APPD Market Report Article


February 22, 2024

Leigh Warner, Senior Director - Residential Research, Australia


AUD 900


Demand remains focused on high-end products

  • Sydney’s housing market has slowed in recent months after a strong rebound over most of 2023. While a return to strong migration has played a role in this rebound, it also represented low levels of stock in the existing sale market, and this has eased over the second half as listings rose. Many buyers also remain constrained by high interest rates and tighter lending conditions.
  • Demand for new apartments remained very mixed. Smaller boutique projects in premium locations continued to achieve robust demand, led by downsizers that have enjoyed strong equity growth in existing properties. In contrast, mass-market apartment projects were much more interest rate sensitive and both investor and first homebuyer demand were muted.

Development conditions remain tough

  • High construction and land costs mean larger high-rise apartment developments are largely not feasible across Sydney and it is generally only smaller projects aimed at owner-occupiers that are progressing to construction. This means that already very low apartment supply levels across Sydney will stay low for at least several more years and that supply will fall short of underlying demand.
  • Rental vacancy rose slightly in December in line with normal seasonal trends, but remained low at 1.7% (SQM Research) and is likely to fall again in 2024 when foreign students start returning for the new academic year.

Growth in prices and rents starts to slow

  • Existing apartment prices have largely stabilised over the past few months but are still 7.7% higher over the year to January 2024 (CoreLogic). For new apartments, there has been good growth for high-end product in line with robust demand levels, but pre-sale prices of mass-market product have not risen enough to compensate for the higher development costs.
  • Sydney rents have now well and truly recovered from their initial COVID-19 slump, but the pace of growth is beginning to slow as affordability of rents starts to impact demand trends.

Outlook: Under-supply to build

  • While high interest rates will continue to dampen overall housing demand, affordability will keep pushing buyers into apartment price points in Sydney while underlying demand growth will remain high due to strong migration and foreign student flows.
  • The challenges of developing large-scale apartment projects are unlikely to change for some time and new supply is likely to fall well short of underlying demand and tip market balance into under-supply. The rental market is likely to remain tight, but the affordability of rents has is likely to temper recent strong rental growth somewhat.

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.

Talk to us 
about real estate markets.