APPD Market Report Article
SydneyAugust 26, 2022
Leigh Warner, Senior Director - Residential Research, Australia
Luxury apartment demand remains robust
- Housing demand in Sydney generally has slowed sharply since interest rates began rising in May, with many potential buyers delaying their purchase and waiting for more certainty on where interest rates will stabilise at. The higher price level signifies that volumes in Sydney have fallen more than in cities.
- Nevertheless, the market for high-quality boutique apartment projects has bucked the trend and remained robust. Wealthier buyers and downsizers are generally less interest rate sensitive and have remained active buyers.
Supply levels continue to dwindle
- Sydney’s apartment supply pipeline had already fallen sharply over recent years and rapidly rising construction and finance costs have now stretched project feasibility, as well as seeing fewer new projects commence and several abandoned.
- The Greater Sydney rental vacancy has fallen 1.4 ppts over the past year to just 1.5% in May 2022. Sydney’s CBD vacancy remains slightly higher at 3.3%, but is down from a peak of over 16% in 2020 at the height of COVID-19.
Price growth drops, while rents rebound
- A booming Sydney property market over 2021 has quickly subsided in 2022 and dwelling prices have now fallen six consecutive months. Apartment prices have not fallen as much as detached prices and are still 0.3% higher over the year-to-July (CoreLogic).
- Rental growth in contrast has accelerated as rental vacancy rates declined. Gross yields for apartments in the Sydney market were 3.2% at the end of 2Q22, which is likely to rise as prices drop and rental growth increases.
Outlook: Rental pressure to build further
- Rising interest rates will continue to see further softening in the general housing market over the next year, but apartment demand will be supported by affordability and prices supported by the lack of new supply and cost-push pressures from build costs.
- Open borders will substantially boost rental demand in Sydney as migrants and students return. With little new apartment supply completing, rental vacancy is likely to tighten further and strong rental growth is expected for some time.