With tougher bank lending rules and prices growth in Sydney on the skids, it’s no surprise investors have begun turning their backs on bricks and mortar. The latest ABS figures showed fewer of them taking out loans in December, while loans to owner occupiers rose.
Despite this, however, many experts believe that Sydney real estate is still a good investment.
“Most of us believe Sydney still has a lot of good investment buying,” says Linda Wang, management consultant with agents Laing + Simmons. “We have a growing population, and often a shortage of accommodation, and those are the two single biggest factors in the property market.”
Capital growth has shifted from fifth gear over the last three years to second gear currently, believes Metropole Property Strategists CEO Michael Yardney. Yet Sydney’s steady population growth continues to drive the market upwards, and especially the investment sector.
“We’re still seeing a lot of demand for homes closer to the CBD, in the eastern suburbs, on the lower north shore and the inner west,” he says. “That’s from a demographic of people whose wages are growing more than average and who have a higher disposable income, so those are always good areas to invest in.”
Justin Doobov, of mortgage brokers Intelligent Finance, also favours areas close to the CBD, like Surry Hills and Darlinghurst, locations always popular among renters of both houses and apartments.
“We still have a lot of people buying in Sydney and making strong returns,” he says.
“Historically, they’ve been safe returns too. There might be other areas with projected higher returns but they’re not without risk.”
In addition, Sydney has the strongest economic fundamentals of any capital city in Australia, according to Domain Group chief economist Dr Andrew Wilson. The strength of demand and the shortage of supply – even with record levels of new units being built – favours the investor.
Then there’s the vacancy rates of below 2 per cent for houses and just above 2 per cent for apartments, rising rents, and lower projected price growth of 2 per cent this year, and 3-5 per cent in the longer term, which will lead to increasing yields.
“There’s also the talk of changing the taxation regime, with negative gearing, as well as super rules, which could further encourage people to put their money now into bricks and mortar before they happen,” Dr Wilson says. “I think there are good opportunities for investors in Sydney at the moment, particularly at a time when sentiment is lower and there’s not so much energy in the market.”
He favours buying houses in Sydney’s outer western suburbs, in places like Penrith which are more affordable than most, still offer good value and “are gentrifying very quickly”.
Investors should also take a good look at some of the new suburbs and estates in the west, as well as those in the south west, recommends Joseph Alam, head of retail lending at Lendfin. He recently had a client who bought at Oran Park in Camden and the value of their new house and land package rose from the purchase price of $280,000 to $480,000 in the 24 months before settlement.
“There are a lot of new areas coming up and we advise people to take a good look at them,” Alam says. “People are being pushed to the outer suburbs by affordability but there is often good buying for investors in those areas, as well as owner-occupiers.
“There’s a lot of demand for rental properties as there are lots of new jobs out west, the new airport coming up, and lots of small, well-priced, low-maintenance blocks to invest in.”
Where could be better than Sydney?
Fortitude Valley, Eagle Farm and Chermside: “South East Queensland is offering some good returns, but the state can go up and down, so spread the risk with a mixed basket of investments,” says Justin Doobov, of Intelligent Finance.
“Some people think Sydney is too crowded, and Melbourne is too cold to live in, but Brisbane is warmer and has beaches and offers a pleasant environment,” Lendfin’s Joseph Alam says. “In some ways, it’s the new Sydney!”
Brisbane and the Gold Coast: “These haven’t seen anything like the price growth that we’ve seen in Sydney and the yields are 1 per cent higher,” says Shane Oliver, chief economist of AMP Capital Investors. “And it seems to be the part of the Australian economy that is likely to do better from the lower Australian dollar in tourism and manufacturing. These areas will be the strongest in Australia over the next few years.”
Melbourne CBD and Docklands
“There are now some really good units being built there, and they’re relatively cheap compared to the Sydney market,” Alam says. “An apartment that would cost $1 million in Sydney could cost $500,000 in Melbourne.” There may be an oversupply of not-so-good units, but the best ones are a good investment, he believes.