Sydney set to grow another 10% this year
Just when you think you’ve seen the last of the growth spurt in Sydney, experts say, better brace yourself for more double-digit growth this year
Turns out there is still plenty of juice left in the Sydney market. While many spookers have voiced their unease about the rapid rise in the market, calling it alarmingly unsustainable, the market is defying them with a vengeance.
Granted, while the broad picture shows a general slowing down trend, a closer look at the different segments of the market shows an entirely different story.
For example, the Hills Shire District, Inner West and Upper North Shore areas are still showing healthy gains – many suburbs are recording an average of 6% growth during the past three months alone. Properties in these suburbs are literally walking out of the door, with some sold within just two weeks of being listed.
“Sydney is still pretty strong, no doubt about that. There are no signs of significant falling in price growth,” says Andrew Wilson, senior economist with the Domain Group. “In fact, we’ve seen an increase activity for investors towards the end of the year, which is interesting, considering concerns of over-investment in the Sydney market. This view hasn’t really shown in the fundamentals. We’re still seeing rent increase as yields consolidate, and vacancy rates are still low.”
Despite warning that the rising number of rental properties in the market will crash yields, Wilson points out that there’s been no sign of a shakeout as a result of a massive drop in rent or a rise in vacancy rate, even as prices grew strongly.
The oversupply myth
Some experts also have warned about the growing housing supply in Sydney, especially in the apartment sector of the inner city and the along Parramatta
area. However, Wilson says this is not something to worry about, at least for now.
“Overbuilding or oversupply is a mysterious statistic from some analysts,” he says. “In actual fact, Sydney is not building enough houses. If we look at the first 11 months to November last year compared to the year before, Sydney really just approved an extra 1,700 dwellings.
“Clearly that’s not enough to cater to the nearly 140,000 migrants who moved into Sydney during the 12 months to June. It’s clear we’re still undersupplied. Sure, we’re going to see more units get off the ground in the next year or so, but not at the rate that Sydney requires. The strength of the local economy not only continue to attract migrants from overseas, but also from the jobseekers from interstate, which will fuel more demand.”
Angie Zigomanis, senior research analyst at BIS Shrapnel, agrees, adding that while we’re starting to see supply coming up as completion ramps up, the pent-up demand still outweighs the supply in a big way.
“At the level that supply is coming into the market, there’s no sign that there will be oversupply,” he says. “There are no signs that the rate of building will be sustained. There’s a lot of pent-up demand, and I think it will take a few years of building like this for the demand to be fully met.”
Zigomanis also dismissed speculations that prices will drop as a result of additional stock coming into the market.
“Supply is ramping up in Sydney, but you probably need another two to three years of stronger level of building before you get that sort of price correction to take place,” he says.
NSW top of the economic food chain
A classic case of ‘the more, the more’, New South Wales not only topped the best-performing housing market in Australia, it now also leads the country in terms of economic performance, together with the Northern Territory.
The latest analysis from CommSec reveals NSW notched the fastest annual economic growth rate of 3.9% compared to the same period last year. This is also the first time NSW has surged to the top of economic ladder since 2011. The state’s solid economy was boosted by business investments, strong dwelling commencements and surging population.
While the jobless rate of 5.9% is higher than normal (around 5.2%), it remains one of the lowest in the country.
SUBURB TO WATCH
Pennant Hills: Upgraders target rising star
Pennant Hills was made famous when Crown Prince Frederick and Crown Princess Mary made an official visit to its Danish Church in 2005. But the suburb has come a long way since then, and it’s recently been catching the eye of investors.
Located 25 kilometres north of the Sydney CBD, Pennant Hills is one of the key commercial areas in the Hornsby Shire. There are excellent local shops and services on Pennant Hills Rd, and the public and private schools in the general area are some of the best in the NSW education system.
Pennant Hills is also a short drive to major roads, including the M1 Pacific Motorway and the M2 Motorway. And the fact that the NorthConnex twin tunnel project is only going to relieve traffic on Pennant Hills Rd will be a godsend for residents. The $3 billion project, which involves linking the M2 at Pennant Hills with the M1 at Wahroonga, will commence construction in 2015 and is due to be finished by 2019.
Currently, the suburb is being targeted by upgraders who can typically pick up a three-bedroom house for below the $900,000 mark, which is less expensive than many equivalent properties in surrounding suburbs.
Houses in Pennant Hills are generally quite diverse, ranging from exquisite federation homes to more modern types. There are also plenty of large blocks of land, with many overlooking national parks.
Weemala Rd and Rosemount Ave are sought-after locations due to their proximity to Pennant Hills railway station, shops and schools (both primary and secondary).
Can you afford to buy in this suburb? Find out how much you can borrow