Property investment Sydney housing market Australia
We’re going to explore in a depth Australia’s most expensive real estate markets the Sydney housing market to look at some numbers, some trends, and some real estate data to get a better understanding of what’s going on in Sydney as a whole and the many sub-markets inside Sydney and we’re going to use this information that we gather to make better investment decisions based on what we think will happen in Sydney in 2021.
Sydney housing market heading into another boomer is this market simply too overpriced to gain any traction under the current economic conditions so without further ado let’s start by looking at how the Sydney housing market has performed since the lockdowns began new march when the lockdown.
First started in march it must have read at least 20 different articles about how the Sydney and the Australian housing market was going to crash by 20% 30 % or even 40% and a lot of these headlines came from some very credible sources such as the big four banks and many experts who have had decades experiencing the real estate industry fast forward to now the Australian housing market has actually been very resilient as Australia’s most expensive property market Sydney should have seen significant corrections in its values due to what has happened in 2020.
Slight increase in dwelling values in Sydney as 2020
However, we actually saw a slight increase in dwelling values in Sydney as 2020 concluded Sydney and 2020 with a modest growth of 2.7and a combined return of 5.3 percent combined return simply means capital growth plus rental return which in the Sydney market is on average2.6 percent this number is very low compared to some other states, for example, the rental return in Hobart currently sits around 5.5 percent which is more than double however the Sydney housing market makes up for this slow rental return by having stronger long-term growth in the last 30 years with that said what we should understand is that past performance does not indicate future returns and based purely on the numbers the Sydney housing market will have to outperform the Hobart property market by at least three percent because the rental return is just so much lower and with such high property prices in place already the Sydney really have room to sustain this kind of growth based on the conclusive 2020.
Property data the Sydney housing market ended the year with growth but only 2.7 percent of its which in my personal opinion doesn’t even keep up with inflation and if we were to compare that growth to some of the other markets such as Adelaide Hobart Canberra and Darwin it will actually put Sydney as one of the worst performers in Australia however one thing that we should discuss is that the Sydney housing market is not a singular market it is in fact made up of many sub-markets which are all doing its own thing and following its own growth patterns.
inner apartment market in Sydney
For example, as a lot of people might know the inner apartment market in Sydney is really struggling right now with our borders closed and it’s not likely to improve anytime soon until our borders are reopened but on the other hand, we’ve got regional markets surrounding Sydney which are seeing some very impressive and quite incredible growth. So let’s take a closer look at the many sub-markets of Sydney so we know where to focus our attention in the coming years let’s start with the inner-city apartment markets prior to 2020 this was one of the busiest markets in Sydney with the council stamping off on record number of building approvals filling the city with cranes and luxury apartments before the lockdowns began there was no reason to doubt to this market because it provided very strong rental returns and the vacancy rate was kept very low by all the international students overseas travelers city dwellers who prefer to live close to work and international investors in fact from 2017 to 2019.
The Sydney housing market was actually going backward due to the royal commission which put a very tight squeeze on credits leading to the housing market experiencing negative growth and for most investors, the higher rental returns in the inner city apartment market were very appealing in a time when capital growth was extremely slow and because of this many investors actually invested into these markets, however, there were some fundamental flaws with these particular markets and most obvious one will be the oversupply of new apartments flooding the markets another issue with this particular market is the quality of some of these apartments being built after only a few years many tenants and investors were starting to find faults in these apartments leading to higher vacancies and desperate investors offloading their apartments onto the market.
Price growth in houses
So let’s take a look at what all these fundamental flaws and the closure of our borders have had on the Sydney apartment markets bear in mind that this is not limited to only the inner city but also many other markets that have been oversupplied for many years such as Parramatta looking at the January data from CoreLogic we can find that with the exception of Melbourne all major cities saw price growth in houses with Sydney recording a modest2.4in six months, however if we look at the units then it’s a complete different story the Sydney unit market was actually the worst performer in Australia beating even Melbourne which had to deal with extensive lockdowns with a 2.3 drop in value over 6 months which doesn’t seem like a lot but impersonally believe this trend will continue for at least the next few years with the vacancy rates in the CBD and Parramatta at above 6 this means that there is still a lot of competition between landlords who are trying to secure tenants this could indicate further drops in rental returns in these particular markets as more and more apartments finish construction and now go into this market to compete with the existing stock we could also see the vacancy rates creep back up until our borders are open again so the international students the overseas investors and travelers can once again absorb all of this excess supply.
However, it could be a very long time until our borders are fully open again so until then we could see these markets continue to struggle and landlords in this particular market reduce their rents and deal with longer vacancies, I’ll strongly encourage you to do a lot of research if you’re thinking about buying into these particular markets and to focus more on family-friendly apartments instead of tiny shoeboxes.
Houses have so much more potent compared to apartments
Let’s move on and talk about houses this should get everyone excited because houses have so much more potent compared to apartments they can always build more apartments but they can never create more land in good locations land is a scarce resource and it opens up so many doors and opportunities for you down the track you can subdivide and build something in the back you can renovate to add value to your property or you can completely knock down your entire house and build two-three or even four townhouses with house prices going crazy around the nation. Let’s take a closer look at how the Sydney housing market has performed to begin this analysis we need to first take a look at a few indicators to get a better understanding of how the market is doing let’s begin with the auction rates for Sydney if we take a look at the latest auction rates from all the states we can definitely see just how hot the property market really is with new south Wales recording a clearance rate of 92 percent this upward trend in ocean clearance rates is something that has been built in momentum for a long time Now this number was very strong already as we concluded 2020 and is only getting stronger as we head into 2021, while this clearance rate looks very strong there are a number of underlying factors that have contributed to this the first and most important one is the shortage of supply in almost all of Australia’s housing markets.
If we take a look at data provided by core logic we can see that the number of new listings was extremely low in 2020 much lower than previous years and it seems like this trend is repeating itself in 2021 and with house prices growing in such a dramatic fashion and the banks all predicting strong growth for 2021, and beyond there’s no reason for vendors to sell so early a lot of homeowners are happy to just ride out this growth cycle and on the other hand we have seen consumer confidence reach record levels according to data released by Westpac consumer confidence is hovering around the six-year high in fact the last time consumer confidence was at this level was back in 2013. With this renewed optimism towards our economy and our housing markets along with record low-interest rates and a massive supply of credit being injected into our economy, we have seen a huge increase in buyer demand with record low levels of supply and extremely high levels of demand.
Submarkets that are contributing to success
There’s no wonder the clearance rate is so high and I believe this accurately reflects a strong Sydney housing market however this is not to be confused with the unit market which is still down 3.7 percent since March 2020 because Sydney is not a singular market there will be submarkets that are contributing to success and growth and there will be other submarkets which are dragging it down so it’s important to identify where the growth is coming from another trend that is happening in Sydney and most parts of Australia is the internal migration from the inner city high density living to the regional and outskirts of many big cities with working from home becoming more trendy greater lifestyle changes and greater affordability in these once overlooked property markets. They are really starting to boom internal migration has jumped since lockdowns began in 2020 and this is reflected in the strong price growth in the best-performing markets of Sydney. The sub-regions of the northern beaches saw a 4.4 percent increase in value in just three months and this is a very similar trending the central coast which saw a 4.1 percent increase in the same period to further illustrate just how much growth we are seeing in these particular markets.
Higher rental demanding the particular market
Let’s take a closer look at the suburbs with the greatest 12-month change in values as we can see from this table the top 10 suburbs are dominated by suburbs in the central coast and northern beaches with many recording strong double-digit growth in all of these markets especially the central coast already has some very strong fundamentals heading into 2020 with all the amenities strong rental returns low vacancy rates great affordability and a lot of catching up to zoo compared to the very expensive city market another indicator that I use to identify markets that are likely to see growth in the future is the change in rental returns and the level of rental returns a strong rental return will attract investors into this market as they chase a better return on their money in the current low-interest environment and a strong increase in rental returns means there’s higher rental demanding the particular market.
This usually means that there are more people moving to this particular market or there’s a shortage of housing in this particular market either way this is likely to put upward pressure on house prices. These markets are set to boom based on what we are seeing from the internal migration data the uptick in rental returns and the strong growth that we have already seen in these particular markets I think this is the market that we should be paying a lot of attention to in 2021.
Sydney housing market is going to do well in 2021
With the Sydney market doing well the consumer confidence high the interest rate’s low and the buyer demands strongly outweighing supply I believe the Sydney housing market is going to do well in 2021 and the years to come however there are a number of things that I want you to consider before making any big financial decisions.
After all, I think one of the most important aspects of property investing is managing risk and being forward-thinking first of all I want you to understand that the current real estate boom is a direct result of record-low interest rates and extensive government stimulus we can’t expect the government to keep printing money and pumping it into the real estate market and over the long-run interest rates will increase.
Second in the future it is very possible for us to see a tightening of credit criteria because the current property boom is being fueled by interest-only loans height debt loans and small deposit loans and finally some of the growth that we are seeing in somewhere markets is not sustainable a growth of 15 to 20 every single year it’s something that is just not going to happen over the long run as a property investor we should look at our investments in the real estate market as a long-term thing and not a get-rich-quick scheme and if we are investing in the long run it is almost a certainty that we will see corrections and during these corrections we need to have a mentality to hold this property and not sell at the first sign of trouble with that said I want to make it clear that this is not financial advice and I am not a financial advisor this is simply my personal opinion and my personal strategies will always encourage you guys to do your own research and due diligence before making any big financial decisions and if your experience in the property market is limited to seek professional help from a financial advisor or buyer’s agent I wish you all the very best on your investment journey.