Why Sydney apartment could outperform houses in 2016

Even though the Sydney property market has boomed and now starting to experience a slow down, buying a property in Sydney still has its advantages, especially as it is one of the most important capital cities in Australia.

Sydney still has the strongest economy in Australia, with 100,000 jobs created during 2015. The capital city also has an unemployment rate of below 5%, whilst migration to NSW still remains strong.

However, it has been predicted that buying an apartment in Sydney will see greater benefits than those buying a house this year as Sydney apartments are expected to outperform houses.

With the population of Sydney nearing the 5 million mark, it is becoming even more important to find dwellings to house Sydney’s population both now and in the future, especially as the demand continues to outstrip supply.

More than 66,000 homes were approved in NSW in 2015 which is 74 per cent above the decade average. Sydney’s median house prices also surged more than 50 per cent over the past three years, but the December quarter saw a price correction and a slowdown.

It seems as though brand new apartments are popping up everywhere, or at least in areas where there is room for growth, or where there is the infrastructure and transport in place to cater for the growing population. With space within the inner-city areas becoming increasingly limited, developers are looking at suburbs further out of the city and out west or down south where there is more land available.

However, not all of these areas are accessible or has the infrastructure in place to support new residents – not yet anyway. We have no choice, but to build upwards and as time goes by our apartment developments are likely to get taller, changing the skyline forever.

Our major roads are also seeing a large number of new apartment developments taking form here; allowing residents to be close to important transport networks such as roads and utilising bus networks and trains.

It’s not just young professionals looking to buy and rent out new apartments though. Young families and students are also turning to apartment living, in fact all walks of life can be found within apartments today for many reasons such as ease of convenience, affordability and amenities.

During 2015, unit prices rose by 8.7 per cent, with the median unit price of $655,845. With the population continuing to increase, greeted by an undersupply of dwellings, this will spur on demand for housing, particularly new apartments.

According to a report by Dr Nigel Stapledon, of the UNSW Business School, over the upcoming three years, an average of 28,000 units will be completed in Sydney each year for the next three years. This is more than double the historical average.

So how much will property prices grow this year?

Property prices in 2016 will not grow as much as they did in recent years, however they are likely to grow at a moderate pace around 3 per cent and Sydney’s property market will return to more ‘normal’ levels.

The moderate pace of growth is reflected through concerns over the state of the Chinese economy as well as the gradual decline of the Australian dollar alongside the weakening mining sector. Consumer spending is also likely to be less with low growth in wages.

Property prices for new apartments in Sydney will be helped by various factors including first home buyers, overseas buyers and downsizers.

1) First home buyers entering the market:
With banks limiting their loans to investors (to 80% in most cases), this might mean more first home buyers will enter the market instead. First home buyers can still access loans up to 90% or even 95% loans in some cases, allowing them to become first home buyers first before becoming an investor later down the track.

There will also be less competition from speculative investors, making it slightly easier to buy a property and get a foothold on to the property ladder. With more first home buyers entering the Sydney property market, this is likely to put more pressure on apartment prices. This could make property prices increase by up to 5%.

2) Overseas Buyers
Overseas buyers, particularly from Asian markets are also seeing the potential of buying Sydney apartments, especially as the dollar remains low. They are already accustomed to this type of vertical and more compact living, with many Asian cities already home to apartments.

3) Downsizers
As well as first home buyers entering the property market, there are empty-nesters looking to downsize from their three or four bedroom home to a one or two bedroom apartment. In some cases, there are empty-nesters actually looking for three bedrooms, two bathroom apartments, of which there is limited stock of this description which again will help to drive up prices.

4) Low Interest Rates
Interest rates also remain at their lowest point which is comforting, especially for first time buyers taking out a mortgage. Mortgage repayments are affordable and more attractive right now, spurring on more buyers to enter the Sydney property market.

Sydney’s December quarter actually saw less activity fuelled by the fall in clearance rates with many buyers delaying their decision to buy. However, these buyers are now buying property today and are more comfortable with their decision to buy as they have had more time to think about it.

According to the CoreLogic RP Data Home Value Index (January 2016), the average Sydney apartment price was $683,000 and had increased by 9.56% Year on Year, whilst houses had increased by 10.73% Year on Year.

At some point our attitudes will need to change towards the benefits of apartment living as there is less room for urban sprawl. In order to continue to cater for living further out of the CBD, transport and infrastructure will be required to provide incentives of living so far away from the CBD.

To find out more information about why buying new apartments in Sydney is more advantageous than buying a house, give our professional property consultants at iBuyNew a call on 1300 123 463.
Published on 29th of February 2016 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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