Sydney property values will continue to grow until mid-year – but is that when the party ends?
After almost three years of exceptional and unprecedented growth, it would be virtually impossible for Sydney’s property market to charge into 2016 expecting another year of stellar results. That said, experts are suggesting there is still some growth to be squeezed out of the market yet.
NSW reported the strongest growth for residential investment lending in 2015, racking up loans that were 32% higher than the previous year.
“Investors have been the key factor driving the market, with the value of investor loans in NSW increasing by 89% in the two years to 2014/15,” reports multinational insurer QBE in its Australian Housing Outlook 2015–2018
report prepared by BIS Shrapnel.
“This growth has been influenced by a sizeable deficiency of stock across Sydney’s inner, middle and outer regions. This shortage is expected to maintain upward price pressure in 2016, driving growth to a forecast median price of a further 7% by June 2016.”
Price correction slated for 2017?
Strong growth through to the middle of this year may be where the party ends, however.
Andrew Wilson, senior economist at Domain, believes “the great Sydney house price boom has ended” and the capacity for price growth is moderating.
“The extraordinary house price growth [that] Sydney has recorded over the last three years is now clearly receding, although it remains relatively strong and well ahead of all other capitals, except
Melbourne,” Wilson says.
“The general outlook for housing markets across Australia is moderate to modest growth at best in 2016. Capital city results will increasingly reflect local supply and demand drivers.”
QBE researchers are going one step further, predicting not just slowing growth but a price correction in Sydney real estate from 2017, driven by diminishing affordability. Unit prices are expected to crash harder than free-standing homes.
“The prospect of a tightening interest rate policy in 2016/17 is likely to impact on investor demand, with limited potential to offset interest rate rises given Sydney’s low rental yields,” QBE reports.
“Consequently, investor demand is anticipated to weaken considerably over 2016/17 and 2017/18, with unit prices forecast to fall by a cumulative 6 per cent in this period … and a 5% correction in house prices.”
Already, buyers appear to be treading with caution, as most understand that Sydney is not the market to turn to if you’re seeking strong immediate growth.
“Buyers are taking a more conservative view in purchase decisions,” confirms Greville Pabst, CEO and co-founder of WBP Property Group.
“In Sydney, investors recognise that residential real estate has peaked or is close to its peak and the likelihood of short-term price growth has passed. Residential yields are softening and will continue to do so as more off-the-plan housing stock becomes available for rent.”
Some investors are withdrawing their attention from the residential market to instead focus on office, industrial and retail opportunities. “[There are] early signs of investors looking to commercial real estate and other potentially higher-yielding property, which may offer a better outlook for price growth,” Pabst says.
Newcastle to shine
The short- to medium-term outlook for Sydney doesn’t mean property is slowing down across the board in NSW. On the contrary, regional markets such as Newcastle have a very positive outlook over the next three years, reports QBE.
“The city’s role as a logistics hub has increased in recent years. Together with employment growth from other industries assisted by the lower dollar, this should eventually offset the resource sector-related declines to employment,” it states.
“Plans to revitalise Newcastle are expected to have a positive impact with new infrastructure, such as the relocation of the train terminus and development of the light rail line, to encourage new investment.”
A growing disparity between property prices in Newcastle and Sydney should also provide incentive for strong migration to the region, thus stimulating demand for dwellings. As a result, median house prices in Newcastle are expected to increase by a healthy 15% by June 2018.
SUBURB TO WATCH
Liverpool: Strong rental market boasting high yields
The suburb of Liverpool is the major city centre of Southwest Sydney, with a flourishing business precinct, major hospitals, quality schools and an efficient public transport system.
An attractive option for families, who currently make up 70% of residents, Liverpool is expecting a population boom of half a million people in the next 20 years. As a result, an abundance of new residential developments is on the cards.
Historically, Liverpool has performed well, recording high capital growth of 27% in the past 12 months.
“It’s been good for a while because of the release of the Badgerys Creek airport, lots of development in the area and infrastructure,” says Frank Polistina from Elders Real Estate Liverpool. But he warns the market has likely reached its peak. “We have been getting very high prices in the past, but now the market is correcting itself.” However, he says, while values are expected to remain stable, “I can’t see prices dropping dramatically”.
Polistina says buyers are trending towards “the more affordable end of the market, around $350,000–$400,000 two-bedroom apartments”. This is supported by ABS data which reveals that 50% of Liverpool’s residents live in two-bedroom units.
Even though the market is expected to stabilise, the average unit rental yield of 6.5%, combined with statistics showing that half of Liverpool’s residents identify as tenants, is a promising sign for investors.
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