What’s the future for the Sydney apartment market?

If you have had the chance to look in the paper, or listen to the news, the future of the Sydney apartment market has been hotly debated surrounding a small number of high-profile building defects. This has given rise to several discussions regarding government intervention in relation to building quality and what this might potentially mean for buyers and sellers moving forward.

It is a real tragedy that some apartment owners have experienced issues with building defects, and we are sympathetic for those affected. These issues are isolated to a fraction of Australia’s apartment buildings. Most new apartment buildings offer profitable, low risk investments and there have been some fantastic, high quality buildings completed in Sydney recently.

Current State

If you are trying to ascertain whether now is the right time to enter the market, it is essential that you pay attention to what is driving market conditions and how the real estate market is subject to change.

We believe the key drivers in the Sydney city apartment market are interest rate cuts, APRA reduced serviceability buffers, recent election results and a reduction of about 30% in stock levels.

Whilst we have seen the market cool and stabilise, the interesting thing about the Sydney city market is that it is most sought after at the beginning or end of each property cycle. This means it is either driven by two key groups. Up-and-coming executives and investors who want to buy a city investment to live in for a while and then rent out for the long term. Or it is at the other end of the spectrum - downsizers seeking city lifestyle and ‘lock and leave’ living.

What tends to happen is the market is often influenced by the end of the suburban cycle. Due to this, typically quieter periods in the real estate market such as winter or Christmas, tend to be busier in the Sydney city market. However, it is also a relatively consistent market throughout the year.

In terms of the Sydney market, rates and stock levels are both low. Which is why if you’re in the market to buy now is the perfect time!

Trends

In order to accurately predict the future of the Sydney apartment market be sure to keep an eye out for any possible trends that may influence the market over the coming year.

A couple we have identified are already making waves. For starters it is no secret that now more than ever it is vital to ensure the property you are considering has opportunity for capital growth and operates under a well-run body corporate and strata committee.

Another important trend is the reduction in rental yield, which usually sits around 2-4% for one or two-bedroom apartments in Sydney city. We expect this will continue to remain consistent whilst interest rates are so low and property prices are at their current levels.

An emerging shift towards buyer and tenant interest in larger 3 to 4 bedroom apartments is capturing our attention too. Although the yield is often a touch lower than 1 and 2 bedroom apartment offerings, there is usually less competing stock on the market causing higher demand. This can sometimes translate to reduced vacancy periods, depending on the price point and location of the apartment.

Many downsizers are also electing to sell their family homes in the suburbs and then rent first in the city, before re-committing to buying in a new location. This has introduced an exciting opportunity for sellers to capitalise on the downsizer market.

Snapshot of Sydney City Market (Mid- August 2019)

A quick snapshot in Mid-August showed there were 477 properties available for lease and 231 for sale in the Sydney postcode of 2000.

In terms of those for lease; 10% of the listings were studios, 36% were 1 bedroom, 44% are 2 bedroom, 8% 3 bedroom and 1.5% 4 or more bedroom apartments.

With those listed for sale; 5% were studios, 32% were 1 bedroom, 46% were 2 bedroom, 14% were 3 bedroom and 2.1% were 4 or more bedroom apartments.

Most of the stock being offered to market are 1 and 2 bedrooms apartments at this time. These apartments attract the widest range of buyers and tenants and form the bulk of the apartment stock across the city. In comparison, there is very little stock available for downsizers or those seeking a larger property (3 and 4 bedroom apartments).

Thinking of making a move?

Most people tend to move into the market and then either upgrade or move around within a building or precinct. The first step to move into a Sydney city apartment can be challenging, particularly if you aren’t sure you know the market well enough yet.

The best way to learn about the Sydney city apartment market is to get a real sense of which area/s in the city you prefer by hitting the pavement and attending some open homes and soaking in the lifestyle available in immediate area. But be open to suggestions and proposals that may not match your initial brief.

We are for apartments.

If you are considering buying or selling your apartment in Sydney city or its surrounds, we would love to help you. Ayre Real Estate are specialists in apartment living and ready to help find your ideal property. Talk with us today to find out more.