Luxury projects remain in demand

• Sydney’s general housing market continues to slow. While strong migration and limited new housing supply drove a strong initial post-COVID rebound, high interest rates and tighter lending criteria are now constraining buyer activity.
• Despite a generally slower market, premium boutique developments in prime areas are still experiencing robust demand, mainly from downsizers who have benefited from strong equity growth over recent years and are less interest rate sensitive.

Development conditions remain challenging

• Elevated construction and land costs are making large high-rise developments financially unfeasible across much of Sydney. Currently, mostly only smaller owner-occupier projects are moving forward, leading to insufficient apartment supply that won’t meet demand in coming years.
• Sydney’s inner vacancy rate reached 2.1% in December 2024, its highest level since early-2022. While some of the softening is normal seasonal patterns late in the year, it does appear severe space constraints have eased somewhat, and the market is moving to a slightly more balanced one.

Price growth has slowed

• Sydney’s residential rents have grown strongly the past three years since recovering from initial COVID-19 pandemic declines. However, growth momentum is now easing as vacancy constraints ease and as increased affordability constraints dampen scope further price rises.
• Dwelling price growth in Sydney has also slowed significantly in recent months on the back of lower sales volumes. While both house and unit prices have fallen moderately the past three months, both have still grown moderately over the past year.

Outlook: Supply imbalance to continue

• Sydney’s housing market is likely to remain largely stalled in the short-term as financial pressure on households and Federal Election in May dampen buyer activity. However, interest rate cuts appear immanent and will likely boost confidence by the second half of the year.
• Over the medium-term, Sydney’s apartment market appears under-supplied due to combination of limited new supply and affordability pushing demand away from houses towards apartments. As such, solid rental and price growth should return to the market over the next few years.