Sydney property prices have been heading rapidly north this year but by and large, the biggest gains have been in the market for houses rather than flats.
Now buyers are beginning to see real value in the inner city and Eastern Suburbs apartment market – so much so that we expect apartment prices may rise more quickly than houses over the next 12 months.
What’s driving growth in Sydney’s property market?
Sydney property prices have grown quickly. The median dwelling price has lifted 20.9% over the past 12 months, according to CoreLogic data. That means you’d generally expect a property worth $2 million a year ago to be worth $2,418,000 today. Incredibly, 19.8% of this growth has occurred since the start of 2021 – on the same property that equates to more than $1,700 a day.
But, by and large, the biggest gains in the Sydney property market have been reserved for houses. In fact, the median house price has gone up 26.0% over the past 12 months and 23.3% since the start of the year.
Apartment growth has been strong but it looks subdued by comparison. Sydney’s median unit values grew 9.4% over the past 12 months and 11.5% since the start of 2021. The reason year-to-date growth is higher than 12-month growth is that apartment values dipped in the second half of 2020.
Lower growth not necessarily a negative
Some could be tempted to see the lower price growth in the apartment market and to conclude that apartments are a poorer long-term investment than houses. But that’s not necessarily the case.
Property is all about supply and demand and, over the past 12 months, there has been an unprecedented amount of interest in family homes coupled with a growing interest in lifestyle properties, while the apartment market has generally been less active.
But that’s not true of all areas and all apartment types. We’ve been seeing some very strong sales, particularly at the top end of the apartment market or for unique properties.
It’s also worth noting that, while low-interest rates are driving all property prices higher, the housing market is also being driven by the unique conditions created by COVID-19. A lot of people have started working from home more often (or even full-time) and many need space for their home office. Others have decided that if they’re going to be at home more often they want room to move. For some, proximity to the city and amenities has taken a back seat to the desire for more space.
At the same time, a lot of would-be vendors of family homes have decided to hold off due to the uncertainty of the pandemic, shrinking the housing supply.
This mismatch between supply and demand simply hasn’t been as pronounced in the apartment market.
Things will change
With Sydney in lockdown at the moment and so much of our lives changing due to the pandemic, some people are finding it difficult to imagine a time when we’ll be living a version of our former lives. But it will happen – even if it’s a slightly different version of normal than we were used to.
When it does, all the things that make apartment living great – such as proximity to amenities, cafes and restaurants, low maintenance living, and the ability to live in a great location – will factor high in people’s wishlist once again.
We’ll also see the return of overseas travellers, visitors and students, many of whom prefer apartment living. This will encourage greater price growth too.
Even before that happens…
But even before then, we expect the pace of growth in apartment values may soon begin to outstrip house values. That’s because the price gap that has opened up between houses and apartments is now so large that many people are beginning to see the real value in apartment living.
We’re constantly meeting people who’ve shifted their focus from a freestanding home, preferring instead to live in an apartment in a much better location. This is especially true in the first home buyers’ market, where one and two-bedroom apartments remain relatively affordable compared to most housing in Sydney.
In fact, the median one-bedroom property price in Potts Point is $775,000. With a 20% deposit, the repayments on a 30-year mortgage would usually be around $2,450 a month at current interest rates. When you consider that the median rent on a one-bedroom flat in Potts Point is $475 a week ($2,058/month), buying your own apartment now makes a lot of financial sense.
It’s also little wonder first home buyers are beginning to face competition from property investors in the apartment space in Potts Point and the eastern suburbs.
The perfect time to downsize?
The other group of buyers likely to drive increased demand in the apartment market over the next little while is downsizers. Many downsizers have been holding off, taking a ‘wait and see’ approach to the property market over the past 18 months rather than listing their homes and moving on.
However, as I wrote recently, these could be the best conditions in which to downsize we’ll ever see. The growth in family homes means many potential downsizers have seen a real increase in the value of their assets. At the same time, the Commonwealth government has widened the scope of the downsizer super contribution scheme, so that a couple aged over 60 could potentially put up to $600,000 from the sale of their family home directly into their super.
We expect that this too will have an effect on the apartment market over the next few years, with luxury apartments being in particularly high demand.
If you’re interested in buying or selling in Potts Point and Elizabeth Bay contact my team today.