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Sydney’s residential property market is in an upturn, following a long period of underperformance: JLL

Rising demand is colliding with a long-term under-supply of accommodation

​SYDNEY, 18 March, 2014 – Sydney’s residential property market is in the midst of an upturn, with rising demand from prospective home owners and investors – local and offshore – colliding with a long-term under-supply of accommodation, according to JLL’s latest research.

The latest Residential Research report by JLL, titled ‘The positive signs of Sydney’s residential market upturn’, found dwelling prices have been driven upwards by these key factors which have also lifted auction clearance rates to a ten-year high in 2013.

Sydney’s housing recovery follows a long period of under-performance, according to the report. Matching the slow growth of the NSW economy, Sydney’s established house prices rose by 19% between 2006 and 2011, compared with the national average of 30%. Since December 2011, however, Sydney house prices are up 9% compared with 6% nationally, and the pace of activity seems to be accelerating. 

According to JLL’s Director of Valuations and Advisory Tyrone Hodge, improving residential demand from investors and home buyers is driving demand for development sites.  

“Buyers want affordable residential apartments close to existing infrastructure, but a shortage of large-scale developments, dysfunctional planning rules and increasing demand from developers has resulted in strong prices for approved residential sites.  

“The increasing demand has led to lower profit margins for developers but given the challenges and time taken to gain approval for raw sites, it’s likely that completed stock will remain in short supply and as a result prices are likely to continue to rise. 

“In addition there have been a number of new entrants from overseas residential developers who see the residential market as a low risk and are prepared to pay a premium as the returns are healthy and the supply and demand factors are favourable. As a result, traditional local developers are tending to use their expertise in site amalgamation and are planning to deliver approved sites to market for the international buyers to develop,” said Mr Hodge. 

According to JLL’s Director of Residential Project Marketing Aaron Hatch, new growth corridors in Sydney such as Liverpool are developing in response to the rising demand.

“Liverpool is experiencing a growth spurt and is considered a new Parramatta. The Badgerys Creek project is expected to drive further activity, with the NSW state government now looking at plans to extend the train system to a potential second Sydney airport in south-western Sydney.”

Mr Hatch and JLL’s Director of Residential Project Marketing Jason Soulos are currently managing the sale of luxury 14-and 15-storey towers ‘Solis’ in Liverpool. Prices for the residential high-rise apartments start from $325,000. 

‘Solis’ was announced to the market late in 2013 and there are now just 70 of 187 apartments remaining for purchase. The residential high-rise apartments are set for completion by early-to mid-2015.

Mr Hatch said the Sydney residential market is under-supplied and construction activity is finally starting to pick up. “There has been a significant rise in apartment development in inner-city areas of Sydney over the past five years. This is a function of planning policy, population growth and a structural change in buyer preferences.” 

According to JLL’s Director of Residential Research – Australia Rupa Ganguli, the ‘grey’ cohort – people aged 65 years and over – has grown at almost twice the rate of the overall population in Sydney over the past decade. “This trend is expected to continue over the next decade as the population ages, further driving demand for medium- and high-density housing in inner-city locations.

“As a further stimulus to demand, home mortgage rates are at multi-decade lows. Buyers in the Sydney housing market are interest-rate sensitive because Sydney is still the most expensive residential market in Australia despite a decade of under-performance, and therefore home mortgages tend to be large. The recovery in the share market has further bolstered household balance sheets, encouraging Australians to revisit residential property as an investment option.”

Ms Ganguli said Sydney has always been a magnet for international migration. “Net overseas migration has been a key contributor to population growth over the past two years, accounting for almost 70% of net population growth. 

“As a result, the two residential sub-markets likely to show most activity over the next few years are the Outer Fringes, where house-and-land packages make entry to Sydney’s housing market relatively affordable, and inner-Sydney City, where relatively strong population projections in the next five years should continue to drive urban renewal, in order to meeting the underlying demand for residential dwellings,” Ms Ganguli concluded.