The impending reopening of New South Wales borders for interstate and international travellers would provide the much-needed boost for Sydney's unit market.
According to BuyersBuyers' latest report, the resurgence of housing demand in Sydney is likely to be skewed towards the unit market, given the recent tightening of mortgage servicing rates and the growing concerns on affordability.
RiskWise Property Research CEO Doron Peleg said potential buyers in Sydney would be looking for family-suitable units and other attached dwellings as a more affordable option.
"The price differential between houses and units in Sydney has never previously been so stretched, and the deposit gap will push more buyers towards units," he said.
A recent report from CoreLogic showed that Sydney markets have substantial price gaps for units and houses, spelling trouble for unit owners who are planning to upgrade and buy a detached home.
For instance, units in Strathfield, which make up 64.6% of its housing stock, have a median value that is just 23% of the median house price.
Mr Peleg said the greater the price gap, the higher the likelihood that family-suitable units will deliver strong price increases, as these units deliver an excellent benefit, considering their average price.
"Boutique developments with no facilities such as lifts, pool, or a gymnasium are likely to outperform due to strong demand by investors, downsizers, and well-off professionals who seek low-maintenance and comfortable dwellings," he said.
Sydney suburbs investors should consider
The BuyersBuyers report identified 18 suburbs in Sydney that property investors should consider if they want to take advantage of the likely boost in demand the reopening brings.
The report said eastern suburbs are expected to be a bright spot for those looking for growth potential. Units in suburbs like Vaucluse and Bellevue Hill, particularly those in the $1 to $1.4m price range, are expected to perform strongly as borders reopen.
"Median unit prices in the $1m to $1.4m price bracket, with a high land to asset ratio available on boutique unit block purchases, are relatively more accessible to the booming investor cohort," Mr Peleg said.
Unit markets in the more affordable suburbs of Strathfield, Summer Hill, and Croydon, all of which have median prices that are sub-$800,000, are also predicted to be top performers.
"There is also a range of suburbs on the north shore and in the northern beaches, which look attractive from a unit to house price ratio, including Mosman and Cremorne, and some of the other premium locations," Mr Peleg said.
Targeting high-quality units
BuyersBuyers co-founder Pete Wargent said the reopening of the borders would be a "sugar hit" for the local economy and would provide some stronger outlook for Sydney's housing market.
"After a prolonged period of elevated rental vacancies in the CBD and its immediate surrounds, things will start to tighten up over 2022 as new arrivals fly in, and the rental market should strengthen from here, especially for short-stay lets," he said.
However, he urged investors to still be careful amid current market conditions.
"Buyers need to ensure that they buy a high-quality property, with no significant issues, either in relation to the location of the property, or in relation to the specific property attributes," he said.
"While there’s currently an outstanding demand for almost all properties, at a later point of time, under ‘normal’ market conditions, the demand for B-grade properties will not be as strong as the demand for top-quality dwelling units."
Photo by Dan Freeman on Unsplash.