Despite warnings of bubbles and a price crash, Sydney buyers took no heed and continued to push prices up to stratospheric levels
It would seem that no amount of ‘bad’ news will discourage Sydney buyers these days.
Even with the median house value pushing towards the million-dollar mark, buyers continue to storm the market and buy practically everything that’s up for grabs.
Now entering their third year of boom-time conditions, Sydney’s property markets are showing little signs of cooling anytime soon. The buoyant local economy and high level of migration are continuing to fuel one of the longest-lasting bull markets in Australia.
“The resilient Sydney market continues to produce extraordinary results,” says Andrew Wilson, chief economist at Domain. “Property price growth continues to track at decade-high levels boosted by record investor activity.”
With interest rates expected to remain low in the near to medium term, Wilson says this will further attract investors into the market. He is therefore predicting that Sydney prices will grow by up to 10% this year.
Rental returns are also expected to remain healthy despite the strong increase in prices. Current returns show an average yield of 3.4% for houses and 4.3% for units across Greater Sydney, according to PRDnationwide Research.
Diaswati Mardiasmo, the firm’s national research manager, points out that Sydney is poised to receive another boost from the $12.4bn worth of new developments due to start in the first half of 2015. These include the $540m Northern Beaches Hospital and a mixed-use development within the Darling Harbour Urban Renewal Precinct, which includes 538 apartments and retail space.
Sydney’s sweet spots
While the general outlook remains good for Sydney over the next 12 months, investors are advised to be selective about what and where they buy, and to avoid markets that have already shown massive growth.
For example, the Inner West, Eastern Suburbs and Lower North Shore have seen values surge over the past 18 months, which means properties there may no longer be the best investment options.
Wilson says there are better opportunities in mid-priced markets towards the Northwest and Upper North Shore suburbs, such as Hornsby, Pennant Hills and Waitara, where he predicts a robust 10% growth in property values over the next 12 months.
The budget end of town is also set to see solid growth this year, with Domain forecasting a healthy 8% increase in median values for properties below $800,000.
Terry Ryder, director at Hotspotting.com.au, notes that as the growth momentum ripples out, the outer fringes also offer some of the best buys in the city. He points to areas such as Penrith, Blacktown and Campbelltown as the next growth hotspots.
“You need to keep in mind that there has already been significant growth in Sydney, and so you need to be careful about what you are targeting. You need to have a long-term view if you are going to buy in Sydney,” he says.
“Penrith has a big future. It has a strong emerging economy. It’s on the doorstep of the new airport and it’s also got the other infrastructure about to happen, like the M9 Orbital motorway and all sorts of other things out there. So focus on areas that have long-term growth drivers. If you are buying in the millionaire suburbs where prices are very high, I would say that is a risk.”
Regional centres get a boost
Fierce competition in the Sydney market has prompted many investors to look elsewhere, which has resulted in strong recovery in the Central Coast and Wollongong areas.
“The Central Coast was the first of the regional centres in NSW to rise. It caught the wave from Sydney, and part of the reason is the infrastructure happening there,” says Ryder. “Gosford recorded exceptional growth during the past 12 to 18 months. It just zoomed from nowhere.”
Gosford and Wyong were two of the first suburbs to surge outside of Sydney. Wollongong and Goulburn have also recorded solid growth during the same period.
“Growth is now moving out to places like Dubbo and Tamworth,” says Ryder. If you’re wondering if it’s too late to get into these areas, Ryder says it is. “The best time to buy there was 12–18 months ago.”
SUBURB TO WATCH
Rushcutters Bay: Small suburb has big potential
Containing only six streets in an area of approximately 1sqm, Rushcutters Bay is definitely on the smaller side when it comes to suburb size. However, with a population of 2,372 there must be something drawing people to the area. Being located just 2km from Sydney’s CBD might have something to do with it.
While being so close to the city may make people feel hemmed in, fortunately there is a range of public transport that reaches all corners of Sydney. The Kings Cross train station is just up the road in neighbouring Potts Point, and the nearby Eastern Distributor Motorway makes for an easy trip to the airport.
Due to its proximity to the city, Rushcutters Bay is largely popular with young professionals and established couples. The suburb has limited shopping areas; however, once again Potts Point steps in to provide a diverse range of opportunities. The area is bursting at the seams with restaurants, bars and clubs, food markets, a library and boutique shops. The Saint Lukes Hospital also borders Rushcutters Bay.
Units/flats make up over 95% of all dwellings in the area, and with a 32% growth in median price over the last five years there are no signs of slowing down. Properties only spend an average of 31 days on the market, and with 61.3% of the population renting there are prospects for good rental returns. Due to its size there are no specific areas that are particularly favourable in the suburb; however, units on higher levels will provide better views of the sea.
