The market for unit living in Sydney is evolving and features a wide spread of participants. These include the traditional entry level individuals and couples, older downsizers buying a comfortable executive style unit after selling the family home and not forgetting the local and international investors taking advantage of low interest rates and a stable economy.
Many of these participants are buying units off the plan waiting up to three years before occupation is available. In the current strong market buyers have seen prices rise from when they originally purchased the unit to when they settle. One of the risks associated with buying off the plan is if the market declines they are stuck at the higher price and have to wait it out until the market settles and catches up. In some cases this can take years. This has been seen in areas where supply has flooded the market and values have stalled or dropped.
We have taken a look at three differing unit markets:
The Inner Sydney Area
The inner Sydney apartment market is currently in a stage of significant growth with high demand shown over the past few years, especially for new products. There has been a noticeable shift towards larger scale, high-rise and high density development especially over the past decade. There are also numerous significant developments currently under construction or in the pipeline to come on board in the coming years. Major developments of note across the inner Sydney area that will incorporate high density apartment living include Barangaroo, Central Park, Ashmore Precinct, Green Square, Harold Park, Wolli Creek Precinct and Mascot Precinct. All the above developments are at different stages of construction and so far they appear to paint a picture of the future of inner Sydney living which is rapidly transforming.
Apartment developments in inner Sydney began to become established in the 1920s and 1930s with the introduction of the Art Deco apartment. Often low to medium-rise, these apartments are still commonly found in areas such as Potts Point, Elizabeth Bay, Bellevue Hill, Double Bay, Darling Point and some inner west suburbs. This style of apartment remains very popular with the Sydney buyer, with a premium frequently being paid to secure these character apartments.
The next notable wave of apartments through the 1960s and 1970s was the now conventional redbrick apartments which again were mainly low to medium-rise. These are common in areas such as Randwick and the inner west suburbs of Marrickville, Leichhardt, Canterbury, Summer Hill, Ashfield, Lewisham and Dulwich Hill, southern pockets in Cronulla and Caringbah South and Neutral Bay and Mosman on the north shore.
Apartments through the late 1980s to 1990s showed signs of increasing in development size however it is most noticeable in developments constructed from the beginning of this century. This modern era of apartment living has presented a shift towards large scale mixed use developments which are part of major urban renewal projects keeping with the State Government’s plans to increase housing density within the city.
During 2014 and 2015, there were around 3,350 new apartments (BIS Shrapnel), the highest annual supply total in fifteen years. The demand for these new apartments still appears to outweigh supply at present, however how long this will continue is uncertain. The apartment to population ratio in New South Wales now sits at 1.8 times the long-run average. Apartment approvals are now also on par with housing approvals with the long-run average being closer to one apartment to every three housing approvals. Recent estimates also suggest that 11% of the total apartment stock in the inner Sydney area is unoccupied (second homes or speculative investments). Over the next five years the supply of new apartments in the inner Sydney area will remain high, with an estimated 3,000 apartment completions per annum expected to 2017 and 2018. As at June 2015, 74% of these apartment projects were already under construction. Early signs may be pointing towards future over-supply of apartments. The buyer profile in this market remains investor dominated. The majority of apartments in the inner Sydney area are tenanted, accounting for around 55% of the total (BIS Shrapnel). Domestic and overseas investors appear to be currently driving the new apartment market with increasing levels of off the plan purchases in the inner Sydney market. Investors are hotly contesting areas close to major transport links, retail, entertainment, universities and hospitals which are popular with renters. One of the key drivers of the rental market in the inner Sydney area is students, making up around 14% of tenants in the area of which 68% are overseas students. Education-related travel remains one of the country’s top exports and a key driver of rentals in sought after areas.
Foreign investment remains a key driver especially in the off the plan market where there are few buyer restrictions. A recent estimate has suggested that overseas buyers account for around 12% of new apartment sales across Australia. This figure however is estimated to be closer to 60% in the CBD with many major Australian developers actively marketing new developments overseas. A weakening Australian dollar is expected to keep off the plan purchases looking attractive for overseas buyers helped by a political environment which is viewed as relatively stable. On a domestic front, record low interest rates along with strengthening economic conditions and speculative purchasing will continue to fuel investor demand in the short term.
Price points in inner Sydney apartments vary significantly from suburb to suburb. Sticking to some of the major developments in progress across inner Sydney, typical entry points for off the plan units are as follows:
The residential unit market is strong in the western suburbs of Sydney. Parramatta is leading the charge with numerous residential developments under construction or recently completed. Up until now demand has outstripped supply with many developments sold out prior to completion. As a result units within Parramatta have seen strong growth in values in the past 12 to 18 months. Australian property monitors suggest Parramatta’s unit market has increased 12% in the past year. This trend is set to continue as long as demand outstrips supply.
Entry level for 2-bedroom units in Parramatta is around $450,000 for an older walk up. This jumps to the mid section of the market where for $600,000 to $700,000 you can buy a modern 2-bedroom, 2-bathroom unit in a medium to highrise complex. If penthouse living is more your scene then there have been some recent sales from $850,000 to $1,200,000 of larger 3-bedroom units.
The western Sydney unit market is predominantly located around central business districts such as Liverpool, Fairfield and Campbelltown. This market is largely driven by first time property owners and investors who have looked to make the most of low interest rates, affordability and good returns.
The price point of units in the past 12 months has shown strong growth off the back of buoyant market activities, improved infrastructure and decreased affordability of inner ring residential markets. Within the Liverpool and Fairfield LGA’s, the unit market starts with an older style 2-bedroom, 1-bathroom unit for $330,000 to $380,000, the midpoint provides modern 2-bedroom, 2-bathroom units ranging from $450,000 to $500,000. The upper end of this market ranges from $500,000 to $570,000 for a modern 3-bedroom, 2-bathroom unit.
Finally we take a look at the prestige attached housing market.
Prestige apartments and townhouses (generally considered to be apartments over $3 million), are primarily located within the Sydney CBD, CBD fringe, eastern suburbs, inner east and lower north.
Prestige apartments and townhouses may be water front or non-water front, have limited through to expansive views and generally provide a minimum of 3-bedroom and 2-bathroom accommodation with one or two on-site car parks, limited through to extensive outdoor areas, with some inclusive of private pools and gardens.
Market conditions for prestige apartments and townhouses have up until recently remained relatively weak and have been thinly traded since the impact of the GFC was felt in late 2008.
Demand for premium apartments and townhouses is largely driven by overseas buyers and high net wealth empty nesters seeking to downsize from the family home.
With recent weakness in the prestige dwelling market, these empty nesters had been unable to secure a premium price for their existing homes and there was a subsequent reduced flow-on demand into the prestige apartment market.
Over the past six to twelve months, the market for prestige dwellings has shown early signs of a sustained recovery, with increasing demand and reduction in stock levels. Combined with the impact of the weakened Australian dollar, there appears to be early signs of sustained flow-through market strengthening into the prestige apartment market.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.