Low yields, high prices and lack of supply push more and more buyers out of the Sydney market
Sydney remains a very strong market, but affordability continues to be a major problem for everyday investors.
“Fundamentals are still holding up in the Sydney and Melbourne economies and they’re doing very well, but I don’t think price growth will be quite as strong as it was over the last 12 months,” says Nerida Conisbee, chief economist at REA Group.
“The reason primarily is access to finance. The cost of finance interest rates are going up. Also, markets like Sydney are becoming a little too expensive, and I think affordability is really starting to push a lot of buyers out of the market, and they are either going to other areas or backing off and waiting to see what happens.”
Although actions are now being taken to increase the budget for property construction in the state, Conisbee believes the policies hindering offshore investors could end up being a detriment to the market.
“[Investors] really do contribute to the availability of rental stock, so that availability will be curtailed. The other thing that they do is allow a lot of projects to get up and running that otherwise may not have,” she explains.
“The NSW Government does need to be very careful in the way that they handle offshore investors. Realistically, [investors] are to blame for [the lack of] housing affordability, but they have led to an enormous amount of new development taking place.”
Poor returns could push buyers to regional areas
While the metro awaits the influx of new supply, Philippe Brach, CEO of Multifocus Properties & Finance, recommends considering properties beyond the capital.
“A good Plan B is to go a bit outside of Sydney and look for areas that benefit from the ripple effect of Sydney property prices. That would be Wollongong, Central Coast, and Newcastle, which are very good areas,” he suggests.
For Brach, NSW continues to be the top prospect in the national property market.
“New South Wales is the powerhouse of Australia – it’s the best-performing state. I don’t think [Sydney’s] going to stop growing. The problem is the fact that yields are so low. For a normal mom-and-dad investor, although capital growth is good, your cash flow is so bad, it’s just not sustainable from that point of view.”
The northwest region of Sydney is becoming an attractive alternative, given predictions of future growth. Specifically, as a result of infrastructure projects in the pipeline, the suburb of Castle Hill is expected to see considerable long-term growth.
SUBURB TO WATCH
NORTH GOSFORD: Hot properties in high demand
A surge in the values of both houses and units means investors are starting to notice North Gosford, a southeastern suburb of NSW’s Central Coast region.
Increased demand in this suburb means properties rarely stay on the market for long– houses spend an average of just 22 days up for sale while units spend slightly longer, at 25 days on the market.
Home to Laycock Street Theatre as well as the region’s largest private hospital, North Gosford has seen impressive growth over the past few years. Houses in this centrally located neighbourhood have enjoyed a 12.6% increase over 12 months, 59% growth over three years, and a whopping 73.7% increase over five years, putting it in fine company as a star performer alongside Sydney’s top suburbs.
Demand: Houses spend (on average) just 22 days on market
Returns: Median advertised rent sits at $430/wk for houses
