Previously, we discussed the Australian property market outlook this year and shared that more stable dynamics are set to return to the Australian property market, with price and rental growth at a level that can be sustained in the longer term. In this article, we zoom into the country’s vibrant city, Sydne, which has not only been a popular destination for tourism and education, but also property investment in Australia.
Sydney has always been a hotspot for culture and entertainment in Australia and with the lifting of travel restrictions from this month, the city is set to see a major influx of visitors and investors from around the world.
The city’s high employment rates, strong infrastructures, political stability, and excellent residential property price growth have all been factors that gain the trust investors have in Sydney property. A study by property consultancy Colliers International also shared that Sydney, being a gateway city – with good flight connections to places like China, Singapore, and London is popular with cross border investors that seek to diversify their property portfolios.
Rising prices, but at a slower rate
Just this month, Sydney recorded one of the largest rises in housing values and this is only expected to hike up over the year. Sydney property prices have increased almost 50% since March 2020 with a median heading towards $1.5 million. While house values soared 25.5% over the past twelve months, apartment values are up less than half that rate, a good reflection of homeowners’ growing preference for more spacious living.
Auction clearance rates have consistently been in the high 70%-80%, suggesting that the Sydney property market is seeing a higher number of buyers than sellers – leading to higher property prices. The market is seeing an increasing number of investors that realise that the properties they purchase today will be a bargain in twelve months’ time.
Oversupply of high-rise apartment units
Apartment units in Sydney are taken as a good alternative to houses because they create more housing closer to the city. Apartments buildings in popular areas – Sydney's eastern suburbs and Northern Beaches see a continued growth in demand and as a result, a high increase in values.
However, certain areas in Sydney are experiencing a major supply of apartments with cookie-cutter high rise towers in the city. This has been a trend prior to the COVID-19 pandemic. It would seem that property investors are being more careful when purchasing high-rise tower apartments as an investment due to the potential construction defects, low capital growth, and high vacancy rates.
Despite this, there is still demand for Sydney apartment units that are often concentrated in popular areas and many of these are off-market. These apartment units are usually smaller scale buildings that are focused on quality. Structural issues that have been reported in some of these high-rise towers over the years have created a lack of confidence for apartment owners who are concerned about issues that may lie ahead in the buildings. In response to these issues faced by developers and owners over the years, the Australian government has set out tighter construction standards. With this will come an increase in building costs and higher eventual asking prices for future apartments – projected to jump up as much as 6% this year.
Some of the issues include structural defects, fire issues (due to inferior cladding), and water issues (such as leakages). While steps are being taken to resolve these problems, it may take some time before the trust of buyers are restored. With that being said, there are a number of well-constructed, medium density options out there that remain to be highly sought after and will keep increasing in value – making these smaller complexes good Australian property investments.
Beachside cities set to excel
The Covid-19 pandemic has led to many people seeking out the blue of the sea and the green of nature and allowed for more flexible remote working. While 2021 saw an increase in popularity in Sydney’s larger regional locations – in particular lifestyle and beachside cities such as Byron Bay, the Central Coast and Wollongong, this demand is expected to trickle into the year – with beachside suburbs likely to outperform the wider overall property market.
All in all, this year we are likely to witness an increase in demand in the Sydney property market, especially in popular areas and price and rental growth at a level that can be sustained in the longer term. Aside from this, the Sydney market will also experience a slight shift in terms of buyers’ interests – for smaller scale, quality developments.
We hope you’ve found this article useful in expecting what is to come this year in Sydney.
The Tailor My Property team has helped many clients with overseas properties including Australia over the years, and although it might seem challenging to penetrate the Australian property market, we are here to make those challenges a lot easier for you, whether it be obtaining a mortgage, tax advice, and property options. As always, reach out to have a conversation with us anytime.