Sydney’s property market is beginning to balance out as APRA regulations constrain new loans to investors
Following a strong trend of soaring growth over the past several years, Sydney may be inching closer to the next stage of the property cycle as price hikes start to ease up.
“We have noticed a gradual cooling of the market over the last quarter of 2017, as auction clearance rates are sub-70%, [there’s] less aggressive bidding at auction and lower attendance at open homes,” says Rich Harvey, CEO of Property Buyer.
“We expect the market in 2018 to continue to stabilise, and investors will need to consider renovations, granny flats, subdivisions, small-scale developments and other strategies that add value in order to manufacture equity growth, rather than buying and hoping.”
Harvey considers the recent implementation of governing regulations to be a factor in the property market’s shift. APRA restrictions have limited loan activity, causing lenders to be stricter with regard to serviceability requirements. Interest rates have gone up as well, especially for interest-only loans; as a result, fewer investors are taking out such loans and demand has gone down.
Meanwhile, first home buyer figures went up with the introduction of the First Home Buyers Assistance Scheme, which aims to balance the proportions of buyer types in the market by giving owner-occupiers more buying opportunities.
With investors outnumbering owner-occupiers, the market is going through an adjustment period. Auction clearance rates have fallen from the 80% range to below 70%, and average time on the market has increased. Nonetheless, Sydney’s performance isn’t expected to take a severe dip.
“Assuming [the RBA] isn’t too aggressive in raising interest rates, the ongoing Sydney infrastructure boom, declining apartment completions, strong jobs growth and steady population growth should see dwelling prices increase at a steady but slightly reduced rate in 2018,” Harvey reports.
Low-profile cities looking up
As NSW’s major cities, namely Sydney, Newcastle and Wollongong, look poised to enter a stagnant phase, Propertyology’s managing director Simon Pressley believes it could be the time for less well-known hubs like Dubbo to step up.
The capital of the Orana region, Dubbo has been benefiting from significant infrastructure upgrades, such as the recently expanded hospital. The presence of Charles Sturt University keeps it popular with student tenants, and the strong industrial scene supports the potential for capital growth.
The comparative affordability of properties in this area also makes it an excellent spot for investors to consider, with good-quality three-bedroom houses priced in the $350,000 range.
SUBURB TO WATCH
ALEXANDRIA: Strong growth for houses
The primarily industrial suburb of Alexandria, situated just 4km from the Sydney CBD, sustains a very strong house market. Prices soared by 15% in the year leading up to October 2017.
The median house price has now passed the $1.5m mark, and the growth trend seems to be consistent based on the suburb’s performance over the past decade. Even with rental yields being low, investors can certainly benefit from significant capital growth.
While houses are performing better than units, the latter market is also progressing at a good pace, as values went up by 9.6% during this period. The average rental yield is favourable to investors as well, at 4.2%.
Location: Alexandria is only a 15-minute drive from the Sydney CBD
Transport: The Green Square, Erskineville and St Peters railway stations are nearby
