Sydney bucks interstate trend, with higher-priced suburbs performing best

Sydney’s inner city suburbs continue to outperform the outer suburban areas despite eye-watering median prices in the multi-millions of dollars.

The Harbour City is bucking the trend seen in the nation’s strongest but more affordable property market capital cities – Perth, Adelaide and Brisbane – where it is the more affordable areas delivering the highest capital growth rates.

But for property owners in Sydney, the biggest beneficiaries of higher property asset values are those in suburbs above the city’s median house price of $1,395,804 but below the $3.2 million mark.

CoreLogic data provided exclusively to API Magazine shows that for unit and house markets, seven of the top ten highest growth suburbs have above city-wide median prices.

Michael Martin, Property Buyers Agent for Investment Window, said Sydney’s outer suburban mortgage belt is one of the most leveraged in the country.

“As a result, not only have these areas been hit the hardest in their payments as a percentage of income, their approval amounts for finance with APRA’s buffers in place has meant many would-be buyers simply can’t feasibly attain finance to make a bid at market prices.

“This hasn’t been the case in Western Australia and South Australia, which despite having some of the lowest socio-economic levels in the country, many local residents can still comfortably meet the buffers to attain finance.

“The average price of a property is still up to half of that of an outer suburb of Sydney is, so the borrowing capacity is so much greater in WA and SA compared to Sydney’s equivalent suburbs – hence one reason why the same buying pressure is not there.  

“The same is true for investors, with most mum and dad investors unable to attain finance to purchase even an entry-level Sydney property, compounded further by the often very low yields and negative cashflows.

“In the affordable areas of Perth and SA on the other hand, yields of 5 per cent and prices in the high 400,000-500,000s have been readily available.”

CEO of Real Estate at The Agency, Matt Lahood, told API Magazine that credit was the major factor, while buyers agent Aaron Downie pointed to inner city supply constraints.

“The growth has been stronger in the inner city markets during and post-Covid where people have people in those areas have seen more equity in their properties and it is easier to refinance.

They had more of a savings buffer and there is a greater percentage who are less reliant on mortgage finance.”

He added that the first home buyer segment is very strong, with young people looking at entering the market with apartments rather than established homes out of their price range.

“They are also making the move out of rentals due to rising rents, while downsizers are becoming more active in the marketplace too and are moving into apartments they find more appealing later in life.”

Mr Downie, of Mackenzie Property Group, said Sydney’s difference from other capitals, with inner suburbs experiencing stronger price growth compared to the outer suburbs, was driven by a limited supply of properties and high demand from affluent buyers.

“The inner suburbs’ proximity to the city’s economic centre and lifestyle amenities enhances their desirability.”

Sydney’s haves were pouring into city while many of the have nots were migrating interstate, according to Julian Khursigara, Partner, Search Party Property.

“The growth observed in Sydney’s inner suburbs is driven by land in these areas being extremely scarce compared to the outer suburbs.

“Also, the super-prime segment has seen an increase in the rate of cash purchases alongside a continued influx of millionaires migrating to Australia.

“Australia ranked as the top destination for high-net-worth migrants in 2023, and the annual rate of millionaire migration has risen significantly over the past couple of years.

“Even in Sydney’s outer suburbs, prices remain high compared to other capital cities, and interest rate hikes have added further stress for potential buyers and investors.

“As a result, much of the prior demand within this tranche has shifted towards markets such as Perth, Brisbane, or Adelaide – as evidenced by the breakaway growth of these markets as well as interstate migration patterns.”

Overseas buyers returning to NSW

Sydney home prices lifted 0.40 per cent in March to a fresh peak, according to PropTrack, and despite an uplift in new listings hitting the market in Sydney, buyer demand has absorbed some of that increase with prices rising further.

Following a period of slower home price growth during the holidays, growth has reaccelerated with prices rising 1.79 per cent in the first quarter of this year, the strongest quarterly growth since the three months to September 2023.

Liam Carmody, General Manager, Palise Property, said market segments such as units and townhouses may be outperforming houses in certain areas, as indicated by PropTrack data showing units growing at twice the rate of houses for February.

“Factors contributing to this trend include changing demographics, lifestyle preferences, and affordability constraints, especially with interest rates, as buyers prioritise lifestyle, location and amenity over larger dwelling sizes.

“Owner-occupiers form a substantial portion of the Sydney market and these buyers are seeking properties in specific neighbourhoods and school catchment areas, prioritising factors such as lifestyle, convenience, and community amenities.

“Overseas buyers make up the smallest proportion of buyers, with regulatory changes tempering foreign investment in recent years, but international buyers, particularly from China and Southeast Asia, have become more active in the last three to six months

“Factors such as currency exchange rates, geopolitical stability, and government policies are influencing the level of activity from overseas buyers,” Mr Carmody said.

Worst performing Sydney suburbs 

While the above-median priced suburbs have dominated the top 10 list for capital growth, there does seem to be a cap on how much people are willing to pay.

Among the worst performing suburbs for capital growth, six of the top ten were suburbs with median house prices above $3 million.

Trends were less evident in the unit market, where a more diverse range of properties had seen values go backwards, although only two listed suburbs were below the median unit price for the city.

Mr Martin said units were the most ‘under the radar’ segment with potential for larger than expected upside in Sydney. 

“We have seen this play out over recent years in the Brisbane unit market, which was immune from much of the negative returns we saw in 2022 as rate hikes took hold and in doing so has outperformed the housing market over the past two years.

“In Sydney, like the rest of the country, the supply outlook is looking dire as many projects that were approved during the low-rate period of 2020-21 were put on ice. 

“This coupled with the larger immigration intake and the demographics of the first Baby Boomers turning 80 in 2026, should see continued demand for units

“The lower entry prices for units and townhouses over houses is also a carrot for those that cannot afford a free-standing house but want to live in Sydney. 

“The growth will likely continue but as the gap between units and houses narrows people will be drawn to the better value of a larger house over a smaller unit, villa or townhouse.”