Supply shortage drives heavy demand in Sydney

Due to considerable population growth in urban areas, high auction clearance rates and an active lending environment, Sydney’s growth trend is expected to continue.

“There is still a shortage of supply, particularly in Sydney, so demand is outstripping supply,” explains founder and director of Meriton, and property investor and developer Harry Triguboff.

“The banks have cracked down on property development finance, which makes it more difficult for smaller developers to access funds for an upcoming project. This means there will be less development and inevitably less housing coming onto the market over the coming years.”

Stockland and Mirvac developers predict that the rate of price increases will slow down, according to David Naylor, co-founder and non-executive director of Chan & Naylor Partners, property tax specialists.

Nonetheless, “sentiment in the market is still strong,” he says.

Ken Morrison, chief executive of the Property Council of Australia, adds that the confidence of buyers in the state’s economic performance is another huge factor in Sydney’s success.

“We see in NSW a strong surge in confidence underpinned by expectations for economic growth, housing, forward work expectations as well as confidence in the government itself,” he notes.

Growth may slow

The aforementioned factors are expected to see the suburbs in the east through the first half of 2017 and sustain this region even as the growth rate slows.

“Detached houses around $1.5m to $3m, and units up to $3m are predicted to have a slower growth than in the previous years,” states the Herron Todd White Month in Review report for February 2017.

“As the eastern suburbs have had a strong three years of growth recently, there does not appear to be any suburb with an affordable price point.”

While demand builds for the detached housing market, the story for units is quite different in some parts of the metro area. Rental returns are falling and borrower costs may be rising in the inner west, which is contributing to apartment oversupply.

The construction of small, low-quality units aggravates this issue. However, improvements to the local infrastructure have helped to add value to this region, such as the establishment of the Inner West Light Rail, which enhances access to the CBD.

Beyond the boundaries of the metro, outer-western Sydney is looking to sustain long-term demand with the Badgerys Creek Airport, the Sydney Science Park and the expansion of Parramatta. However, these efforts could be hindered by unit oversupply, bank-imposed interest rate increases, dampened interest from investors as a result of low yield, and changes to government regulations.

Renters become buyers

With affordable housing supported by low interest rates, long-term tenants in western Sydney have been emboldened to become buyers. This is to the detriment of the rental market, as the resultant vacancies have generated an oversupply of properties for lease.

“With rental yields currently at circa 4% in areas such as Wilmott and Blackett, other areas like Blacktown are experiencing yields as low as 3%. These tight yields are mostly on the back of a soft rental market and as such may deter investors,” Herron Todd White states.

In the process, many investors are also turning south to Wollongong, which offers greater bargains than Sydney.

“[Our buyers] are mostly from western Sydney selling for great prices and making a sea change at a still very affordable price,” says Jason Hines of Peter Fitzgerald Real Estate.

For Rich Harvey, founder and director of propertybuyer, Wollongong’s beaches and proximity to the NSW capital are major factors driving its attractiveness, since it has been caught in the ripple effect of Sydney’s growth.

 

SUBURB TO WATCH

Gymea: Café suburb has significant value

The southern Sydney suburb of Gymea was originally known for cultivating the Gymea Lily, which has since been adopted as the town symbol, and features on the crest of many local organisations.

While it is primarily a residential suburb located 26km south of the CBD, over recent years Gymea’s shopping and dining hub has grown in popularity. This district includes the Gymea Shopping Village, as well as many boutiques, gourmet food stores, restaurants and cafés that define the suburb’s strong café culture.

There are various educational institutions here, including a Sydney Institute of TAFE campus, which serves to draw students, as well as a few primary schools and two high schools. Local buses service the local area and provide transport for schools as well.

The establishment of Gymea Railway Station adds significantly to Gymea’s accessibility, boosting its popularity. This is evident in the suburb’s growth over the past five years.