APPD Market Report Article

Sydney

May 26, 2024

Leigh Warner, Senior Director - Residential Research, Australia

12.9%

AUD 700

Growth
Slowing

High-end products in demand

  • After a rebound in 2023, Sydney’s housing market has recently moderated. The bounce-back was driven by strong migration and low stock levels in the existing sale market, but high interest rates and stricter lending conditions continue to constrain many buyers and sale listings are rising.
  • Mixed demand for new apartments persists. Premium boutique projects in prime locations are experiencing strong demand from downsizers benefitting from equity growth in existing properties. However, mass-market apartment projects are more sensitive to higher interest rates, resulting in limited interest from investors and first-time homebuyers.

Development conditions remain tough

  • High construction and land costs are making larger high-rise apartment developments unfeasible in Sydney. Generally, only smaller projects targeting owner-occupiers are progressing to construction. As a result, apartment supply is low and will likely fall short of underlying demand for at least several more years.
  • Sydney’s rental vacancy has dropped to 1.1% in March 2024 following the seasonal spike in December. Vacancy is likely to remain tight with the construction pipeline offering little supply relief over the next few years.

Price growth slows

  • Existing apartment prices have largely stabilised over the past few months, but the Sydney median unit price is still 6.2% higher over the year to April 2024 (Corelogic). The rising availability of existing stock for sale has tempered the market.
  • Sydney has seen very strong rental growth the past few years following a decline early in the COVID-19 pandemic. However, the pace of growth is beginning to slow as a lack of affordability starts to impact demand trends and constrain growth.

Outlook: Supply deficit to continue

  • Despite high interest rates dampening housing demand, affordability is expected to drive buyers towards apartments rather than detached houses in Sydney. Strong migration and foreign student flows will also contribute to sustained underlying demand growth.
  • The obstacles in developing large-scale apartment projects are expected to persist, leading to inadequate supply compared to demand and a growing under-supply in the market. While the rental market will likely remain tight, the affordability of rents will likely continue to temper recent strong rental growth.

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

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