Image: Sydney’s iconic Harbour Bridge & Opera House in the background.
Mention the words ‘Sydney’ and ‘real estate’ together in the same sentence and the average Australian will have one of two reactions. If they live in Sydney or aspire to live in Sydney, they will groan, tremble, or rage. If they live anywhere other than Sydney they will likely look slightly smug and relieved.
With the world famous Bondi Beach just 9 minutes from the Central Business District (CBD) and a huge array of multicultural influences, Sydney is one city in which you truly can mix business and pleasure. However, if your investment interest is in residential real estate in Sydney, you need to understand one fact very clearly: The Australian residential real estate market is not like Germany’s.
‘Germany is probably the country with the most boring housing market in the world. It is a place where nothing ever happens (at least as far as housing is concerned).’ Oliver Hartwich -The 13th Annual Demographia International Housing Affordability Survey: 2017
Not so in Australia. The Australian housing market is a wild ride! Spectacularly so in Sydney. There is a fervour in chasing the ‘The Great Aussie Dream’ of homeownership that just has no German equivalent. ‘Mum and Dad investors’ regularly commit to extraordinary amounts of personal debt to secure their small piece of real estate. Residential real estate in Sydney, Australia’s largest city, is expensive. Very expensive.
One expert described the average market price of 12.2 times the annual income as ‘grossly excessive’. In fact, the 13th Annual Demographia International Housing Affordability Survey: 2017 rates Sydney as the 2nd least affordable real estate market in the world, topped only by recent astronomical growth in Hong Kong. Having said that, the market still offers space for growth. In the past 12 months to December 2017, house prices grew 4.4% while units showed a healthy 6.5% increase in value.
However, step beyond the residential market into the arena of commercial real estate, specifically the office sector, and even more profitable opportunities appear. According to the Australian Financial Review ‘ the Sydney CBD office cycle [is] now firmly in favour of landlords’. Prime rents rose over 20% in 2017.
Looking forward to 2020, Sydney has been singled out by Deutsche Asset Management as the predicted leader in Office Sector Rental Growth in the Asia Pacific Region.
The low vacancy rate and increasing rents mean that many major businesses are now also investigating fringe suburbs for tenancy options. With continued population growth and strong employment rates across Sydney, we speculate that commercial property in the fringe suburbs will become a very viable option for bigger investors.
According to ‘Emerging Trends In Real Estate 2018 Asia Pacific’ – a joint report by the Urban Land Institute and PwC Global, Sydney is number one across the Asia Pacific region in both investment and development. ‘Sydney’s appeal lies in the fact that it is a major city in a mature economy combining a reasonably deep and liquid market of core assets with a better than average yield.’