Why I’d buy in Sydney - March 2020
March 5, 2020 / Written by Rich Harvey
Sydney’s median house price has once again crept above the $1 million mark after growth of more than 10 per cent, on an annual basis, to February. It’s now close to passing the lofty peak of the last boom in September 2017.
It’s remarkable when you think back to where we were this time last year – a long period of contraction continuing and uncertainty about when a recovery might occur.
So, conventional wisdom should tell investors to avoid the extreme heat and look elsewhere… right?
Wrong. I’d still buy in Sydney quite happily and comfortable, confident in the knowledge that strong growth fundamentals remain well and truly in place.
The city keeps growing
Government projections show that Sydney’s population will increase by roughly 100,000 people this year alone.
In two decades’ time, the city’s total population will hit 10.5 million people, up from about 5.2 million now.
And it’s where those people are living that’s interesting.
Of course, fringe suburbs are attracting a lot of residents because of their cheaper cost and the lure of suburbia for families. But urban enclaves closer to the CBD remain extremely popular, projections show.
Secondary cities in Greater Sydney, like Parramatta and Penrith, are also booming.
Interstate and overseas migrants making the Harbour City there home – as well as growing families having kids – all need somewhere to live. But building approval figures show we’re already experiencing a housing shortage.
Sydney is building about 10,000 fewer homes every single year than it needs to accommodate its growth. In the long-term, this will have a continued impact on prices. But right now, and through to the medium-term, it’ll place upward pressure.
There’s not a lot of new dwellings in the pipeline as many developers shelved projects over recent years when the market softened.
The economy is strong
New South Wales continues to be the powerhouse economy in Australia, with pretty impressive growth projections, low unemployment, high jobs growth and a variety of strong industries.
The state’s enormous infrastructure program alone is supporting 100,000 new jobs every year, as well as pouring almost $90 billion into vital projects that make life easier, more convenient and more enjoyable.
A strong economy makes people feel more confident about committing to a property, even in a hot market. It supports jobs and growth.
And it draws lots of people to the state – and its capital.
Affordability is tight, but not impossible
Of course, higher prices do lock out some buyers who can’t afford to compete with others. We’re seeing a bit of that now.
Just go along to an auction, just about anywhere in the city, on a Saturday and you’ll see intense competition, prices well above asking and consistently strong auction clearance rates.
But this will mean secondary suburbs get their day in the sun, as bargain hunters and young people move to the areas they can afford to live in.
The First Home Loan Saver scheme rolled out by the government, making it possible for first-timers to buy with just a five per cent deposit, with the rest guaranteed by the Commonwealth, is helping young Australians.
Sure, the program isn’t perfect, and it’s limited to 10,000 people, but I suspect the government will continue and expand it in the new financial year.
The scheme has been a success already, the numbers show, and the economy needs stimulus, so it’s a no-brainer.
The financial regulator also lowered its minimum interest rate serviceability buffer in the second half of last year, making it a little easier for banks to offer larger loans. On top of that, rates remain at historic lows and so credit has never been cheaper.
Suburbs with strong prospects
There are pockets of the inner-city and even suburbs a little further afield that offer exceptional buying opportunities.
I’m talking about the Inner West, like in Petersham and Ashfield, where gentrification is underway and breathing new life into areas that have flown under the radar. They’re benefiting from good local amenities, strong transport links, a vibrant culture and more affordable property with potential to add value.
I’m also talking about pockets closer to Parramatta, such as Westmead, Northmead and Merrylands which is experiencing a jobs boom and developing its own unique cosmopolitan culture. The population projects there are incredible, and the government is spending a huge amount on infrastructure.
On the North Shore, families seeing suburbs close to great schools are regularly targeting St Ives, Turramurra, and North Wahroonga as a place to raise kids.
Of course, as is always the case with property investment, not all suburbs will be good bets. Finding locations with the best growth prospects in the mid and long-term will require buyers doing their homework, knowing intimately what makes an area tick and being able to identify the various growth levers.
That’s why a buyers’ agent who’s independent, qualified, experienced and well-connected is a worthwhile investment. Not only can they pinpoint the right property in the best suburb, but they can secure it for you – doing all of the work – for the most competitive price possible.
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