Sydney Property Outlook

The Sydney property market is a barometer for Australia’s real estate sector, offering a dynamic yet cautiously optimistic outlook for the rest of 2024. Insights from industry experts and recent analyses reveal diverse perspectives, reflecting opportunities and challenges ahead.

2024 To Date

Our most recent strategic market review took place on March 24. It revealed a highly resilient and somewhat optimistic property market despite concerns about inflation and 13 interest rate hikes since May 2022, bringing the rate to 4.35%. This resilience was primarily supported by record household wealth and a low unemployment rate of only 4.1%.

However, it is interesting that economists and property experts disagreed about what 2024 had in store. Some predicted a price fall of up to 6%, while others predicted a gain of up to 10%. Who needs experts when you get this kind of advice?

If you are interested, let’s examine where we are now and what the rest of 2024 holds.

Outlook for the rest of 2024

Market Predictions and Trends

Recent reports suggest that Sydney’s home values are expected to rise at a more moderate pace compared to other major cities such as Brisbane and Perth. According to Westpac, the forecast indicates a 5% increase in Sydney’s dwelling values this year, down from the earlier prediction of 6%. This adjustment aligns with the broader trend of slowing growth in Australia’s largest city, attributed to affordability constraints and other market dynamics.

The overall national sentiment remains positive. Home values are predicted to grow by another 6% this year and 4% by the end of next year. However, the Sydney market is showing signs of slowing down compared to other capitals, reflecting a more moderate growth trajectory.

Factors Influencing The Market

Affordability and Interest Rates

Affordability continues to be a significant concern in Sydney, with a median home price of around $1.212 million. The possibility of further interest rate hikes exacerbates the issue of high property prices. However, a recent change in investor sentiment indicates confidence that interest rates have reached their highest point, leading to a renewed interest in property investments despite the high costs.

Investor Activity

Investor activity has significantly increased due to the fear of missing out (FOMO) on capital gains and rental yields. Sydney continues to attract substantial investor interest while keeping a cautious eye on affordability and future rate cuts.

Supply Constraints and Development

Supply constraints remain a significant factor, as tight inventory levels contribute to sustained price pressures. The NSW government’s efforts to boost housing supply through zoning and planning reforms are crucial to addressing these issues, although the impact of these measures will take time to materialise.

Comparative Insights: Sydney Versus Other Markets

Brisbane and Perth

Brisbane and Perth are anticipated to outpace Sydney with double-digit growth rates. Brisbane is expected to experience a 10% increase in dwelling values, while Perth may see a rise of up to 14%. The strength of these markets is attributed to relatively better affordability and significant interstate migration, which continues to stimulate demand.

Melbourne

Similar to Sydney, Melbourne’s growth is also expected to be more subdued, with only a 2% increase forecasted for this year. The market dynamics in Melbourne mirror Sydney’s, which is characterised by high prices and mixed demand.

Units Versus Houses

An emerging trend in the Sydney property market is the increasing interest in apartments rather than houses. The demand for apartments is primarily driven by affordability and the changing preferences of buyers, especially downsizers and investors.

Affordability and Demand

The average selling price of apartments across Sydney during the first quarter of 2024 was $1.4 million. This price point is generally more affordable than houses, which makes apartments an appealing option for first-time buyers and investors. The significant price difference between apartments and houses is advantageous for individuals aiming to enter the property market or expand their investment portfolios.

Investment Potential

Experts suggest that certain suburbs offer good value for units, which are expected to see strong growth due to limited supply and are highlighted for their affordability and growth potential. In contrast, the market for houses is becoming increasingly competitive and expensive.

Rental Yields

Units typically offer better rental yields than houses, making them an attractive choice for investors seeking steady income. With tight rental markets and increasing demand for rental properties, units provide a reliable investment option with lower entry costs.

Construction and Supply

The number of newly constructed housing units is increasing, primarily aimed at affluent individuals looking to downsize and willing to spend more than $1 million on an apartment, leading to a higher overall supply of housing units. However, there is a significant shortage of units in the mid-range market due to the high construction and borrowing costs.​​

Conclusion

A Highly Optimistic Medium and Longer-Term Outlook

The Sydney property market is currently facing affordability and interest rate challenges. However, the overall outlook for the rest of 2024 remains relatively optimistic. Investors and homebuyers are encouraged to consider areas with strong demand fundamentals, such as proximity to employment hubs and infrastructure, as these factors will continue to underpin property values.

Strategic investments in undervalued suburbs and focusing on long-term growth prospects will be vital to navigating the evolving market landscape. The long-term outlook highlights a critical shortage of houses and apartments across Sydney, which is generally a tightly-held market. This scarcity of supply, coupled with sustained demand, will continue to play a pivotal role in driving price growth and supporting market stability.

The critical role of inventory levels in driving price growth cannot be overstated. In tightly held markets like Sydney, low inventory levels will continue to support price stability and modest growth despite broader economic pressures. Buyers and sellers should remain informed and strategic, leveraging local market insights to maximise the opportunities in this dynamic environment.

While challenges exist, the fundamentals of supply and demand point to a resilient market with promising opportunities for those who invest wisely and with a long-term perspective.

Why Buy Now?

Amidst rising living costs and economic uncertainties, owning property remains a financially sound decision for several reasons:

1. Eroding Mortgage Debt in Real Terms: The current economic conditions, marked by inflation and lagging income adjustments, subtly reduce the real burden of mortgage debt. Homeowners with mortgages are seeing the value of their debt decrease in real terms, offering a silver lining in an otherwise inflationary climate.

2. Capital Appreciation: Despite short-term market fluctuations, the long-term trend in property values, especially in Sydney, has been upward. This trend is underpinned by a continuous housing demand driven by population growth and limited supply. Investing in property, therefore, offers the potential for significant capital appreciation over time.

3. Rental Market Strength: The rental market’s robustness provides a dual benefit for property investors. High demand for rentals and increasing rents ensure a steady income stream while enhancing the property’s value. This is particularly advantageous for those looking to generate passive income or secure financial stability through property investment.

4. Tax Benefits and Financial Incentives: The Australian tax system offers several incentives for property owners, including deductions for property expenses and depreciation. These benefits can significantly reduce investors’ taxable income, making property investment a tax-efficient strategy.

5. Diversification and Risk Mitigation: Investing in property can diversify an investment portfolio, spreading risk across different asset classes. Real estate often moves independently of stocks and bonds, providing a hedge against market volatility and inflation.

Strategic Considerations for Prospective Buyers

1. Research and Market Analysis: It is crucial to have a deep understanding of local market dynamics. This includes knowledge of property values, rental yields, and potential growth areas.

2. Financial Planning and Budgeting: Before making a purchase decision, one must thoroughly assess one’s financial situation, considering income, savings, and borrowing capacity.

3. Long-term Outlook: Property investment should be viewed as a long-term endeavour. Short-term market fluctuations are less relevant than real estate assets’ long-term growth potential.

4. Quality and Location: Prioritizing properties in desirable locations with high-quality construction can enhance long-term value and rental demand.

SARAH KAYE BUYERS AGENTS

Aligning with the Sarah Kaye Buyers Agency’s commitment to providing professional, knowledgeable, and trustworthy advice, staying informed about market trends and leveraging our unmatched local market insights to help clients make informed property decisions is essential. By focusing on the unique needs of our clients and the broader market dynamics, we can continue to offer exceptional service and support in achieving their property goals.