Despite the already sky-high property prices in Australia’s biggest capital city, buyers are still desperate to get into the market, sending prices higher into uncharted territory
Judging by the ultra-high auction clearance rates, buyer enthusiasm in Sydney appears to be showing no signs of waning.
The latest figures from CoreLogic RP Data show that Sydney continues to outperform all the other capital cities. During the three months ending May, median dwelling values in Sydney surged by 3.3%, even as the others fell or slowed.
Tim Lawless, head of research at CoreLogic RP Data, points out that the lower interest rates and high levels of investor interest have fuelled a rebound in the annual rate of dwelling value growth across Sydney and Melbourne.
“Dwelling values are now 15% and 9% higher, respectively, over the past 12 months,” he says. “Both Sydney and Melbourne are also seeing their strongest economic conditions, coupled with the highest levels of new housing supply, particularly in the new apartment sector.”
In fact the lower interest rate in combination with the stronger state economy will only continue to fuel strong buying activity throughout this year, according to Andrew Wilson, chief economist at Domain.
“We still haven’t seen the impact of the interest rate cut from May, and the RBA is still talking about cutting more. If they do, then prices are going to rise even higher. The lower interest will only fuel the Sydney market going forward,” he says.
The improved affordability resulting from the cheaper cost of lending is allowing buyers to push property prices higher and maintain competitiveness in this red-hot market, according to Wilson.
“We’re seeing the mortgage rate at mid-4%. Income is still flat, but you’re able to carry more debt because of the lower interest rate.”
So buyers continue to storm the Sydney market, unperturbed by bubble warnings.
“Sydney is still pretty exciting,” Wilson says. “There are no signs of tapering off in activity in the Sydney market, even with the investor market cracking another record over March. It’s still strong. There’s a lot of enthusiasm, and plenty of buying decisions are still being brought forward.”
Wilson notes that even the normally quiet side of Sydney is seeing an extraordinary level of activity, particularly the St George Illawarra region. During the past six months alone, the number of suburbs with a million-dollar-plus median price surged from 17 to 29.
“There are now more than one in three suburbs in the area with a median price of $1m and above,” Wilson says. “The Shire was the biggest mover there, buoyed by a lower interest rate that has fallen beyond the official mortgage rate.”
The future looks bright for Sydney
With the RBA still considering further rate cuts, Wilson says this will bring further strong growth in Sydney property values. In fact, the unprecedented surge in the past few months has prompted him to revise his forecast up.
“We’re now looking at 9–12% growth with lower interest rates,” he says. “Originally, I thought the market would grow by 7–9%. But I think there’s still plenty of pent-up demand and capacity from entry-level investors that just keep pushing prices higher. We are still seeing strong demand from owner-occupiers and particularly strong in the Upper North Shore and Inner West, where a lot of transactions are happening.”
Despite warnings of a property price bubble, Wilson is confident that Sydney’s strong economy will be able to support the property market.
“In a decade’s time, we’re going to look back at this period and think what an extraordinary time it was,” Wilson says. “The boom has really been generated by the pent-up demand for property, and the strength of the local economy. Interest rates have fallen by almost half over the past three years, and this has released so much price growth. I don’t think we’re going to see that ever again.”
However, he warns that once the interest rate cut has been washed through the system, and with the broader Australian economy growing as slowly as it is, there’s really no more capacity to push prices up.
“We might go through a very long time with flat growth,” he says.
SUBURB TO WATCH
Haymarket: Inner-city suburb a dream for young professionals
If you can afford it, Haymarket is right on the doorstep of some of the city’s most sought-after drawcards. This includes Darling Harbour, Chinatown, Oxford Street, George Street and Paddy’s Markets. It is also right next door to the Sydney CBD and another suburb with in-demand cafes, pubs and restaurants – Surry Hills.
Transport in and out of the suburb is fantastic. It is minutes from Central Station and a vast array of bus options. It’s no wonder Haymarket is very popular with young professionals and students. According to the most recent ABS Census, the median age in Haymarket is just 27.
It is also very close to the University of Technology and has easy access to other popular universities. In fact, the local economy benefits very much from overseas visitors, including tourists and international students.
Just keep in mind the wide differences in the prices of properties in this suburb. For example, there are three-bedroom units way over the $1m mark, while one-bedroom studio apartments can be picked up for less than $550,000. And even though its rental yields are not too high, Haymarket’s proximity to the CBD ensures that capital growth potential is always on the cards.
Two-bedroom units on Castlereagh Street are right in the heart of city. This area includes excellent cafes, restaurants and shops. It is also less than five minutes from Central Station and buses. Meanwhile, there are modern one-bedroom studio apartments on Quay Street that can be bought for around $550,000.
