Demand of luxury apartments continues to thrive

• Sydney’s housing market has recently slowed. While strong migration and low inventory initially spurred growth, high interest rates and stricter lending are now limiting buyers while property listings are also rising.
• Demand for new apartments varies significantly. Premium boutique developments in prime locations are appealing to downsizers who are leveraging equity from their current homes, whereas mass-market projects are more vulnerable to the effects of higher interest rates.

Development conditions remain difficult

• 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 increased to 1.6% in September 2024, up from a low of 1.1% in March. The rise is partly seasonal, but also reflects a slight softening as affordability starts to impact rental demand trends.

Price growth is slowing

• Sydney has seen substantial rental growth in recent years following a decline during the early COVID-19 pandemic. However, this growth is now slowing as affordability issues begin to impact demand and limit scope for further increases.
• Existing apartment prices have mostly stabilised recently, but Sydney’s median unit price is still 3.5% higher over the year to September 2024 (CoreLogic). The increasing availability of existing properties for sale has moderated the market.

Outlook: A housing shortage is anticipated to continue

• Interest rates may dampen housing demand in the short term, but affordability is likely to push buyers towards apartments in Sydney. Strong migration and a high number of international students also support underlying demand.
• Large-scale apartment development will remain difficult, resulting in limited supply and growing market shortages. Consequently, affordability and wage growth are likely to be the primary factors constraining prices and rents in the medium term.