Sydney's growth charges ahead
Sydney’s inner city remains a top– if unaffordable – prospect for well-off buyers. Michael Yardney, director of Metropole Property Strategists, attributes Sydney’s massive run of growth to the infrastructure improvements in the city and its economic growth, which has led to boosts in employment and population.
In addition, Sydney has a significant advantage over the other capitals on the east coast: namely, its supply levels.
“The Sydney apartment market is not plagued by the same oversupply issues that the other east coast capital cities are suffering,” Yardney explains.
“Homebuyers are selecting more carefully now, and their decisions are being driven by lifestyle, with many trading backyards for balconies in well-located apartments in Sydney’s gentrifying suburbs.”
That said, he expects dwelling price growth in blue-collar, outer-ring suburbs to disappoint.
Tim Lawless, head of research at CoreLogic, adds that Sydney’s listings in 2016 were lower than they were in the previous year, which could be contributing to the lack of supply driving a significant increase in property prices.
“The highest annual growth rate is evident in Sydney, where dwelling values are now 13.1% higher, reflecting a steeper upwards trajectory in growth over the second half of 2016,” Lawless says.
Low yields ‘no deterrent’
The high prices of dwellings in Sydney have caused investors to miss out on high returns, a sacrifice they seem willing to make for the promise of gains.
Along with Melbourne, Sydney has the lowest yield profile among all the capitals for detached housing, while yields in Sydney’s unit market fell below Melbourne’s.
“Affordability constraints are creating high barriers to entry, particularly in Sydney, and lenders are becoming more cautious in their lending practices,” Lawless says.
“Buyer enthusiasm could be muffled by speculation that interest rates may rise late in 2017, with fixed rates already starting to edge higher.”
The reduced demand could curb growth, and has caused the rental market to suffer as well.
“With rental markets remaining soft, it is likely there will be further yield compression across those markets where residential property values are rising,” Lawless indicates.
Despite this disadvantage, however, investors remain hungry to break into the Sydney market, with low yields “no deterrent to investors”. ABS housing finance data shows a consistent rise in finance commitments for investment purposes since May 2016, Lawless says.
“Clearly investors are continuing to see housing as the preferred investment option, despite low yields and a mature growth cycle,” he adds.
Affordability pushes buyers out
NSW has one of the strongest economies in the country, says REA Group’s chief economist, Nerida Conisbee, which has led to increased migration rates both domestically and internationally. This has resulted in the significant price hikes seen in Sydney in the last few years.
“Strong price growth in Sydney and Melbourne has led to a shortage of listings. This may be due to people having a fear of missing out if they list their property, or because people are too indebted to take on additional debt,” Conisbee explains.
“Undersupply is primarily an issue in Sydney where affordability for both renting and buying remains low. Sydney is now developing at about the right amount, but as this has come after decades of underdevelopment it will take some time to rectify.”
As a result of Sydney’s low supply and affordability issues, buyers are increasingly turning to other areas of the state for cheaper properties.
“There are still some pockets that are affordable,” Conisbee says.
“Sydney’s lack of affordable options means that there has been greater interest in areas such as Central Coast and Bowral, which are locations outside the metropolitan area yet still within commuting distance of the CBD.”
SUBURB TO WATCH
Seaforth: Hidden gem offers great views
The community-oriented seaside suburb of Seaforth, located around 12km from the Sydney CBD, is gaining popularity.
Located to the left of Spit Bridge, this hilly suburb is home to families and professionals. It overlooks Middle Harbour, and the streets are lined with trees. Seaforth provides easy access to Manly and the North Shore.
The fact that Seaforth is surrounded by growing suburbs is a strong indicator of its growth potential. It is more affordable than neighbours like Mosman, and is closer to the beach than Chatswood and North Sydney.
Although Seaforth residents cannot travel by train, there are bus services to nearby Balgowlah, which is home to the Stockland Shopping Centre.
The suburb has seen much growth over the past five years, and supply has since increased. However, there isn’t much stock, therefore buyers compete for quality properties such as those with water views.