After booming through 2020 and 2021 with prices rising by 27.2%, Sydney housing values fell -12.4% from their peak in January 2022 through to the recent trough in January 2023.
But now the Sydney housing market has clearly turned the corner with prices rising consistently for the last 10 months - now up 11.6% since January 2023
This creates a window of opportunity to get into the property market as the Sydney market picks up again.
Currently, there are 5.2 million people in Sydney. By mid-century Sydney will have 8 million people and NSW will have 10 million inhabitants.
Sydney has a unique lifestyle and economic benefits that will attract overseas migrants as well as plentiful jobs for highly paid knowledge workers.
Rather than trying to time your next property purchase based on where we are in the cycle, take a long view and if your income is secure and the time is right for you, this may be an ideal time to get a foothold in the Sydney property market while others are sitting on the sidelines.
Are you wondering what will happen to the Sydney property market in 2024?
Well...After booming through 2020 and 2021 with prices rising by 27.2%, Sydney housing values fell -12.4% from their peak in January 2022 through to the recent trough in January 2023.
But now the Sydney housing market has clearly turned the corner with prices rising consistently for the last 10 months - now up 11.6% since January 2023
As a further sign that the Sydney housing market has is firmly in the recovery phase of the property cycle:
- Corelogic's daily home value index suggests Sydney house prices rose 0.3% in November and increased 0.8% in October 2023.
- Proptrack reports Sydney home prices have now risen for 12 consecutive months and are up 8.40% from their low point in November 2022
- Dr. Andrew Wilson's My Housing Market showed Sydney house prices up 0.7% in November and Sydney unit prices remained flat over the month of November 2023.
Sure each research house has slightly different stats, but any way you look at it, Sydney home prices continued their recovery in October after leading the downturn in 2022.
Sydney has now clearly passed the bottom of the market downturn, following 10 month-on-month increases in median property prices.
Of course there are many sub-markets in Sydney, but despite some potential headwinds, it's clear Sydney is in the recovery stage of the property cycle.
And remember...the Sydney property market has been one of the strongest and most consistent performers over the last four decades.
Australia’s house prices reached record highs during the peak of Covid-19, with our most expensive city – Sydney – leading the pack.
Now once again Sydney's housing market is spearheading the housing market recovery.
It's strong pace of annual growth is remarkable in the face of the substantial deterioration in affordability that occurred with the sharp rise in interest rates.
It is also a testament to the strong demand aided by the pick-up in population growth, and limited supply that has offset the effects of higher interest rates.
After all, some of the city’s suburbs are so tightly held that an available property for sale comes around once in a blue moon with homeowners holding onto their houses for as long as 20 years.
And areas in lifestyle or coastal suburbs are still in particularly strong demand as homebuyers wait to secure their dream property.
Median property prices for Sydney
Here is the latest data on the median property prices for Sydney.
|Property||Median price||Δ MoM||Δ QoQ||Δ Annual|
|All Capital city dwellings||$1,125,533||0.3%||1.8%||10.2%|
|Capital city houses||$1,397,366||0.3%||2.0%||11.5%|
|Capital city units||$836,220||0.3%||1.3%||7.1%|
Source: CoreLogic, 1st December 2023
According to CoreLogic, Sydney dwelling prices…
- rose 24.5% from the onset of Covid to their cyclical peak in January 2022
- fell -13.8% from their cyclical peak to their recent trough in January 2023
- have risen 10.6% from their trough early this year (January 2023)
Of course, there is no "one" Sydney housing market and there are still plenty of transactions occurring.
It's a bit like having one hand in a bucket of hot water and the other in a bucket of cold water and saying:
On average I'm feeling comfortable.
However, over the last few months the sentiment of both Sydney property buyers and seller is changing and buyers are pushing up the price of well located A grade homes and "family-friendly" apartments which are still in short supply, but B-grade properties are taking longer to sell and informed buyers are avoiding C-grade properties.
This flight to quality means that moving forward the various sectors of the Sydney real estate market will be segmented, which is a more “normal” property market.
The current strength and depth of the Sydney property market are also highlighted by strong auction clearance rates.
Source: Dr Andrew Wilson, Sydney property auction clearance trends
Auction clearance trends tend to be a great "in time" indicator of market sentiment and a leading indicator of future property prices.
Sydney housing prices charts
Let’s start with a bit of history… Sydney property values have grown 449% in the past 30 years.
According to the CoreLogic Sydney house values have increased 507% over three decades, while unit values have increased 340.1% over the same period.
That’s the cost of living in an international city on the water which offers an unparalleled lifestyle.
And Sydney was the first Australian capital city to embrace apartment living with the Census showing that 20.7% of all the dwellings in Sydney being apartments and in fact 47% of all the apartments in Australia are in Sydney
Currently affordability constraints, including consecutive cash rate hikes and reduced borrowing capacity, combined with the perceived value units offer are all helping to steer buyer demand towards units.
This is creating a window of opportunity for homebuyers and property investors with a long-term perspective.
Sure, many discretionary buyers and sellers have left the market at present, but life will go on in the NSW capital – people will get married, people will get divorced, families will have babies, and many are going to need to move house.
And when interest rates eventually stabilise (as they seem to have) and inflation is back under control (which it seems to be), they will come back into the market with a vengeance.
And with the reopening of international borders earlier Sydney ia a major recipient of new residents, both skilled immigrants and overseas students, putting extra pressure on the Sydney property market, particularly the rental markets.
And it's not just for houses…
Well-located, family-friendly apartments in Sydney's inner suburbs are likely to continue to perform strongly due to increasing demand from owner-occupiers (particularly First Home Buyers) and investors.
And at the same time, apartments in cookie-cutter high-rise towers will continue to languish.
When it comes to the locations which are likely to see the most demand, at Metropole we think that real estate in Sydney's larger regional locations, and in particular in lifestyle locations like Byron Bay, the Central Coast, the Hunter Valley, Wollongong, and the NSW south coast should also continue to perform strongly, with beachside suburbs likely to outperform the wider overall market.
More investors are now getting into the Sydney market recognising that there are no bargains to be found, but they also realise that in 12 months' time the properties they purchase today will look like a bargain.
Source: CoreLogic, December 2023
Currently asking prices in Sydney are rising and this is a leading indicator - meaning sales prices will be higher in the next few months.
Source: SQM Research
CBRE estimates Sydney's apartment delivery will average 14,000 pa over 2024-28.
Demand for housing stock (apartments and communities) is likely to average 33,000 pa over the next 5 years.
This should continue to drive down city-wide vacancy from 2.2% to 0.8%.
The rental market in Sydney has plunged into crisis, with record-low vacancy rates, high rent prices, strong demand and a rising population putting the city’s market into a pressure cooker environment.
And new data highlights that the distressing state of Sydney’s rental market leads to a bleak outlook for renters.
Source: SQM Research
Sydney has been facing a rental housing shortage for several years now.
This has led to increased competition for available homes, driving up rentals and making it increasingly difficult for many Australians to afford a place to live.
One of the aspects of the housing market boom during the pandemic was that it was driven by owner-occupier buyers.
With the opening of international borders in early 2022, Sydney has become a major recipient of new residents, both skilled immigrants and overseas students, putting extra pressure on the Sydney property market, particularly the rental markets.
Sydney's population grew by 1.3% in the 12 months to 30 September 2022, according to figures by the Australian Bureau of Statistics (ABS).
The state is expected to gain a million new citizens over the next decade, principally from overseas, bringing the population to 9.1 million by 2033, data from the federal government’s Centre for Population suggests.
Note: Sydney is a world-class city, which is landlocked with limited room to grow to accommodate all those moving to Sydney looking for somewhere to live.
Extremely low vacancy rates and heated competition across the state are pushing the NSW rental market into crisis mode, with rental prices going nowhere but up…and up some more.
And at Metropole Property Management our vacancy rate is less than half the industry rate, in part because our clients have chosen investment-grade properties, but we'd like to think it also has a bit to do with our proactive property management policies.
This trend of falling vacancy rates and rising rents can be attributed to a number of factors, including an increase in the number of people moving to the city and a strong economy.
One of the main reasons for the decrease in the vacancy rate is the city's growing population.
Sydney has become a popular destination for people moving to Australia, and this influx of newcomers has put pressure on the city's housing market.
As more people move to Sydney, the demand for rental properties increases, leading to a decrease in the vacancy rate.
Another factor contributing to the decrease in the vacancy rate is the strong economy in Sydney.
The city has a thriving job market, with many opportunities in industries such as finance, technology, and tourism.
As more people are employed, they are able to afford rental properties, further driving down the vacancy rate.
Despite the decrease in the vacancy rate, Sydney remains an attractive destination for both locals and newcomers.
The dearth of new apartment developments, the arrival of overseas migrants, and the return of international students will see rental demand remain elevated, worsening conditions for tenants.
The continued recovery and resurgence of the rental market see demand exceeding supply two years from the onset of the pandemic, the report adds.
This means we could see lower vacancy rates and even higher rents in the coming months – there are just no properties for lease.
And it’s bad news for tenants.
The current tightening of all of the cities’ rental markets will reduce choice, increase competition for rentals, and exacerbate less favourable rental conditions for tenants overall.
As a result, asking rents and gross rental yield have risen throughout Sydney, as SQM’s charts below show.
Source: SQM Research
Not only that but tight supply means rental yields have risen too, for all property types.
Source: SQM Research November 2023
Waterfront locations and coveted school zones dominate the country’s most expensive postcodes.
All the suburbs in the top-10 list are in Sydney’s eastern suburbs or the north shore.
Here in Sydney’s top 10 most expensive suburbs list, you’ll find some of the most luxurious and expensive suburbs in the whole of Australia.
So, if you’re looking to see which affluent areas have the highest price tags, these are the top ten most pricey suburbs to buy a property in Sydney, according to data from Domain and realestate.com.au.
Median house price: $9.2 million
Median unit price: 2.5 million
Median house price: $9.1 million
Median unit price: $1.35 million
3. Darling Point
Median house price: $8.88 million
Median unit price: $2.75 million
4. Bellevue Hill
Median house price: $8.51 million
Median unit price: $1.58 million
5. Centennial Park
Median house price: $7.46 million
Median unit price: $780,000
Median house price: $6.82 million
Median unit price: N/A
7. Double Bay
Median house price: $6.32 million
Median unit price: $2.17 million
8. Dover Heights
Median house price: $6.08 million
Median unit price: $982,500
Median house price: $4.75 million
Median unit price: $1.68 million
10. Rose Bay
Median house price: $5.81 million
Median unit price: $1.45 million
READ MORE: 10 most expensive suburbs in Sydney
The 2021 property boom saw property prices rise at an unprecedented rate around the country, with house prices stealing the show, soaring 25.5% while units rose by a more modest 7.7%.
But during 2022 when the property market was cooling, house prices dropped more from their peaks than apartments and the trend for a widening price gap has reversed.
Recent CoreLogic data shows that since the Reserve Bank of Australia (RBA) started raising rates in May, the gap between house and unit prices has narrowed in most capital cities.
Sydney's property market trends
Historically, the city’s property market has gone from strength to strength.
Over the last 40 years, Sydney’s average capital growth was 7.4% meaning many properties doubled in value every decade.
SQM’s chart below shows how Sydney’s asking prices have picked up after their declines last year.
Source: SQM Research
Affordability constraints, reduced borrowing capacity and the perceived value units offered will help steer buyer demand to affordable options – likely to be apartments and townhouses.
The stronger performance of units recently follows a period of substantial outperformance of house prices, and this growth difference drove a record price gap but this is now narrowing as affordability issues mean more people are trading backyards for balconies and courtyards, juts to live in the right neighbourhood.
Recent trends could be telling of the future state of apartment market as affordability issues mean more people are trading backyards for balconies and courtyards, juts to live in the right neighbourhood.
In fact they are trading space for place.
Sydney has embraced apartment living more than any other Australian capital and family-suitable apartments are seen as an affordable alternative to houses.
This is especially the case in popular areas such as Sydney's eastern suburbs and Northern Beaches, where homeowners are likely to enjoy continuing strong demand which will result in a strong increase in values.
But on the other hand, apartments in towers in high-supply areas present a significant risk to property investors.
It seems that property investors are slowly understanding the risks associated with high-rise tower apartments in Sydney including potential construction defects, high vacancy rates, lack of scarcity, lack of capital growth and the challenges of buying in buildings that are predominantly owned by investors, and often many overseas investors.
But not all units are equal.
Family-friendly apartments in medium and low-rise buildings in Sydney's inner and middle-ring suburbs are likely to perform well as investments.
With capital growth in houses outperforming apartments so far this year, the pricing gap between houses and apartments is around 67%, so I see increasing demand for these more affordable apartments moving forward.
This will be partly driven by investors returning to the market, so by first home buyers who are being priced out of standalone houses in Sydney.
Prior to COVID-19 metropolitan Sydney required about 41,000 additional dwellings per annum to accommodate its population growth which was underpinned by overseas and interstate migration.
To meet this demand the delivery of new apartment projects was vital, particularly as affordability pressures, demographic trends, changing household types and lifestyle preferences drive the need for more diverse housing options.
And then came COVID-19…
But the new apartment market was already feeling the effects of a downturn in Off-the-Plan (OTP) purchaser demand.
The following graphics from valuers Charter Keck Kramer give a good picture of what has been happening in Sydney's apartment market.
The closure of international borders caused a significant reduction in tenant demand as net overseas migration inflows effectively fell to zero, but since late February 2022 the trend flipped on its head.
In the meantime, the owner-occupier apartment market held up well, supported by low-interest rates, which have improved affordability for those with jobs.
And last year first, home-buyer demand was encouraged by stamp duty concessions. In turn, this supported demand for affordable apartments that are suitable for owner-occupiers.
Both upgraders and downsizers remain active where they are transacting within the same market.
Over the last few years, an apartment oversupply and other regulatory and non-regulatory factors have resulted in the collapse of investor demand for Sydney “off the plan” apartments.
The reduced sales volumes have made it more difficult for developers to achieve the pre-sale hurdles required by the banks to finance developments, and a few new projects are on the drawing board.
This means that, at a time when the rental market is in crisis and our property market has come off the boil, an undersupply of apartments is looming.
It is important to remember that many of the new Legoland apartment high-rise towers will always remain secondary quality and become the slums of the future.
Steer clear of these properties.
The looming undersupply of new projects will lead to even lower vacancy rates, rental growth, and eventually, property price growth of these new apartments and in turn will help fuel increased price growth of well-located establishments in Sydney.
Whether you’re a property buyer or investor, proximity to certain school zones should be a major consideration when buying your next home.
Sure, the location, amenities, and transport are important factors that affect a property's value.
But a well-rated school can do wonders for property value.
And recent data shows that school catchment zones can actually have a significant influence over how quickly property prices grow.
In fact, Domain Group’s latest 2021 School Zones Report shows that Sydney’s house prices have risen across most school catchment zones analysed, with 89% of primary and 95% of secondary schools increasing annually, aligning with the rising property market.
And while the top school catchment zones were spread across Sydney’s inner, middle and outer suburbs, many that topped the list favoured lifestyle locations in coastal suburbs or near national parks, tying in with the sea- and tree-change shift we’ve seen over the pandemic.
Interestingly, house price growth varied between neighbouring school zones.
Annual house price growth in 40% of the primary and 41% of secondary school zones analysed surpassed the respective suburb price growth, with almost one-third of school zones seeing up to 10% more growth compared to the suburb they are located in.
House prices in Burraneer Bay Public School catchment zones grew ten times faster than in the suburb it is located in (Cronulla).
Proportionately more secondary school catchment zones had positive house price growth and outpaced the respective suburb house price growth.
House prices have risen across most school catchment zones analysed, with 89% of primary and 95% of secondary schools increasing annually, aligning with the rising property market.
While the top school catchment zones were spread across inner, middle, and outer suburbs, many that topped the list favoured lifestyle locations, spanning coastal suburbs or near national parks.
House price growth varied between neighbouring school zones. House prices in the Balgowlah Heights Public School catchment zone jumped 33% annually, while the neighbouring school zone of Manly West Public School dropped 7.9%.
Domain’s chief of research Nicola Powell said the pandemic had helped supercharge school catchment prices with flexible working allowing young families to relocate to suburbs with easy access to beaches, parks, and schools.
“It’s astonishing to see that starting on a high base of house prices, one-in-10 school catchment zones are achieving 10-20% more than the suburb they are located in,” Powell said.
“We know that as part of the property decision-making process, parents and investors consider the geographical location of a potential property in relation to a school catchment zone.
“When people are looking for a home, they’re looking for a lifestyle, and education is a big part of that picture, be it in the inner-city suburbs or the coastal regions of Australia.”
She explains that the boundary of a public school catchment is often a critical factor when it comes to purchasing a family home.
In Sydney, secondary school catchments appear to have a more positive impact on house price growth compared to primary school catchments.
According to the Australian Bureau of Statistics, Sydney's average house price growth over the last 46 years has been 7.9% per annum.
Of course, this is not each and every year (it's the average), and there have been periods when property prices remained flat of the years and time like 2017 and 2022 when property values fell.
However looking back, in 1993, the average house price in Sydney was $188,000.
Since then dwelling price growth in Sydney has been very fragmented.
While some suburbs have just chugged along others are strongly outperforming.
You see…Sydney is composed of dozens of smaller markets, each of which has its own drivers and supply/demand issues.
Sydney’s more affluent inner eastern, Lower North Shore, and inner western suburbs have far outperformed these averages.
Earlier this year, 77 new Sydney suburbs joined the millionaires club, with a median price over $1 million, with most of the new entrants located on the Central Coast, as demand rippled out from the capital.
There are now 417 Sydney suburbs with million-dollar-plus median prices.
Since the onset of the pandemic, the share of million-dollar suburbs has ballooned across the country, rising from just 16.2% of all suburbs nationally in March 2020 to 29.8 per cent of suburbs in December 2021.
Furthermore, more than seven in 10 Sydney suburbs are now attracting more than a million-dollar median house price, compared to just one in two, before the pandemic.
Over the last 40 years, Sydney’s average capital growth was 7.4% meaning many properties doubled in value every decade.
Domain data shows that Sydney's median property price currently sits at $1,590,932, versus $1,314,383 12 months ago.
And over the past five years, the price difference is even more pronounced. Let alone the price difference thanks to the 400% growth we've seen over the past 30 years.
Overall, Sydney is a city in gentrification, with the fingerprints of a younger demographic upping the desirability of the city lifestyle.
- Also read:What makes an A-grade property?
- Also read:Latest property price forecasts for 2024 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:Here’s how to avoid these 12 common reasons property investors fail to build a Multi Million Dollar Property Portfolio
- Also read:Sydney property market forecast for 2024
- Also read:Boom to bust: What makes property prices rise and fall
Houses and apartments in Sydney's easter, inner west and lower North Shore suburbs offer the best prospects of long-term capital growth as this is where there are more Skill Level 1 workers - those who earn higher incomes, often having multiple sources of income.
The fact is, the rich are getting richer and they are able to and prepared to pay more for their homes.
In its relatively short history, Sydney experienced near starvation, rebellion attempts, a gold rush, trade booms, the Great Depression, two world wars, and hosted the Summer Olympics.
As I explained the Sydney property market has passed the bottom of this cycle and is now in the early upturn stage of the property cycle.
Of course, the Sydney housing market won't boom again any time soon, but anyone who buys an A-grade home or investment-grade property in Sydney will look back in a couple of years' time and recognise they bought a bargain.
Of course, I know some potential buyers are asking:
What about all those headlines that the Sydney property market crash in 2023?
They must be listening to those permabears who have been telling anyone who is prepared to listen that the property markets are going to crash, but they have said the same year after year and have been wrong in the past and will be wrong again this time.
Property markets move up and down cyclically and while the short-term trends may be flat or downwards, the long-term trend has always been up.
Look back on the data from 30 years ago!
Sydney’s property values have grown 449% over that period to date.
Sure, there may be dips in the market, and prices may currently be tapering, but with the population growth outlook for both Sydney (expected to grow to 8,000,000 people) and Australia as a whole (population is expected to grow to 40 million people by the middle of this century), we can be confident of long-term capital growth.
I understand that given the current market and uncertainty about the future, it might be tempting to sit, wait and time your property purchase for when prices have stabilised (or at least bottomed out).
But rather than time trying to time your next property purchase based on where we are in the cycle today, you need to take a long-term view.
If your income is secure and the time is right for you, right now may be an ideal time to get a foothold in the Sydney property market while others are sitting on the sidelines.
Sure, many discretionary buyers and sellers have left the market at present, but life will go on in NSW – people will get married, people will get divorced, families will have babies and many Sydneysiders are going to need to move house.
The good news is that Australia's economy is experiencing strong economic growth and employment growth and this financial security will continue to underpin the Sydney property market moving forward.
And now that our international borders have opened Sydney will be a favourite destination for students and highly skilled workers and this will put another "rocket" under the Sydney housing market.
But, there will be some sectors of Sydney’s property market which will languish.
Here are the three sectors of Sydney’s real estate market that I think are most likely to underperform moving forward:
- Apartments in high-rise towers – but these properties have always underperformed.
- Off-the-plan apartments and poor quality investment stock (as opposed to investment-grade), particularly those close to universities.
- Homes in the outer suburban new housing estates, where young families are likely to have overextended themselves financially and with many people will be out of work for a while. Currently, many first-home buyers are taking advantage of the various incentive packages including buying newly constructed homes, leaving established houses in these locations languishing.
As I always say, careful property selection is critical.
You can’t just buy any property and count on the general Sydney property market to do the heavy lifting over the next few years.
To help give you a better understanding of what’s really going on I’m going to explore the nitty-gritty behind Sydney’s market trends, the areas where long-term growth is still likely, and the impact of shifting demographics on the city’s future performance.
So how long will this property cycle continue?
Homebuyers and property investors are still nervous.
Interest rates have risen far faster than expected, as the Reserve Bank of Australia (RBA) was set in its plan to quell rising inflation.
But it now seems that we've reached the peak of this interest rate cycle, however multiple consecutive rate hikes, high borrowing costs and low borrowing capacity have locked many would-be buyers out of the market, meaning many discretionary Sydney home buyers and sellers are just sitting on the sidelines.
But it now that inflation has peaked and it's likely there will be no further interest rate rises, strategic investors and home buyers with a long-term view are taking advantage of the window of opportunity where demand and competition are low.
These buyers realise that once the general market place realise that interest rates have peaked, buyers and sellers will return to the Sydney housing market which will get another boost as interest rates fall a little in 2024.
1. Sydney’s demographics
Sydney is the most highly populated city in both Australia and across Oceania.
- The current metro area population of Sydney in 2022 is 5,057,000, a 1.3% increase from 2021.
- The metro area population of Sydney in 2021 was 4,992,000, a 1.34% increase from 2020.
Meanwhile, the population of NSW as a whole reached 8.13 million as of March 2022.
Of course with the hard closure of Australia’s borders for nearly two years during the COVID-19 pandemic, immigration was virtually non-existent.
But since reopening in early 2022, there has been an influx of migrants.
It comes as no surprise, firstly Sydney is an iconic world-class city, but it also offers strong job opportunities.
It took the harbour city almost 30 years, from 1971 to 2000, to grow from 3 million to 4 million people but only half that time to pile on its next million.
This makes Sydney Australia’s only global city and a key city within the Asia-Pacific region.
Today Greater Sydney’s population is estimated to be 5.25 million people.
Interestingly around half of its population was born overseas, making Sydney the world’s most multicultural and ethnically diverse city, with over 250 spoken languages.
In fact, NSW accounts for the majority of overseas migrants into Australia, with 47,095 new entrants arriving in Sydney in the past 12 months.
The 2021 Census also shows that Greater Sydney had a younger age distribution than the rest of NSW, reflecting the pattern of young adults moving to capital cities for education and work purposes.
People aged 20 to 44 years made up 37% of Sydney's population, compared with 29% in the rest of the state.
People aged 60 years or over made up 20% of Sydney's population, compared with 28% in the rest of NSW.
With distinct areas of trendy, modern districts, Sydney has undergone incredible change since its early days as a settlement city.
Formerly gritty housing zones, originally built for labourers, are being revived and modernised, increasing their allure for those after a modern city lifestyle.
The Rocks is an excellent example of an area going through gentrification, with prime waterfront government housing having transitioned to private dwellings.
These types of renewal projects are sure to bring new life – and growth.
Similarly, gentrification is changing the face of Sydney’s Inner West.
Looking back, European settlement in Sydney began in 1788, and in 1800 Sydney had around 3,000 inhabitants.
It took time for its population to grow – in 1851 its population was only 39,000, compared with 77,000 in Melbourne.
Sydney overtook Melbourne as Australia’s most populous city in the early twentieth century and reached the million inhabitants milestone around 1925.
The opening of the Sydney Harbour Bridge helped pave the way for further urban development north of Sydney Harbour.
Post-war immigration and a baby boom helped the population reach two million by 1962.
2. Sydney's layout
One of the largest cities in the world, the metropolitan area has about 650 suburbs that sprawl about 70km to the west, 40km to the north, and 60km to the south.
Greater Sydney extends from the coast at the east back to the foothills of the Blue Mountains, with a relatively compact CBD located around its famous harbour.
South of the harbour is the desirable inner suburbs and densely populated beaches, including Bondi Beach.
North Sydney, connected to the CBD by the Sydney Harbour Bridge and tunnel, is home to a thriving business district and some of Sydney’s most affluent suburbs, including the Upper and Lower North Shores.
Plans are underway to build a motorway link to open up access between the pricey eastern suburbs and the western district, which makes up the majority of metropolitan Sydney.
Changes in the positioning of major companies to outlying ‘mini-cities’ like Parramatta may see a shift in buyers heading to these cheaper housing areas and employment opportunities.
Developers have anticipated this, but as is often the case, they’ve gone overboard and there is now a significant oversupply of new and off-the-plan apartments in Parramatta.
3. Sydney's infrastructure
With leading universities, premier shopping districts, iconic landmarks and lively urban flavour, it’s clear why Sydney is considered one of Australia’s most desirable cities to live in.
Built around the world’s largest natural harbour, Sydney offers three efficient modes of transport in, around, and out of the city: road, rail and ferry.
Anyone who lives in Sydney knows all too well that driving more than an hour each way to and from work is the norm.
But this is likely to change with light rail playing an important part in the future of transport in Sydney providing quick transportation around the CBD.
And Sydney residents will get the benefit of some major new infrastructure projects including:
- The $12 billion Sydney Metro which will feature 31 Metro railways stations.
- The $16 billion WestConnex highway project
- A $15 billion Pacific Highway upgrade and a $450 million Princes Highway upgrade.
- The $5.3 billion Western Sydney Airport.
- A $2.4 billion Paramatta light rail.
Sydney Airport, the busiest in Australia, handles over 35 million passengers a year, is located only 8km from the city and connects directly to 100 destinations around the world.
Proximity to major highways and rail systems can either boost capital growth or hinder it, and all aspects must be taken into account when considering any property purchase.
4. Sydney's economy
Originally a manufacturing city, Sydney has evolved into a metropolis of high-end, knowledge-based jobs in the business and financial services sector, earning itself the title of Asia-Pacific’s economic hub.
Of course, job creation and rising confidence also lead to population growth, which further fuels the property market.
Sydney employees earn an average individual wage of $1,300 per week, compared with $1,249 for NSW as a whole.
However, due to COVID-19 output in the NSW economy contracted in the 2019-20 financial year, declining by 0.7%.
That was the first contraction in decades, with the state reportedly avoiding the early 1990s recession.
But according to the latest statistics from the ABS, our economy is now roaring along.
The most recent data, which unfortunately is backwards looking to the June quarter, showed that as Aussies were released from their lockdown shackles, we spent more on ourselves, growing the economy strongly.
But since then, the Reserve Bank has raised interest rates, and will likely continue doing so, raising the questions: will this kill a booming economy, and what will it do to our property markets?
The Australian economy continues to track better than expected, with second-quarter GDP data showing the economy is growing at a robust pace.
While the expansion was broad-based across spending, income, and production categories, a lot had to do with consumers spending their savings, so moving forward, much rests on the consumer and whether households will continue to spend as rate rises are absorbed in their budgets.
This month the RBA continued its hiking cycle, lifting the cash rate at its October meeting and RBA governor Philip Lowe said the board remains committed to overcoming the challenge of high inflation and preserving credibility concerning their 2-3% inflation target, ensuring that inflation expectations remain anchored.
Well, the fastest rise in the cash rate since 1994 has seen home prices weaken across the country, with prices nationally falling around Australia, but despite recent falls, prices are still significantly above their pre-pandemic levels.
As borrowing capacities are constrained, and buyers’ budgets shrink, the most expensive markets of Sydney (and Melbourne) are leading price declines.
As for Sydney’s economy in particular, before the pandemic it generated more than $138 billion a year (2019), accounting for around 30% of Australia’s total.
As Australia’s global gateway Sydney’s economy plays a significant role in driving the country forwards towards a more stable future and recovered inflation.
5. Sydney's population growth
Sydney until recently was the largest city in Australia and, as host to the Olympic Games in 2000, is probably the country's most well known city.
Sydney's 2023 population is now estimated at 5,120,894.
In 1950, the population of Sydney was 1,689,935. Sydney has grown by 64,323 in the last year, which represents a 1.27% annual change.
Since the 1970s, Sydney and Melbourne have been locked in a head-to-head race for the highest population growth, with both cities adding 1.7 million new residents over 40 years.
Overall, Australia’s growth rate is amongst the highest in the world, with the Australian Bureau of Statistics estimating that 66% of residents live in our capital cities.
The pandemic put New South Wales's population growth on ice, recording 0 per cent growth for 2020–21.
But the state is still projected to be home to 9.1 million people.
Sydney's population is expected to be just over 6 million by that point, making it the second-biggest Australian city, behind Melbourne at 6.1 million.
The NSW government is planning extensive additions to its transport infrastructure to support future growth, with new motorway extensions providing an uninterrupted connection from Sydney’s south to the north and major road expansion the plans to ease city congestion.
Outlying suburbs such as Parramatta and Liverpool are developing into regional cities, and with improved infrastructure in the works, there is the likelihood we will see significant population growth in these areas further from the CBD.
6. Sydney's culture
Sydney is truly a global city, welcoming a broad range of ethnicities from all over the globe.
In fact, nearly half of the people who call Sydney home were born overseas, creating the most dynamic and culturally diverse metropolis in the world.
Each year Sydney celebrates its famous multiculturalism with the month-long Living in Harmony festival, which brings its residents together to celebrate and promote cross-cultural understanding.
Housing in the inner city is attractive to those who love city life, with tenants looking for properties that include the following features:
- Storage space
- Amenity including balconies
- With street noise generally a given in city living, smart tenants are looking for added features – like double-glazed windows – to minimise city sounds
- Cooling – especially over summer
- Technology - such as good mobile phone signals, great wifi connectivity and multiple power points.
1. Upper North Shore
Statistically one of Sydney’s safest areas, with beautiful parks, large land sizes and an easy train commute to the city, the prestigious suburbs of the Upper North Shore have seen a stable increase in pricing over the years.
Incorporating Pymble, Turramurra, Wahroonga, Warrawee, Killara, Lindfield and Roseville, the Upper North sees a ‘generational’ cycle, with wealthy families moving in to gain access to esteemed private education and excellent public schools. The family moves on once children are out of school, thus allowing the next generations of young families to begin the cycle again.
This trend has maintained steady supply and demand, making the Upper North Shore area one to consider for stable growth, particularly as it sits in the middle ring of the CBD.
2. Lower North Shore
Located just over the Sydney Harbour Bridge and featuring a boon of waterfront properties overlooking the Sydney Harbour, Middle Harbour and Lane Cove River, the Lower North Shore is considered one of Sydney’s most desirable places to live.
While the Upper North Shore attracts families due to the larger land lots and houses, the Lower North has a higher population density with a greater proportion of apartments and units, making it appealing to young professionals who work in the CBD.
The Lower North Shore consists of the suburbs of Mosman, Castle Cove, Cremorne, Neutral Bay, Kirribilli, Milsons Point, McMahons Point, Wollstonecraft, Greenwich, Longueville, Riverview, Linley Point, Lane Cove West, and Chatswood.
3. City and the East
New data from the Australian Taxation Office (ATO) has revealed where Australia’s highest-paid professionals live.
In second place on the country-wide list was Sydney’s 2027 postcode - home to Darling Point, Edgecliff, and Point Piper - with an average taxable income of $205,967.
Then finishing in third place is postcode 2030 - Bellevue Hill - with a $195,204 median, an increase from eighth place last year.
Postcode 2030 - Dover Heights, Rose Bay North, Vaucluse, and Watsons Bay - was fourth at $186,025.
In fact, with the exception of the top spot, the country’s top 10 richest postcodes were dominated by some of the most exclusive spots across Sydney.
So you can see how Sydney’s city and eastern suburbs when we talk about prominent areas across the city.
Densely populated and with land at a premium, most properties are small terraced housing or units/apartments, with a higher proportion of renters in the Eastern suburbs than elsewhere in the city.
Suburbs in the city’s inner ring such as Darlington, Chippendale and Darlinghurst have shown interesting changes in their demographic makeup recently, revealing a very high proportion of young, single residents who have populated the area for the social scene and city lifestyle.
Eastern Sydney is also highly desirable, as the home of the famous beachside suburbs of Bondi, Tamarama and Coogee.
While there is no train access to these coastal neighbourhoods, there are strong bus networks.
4. Inner West
There is no end of demand from home buyers and investors who want to live in Sydney’s gentrifying inner Western suburbs.
In suburbs like Annandale, Croydon Park, Dulwich Hill, Enmore, Lewisham, Lilyfield, Marrickville, and Newtown.
The suburbs within the region are characterised by medium to high-density housing and while they’ve been subject to gentrification, this process will continue for decades as the older workers and migrants make room for upwardly mobile high-income earners.
READ MORE: The 15 Best Suburbs to Invest in Sydney
1. Look for Sydney’s best properties in the inner and middle-ring suburbs
Being locked in a Coronavirus Cocoon has shown us the importance of our neighbourhood.
Social distancing during the COVID-19 pandemic made us experience many painful losses.
Among them were the so-called “third places” – the restaurants, bars, gyms, houses of worship, barbershops, and other places we frequent that are neither work nor home.
If social distancing through coronavirus taught us anything, it taught us the importance of neighbourhood.
If you can walk out of your home and you’re within walking distance of, or a short trip to a great shopping strip, your favourite coffee shop, amenities, the beach, and a great park, you will appreciate the benefit of the third-place – the importance of your neighbourhood.
While some people will move to regional Australia to have more space, the majority of Australians will want to continue living in our capital cities, but in lifestyle, destination locations which have great third places.
And it’s likely that in our new “COVID Normal” world, people will love the thought that most of the things needed for a good life could be within a 20-minute public transport trip, bike ride or walk from home.
Things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs.
In planning circles, it’s a concept known as the 20-minute neighbourhood, and many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet a 20-minute neighbourhood test.
However, very few of the outer suburbs would do so and are unlikely to easily do so because it’s about more than walkability.
Tenants, too, will have similar wish lists, and savvy property investors will strive to cater to this.
We know that location will do 80% of the heavy lifting in your property’s performance and that some locations outperform others by 50% to 100% over a decade with regard to capital growth and it’s likely to be those liveable locations that will be highly desired.
A review by the Australian Housing and Urban Research Institute has found that suburbs located within 5 to 15 km of the CBD consistently see a level of capital growth that outperforms suburbs.
These inner and middle-ring suburbs continue to see long-term increases in value because:
- They are close to employment nodes.
- They offer a desirable city lifestyle.
- There is no further land available for release, keeping supply in check and demand high.
Gentrification has changed the look and stigma of ‘ugly duckling’ areas into increasingly attractive places to live.
Sometimes, changes to an area, such as improved road and rail access or a change in demographic, can spur the gentrification process in a neighbourhood, transforming it into an area that enjoys a steady increase in desirability.
While a rising tide lifts all ships and house prices have risen throughout Sydney, in general, the outer and western suburbs have not had the same level of capital growth as Sydney’s inner and middle-ring suburbs.
2. Steer clear of the new high-rise Sydney apartment towers
I’ve said it time and time again, but these cookie-cutter-style apartment blocks don’t make for good property investment or even property purchase.
Well, we’ve seen an oversupply of newly built apartments happen in Sydney.
And the problem is that not all apartments are the same.
Some will make great investments and increase substantially in value over the long term, but many of the high-rise towers built in the last fifteen years will continue to underperform with poor, if any, capital growth in the foreseeable future.
Of course, these cookie-cutter-style apartment blocks have never made good investments.
They offer little scarcity and have no owner-occupier appeal having been built with investors in mind, and often overseas investors who didn’t fully understand the needs of the local market.
Worse still… because of the high developer margins and marketing costs, many investors paid too much to start with and have since found that on completion their properties were worth considerably less than their contract price.
And that’s not to mention the sheer number of these high-rise blocks with structural problems, cracking and in some cases uninhabitable.
It’s caused a crisis of confidence with apartment owners concerned about what unknown issues and liabilities may lie ahead for them and potential purchasers are holding back not wanting to buy themselves futures problems.
This sector of the property market has lost the trust of the buying public and confidence will take quite some time to restore as various stakeholders including state and local governments and the construction industry (including building surveyors and certifiers) scramble to shore up the building sector.
You see…there tend to be three major types of building issues faced by apartment owners:
- Structural defects – These are the ones that grab the media headlines but, in reality, major structural issues only relate to a small number of buildings.
- Fire issues – These often relate to inferior cladding used during construction. Cladding audits are ongoing, but over 629 affected buildings have been identified in Victoria alone while there is a list of as many as 450 buildings across the state of NSW with potentially flammable cladding that the State Government is keeping secret due to security concerns. The list, developed by the cladding task force and provided to State Parliament, was given public interest immunity, which restricts public access. NSW Police Counter Terrorism Command advised the addresses should not be published due to safety concerns. The unit said the information risked prejudicing the interests of the building and apartment owners.
- Water issues – These are very common, especially after the sheer volume of rainfall in Sydney over the past year, and occur to some extent in almost every new building – think leaking balconies, showers and roofs. While these are a nuisance and can be expensive, they can usually be rectified.
Note: The fact is, the buildings with major problems requiring mass evacuation are the outliers, but for those involved their losses will be significant as they will have hefty repair bills and have no real market for the sale of their apartment in buildings that could well become the slums of the future.
What these issues have done is ignite a flight to quality.
Meaning well-constructed, medium-density apartments and townhouses will continue to be strongly sought after and will keep increasing in value, making them great investments.
At the same time, tighter future construction standards will lead to increased building costs and therefore higher eventual asking prices for the next round of apartments to be built, underpinning the future value of soundly built established apartments.
Similarly, the solidly build older established two and three-story walk-up apartments built in the ’60s and 70’s that used to be called “flats” have stood the test of time and will continue to make good investments.
On the other hand, owners of poorly constructed high-rise apartments in the many “me too” buildings built in the last decade or two will find the value of their properties will languish.
While some of these owners may be keen to cut their losses, they will find their properties difficult to sell and many will not be prepared to or financially able to crystallise their losses, just like many of the unfortunate investors who bought in mining towns during the mining boom are still finding they are stuck with underperforming properties which are worth considerably less today than they paid for them many years ago.
3. Consider making the most of investing in Sydney properties
Sydney properties have exhibited strong capital growth over the long term and are likely to do so in the future.
But with their current low yields comes the challenge of negative gearing.
While this understandably concerns many first-time investors, I see it as a cost of doing business.
Here’s a quick explanation of negative gearing:
A property is negatively geared when the costs of owning it – interest on the loan, bank charges, maintenance, repairs and depreciation – exceed the income it produces.
Since the costs of producing an income are generally deductible against the taxpayer’s other income, property investors can effectively offset some of the interest expense against their wages.
This has made some argue that other, less fortunate, taxpayers help these property investors meet their costs.
Why would you buy a property that makes a loss?
Well, generally it’s because property investors hope that their income losses will be more than offset by their capital gains when they eventually refinance or sell their property.
And in Australia capital gain is not taxed unless you sell your property, and then it is concessionally taxed; again evoking the argument that it favours wealthy landlords.
The truth is that negative gearing is more favourable for taxpayers who earn high incomes.
Imagine an investor had excess interest expenses of $10,000.
If they were on a marginal tax rate of 15 cents in the dollar they could use their loss and reduce their tax by $1,500.
But to a taxpayer in a higher tax bracket, one who pays 30 cents in the dollar tax, could reduce their tax by $3,000.
So the benefits of negative gearing are greater the more you earn and the higher your tax rate.
While negative gearing has its critics, in my mind property investment is about the capital growth of your assets rather than cash flow.
Cash flow will keep you in the game, but capital growth will get you out of the rat race.
In the long term, well-located properties in the inner and middle-ring suburbs of Sydney will continue to be highly sought after and keep increasing in value-creating wealth for their owners, be they homeowners or real estate, investors.
And in the current low-interest-rate environment, the Sydney housing market is at the lowest they ever have been.
Considering the cost of Sydney real estate it’s likely that investors will be negatively geared in the short term so it’s critical to buy an investment-grade property that will outperform the market averages with regard to capital growth and to do this the team at Metropole use my 6 Stranded Strategic Approach.
- I would only buy a property that would appeal to a wide range of owner-occupiers.
Not that I plan to sell my property, but because owner-occupiers will buy similar properties pushing up local real estate values.
This will be particularly important in the next few years as the percentage of investors in the market is likely to diminish.
- I would buy a property below its intrinsic value – that’s why I avoid new and off-the-plan properties which come at a premium price.
- In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area.
This will be an area where more owner-occupiers will want to live because of lifestyle choices and one where the locals will be prepared to and can afford to, pay a premium price to live because they have higher disposable incomes.
In general, these are the more affluent inner and middle-ring suburbs of our big capital cities.
- I would buy a property with a high land-to-asset ratio.
- I would look for a property with a twist – something unique, special, different or scarce about the property, and finally...
- I would buy a property where I can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to deliver me capital growth.