices swelling 28% (houses) and 33% (units) in the last three years.
One of the primary catalysts behind this growth is the Central Park mixed-used development, a 250,000m² precinct that will comprise commercial and residential properties alongside retail space open-plan green parks. Developed on the site of the centuries-old Carlton & United brewery, the $2bn urban village project is well on its way toward delivering 2,000 apartments to the Sydney property market.
Properties can be purchased off the plan in The Mark, one of four residential zones, with settlement due early next year. Prices range from $495,000 for a one-bedroom unit to $1.75m for a three-bedroom, two-bathroom, two-carpark abode.
Investors who are keen to get into the market now can bypass the newer developments in favour of an established home in Chippendale. The suburb is typified by quaint, colourful workers’ cottages and terraces that range in condition from cheap and cheerful – read: the toilet is outside – to fully renovated, elegant homes.
Units attract an average weekly rental return of $460, while houses bring in $650, although homes with extra features such as internal laundries, built-in closet space, renovated finishes, and balconies or courtyards will fetch higher returns.
For instance, agent Joseph Ferreira from BresicWhitney is marketing a two-bedroom, one-bathroom apartment in Meagher Street with an asking rent of $650 per week, as the sought-after property presents in A1 condition.
“It’s located in an industrial warehouse conversion and has a spacious and desirable floor plan, and double
bedrooms with built-in robes. It’s also been recently updated with new paint and freshly polished timber flooring throughout,” he says. Features like these will always attract extra rental dollars, so Chippendale investors may find extra value in buying run-down properties to renovate, boosting both the property’s value and rental potential.
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