Sydney Property Market Overview

The Sydney property market has shown the first signs of recovery. For the first time in more than 18 months we have seen a 12-month period of growth in Sydney with growth in median house prices of 1.77% for the 12 months to 30 June 2006. Over the June Quarter there was a 2.84% growth in median house prices taking the median house price to $552,500. The unit market has established over the last 12 months with -0.16% decrease in median unit prices. Over the June 2006 Quarter unit prices increased 1.6% to a median price of $378,000.

Prestige properties continue to perform strongly with a shortage of $3 million plus properties on the market. Due to the low stock a large number of properties are selling off-market or pre-market without even officially hitting the market. The Inner City and the East continue to perform well when compared to other areas of the Sydney market.

According to valuer Dyson Austen, the 10 most expensive properties sold in Sydney in the June quarter fetched $132.4 million, the highest total for the top 10 properties since the December quarter 2004. The most expensive property was 9 Wolseley Crescent, Point Piper, which sold for $24 million in May, followed by 18 Carrara Road Vaucluse, which fetched approx. $23 million in April. The recent share market correction has bolstered demand for prestige property as high-net-worth investors cashed in their shares.

There have been some strong sales results this month. Tamarama House sold for $9.55 million, the highest price at auction for the year. The waterfront property was sold with DA approval for 5 luxury apartments. The property last sold in 2002 for $4.55 million, delivering the current owners a $5 million gain in just four years. A 200sqm penthouse in Notts Avenue, Bondi Beach sold for $9 million.

A new record was also set for the Inner West with a property in Drummoyne selling for $3.16 million. There were 17 registered bidders pushing the property past its reserve of $2.9 million.  The property was in original condition and is set on 1000sqm with uninterrupted water views.

The Sydney market has entered a phase of stabilisation and consolidation with a small amount of growth creeping back into the market. We have seen increasing sales volumes and auction clearance rates as vendors revise their boom time expectations. Rental vacancies are at a 6 year low and as a result, rents and rental yields are on the increase.

There was a larger-than-expected jump in home loan approvals across Australia for May, the month the Reserve Bank lifted interest rates. Another positive sign for the markets was the record $20 billion that was lent to home buyers in May, despite the rate increase. This is an 18% rise on a year ago.

The Sydney property market was largely unaffected by the 0.25% interest rate increase in May. Due to continuing high inflationary pressure there is overwhelming consensus that the Reserve Bank will increase rates again in this week. If rates are raised it is unlikely that the market will remain unaffected. Another interest rate increase may dampen any potential of a recovery this year.

Sydney Rental Market

Rental returns continue to improve due to a shortage of rental properties on the market. According to Residex, the rent for the average Sydney house has increased by 7.25% in the last 6 months to $370 per week. Unit rents have increased by 1.59% in the last 6 months to $320 per week. Sydney renters have no incentive to become purchasers with the weekly rental cost being around $300 per week cheaper than a mortgage commitment.

Vacancy rates have continued to decline and are sitting at around 2%. These very low vacancy rates will continue to apply pressure on rents improving the yields of property investments and will in time bring more investors back into the market.

Rental yields are predicted to reach around 5.5% in the medium density market before there is any significant increase in investor activity in the market to increase rental stock. Investors should maintain short term leases to take advantage of the improved market conditions and allow flexibility to increase rent levels.