With the Sydney housing market moving full steam ahead, what’s happening to the Sydney apartment market?
Valuers Charter Keck Kramer (CKK) recently released their State of the Market (Apartments) for metropolitan Sydney which suggests a looming under-supply of new apartments which will lead to lower vacancy rates, higher prices for new apartments, and in turn the continuing to surge in values of well-located established Sydney apartments.
Underpinned by continued overseas and interstate migration, metropolitan Sydney according to CKK requires about 41,000 additional dwellings per annum to accommodate its current level of growth.
To meet this demand the delivery of new apartment projects is vital, particularly as affordability pressures, demographic trends, changing household types and lifestyle preferences drives the need for more diverse housing options.
And, in general, investors buy many of these new apartments – back in 2014-5 investors lending accounted for more than 50% of all property purchases in Sydney.
Investor purchases of “off the plan apartments” reached peak levels in 2015 and 16, but this was followed by a collapse in the investor apartment market as the welcome mat was pulled out from under the many foreign investors purchasing these properties.
At the same time local investors found it more difficult due to the introduction of more stringent lending practices, new APRA rules and directives and more recently fears about building standards given all the media publicity about a number of high-profile buildings with significant structural problems.
But things have changed
Over the last few years, an apartment over supply 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 an undersupply of apartments is looming.
Charter Keck Kramer reported that in 2019, only 25,500 apartments were completed in metropolitan Sydney.
This represents a 17% in decrease from the record 30,900 apartments completed in 2018 and suggests that the oversupply of the better quality apartments on the market will soon disappear.
The looming undersupply of new projects will lead to 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 established properties in Sydney.
But be careful –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.
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