Luxury product remains in demand

• Sydney’s housing market has recently slowed slightly. Strong migration and low inventory of existing stock initially fuelled growth, but high interest rates and stricter lending are now constraining buyers, causing sale listings to rise.
• Demand for new apartments is varied. Premium boutique projects in prime locations are attracting downsizers using equity from their existing homes, while mass-market projects are more exposed to the impact of higher interest rates.

Development conditions remain challenging

• High costs have hindered large high-rise projects in Sydney. In general, only smaller developments targeting owner-occupiers are viable. Consequently, apartment supply is low and will likely remain insufficient to meet demand in the medium term.
• Sydney’s rental vacancy rate rose to 1.7% in June 2024, following a low of 1.1% in March. This rise was largely seasonal and tightness is expected to persist, as the construction pipeline offers minimal relief over the next few years.

Price growth is moderating

• Sydney has experienced significant rental growth over the past few years after a decline during the early COVID-19 pandemic. However, the rate of growth is now slowing as affordability issues begin to affect demand and limit further increases.
• Existing apartment prices have largely stabilised recently, but Sydney’s median unit price is still 5.0% higher y-o-y as of June 2024 (CoreLogic). The rising availability of existing stock for sale has tempered the market.

Outlook: Housing shortage expected to persist

• Interest rates may continue to dampen housing demand in the short term but affordability should steer buyers towards apartments in Sydney. Underlying demand is also supported by high migration and foreign student numbers.
• Developing large-scale apartments will continue to be challenging, leading to limited supply and an increasing market under-supply. As such, affordability and wage growth appear to be the main constraints on prices and rents over the medium term.