Sydney riles investor frustrations

High investor activity in Sydney has run into a critical roadblock – a shortage of properties listed for sale

If you’ve been thinking about investing in Sydney but haven’t done so, you may have to work harder and look further to get a good deal.

Herron Todd White’s Kim Quick says there’s currently a distinct lack of listings as properties are quickly snapped up as soon as they come on to the market.

“The single biggest factor affecting the market across all metropolitan suburbs is the lack of available stock, especially up to the $1m price point,” she says.

The consensus from both agents and prospective buyers is that there is simply not enough property for sale at present, she continues. “Because of this shortness in supply, when properties do come on the market we are seeing some very positive sale prices.”

This anecdotal evidence is backed up by the latest report from RP Data, which found that listing numbers in Sydney are about 28% lower than a year ago. This comes as sales activity has jumped 30% over the same period, creating a perfect storm for price growth.

Over the past 12 months, housing values have surged 11.7% and a whopping 7% since the start of the year, according to the RP Data stats.

Rismark CEO Ben Skilbeck notes that while the owner-occupier segment of the market is more than twice the size of the investor segment, “there continues to be a number of indicators suggesting that this spring investors will be punching above their weight”.

Predictably, the strength in buying activity in the inner suburbs is causing a ripple effect to the outer areas as buyers are forced to look elsewhere for available properties.

“Buyers priced out of inner suburbs tend to look to the outer suburbs for better deals,” Quick says. “Agents have commented on an increase in out-of-area buyers taking advantage of the better-value-for-money property available within Greater Western Sydney. We believe this will continue in the short to medium term.” With mortgage interest rates expected to remain low over the next 12 months, buying confidence is likely to improve further, according to Cameron Kusher of RP Data.

“From here, we expect further sales increases throughout the 2013/14 financial year, given that mortgage rates are anticipated to remain at low levels. This will likely create greater confidence and encourage an increase in the levels of investment in housing, both from owner-occupiers and investors.”

Caution urged over potential CBD boom

As the Sydney market continues to run hot, Hotspotting’s Terry Ryder says there seems to be a great deal of property industry talk about a potential Sydney CBD residential boom, and he cautions investors of the danger of being drawn in by the hype and ending up in a Melbourne-style oversupply situation, with poor returns and limited capital growth.

Ryder says factors contributing to this speculation are:

  • Growing investment interest from China
  • Perceived potential for converting commercial buildings to residential
  • Inner-city development in other Australian cities

Two of the proposed projects that have been reported are:

  • A 38-storey glass tower of 199 apartments on George Street
  • A $110m tower, including six floors of retail at 383 George Street and 46-48 York Street

Planning approval for the $1bn development of new convention, exhibition and entertainment facilities and a major upgrade to the public precinct at Darling Harbour have also just been announced.

Ryder points out that in recent years residential vacancies in the Sydney CBD have been as high as 7%, and they are still on the high side at around 3.5%.

“With new supply in the pipeline, this is likely to rise again,” he says.

“The capital growth record of Sydney CBD apartments has been poor: an average of 3.2% per year over the past decade and just 2.3% a year over the past five years.”

Sydney housing construction at 10-year high

Sydney’s notorious undersupply situation is likely to be improved with a significant increase in new homes being built around Sydney. Over the past 12 months, construction of new homes jumped by 35% – a 10-year high, according the state government.

Western Sydney councils saw the bulk of the growth, with the highest completions in Blacktown (2,021), Parramatta (1,336), Camden (1,290), Penrith (1,271), Liverpool (1,185) and The Hills (1,037) local government areas.

Suburb to watch

Ultimo

The slow gentrification of this former industrial area right beside the Sydney CBD means surprising bargains can still be found.

Ultimo is within walking distance of the city centre, universities, TAFE, Chinatown and the fish markets, and the development of its entertainment centre is adding further value to the area.

Well served by public transport (with Central Station just round the corner, plus buses and light rail), the suburb features a mix of cafes and eateries, small businesses, and some creative/media companies.

Ultimo is also home to the Powerhouse Museum, Wentworth Park and the Ultimo Community Centre. Darling Harbour is close by, and the ongoing development of its convention centre and precinct is expected to benefit Ultimo too.

Much like Surry Hills, the suburb features some of the oldest examples of inner-city Victorian terraced housing. However, Kho & Lee Property Group director Patricia Kho says typical Ultimo properties are one- to two-bedroom apartments of mid-range pricing.

Rental and purchase demands have been exceptionally strong in the past few years, according to Koh.

“Given its strong growth in the past few years, it is expected to continue its growth phase for the medium to long term, while remaining competitive with the neighbouring suburbs Pyrmont and Chippendale.”