A long period of poor performance might be coming to an end in NSW, but supply issues remain unresolved
The Sydney property market is due to pick up, thanks to a lengthy slow period and improved affordability, according to ANZ head of property research Paul Braddick.
“The market has basically under performed for the last decade, or since 2003, so affordability has improved over that period pretty dramatically,” he says. “Our measures show that the standard service on a mortgage back in 2003 was at 44% of the household’s disposable income, while currently it’s down to around 30%. That’s a big shift and much bigger than you can actually say about any of the other States, a lot of which have actually gone the other way.”
In addition to affordability and the period of stagnation, Braddick believes the significant shortage of housing suggests an upside is around the corner for Sydney.
“Sydney has been under-building for 10 years and continues to do so,” he says. “When you look at the market balance data, the supply and demand and the population growth, it’s obvious that they’re not building enough and that is reflected in the rental market, which is very tight at the moment.
“The rental vacancy rates are at near record lows. The latest figure we’ve got is at 1.4% Sydney-wide.”
Braddick estimates that population growth will pick up in the near future and this will keep an upward trend on rents.
“Sydney rents were up on average by 3.6% last year, so there seems to be quite a bit of underlying momentum in that rental market,” he says. “From an investor’s perspective, if you’ve got such low vacancy rates, you’re not going to have any trouble keeping a tenant.
“Population growth has slowed over the last 18 months, but the scarcity of skilled labour in a lot of sectors means the population’s actually going to accelerate over the next couple of years, so [competition for rentals] will actually get tougher.”
According to the Australian Bureau of Statistics, Sydney had an increase in houses approved for construction in 2011, up 10.1% from 2010 figures. Apartment construction was also up around 7.4% for the same period.
In total, there were 23,051 dwellings approved for the year, but Melbourne was still ahead with 40,501, despite suffering a fall in approvals from 2010.
These figures may indicate Sydney has a long way to go in addressing its supply shortage, but the increase was a step in the right direction and there are currently a number of significant projects underway.
Sydney city will welcome a $104 million development by Metro Plaza Central in Haymarket, offering two-and three-bedroom apartments spread across two 16-storey towers. Other CBD projects include a luxury apartment building overlooking Hyde Park, 23 Manhattan-style apartments in the ‘Jade’ development on Sussex Street and a 22-level development in Waterloo.
In the east, the Old Swiss Grand on Bondi’s Campbell Parade will be transformed into a precinct housing a hotel, 95 apartments and a two-level retail and restaurant complex, as part of a $100 million project.
In the north-west, the second stage of a five-tower, 630 unit development adjoining Macquarie University and shopping centre in North Ryde is set for release in the coming weeks.
Major ventures are also getting underway in Potts Point, Five Dock, Erskineville, Hunters Hill and Mosman.
Australian Property Monitors data suggests that despite a slow 2011 across most of Australia, 60% of all Sydney suburbs recorded growth in median house prices, with 22% growing by more than 5%. The unit market also grew in 60% of suburbs, but 30% beat the 5% growth mark.
Of the suburbs reporting negative median growth, 63% were in the most expensive markets, indicating that while prestige markets naturally benefit highly from the good times, they also suffer in a slowdown.
Sydney has been named sixth in a list of the top 10 cities in the world for students to live in, according to a report released by global ranking company QS. Despite ranking poorly for affordability, it scored well for quality of living and student mix.
Sydney outranked all other Australian capitals except Melbourne, which came in fourth.
The ranking is relevant at a time when the nation’s universities are approaching record enrolment numbers, increasing 4% from this time last year, according to data from the Department of Industry, Innovation, Science, Research and Tertiary Education.
The increase in student numbers has the potential to propel growth in suburbs surrounding the city’s universities.