Is it time to re-enter the Sydney property market? This is a question I am asked on a weekly basis by our stakeholders. Following the mixed opinions surfaced at our quarterly market review a couple of weeks ago, I felt now was the perfect time to share my perspective.
Will Sydney property prices increase in the coming years?
The short answer to that question is yes, we do expect prices in parts of Sydney to increase in the short-to-medium term. So do third-party researchers such as Westpac. At face value, Sydney appears to be an attractive market to enter right now. There is a sufficient number of properties on the market (and in the pipeline), record low interest rates and government grants. For many buyers (especially first timers), now represents a rare opportunity to actually enter this market.
In that case, when will Blue Wealth be recommending Sydney properties?
Don’t get your hopes up. Since we exited the Sydney market in 2013-14, it has become more and more sensitive to affordability. This is why rate cuts are becoming a more useful tool in predicting where Sydney’s house prices will go in the short-term. Although it’s likely you could make a quick buck in the next couple of years, it could be at the expense of your medium and long-term investment strategy. A short-term fix is what always concerns me with people jumping into something they usually would not do. Instead, I believe investors should be asking themselves where their money will work best for them. More importantly, I believe investors should also ask themselves if they can only afford a property because of current conditions (government incentives, record low interest rates, etc.)
Making your money work
What does it mean to make your money work? For argument’s sake, let’s look at units in our three largest capital cities: Sydney, Melbourne and Brisbane. By far the most expensive of the lot is Sydney, which also happens to have the highest pre-lockdown vacancy rate and lowest pre-lockdown rental yields. Brisbane is the opposite, with the lowest median unit price and post-lockdown vacancy rate, as well as the highest rental yield. Investing in the median Sydney unit would yield a weekly rent of around $500. The same investment in Melbourne would return closer to $600. In Brisbane, it’d be around $750.
|City||Median Unit Price||Vacancy Rates||Yields|
|Melbourne||$562,780||3.8% (1.9% pre lockdown)||4.1% (pre lockdown)|
|Source||CoreLogic||SQM Research||SQM Research|
In order to achieve a competitive return on investment, Sydney would need to outperform Melbourne and Brisbane by upwards of a percentage point prior to once again hitting an affordability ceiling. On the other hand, stronger levels of affordability in Melbourne and Brisbane mean both the risk and the cash flow return remain superior.
As we know property investment is a long-term strategy with no emotion.
Buy good property, in good locations and be able to hold them.