Sydney property juggernaut has stalled but investor targets still abound

Depending on who you listen to, the Sydney property market has either started going backwards with growth prospects diminishing or is still inching upwards with pockets of the city shaping up for major capital growth in 2024.

According to PropTrack, Sydney home prices have been flat since September, declining a very modest 0.04 per cent in January after dipping very slightly in December as well.

CoreLogic paints a slightly rosier picture. Sydney’s property market capital growth has, according to their data, slowed from an annual rise of 11.4 per cent to just 0.2 per cent in the past month and 0.1 per cent over the past quarter.

Either way, when weighed up against the high-flying Perth, Adelaide and Brisbane property markets, the city’s real estate has taken a breather.

A Demographia study published last year indicated Australia was the least affordable housing market in the world, with Sydney the second least affordable market behind only Hong Kong. Other studies regularly place the Harbour City among the top five for unaffordability, which suggests affordability may reached a roadblock where income limitations cannot drive prices higher.

Price growth in Sydney’s housing market has been fuelled by population growth, an undersupply of housing and higher levels of investor activity. Geographical constraints and planning restrictions have also limited the expansion of the land stock suitable for housing.

While the prospect of Sydney delivering another double-digit property price gain in 2024 appears remote, there are some sectors of the market and suburbs with upbeat prospects.

PropTrack Property Market Outlook Report has predicted Sydney's house prices are set to increase up to 5 per cent in 2024.

Allen Habbouchi, Head of Project Sales and Distribution, aussieproperty.com, identified six suburbs he expected to outperform the wider market but said units were in for a difficult year.

“There are several market segments that are underperforming, for instance, new off-market units are suffering the most in Sydney’s current property market.

“I believe units are underperforming due to the lack of buyer confidence evident in the building industry, with builders consistently going bust.”

“Ultimately, it is these areas that are oversupplied with units that are weighing most heavily on Sydney’s overall dwelling value trend, including suburbs such as Rouse Hill, Zetland, Schofields and North Sydney.”

Mr Habbouchi said the suburbs best placed to deliver above-trend capital growth in 2024 were Concord, Strathfield, Narwee, Beverly Hills, Kogarah Bay, and Hurstville.

There is still clearly some life in the Sydney market.

Sydney’s 615 auctions last week returned an early clearance rate of 80.4 per cent, the highest preliminary result since the week ending October 24, 2021.

Western Sydney is also undergoing a major infrastructure revamp that could push property in the area.

Matt Lahood, Real Estate CEO for The Agency in Sydney, said the city won’t see the rapid growth of previous years, but will retain price stability due to a peaking of the interest rate cycle.

He said there are still areas that would surprise on the upside this year.

“We will continue to see overall growth but at a far reduced rate.

“The middle-class mortgage belt is underperforming due to increased serviceability hurdles and cost of living increases, while most active in the market are first home buyers, who with the continually escalating rental prices are prioritising the security of finding somewhere to live.”

Asked by API Magazine to single out some suburbs that are defying this slowdown and are positioned to deliver stronger than trend growth in 2024, Mr Lahood named Alexandria, Surry Hills, Coogee and Neutral Bay. 

Old apartments have their upside

The first home buyers who are active in the market are among the cohort most affected by the plethora of building defects blighting the construction industry in New South Wales.

The ongoing probe into serious defects in four blocks of new apartments in the Lachlan Line’s complex at Macquarie Park adds to the litany of faulty new builds causing angst.

Against the backdrop of the savage rental crisis, the young and vulnerable are in danger of swapping one set of problems for another in the form of shiny new apartments. 

According to a recent NSW government strata survey, more than half of newly registered buildings since 2016 have had at least one serious defect costing an average of $331,829 per building to fix. The research by the Strata Community Association NSW further reveals that waterproofing is the most common major defect followed by fire safety. Close to one in 10 buildings also had structural and enclosure issues such as defects in the roof or the facade.

Michelle May, Principal of Michelle May Buyers Agents, hopeful home buyers must be wary of not falling into the grievously damaging trap of buying properties that are too new or off-the-plan.

“As the market absorbs these lessons on the risks of buying new homes and apartments, well-preserved older properties will continue to rise in value.

“Built in an era where craftsmanship standards were higher, many of these vintage gems are located in established neighbourhoods with a strong sense of community and potential for steady appreciation and unlike cookie-cutter new apartments, older apartments tend to be in smaller blocks with less costly strata fee overheads for facilities that one wants or uses.

“Older houses offer opportunities for renovation due to bigger land blocks, more space and more flexible layouts, with high ceilings and period details always remaining in fashion and highly prized.”

Sydney rental market still tough for tenants

Over the last month, the vacancy rate for Sydney overall rose by 0.2 per cent to 1.7 per cent. Vacancies in the inner and outer rings of Sydney rose to be 2.0 per cent (+0.2 per cent) and 1.7 per cent (+0.5 per cent) respectively.

While not as savage for tenants as the 0.4 per cent seen in the likes of Adelaide and Perth, it is still a tough time to be a renter.

Melissa Morgan, Principal of property management business Progressive Property, told API Magazine they were seeing a potential moderation in rental demand as we near the end of the peak summer season but was not expecting any significant rent decreases, likely just more moderate demand and stable prices.

“Fuelled by immigration, student demand and people relocating for work that want to be near the city, the most demand is coming from renovated properties in the inner suburbs and lower price ranges, such as one- and two-bedroom properties around inner south like Alexandria, inner west like Glebe or inner east like Surry Hills.

“We are finding the rental growth is not as significant in larger properties, especially if they are a little older internally.

“The lower North Shore is still not experiencing as much growth but inner suburban modern units and townhouses, especially if they’re well located and with some outdoor space are really popular.”