APPD Market Report Article

Sydney

May 31, 2022

2.4%

AUD 640

Rents
Rising

Apartment demand supported by price points​

  • Off-the-plan apartment sales have long been driven by downsizer demand for high quality boutique stock, which is a segment of the market that is generally not interest rate sensitive. However, demand more generally might grow as rising interest rates reduce borrowing capacity and push more buyers out of detached house aspirations and into lower priced apartments.
  • Annual sales volumes increased 35% over the year to December 2021 (CoreLogic). Around 47,700 apartments sold in 4Q21, compared to just over 35,000 units in 4Q20. ​

Limited new supply will see a further tightening in vacancy

  • Development conditions remain challenging, with rapidly rising constructions making it particularly difficult for larger developments to reach finance pre-sale hurdles. New supply has already fallen significantly and less projects in early planning stages suggests supply is likely to remain moderate for at least several more years.
  • Rental vacancy across Greater Sydney has tightened considerably over the past 18 months, to be 1.6% in March 2022 (SQM Research). While vacancy is more elevated in the CBD and inner postcode (2000) at 3.4%, these areas have recovered well hitting a peak of 16.2% in 2020.

Apartment price growth loses momentum

  • Strong growth in unit values over 2021 saw the market rise sharply in 2021. Albeit prices have tempered in recent months, with quarterly growth turning negative (-0.6% q-o-q) over the three months to March 2022. Annual growth remains strong at 10.8% y-o-y.​
  • The quicker turnaround in property prices than in rents has seen yields fall relative to a year ago. Strong growth in capital values, paired with a challenging rental market has seen yields fall 36 bps over 2021 to 3.2%. However, with price growth slowing and rental growth returning, yields are beginning to stabilise and may soon start to rise.​

Outlook: Momentum to slow but apartments supported by price points

  • Owner occupier demand is also likely to be supported by Sydney’s lack of affordability, with many homebuyers priced out of the detached housing market. This increased demand will be met with moderate levels of new supply over the next few years, which will help support market balance over the medium term.
  • Open national borders are likely to see further tightening of the rental market, with migrants a key demand driver. We expect to see the fall in vacancy continue and rise in rental growth accelerate. While detached dwelling prices will likely temper further over the medium term, unit price growth may continue due to a tightening medium-term market balance and greater affordability.​

Note: Sydney Residential refers to Inner Sydney apartments. Price and yield data sourced from CoreLogic. Rental and vacancy data sourced from the Real Estate Institute of New South Wales.

Talk to us 
about real estate markets.