With the shine coming off Australia’s most popular capital city, buyers need to keep a realistic view
Despite the drop-off in growth rates, Sydney’s market is still advancing. However, investors shouldn’t expect too much.
“Sydney properties are still selling reasonably quickly and have good auction clearance rates. I’d expect some growth this year despite the negative first half,” says Jeremy Sheppard, director of research at Empower Wealth.
“However, now is a bad time in the cycle for investors to jump in expecting above-average growth. And yields are no incentive either. It’s still a healthy market for investors wanting to apply some value-adding strategy, but it’s not that flash for sit-and-wait investors.”
By contrast, sellers in the Newcastle–Maitland region are getting more leverage in negotiations because of increased demand from buyers.
“Vacancy rates are quite low, assuring investors in well-placed properties of continued income,” Sheppard says.
The same isn’t true for the Wollongong area, however.
“Wollongong’s demand-to-supply ratio was the same as Sydney’s in May 2018. Yields are better than in Sydney. But it’s capital growth that is the bell-ringer, and there’s only an echo of that in Wollongong right now – the best is well gone.”
Regional NSW has benefited from Sydney’s stumble, but it may not last. According to CoreLogic research analyst Cameron Kusher, growth has slowed in places like Illawarra, Lake Macquarie, the Southern Highlands and Shoalhaven.
“In regional NSW total returns increased by 6.7% over the past year, and that was the smallest annual increase since February 2013. Annual returns in regional NSW have slowed from 17.1% a year ago,” Kusher says.
Rising supply impacts market
For a long time, Sydney enjoyed an advantage in that demand considerably outstripped the available supply, keeping competition hot and putting pressure on property prices. However, many construction projects are well underway in this capital, which boosts the local economy but also bridges the gap between demand and supply to limit growth.
“Right now in Sydney there is a significant amount of new dwellings under construction. Even though the population is growing quickly, this under-construction stock will soon be completed stock ready for inhabiting over the next 12 months,” says Matthew Lewison, director of OpenCorp.
“It is likely to result in a growing vacancy rate and a further tilt in favour of renters and buyers.”
ABERDARE: Steady growth in affordable market
In terms of statistics, Aberdare looks like Hobart, combining affordable dwelling values with strong growth.
The median house price is just over $350,000, despite an 8% boost in the 12 months to July 2018. Meanwhile, the median value of units clocked in at $272,505 after about 5% growth.
While houses are the obvious star in this coal-mining town in the Hunter region, topping units in both price and rental growth, the apartment market is holding its own, offering a high average rental return of 5.5%. Rents increased by 3.6% to a weekly rate of $290. Vendors have also been able to negotiate sales at an average discount of 3.7%.
Affordability: Median prices are low, at under $400k for houses and $300k for units
Growth: Price growth is steady, at 8% for houses and 5% for units