Sydney Market Overview

Universally recognised as a global city, Sydney is the capital of New South Wales and has the largest population of all Australian cities.

New South Wales has the largest state economy in Australia accounting for almost one third of Australia’s economic output.

In the 2016 Cities of Opportunities ranking by PWC, a benchmark of the social and economic health of the world’s leading cities, Sydney ranked tenth globally. The city scored highly for economic power, sustainability, natural environment, health, safety and security.

Sydney is one of the most multicultural cities in the world with over 40 percent of residents born overseas and over 250 different languages spoken. Immigration has significantly contributed to the city’s rapidly growing population. Over the past ten years, the population has increased 18.2 percent to over five million people.

Forecasts suggest this trend will continue and by 2036, the city’s population will reach 6.4 million.

City Data and Property Data

Residential market

Property prices in Sydney have increased substantially over the past ten years in common with many other cities around the world. The market has benefited from strong economic conditions, low interest rates and an imbalance between demand and supply.

More recently, while Sydney’s property market continues to see some of the strongest growth in Australia, the rate of growth has slowed. Over the year to March 2017, property prices in Sydney increased by 16.0 percent

and 11.1 percent for houses and attached dwellings respectively compared to increases of 21.9 percent and 15.8 percent over the 12 months to September 2015.

The slowdown in 2016 can be partially attributed to the tightening of mortgage lending policies regarding the amount of lending to investors that was introduced in late 2014. In response, banks tightened lending criteria for property investors particularly for foreign investors. More significantly, the slowing price growth reflects stretched housing affordability across Sydney.

Foreign investors also face higher entry costs to the market as the NSW government introduced a four percent stamp duty surcharge on foreign property buyers on 21 June 2016. From 1 July 2017, this surcharge will increase to eight percent. However, the impact of this is mostly confined to the new build market given foreign buyer restrictions (discussed on page 10).

Despite this slowing, growth rates did start to rebound in the second half of 2016 and the first quarter of 2017 on the back of lower mortgage rates and a surge in investment demand. However, in March 2017, mortgage lending rules were tightened further, again focusing on investors. This is likely to lead to some moderation in bank lending and may contribute to an easing of house price growth.

Rental market

Unlike property prices, rental values generally correlate with wage growth and despite growing demand have only shown modest increases over the past decade. This has led to yields being suppressed, currently standing at an average of 3.0 percent and 3.9 percent across Sydney for houses and units respectively.

Outlook

The NSW economy remains a standout on the economic growth front and, although there are signs of moderation in employment growth, job advertisements and dwelling approvals, demand for property remains strong.

Following a period of under investment, Sydney is now experiencing an infrastructure construction boom and is home to some of the largest infrastructure projects in the country. This is necessary to meet the demands of a rapidly growing population and will open up new locations for housing within the city.

The affordability of residential property in Sydney is one of the biggest challenges facing the city. As both first home buyers and existing home owners need to either stretch their finances further or save for longer there is little potential for owneroccupier demand to push prices up at the same rate as seen previously.

Following regulatory measures implemented to slow the amount of bank lending to investors, it is widely believed that the proportion of bank lending to investors will reduce. However, given the historically healthy returns, tax benefits and the limits placed on superannuation contributions, investing in residential property is likely to remain an aspiration for many.

Overall, it is expected that the rate of price growth will slow, with prices remaining on a ‘high plateau’ perhaps for some time. However, as Sydney’s population continues to increase and infrastructure projects complete the long-term prospect for the residential markets remain sound.

Demand drivers

Please click on the below image to enlarge.

Sydney demand drivers


Sydney Sales Snapshot

Sydney sales snapshot

Key contacts

Ged Rockliff

Ged Rockliff

Head of Residential

+61 (0) 2 8215 8861

 

Sophie Chick

Sophie Chick

Head of Research, Residential

+61 (0) 2 8215 6097

 

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