Sydney Property Market and Rental Yields on the Rise, Attracting Investors

Times Viewed: 36

The Sydney property market is showing strong signs of recovery, with dwelling values in the city increasing 1.3% in April, leading the positive turn in housing conditions nationwide since February, according to CoreLogic Home Value Index (May 1) [1]. As Ev Foley reports in her article, rental yields are well positioned for stronger growth, with Sydney leading the housing value upturn [1]. Australia’s government is also seeking to calm the rental crisis with investor tax breaks, providing incentives that could see an extra 150,000 new homes built over the next decade, as mentioned in an article by The Business Times [2].

Grant Ashby, director of prestige property agent Sydney Cove Property, says that the city micro-market has been quite resilient throughout the Covid-19 pandemic [1]. “The investor market was in a really bad way through Covid and wasn’t performing, and now that the rents are back above the pre-Covid level and the returns are starting to come in their favour, even though there’s interest rates and other things, we’re starting to see a bit more activity,” Ashby states [1].

Australia is encouraging investors to build urgently-needed rental properties by slashing levies and offering tax breaks to local and overseas investors [2]. This strategy is aimed at easing the nation’s worsening housing crisis, as rents surge at the fastest pace since 2010 due to low vacancy rates, rising immigration, and a lack of supply [2].

The housing market in Sydney is driven by several factors, including strong job growth, major infrastructure spending, and an influx of overseas migrants and international students, which is coupled with a shortfall in rental listings [1]. Ashby explains, “The last boom we received in Sydney was purely around student migration and I’ve heard from a student visa approver recently, there’s another 7,500 students coming into Sydney in July, so that’s going to increase more volume of people again and there’s a call from business who can’t get workers so we can expect more migrants coming on so I think if you’re an investor, I think you’ve got to look at where your current rents are and you’ve got to forecast a year on year growth on rents, and I think if you did a five-year projection on that I think you’ll be surprised where the numbers will sit.” [1].

While these housing measures are unlikely to make a significant difference in the next few years regarding housing affordability, they are a step in the right direction to address the supply shortfall [2]. AMP economist Shane Oliver says, “While the housing measures are welcome, they are unlikely to make much of a difference in the next few years to housing affordability, with the supply shortfall intensifying with very high immigration levels” [2].

References:

[1] Ev Foley. “Sydney property market swells with upward trends.” https://www.apimagazine.com.au/news/article/sydney-property-market-swells-with-upward-trends

[2] The Business Times. “Australia seeks to calm rental crisis with investor tax breaks.” https://www.businesstimes.com.sg/property/australia-seeks-calm-rental-crisis-investor-tax-breaks