Sydney Leads Australian Real Estate Revival

In Australia, property has historically been a sound investment, offering significant ROI over time. Following a decline in property values due to the COVID-19 pandemic, the nation saw exploding growth as lockdowns eased and both local and international demand revived. 

In 2023, the Australian property market has been booming, with Sydney leading the way. CoreLogic’s national Home Value Index (HVI) rose for the third consecutive month in May, with Sydney the recovery trend, with an increase of over 1.8%, the city’s highest monthly gain since September 2021. Since the beginning of 2023, Sydney has seen prices rise by 4.8%, which is the equivalent of an almost $50,000 gain in median house prices.

As the city is also posting strong monthly gains in apartment prices, CoreLogic suggests that this may be the start of a slow recovery phase, due to inflation appearing to have passed its peak and consumer sentiment rising from near-record lows. According to Westpac’s economists Matthew Hassan and Bill Evans, “Australia’s housing correction is largely over”, and despite interest rates remaining high and the economy expected to slow towards the end of the year, other factors are putting pressure on home prices. 

What Is Driving Sydney Property Prices?

There are a number of factors driving demand and putting pressure on home prices, which can help prospective buyers and investors get a better understanding of the market, and to predict the right time to buy.

Rental Demand

With net overseas migration continuing to rise, many migrants are looking to buy straight away to avoid the hassle of renting. The lack of rental accommodation is seeing spillover from property rentals to purchases, and this is further propelling Sydney property prices, which in turn will likely see rental prices increase in tandem.

Property Investors

Record levels of immigration into Australia is contributing to the continuing rise of rent not just in demand from renters, but also from investors who are looking to capitalise with investment properties. With vacancy rates falling from 3.5% to almost 1%, this is luring many investors back to the market. The strong demand for rental properties is acting as a counter balance for higher mortgage rates.

Dwindling Supply

The positive trend in house prices is the result of persistently low levels of houses available, and substantial housing demand. Compared to the end of April, there were approximately 1,800 fewer properties available for sale in capital cities across Australia, with levels 15.3% lower than they were year-on-year, and 24.4% lower than the previous five-year average. 

The shortage in properties is making buyers more competitive due to the fear of missing out, with auction clearance trending higher. Holding at 70% or higher recently, homes are selling faster and with less vendor discounting.”

Home prices still remain substantially lower than the January 2022 peak, but with significant rental demand luring investors back to Australia and a dwindling supply of houses for sale, Sydney property is seeing the highest growth in the nation.

However, there are a couple of other factors in Sydney may play a decisive role in the coming months. 

Interest Rate Increases

There are a growing number of sellers across Australia who are making a loss on property, and many buyers reselling properties within just two years of purchase. Despite a stabilisation in prices and most homes still selling for a gain, the increased rate of resales could be an early indication of borrowers who are looking to get avoid mortgage stress as interest rates rise.

To avoid high mortgage repayments, many sellers are choosing to take a loss in resale rather than face the uncertainty of further rate hikes. Apartment owners were far more likely to sell property at a loss, with the gap between units and houses growing reaching record figures.

Sydney’s Newest Airport

With the proposal of flight paths for planes at the under-construction Western Sydney Airport, once these flight paths are confirmed, we are likely to see a significant negative impact on property values that fall in those suburbs. Mount Druitt, Penrith, Prospect, Orchard Hills, Bankstown, Windsor and Richmond are suburbs that are expected to be the most impacted under current plans.

Whilst these current plans are still under consideration, it is worth noting that a University of Sydney study found that properties underneath flight paths were valued at 3-5% less, which might give a more affordable entry point, but also impact resale values.

Buying Your Next Property

Whether you are looking to purchase your first home, move into your dream home, or capitalise on current rental demands by securing your next investment property in Sydney, get in touch with the team at HYG. We are a fully integrated property developer, passionate about developing, constructing, selling and managing extraordinary properties, and have an in-depth knowledge about the property market in Sydney.