Sydney Property Market Overview

The Sydney property market continues to show signs of improvement despite the recent interest rate increase. In the month of May the Sydney housing market experienced 2.63% capital growth. Owner-occupier demand remains healthy and good quality stock is particularly low, which is one of the major factors holding up the Sydney housing market. A majority of good family homes are selling pre-market or within the first week of marketing.

The following graph shows the trend for Sydney houses. Despite the fact that growth over the last 12 months was -0.57%, there was an upward growth trend over the last Quarter. It is slow and gradual but there are indications that growth is starting to come back into the Sydney housing market. (graph source: residex)

The Sydney unit market is not performing as strongly as the housing market largely due to lower investor demand. The Sydney unit market fell by 0.09% in May 2006.

Although the unit market across Sydney is generally under performing when compared to the housing market, at the top end of the market units are performing well due to high demand from empty nesters looking to downsize into low maintenance living. A waterfront penthouse in Billyard Avenue Elizabeth Bay sold this month for $13.75m. This is Sydney's fourth-highest apartment sale. Sydney's highest-priced unit is John Laws' purchase at Woolloomooloo Finger Wharf for $15 million in June 2004. We look at some recent top end unit sales in Sales of Interest in the right column.

The Inner City and the East continue to perform well when compared to other areas of the Sydney market due to strong owner-occupier demand and a shortage of good quality stock. We look at how Sydney's Eastern beachside suburbs have performed in our Suburbs Snapshot below.

A recent survey by the Housing Industry Association showed sentiment in the residential sector remained solid in the March quarter with 69 per cent of Australian households planning to buy a home or renovate. A large proportion of home buyers were first-timers at 38 % and 28% were buying their second home.

Despite the recent interest rate increase there is still underlying strength in many areas of the Sydney property market due to low stock and a large number of buyers in the market.

Sydney Rental Market

Sydney rental vacancy rates have dropped below 2%. Rents are starting to rise in response and rental yields are improving. Sydney's median rent was $300 in the March 2006 Quarter, a 3.4% increase from the December 2005 Quarter. Some experts are predicting a 10% per annum increase in rents over the next 2-3years. The rental market has become very competitive with bidding wars occurring for properties. The highest demand is in Sydney's inner suburbs such as Woollahra, Lane Cove and North Sydney where vacancy rates fell to 1.7% and the median rent rose by 7% last year.

A shortage of rental property and resulting rent rises is being driven by increasing interstate migration to Sydney, a slowdown in construction of new dwellings, accelerating population growth and fewer investors in the market.

NSW Land Tax Update

Complaints from property investors over erratic spikes in annual land valuations have prompted measures that are aimed at creating a fairer system. The 2006 State Budget has introduced rolling three-year averaging of land valuations from 2007. The Government also announced that its $352,000 land tax threshold will be indexed annually, also based on rolling three-year averaging.

Despite these measures, land tax revenue is forecast to rise to $1.79 billion next financial year, up from $1.73 billion this financial year.

NSW investors pay 1.7 per cent tax on investment properties with land values higher than $352,000. For example, a property with a land value of $450,000 incurs a $1766 land tax bill.

Suburb Snapshot - Eastern Beachside Suburbs

Over the last decade demand for property along Sydney's Eastern beaches has been strong and has pushed property prices upwards. The housing market around Bondi, Randwick and Coogee has a mixture of houses and units, with units making up approximately two thirds of the market. Further south in Maroubra and Malabar, houses tend to dominate the market with around two thirds of dwellings being either houses or townhouses. The map below shows the average annual growth rate for the 10 years to December 2005 for the beachside suburbs. We look at the each suburb in more below.   

Bondi Beach: At Bondi Beach houses and townhouses make up only 27% of dwellings. Limited supply has been driving prices up in recent years. The median house price has increased from $655,000 in Dec 2000 to $1,035,000 in Dec 2005. During 2005, a total of 56 sales were over the $1million+ mark placing Bondi 12th on the list of million+ sales for Greater Sydney.

Bronte: Bronte has had one of the highest increases in median price in the area over the last five years. During this time, median prices have risen from $657,000 in Dec 2000 to $1,414,000 in Dec 2005, representing an average  increase of 16.6% per annum. Units account for 52% of dwellings in Bronte and in the period ending Dec 2005, the median price for units was $498,000. In the Bronte area, 50% of people live in households containing children, which is high when compared to other areas in the Eastern Suburbs. However, there is still a strong rental market with 37% of dwellings being rented, a large proportion of which are units.

Randwick: Over the last five years, Randwick houses have achieved an average median house price growth of 14% per annum. This is largely due to its close proximity to the city and good stock of family homes on large blocks. Close to 40% of all private dwellings in Randwick are flats, units or apartments.

Coogee: Over the last five years Coogee has experienced an average median house growth of 6.5% and strong median unit growth of 8%.

Maroubra: There are approximately 10,896 dwellings in Maroubra, the majority of these are units (39%), with one to three storey unit developments accounting for 28% of dwellings and units with four plus storey accounting for 11% of dwellings. Separate houses accounted for 33% of dwellings and semi-detached housing 19%. Median house price in Maroubra increased from $516,250 in Dec 2000 to $748,000 in Dec 2005, representing an increase of 8.9% per annum over the five year period. Many of the houses in Maroubra are on relatively large lots, which is a rare commodity in the Eastern Suburbs. Maroubra unit prices are also catching up with a median price of $445,000 for the six month period ending Dec 2005.

Kingsford: The proximity of the University of New South Wales has a large influence on the property markets in this area. The rental market is largely driven by the university and 44% of all dwellings are rented. The average rent for a 2 bedroom unit in 2005 was $330pw and with the median price for a unit at $415,000 this represents an average gross rental return of 4.1%. The median house price in Kingsford reached $748,000 in 2005 and has averaged 7.8% growth per annum over the last five years.

This table shows average median growth rates for the 5 years to Dec 2005.