Investors are flooding back into the Sydney property market, motivated by record low interest rates, healthy rents and the promise of long-term price growth.
Investors started eyeing off Sydney property again last year. But since January that faint flirtation has turned into a full-blown affair, fuelled by rock-bottom interest rates, a pick-up in house prices and the continuing high demand for rental properties that is propelling rents skyward.
According to financial comparison website RateCity.com.au, the value of property investment loans in February was the highest since before the global financial crisis.
Australian Property Monitors senior economist Dr Andrew Wilson says the number of investors in NSW who have taken out loans in the first three months of 2013 is up 26 per cent compared with the same period last year. He estimates that about 40 per cent of all investor loans nationwide are being taken out in NSW, mostly in Sydney. The proportion of investors to the total number of buyers is also heading north.
”Sydney’s been the most consistent city since the GFC for house price performance,” Wilson says. ”It’s got it all and investors aren’t stupid, that’s why they’re half the market at the moment.”
These buyers are not chasing quick profits, as in past years – although in many cases rental yields are good. The average gross yield in the March quarter in Sydney for apartments and houses was 5.14 per cent and 4.64 per cent respectively – both up on the previous quarter, APM figures show.
Rather, investors are being encouraged into the market by solid prospects for growth, which Wilson puts at between 5 and 7 per cent a year over the next decade. ”The fundamentals in Sydney are so solid that over the medium term they’re always going to get a return and build their portfolios,” he says.
This dramatic rise in demand is also being seen by agents. One of them, Darren Pearce, from BresicWhitney, sells in inner-eastern suburbs and says ”it was becoming obvious two months ago but now it’s blatant”. Six of the eight properties he sold in April were to investors, while in the same month last year all were bought by owner-occupiers.
lEven up the north shore line, Ian Clarke, of Belle Property Pymble, has seen a similar trend. He’s sold an increasing number of properties – mainly apartments – to investors since January and expects this to continue while interest rates remain low. ”If anything, the number of investors buying here is going to improve,” he says.
Patrick Bright, a buyer’s agent with EPS Property Search, saw the first signs of a recovery in investor numbers back in June and ”it’s been a steady line on a month-to-month basis since September”. ”Right now we’re very much at the start and we’re only just seeing it ramp up,” he says. ”You’re seeing rates so low, and rents are as close as they’ve ever been to covering the mortgage.”
Most properties he buys for clients are in the $600,000 to $1.2 million range, which is ”typical investor stock”. Most are within 20 kilometres of the city – renters want to live within 30 minutes by public transport, he says.
While one- and two-bedroom semis and terraces are popular, Bright recommends apartments where possible because they ”are outperforming houses in the inner ring”, as a result of demand from downsizers and younger buyers.
”There was always going to be pressure in the apartment lock-up-and-leave market from all angles and that is exactly what’s happened.”