Big risks in Sydney Property
As with most Australian cities, one the biggest risks in Sydney’s real estate market concerns fears of a new unit oversupply
Following a two-year period of growth, Sydney’s property market has slowed right down. According to the Herron Todd White Month in Review
for June 2016, a number of factors have combined – including instability in the mortgage market, fears of a potential apartment oversupply, and tough restrictions on foreign investors – to cast a cloud of uncertainty over the property market.
“With apartment construction set to hit record highs over the next two years, the latest figures from CoreLogic show a big disconnect in the volume of stock expected to settle over the next 12 to 24 months to the average number of unit sales annually over the past five years,” the report indicates. “This could culminate in an oversupply of units in many areas, which would add further misery to an already slowed unit market.
“Coupled with this is that three of the four largest banks have announced they will no longer be lending to home buyers from overseas, which not only increases settlement risk, but will also affect future demand from the slowing foreign purchaser market.”
Risk of new and off-the-plan properties
Sydney is currently the most expensive metro city in the country, and while affordability levels have improved in some areas, housing continues to be expensive for those residing near the city centre.
According to CoreLogic’s most recent data, Sydney’s price growth in May 2016 was modest at 3.1%. However, the decline in rents is expected to affect affordability, says Greville Pabst, executive chairman of WBP Property Group.
“Tightly held localities and beach areas are proving resilient due to lack of stock, with some remarkable prices achieved recently,” says Pabst.
“If a short-term capital gain mentality dominates and significant volumes of property are relisted in a declining market, there would appear to be insufficient demand to absorb the supply. If a longer-term view pervades and current vacancy rates hold, then the market is better placed to sustain conditions. However, the reality is that it is likely decline will be experienced in the new apartment market.”
Pabst adds that funding new off-the-plan purchases will “remain a problem, particularly for overseas buyers in the current lending environment”.
“Speculative new property investors are still reconsidering their position and some opting to withdraw from off-the-plan purchases due to anticipated capital growth failing to materialise.”
Vacancy rates tight, but for how long?
The Real Estate Institute of New South Wales reports that inner Sydney’s vacancy rate is stable at 1.7%.
However, Gareth Aird of Institutional Banking & Markets believes this vacancy rate has been artificially suppressed as a result of foreign investors who neither reside in nor rent out purchased homes.
“Demand for housing remains firm,” Aird confirms, “[as] population and employment growth is supporting housing demand. Further rate cuts may also refuel the housing market.”
Likely in response to this demand, NSW has approved a record number of dwellings for construction, surpassing Victoria in this regard. However, Herron Todd White notes that demand has dropped the most for properties priced at sub-$1m in suburbs such as Ashfield, Dulwich Hill and Marrickville. These areas have a high supply of average and low-quality units.
Likewise, units in suburbs close to the city are performing below average. Pabst suggests that Sydney is also seeing evidence of downward trending prices of around 5% to 10% in the established middle- to outer-ring areas.
Millionaire market maintains
Even in the prized eastern suburbs, the prices of smaller units seem to be flattening. However, overall a lack of good stock is driving market activity and confidence in the upper end of real estate sales.
“As building and renovation costs remain high in this region, we have seen renovated family homes achieving solid results, especially in beach side locations with price ranges of $2 million to $4 million,” Herron Todd White states.
In northern Sydney, suburbs near planned infrastructure are sustaining growth. One example is Forestville, located the Northern Beaches Hospital, which is being developed at present.
According to CoreLogic, the median house price is $1.65m, continuing the positive trend from December 2015. Suburbs throughout the Southern Tablelands are also experiencing consistent growth, thanks to Canberra commuters and Sydney locals who wish to experience the rural lifestyle.
SUBURB TO WATCH
Blakehurst: Southern Sydney residential area rises up
Located less than an hour from Sydney, Blakehurst appeals to residents because of its affordability.
In fact, apartments here can be priced as low as $300,000, making it an inexpensive option for those who need easy access to the capital.
The suburb’s property values have been rising steadily over the past decade; in the previous 12 months alone, the prices of both houses and units increased by over 10%. This trend is expected to continue into the near future, especially for houses. This boost may be partly due to Blakehurst’s proximity to the prime suburb of Sans Souci.
Blakehurst is bordered by Tom Uglys Point in the south, which is home to reserves, a marina and fishing spots. Blakehurst residents can therefore get excellent seafood in the vicinity. The local shopping district is situated near Princes Highway, and families are served by several schools. A bus route runs through the suburb to Hurstville.
Can you afford to buy in this suburb? Find out how much you can borrow