Sydney November 2017

The month in review: Sydney

By Herron Todd White
November 2017

With a sustained period of capital growth, rental yields for residential property in Sydney have fallen away considerably. According to the SQM Research Weekly Rents Index, asking rents for Sydney houses have seen a modest increase of only 1.8% over the year to 12 October 2017, with asking rents for Sydney units only slightly better at 2%. SQM Research also shows that the residential vacancy rate for Sydney has remained fairly steady over the past five years, generally within the 2% to 2.5% range, finishing September at 2.1%.

While this would indicate that landlords continue to hold the balance of power over tenants, this is not necessarily the case in all markets within Sydney.

CBD Fringe/East Property Update

Rentals within beachside suburbs such as Bondi, Bronte and Coogee are remaining stable with steady demand shown in these areas. Popular rental properties in these areas typically comprise 1- and 2-bedroom units with the larger demographic groups being young professionals and childless couples.

The demand in these suburbs is driven by their proximity to the beach and therefore follows common seasonal trends expected at various times of the year. One-bedroom units in Bondi Beach currently show a rental yield of 3.8% with a median rent of $600 per week, while 2-bedroom units show a 3.3% rental yield with a median rent of $820 per week (source: realestate.com.au).

A number of rental properties within these areas are basic standard accommodation with mostly dated fixtures and fittings. Renovated or modern apartments often attract strong demand and it is not uncommon to see large numbers of applicants at an open for inspection. The vacancy rate in the eastern suburbs was 1.7% in September (source: SQM Research). With a limited new supply of units and houses in the eastern suburbs, vacancy rates are expected to remain low.

The prestige rental market is fairly limited due to the high number of owner-occupiers. As rental properties in the higher price ranges generally require more time on the market to find a prospective tenant, timing is important.

This 5-bedroom house located at Brighton Boulevard, North Bondi with views over Bondi Beach was recently leased for $6,250 per week.

North Bondi House

A different story is beginning to develop in the city fringe suburb of Zetland. Zetland is dominated by high density unit development, predominantly constructed over the past 15 years. Tenant demand here is driven by proximity to the Sydney CBD, universities and public transport and other local amenities which have improved dramatically in recent times.

Although there has been large scale construction with an increased supply of units, rental demand has kept up and rents have therefore remained high. This appears to be changing though, with local leasing agents indicating that they are starting to have increased difficulty renting units in Zetland.

This sentiment is backed up by the latest rental market demand statistics, sourced from realestate. com.au, which records the number of views per rental property listing, currently at 243 views per listing for September. This is in contrast to a year ago with 560 visits per rental property listing and the annual peak of market demand in February this year at 856 visits per rental property listing.

visit rental property

Zetland has strong investor ownership and the above statistics for demand will obviously be a concern to them. This concern is compounded by strong value growth, which in itself is of course a positive, but yields have consequently declined, from a height of 5.6% in 2009 to a current yield of 4% (source: realestate.com.au). Future investor demand is likely to remain low until rents catch up, resulting in an increased yield, which seems unlikely considering the market demand noted above.

Inner West Property Update

Burwood is an established suburb approximately ten kilometres west of the Sydney CBD. Burwood benefits from the large Burwood Westfield shopping centre, Burwood Plaza, local shops, cafes, restaurants, schools, bus routes, parks and railway station.

Burwood provides a contrasting story when it comes to rentals for houses and units. For housing, a median rental of $680 per week compared to a median price of $1.9 million results in a paltry rental yield of just 1.9%. Units, on the other hand, provide a median rental of $570 per week compared to a median price of $828,000 which results in a more healthy rental return of 3.6% (source: realestate. com.au).

Burwood rental yields

Burwood, like other major suburbs in Sydney, has seen an increasing supply of new unit developments coming on to the market. An example is a proposed $80 million project for a five tower development of up to 42 storeys and 1,000 apartments. This may lead to a potential oversupply in the future.

South Property Update

When deciding on a location to live, renters are driven by location and convenience as much as price, particularly in the case of units where the typical tenant demographic is going to be a younger professional with a higher disposable income.

In the south, units in the larger hubs such as Sutherland, Miranda and Hurstville are always in demand due to their proximity to shopping, restaurants, employment and transport.

This demand is illustrated by the increased amount of new unit complexes being approved in areas rezoned for high density development. Whilst currently there is an under supply, with the number of new developments currently under construction in these areas the market may experience an oversupply in the coming 12 to 18 months.

Further to this there are new unit markets being created in locations which have not traditionally been known for unit living. An example of this is the redevelopment of the Cronulla Sharks car park at Woolooware with approximately 700 new units. Kirrawee on the fringe of Sutherland is no stranger to units and townhouses however the redevelopment of a disused brick pit will inject another 700 odd units into the marketplace in the coming one to two years.

As a result, there will be downward pressure on rents and upward pressure on vacancy rates. This will be welcome news for renters who will finally gain the upper hand in negotiations after a prolonged period of competing for the limited number of rental properties.

Two-bedroom units generally range from $400 to $600 per week with the cheapest recently advertised being a studio unit in Penshurst for $300 per week and the most expensive, a 3-bedroom oceanfront apartment in Cronulla asking $1,500 per week.

Cronulla unit

For detached housing, Miranda is a popular suburb in the south for renters. Miranda has good public transport with a train station and local buses, along with other amenities including schools, clubs, restaurants and a Westfield shopping centre.

Miranda has one of the highest yields for detached housing in the Sutherland Shire with an average yield of 3.3% and an average weekly rental of $630 per week, compared to surrounding suburbs at an average yield of between 2.2% and 2.5%.

West Property Update

The demand for rental accommodation in western Sydney has begun to soften as additional supply enters the market. This supply has followed a number of years of investor participation due to the lower entry levels found in the outskirts of Sydney and demand for rental accommodation. In addition a number of current tenants have upgraded to home ownership due to the low cost of borrowing and desire to get into the Sydney market and take advantage of capital growth. This has caused additional rentals to be offered to the market and has flattened rental growth.

Location is obviously a major factor when it comes to rental prices in western Sydney. For $500 per week you can get an updated 1970s, 3-bedroom, 1-bathroom brick home in Penrith with a pool and a good sized backyard. For the same money in Baulkham Hills you get an original 1970s, 3-bedroom, 1-bathroom brick home in average condition. The difference is the Penrith house is probably worth $650,000 and the Baulkham Hills house around $1.1 million.

The unit rental market continues to be focused around central business areas – Parramatta an existing CBD, and Liverpool an emerging CBD, within the outer regions of Sydney. Rental growth in these markets has been stagnant in recent years. One of the causes has been the large supply of units becoming available in such a small amount of time.

A typical older style 2-bedroom, 1-bathroom unit in Liverpool with off-street parking would generally achieve an approximate rental of $330 to $390 per week depending on size, fit out, proximity to amenities, etc. This same product would sell for $370,000 to $420,000. A new 2-bedroom, 1-bathroom unit in a similar location would likely commence at a weekly rental of around $410 and range up to about $460 per week, however a larger 2-bedroom unit with additional bathroom, parking or views may demand more. This type of unit would sell for approximately $440,000 to $500,000.

Given the overall affordability compared to the other centralised hubs, proximity to Westfield, railway line, hospital and education facilities and access to main motorways, the Liverpool CBD appeals to a wide range of tenants both local and those drawn to the area for what the location has to offer at an affordable price point.

Parramatta is a much more established CBD with a variety of rental opportunities which would appeal to a broader range of tenant. The entry point of the market is an older style 2-bedroom, 1-bathroom unit in a walk-up complex on the outskirts of the CBD. Typically this style of unit would achieve a rental of approximately $400 to $440 per week depending on size, fit out and proximity to amenities.

In recent times we have seen the emergence of the working professional who demands a modern, high quality, low maintenance, centrally located product to suit their busy lifestyle needs. Typically this style of unit would achieve a rental of approximately $600 to $700 per week, depending on quality, size, location, elevation and views. However with the emergence of CBD positioned multi level towers, we are starting to see rents exceed this range.

Parramatta apartment

North Property Update

The suburb of Dee Why has arguably the highest supply of residential units in the northern beaches. Much of the supply comprises older style 1960s to 1970s walk-up buildings. The tenancy market has a younger demographic due to the affordability of the area. Modest 1-bedroom units are available at around the $400 per week mark, making this the cheapest rent available for individual living. Alternatively, an individual room in a boarding house on Darley Road in Manly is currently listed for rent at between $190 and $240 per week.

Major drivers for tenancy are convenience (proximity to transport hubs), lifestyle factors (proximity to the beach and Ku-ring-gai National Park) and ultimately affordability.

The iconic suburb of Manly is very popular with tenants, made up mostly of young professionals who can easily commute to the city (via the ferry) and enjoy the Manly lifestyle.

The majority of available housing and demand in the northern beaches would be between $1,000 and $2,000 per week. Prestige dwellings are seldom offered to the rental market and limited demand exists above $2,500 per week on a long term lease basis.

The most expensive property on offer on a long term lease is a federation home in Manly with an asking price of $4,800 per week.

Federation home Manly

It is far more popular and lucrative for owners to provide short term accommodation (holiday rentals and Airbnb), particularly during the summer periods. A quality home in Palm Beach can achieve $10,000 to $20,000 per week over the summer period.

Palm Beach property

Conclusion

We expect to see rentals in Sydney remaining flat for a while, mainly due to the supply increase over recent years, pipeline of new developments under construction and proposed developments yet to commence. With this supply increase we may start seeing developers and agencies getting creative to attract tenants with incentive offerings. There has already been an example of this in Carlingford, with a developer offering potential tenants the chance to win a new car if they rent in their complex.

Long term we expect to see continued growth which is due to fundamental factors including population growth, affordability pressures and infrastructure improvements such as motorways, light and heavy rail and in particular Sydney’s second airport.

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