If you’re living in Sydney City, watch out. Young professionals are coming to an apartment near you
Not unlike love and marriage, young professionals and the Sydney CBD also go together like a horse and carriage.
In particular, these cashed-up twenty- and thirty-somethings are on the hunt for apartments and units. At least that is what the current data indicates.
According to the latest Herron Todd White report, young people who are first home buyers are increasingly targeting studio or one-bedroom units in the $450,000–$600,000 range. This is especially evident in the transport corridor close to the CBD and the Lower North Shore suburbs. Think Mosman, Cremorne, Neutral Bay and North Sydney, to name a few.
Meanwhile, the latest ABS figures cited by BIS Shrapnel indicate that generations X and Y are driving a Sydney apartment building boom. The increase in apartment construction over the past two years and next five should make up for the shortage since the last construction boom peaked in 2004.
The report’s author, Angie Zigomanis, says increasingly it’s young professionals, who are used to living in inner-city apartments and don’t want a detached house, who want to upgrade to an owner-occupied type of apartment.
About 2,000 rental apartments are forecast to be completed in inner Sydney in 2013/14, which is similar to its 2003/4 peak but still below the 1999/2000 level of 2,500 apartments.
However, this is not sufficient to meet the pent-up demand in the inner-city apartment market. And even though there will be further high construction over the following two years, BIS Shrapnel anticipates a modest deficiency of apartments in inner Sydney will still be in place by 2016.
“This environment should continue to support rental growth in inner Sydney apartments,” Zigomanis says.
“The continued tight rental market and rising rents are expected to support further investor demand and consequently price growth over the next two to three years, particularly if economic growth starts to recover and confidence returns.”
In addition to the City of Sydney, BIS says the local government areas most likely to attract new high-density apartments are Parramatta, Ryde, Auburn and Ku-ring-gai.
Market outlook
After Sydney’s astronomical growth during the past 18 months, is there still some juice left in the tank?
Apparently there is, according to all the experts Your Investment Property spoke to.
Cameron Kusher, senior research analyst at RP Data, says: “Low interest rates will likely drive further increases in home values; however, it is likely to be at a more moderate pace than what we have been seeing over the past 18 months or so.”
BIS Shrapnel managing director Robert Mellor agrees the fundamentals for residential properties in Sydney remain rosy, and he expects property values to grow by another 8% in the next 12 to 18 months. “There’s still a lot of demand pressure, and supply is strained,” he says.
Linda Janice Phillips, national research manager at Propell, sees similar performance over the same period and adds that, while house prices have grown at the fastest pace in the nation, prices are still reasonable.
“The increase reflects a lost decade of underperformance, and prices are catching up to where they should be. The pace of growth will slow in the next year to 7% p.a., but this will still be the highest house price growth in the nation,” she says.
Where’s the biggest potential right now?
Kusher sees the best potential outside Sydney and points to regional markets such as Newcastle and Wollongong. “They are still commutable to Sydney, and as affordability factors drive buyers out of Sydney, they may look to these secondary cities,” he says.
However, Phillips says for investors the best potential in the state remains in Sydney.
“Regional areas always seem to underperform by comparison, though the sea-change coast was badly slugged in the past decade and could offer opportunities. Within Sydney, the better properties in prime spots out to Palm Beach look attractive, while the younger generations drive demand for near-city apartments, so areas like Balmain, Newtown, anywhere benefiting from the new light rail lines, are tempting,” she says.
Risks to be aware of
Mellor warns investors of the danger of overpaying just to get into the market. “You need to be wary of what you’re paying for, especially for off-the-plan properties which are priced based on the current market performance. You could be paying too much,” he says.
For Kusher, the biggest risk in his view is just how many investors there are and what are they really investing for. “Capital growth has been strong, but how long can it continue for?” he asks.
Suburb to watch: Lidcombe
Once a traditional working-class suburb, Lidcombe has experienced a wave of gentrification over the last 10 years. It now attracts younger families who are drawn to recent unit developments close to the station. In addition to being only 14km west of the Sydney CBD, it’s also just 10 minutes from the up-and-coming Parramatta CBD.
The area has a blend of residential, commercial and industrial developments. In particular, there is a lot of business activity along Parramatta Road, including the only Costco in NSW. This giant warehouse has everything from fresh food to electrical equipment and only opened in 2011. It is also close to good schools, parks, the M4 and M5 motorways, and the entertainment mecca – Olympic Park.
The statistics for Lidcombe suggest it is becoming increasingly noticed. Units there spend an average of just 35 days on the market, which is excellent by any standards. Furthermore, there’s only 0.52% of stock on the market and just 1.46% of units are vacant, indicating a tight market. Units here are particularly good value for an amenity-rich area close to the Sydney CBD, and rental yields are a healthy 5%.
There are trendy modern units on Kerrs Road which are within five minutes from the station, shops and parks. Two-bedroom, two-bathroom units, perfect for young professionals, can be bought here for less than $475,000.
