The crackdown on lending policies is beginning to put a dampener on Sydney’s capital growth.
According to CoreLogic’s Hedonic Home Value Index for October 2017, while many regions experienced a slowdown in capital gains, Sydney was one of only three capital cities to record negative growth.
“Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan-to-valuation ratios or higher loan-to-income multiples,” explains Tim Lawless, head of research at CoreLogic.
“Interest-only borrowers and investors are facing premiums on their mortgage rates, which are likely to act as a disincentive, especially for investors who are generally facing low rental yields on investment properties.”
This drop in dwelling values in Sydney is the first decline since May 2016, and for Lawless, seeing Sydney in this position is jarring. “Seeing Sydney listed alongside Perth and Darwin, where dwelling values have been falling since 2014, is a significant turn of events.”
There is a silver lining to this situation for investors, however, as rental yields are getting a boost from the decrease in prices.
“If the Sydney market continues to see values slip lower while rents gradually rise, yields will repair. However, a recovery in rental returns is likely to be a slow process,” Lawless says.
Regional suburbs grow
In the face of the decline in Sydney, regional NSW is picking up the slack in a big way, as Newcastle, Lake Macquarie, the Southern Highlands and Shoalhaven have outperformed the capital in terms of growth.
“Growth has rippled away from the Sydney metro area as affordability challenges constrain demand. Buyers are attracted to the lower price points and lifestyle opportunities of the adjacent areas where commuting is still an option,” Lawless explained.
“While the weaker Sydney housing market is dragging headline growth rates lower, there are a variety of factors that are likely to support a soft landing across Australia’s housing market.”
Propertyology data supports this: managing director Simon Pressley named Dubbo, Maitland, Bathurst and Orange as regions that did better than many other capital cities.
“The tomato capital of Australia, Guyra, had a stellar year with 16% growth. Infrastructure projects such as hospital and airport extensions combined with an improving economy generally have resulted in solid jobs growth in many of these affordable locations,” Pressley says.
He believes that, aside from affordability, Sydney could experience heavy unit oversupply in the near future, due to the amount of construction in the pipeline for inner-city blue-chip suburbs.
SUBURB TO WATCH
UMINA BEACH: Apartments shine in Central Coast suburb
Situated on the ‘Woy Woy Peninsula’ on the Central Coast, Umina Beach is one of the most populated suburbs in the area. It is close to West Street, the retail hub of the Peninsula.
Units outperformed houses in Umina Beach, with price growth in the former coming in at 19.4%, in contrast to the latter’s 14.7%. Apartments also generated better returns at 3.6%, compared to 3.2% for houses. With both types of properties displaying an upward trend over the past 10 years, Umina Beach has excellent long-term potential for capital gains.
The local beach is certainly a popular recreational attraction, but there’s defi nitely more to Umina Beach. The town centre is serviced by top brands like Woolworths, Bunnings and Aldi, and there are several medical practices in the suburb.
Units: The apartment market in Umina Beach is recording steady growth with reasonable yields
Recreation: The local beach is one of the most well-known swimming spots on the Central Coast
