Greater Sydney is the largest metropolis in Australia and it hosts the headquarters of many national and international businesses as well as being the location of the nation’s busiest international airport. Sydney Harbour is world famous, but this great city has many centres. The administration of the conurbation is split between 29 local government areas (LGAs) each with its own urban centre. Some parts of Sydney property market have glamour and status, while others are home to working class communities.
A decade of economic boom encouraged businesses in the metropolis to expand, hiring staff from outside the city as the local workforce was fully employed, causing the real estate market to experience property shortages and rising prices. Developers, encouraged by house price predictions, invested heavily in new housing projects. However, as the economy cooled, expected median prices became unaffordable.
While there is still population growth and demand for housing in the area, the double-digit growth in prices expected by developers have proven to be unsustainable and now prices are falling. However, there is still capital growth available in Greater Sydney for those who can spot the best suburbs to invest.
Sydney council areas with highest Capital Growth projections
The market cycle graph for house prices in all LGAs in Greater Sydney shows the rate of change in each quarter. Overall, when house prices are rising, they rise in all LGAs and when they fall, they fall in all LGAs. However, the rate of increase and the rate of decrease varies by LGA. 2015 was a particularly good year for houses in all LGAs.
One notable LGA to look at in 2015 is Cumberland. It had the second highest price rise of all of Greater Sydney property market. It was beaten only by neighbouring Liverpool. Cumberland had a median house price rise of 19.49 percent in 2015, when Liverpool experienced annual price growth of 19.79 percent. These two markets have fallen hard since that date. Although price growth continued in those two LGAs. Their rate of growth ceased to make them the leading performer, with the more prosperous waterfront LGAs getting faster price growth in 2016, when Northern Beaches had the highest price growth rate at 15.26 percent and Cumberland had the second-lowest price rise, which was 8.74 percent.
This switch between the house price performance has continued to this day in the first quarter of 2020, with the workaday outer suburbs dipping into price falls in 2018 and the more exclusive areas maintaining price rises. In 2020 the market for houses in Sutherland will experience its worst year ever in terms of price performance. HtAG forecasts predict a median house price loss of 5.91 percent for the whole year. However, this represents a turnaround year because, as we have already seen, prices fell by 8.91 percent in January 2020.
HtAG forecast show that prices in Cumberland will continue to fall in 2021, but by 3.63 percent. Sutherland Shire house prices were the worst performers in 2019 with a fall of 6.47 percent. Prices will fall by 6.36 percent in 2020, but that represents the biggest median house price fall in all of Sydney property market.
The best performer through 2020 and 2021 is Woollahra. This LGA seems to have all the indications of a high-status suburb. It includes iconic Bondi Beach, it has a golf course, and it is close to the central business district and fashionable shopping areas of the city. Another probable reason for strong performance in Woollahra relative to other LGAs in Sydney is its relative price stability. Woollahra didn’t get those double-digit price rises experienced by many Sydney LGAs in 2015.
While the median house price rise in Cumberland and Liverpool were touching 20 percent, the price rise in Woollahra was 8.56 percent. The slow down in price rises in Woollahra was less pronounced in the following years and the average house price growth in the LGA has been bumping along the 5 percent level since the beginning of 2018. HtAG forecast expects median house prices to rise by 4.38 percent in 2020 and 4.59 percent in 2021.
Property market overview for houses
Despite the market in Sydney being overpriced, the most expensive LGAs in the area have not experienced price falls. The prestigious central waterfront LGAs were already fully built up before the price boom occurred. Thus, lack of new building space prevented the housing market for residential property in these areas from becoming oversupplied.
As can be seen on the median house price map above, Willoughby City experienced a price increase of 4.41 percent over 17 house sales and Waverley saw a price increase of 3.9 percent on 14 house sales, while prices fell by 8.91 percent in Cumberland LGA on 36 house sales during the same period. The median house price fell by 6.62 percent in Sutherland Shire on 27 house sales and 6.1 percent over 29 house sales in the City of Paramatta.
Despite all being part of the same city, the market for houses in the above-mentioned areas is very different. The median house price on sales in Waverley was A$3,422,395 and in Willoughby City it was A$2,604, 118. The average sale price in Cumberland was A$838,159 and in Sutherland Shire it was A$1,176, 327. Areas surrounding Cumberland and Sutherland Shire have cheaper housing and experienced price fall, but at a slower rate.
The outer suburbs relate to the type of typical housing market that is common in the rest of Australia. These are the areas where people get an income-based mortgage and rollover profits from a previous house sale when they buy a home. The house price trend in these markets, therefore is much more sensitive to changes in employment prospects. Being high-priced areas in this category of housing market, Cumberland and Sutherland Shire are suffering most from the sudden slowdown in the general economy.
Prestigious waterfront LGAs are hemmed in on all sides, have little development land available, and have a finite stock of houses. Buyers in these areas rely on investment income and bonuses from specialists jobs in the finance sector. As the stock market is still doing well, there is still an increasing amount of money available for sought-after addresses. As a larger pool of buyers chase a restricted number of properties, prices will increase. A crash in the stock market would see prices in those prestigious areas fall as existing owners try to recover from their losses, putting more houses for sale in those areas at a time when no new buyers want to invest in high-status housing.
Price forecasts for Sydney houses & units
The median price forecasts for Greater Sydney housing market, shown on the graphs below, illustrate how assessments of property data change over time.
This graph is taken from the specialist Greater Sydney house sales market report on the HtAG real estate website. It shows how those who research median house price growth to plan cash flow can sometimes be blindsided by unexpected performance in the economy as a whole.
A prediction made in Q4 2015 would have expected prices to continue to rise at the same rate that had been taking place over the previous two years. This trend would have failed to spot the decreased rate in price rises during 2016, but it’s forecast would hit the peak in Q4 2017 almost exactly. Later estimates would be based on more recent datasets that include the slowing of prices rises in 2016. Weighting recent data, those forecasts would have missed the peak and drop in median property price increases. The current HtAG forecast has a recent flattening of demand to work with. However, the forecast will change as more data comes in showing actual events.
Top performing suburbs in the Sydney housing market
The three top performing suburbs buck the price movement trend of the LGAs to which they belong. These are
- Surry Hills in the City of Sydney LGA,
- Hornsby Heights, in the Shire of Hornsby and
- Mona Vale in the Northern Beaches LGA.
The median house price in all of these LGAs fell during Q1 2020 despite the fact that they included the three best performing suburbs.
The largest median house price rise was experienced over the sale of 13 houses in Surry Hills. The median house price rose 8.1 percent during the quarter while the median house price in the LGA for Surry Hills, the City of Sydney, the median house price fell by 2.68 percent. The next highest price rise per suburb occurred in Hornsby Heights over 8 sales. This was a median price rise of 6.59 percent, while house prices across the Shire of Hornsby fell by 4.24 percent. The median house price in the Northern Beaches LGA fell by 3.75 percent, but Mona Vale prices, within that LGA, rose by 5.99 percent over 9 sales.
At the other end of the price change league, the suburb of Denham Court had the worst performance in Q1 2020. Denham Court is in the Campbelltown City LGA, where prices are relatively low. The median price in Denham Court was A$758,302 over 16 sales during Q1 2020. By comparison, the median price for house sales in the same period was A$1,890,002 in Surry Hills, A$1,246,605 in Hornsby Heights, and A$2060,897 in Mona Vale. So, the price falls in Denham Court and the price rises in Mona vale, Surry Hills, Hornsby Heights, and Mona Vale are consistent with the theory that expensive properties are safer targets for investments than the lower end of the market.
Denham Court median house prices fell by 10.15 percent in Q1 2020 over 16 sales, while house prices in the Campbelltown City LGA as a whole fell by 2.97 percent. The second biggest median house price fall in Greater Sydney in Q1 2020 occurred in Guildford, which is part of Cumberland LGA, which was widely discussed above. Cumberland house prices fell by 5.91 percent; Guildford’s prices fell by 6.52 percent over 12 house sales. The third worse performer in the Greater Sydney property market for houses was Thornleigh, in the Shire of Hornsby, where prices fell by 4.24 percent in Q1 2020. As Thornleigh prices fell by 6.47 percent over 8 sales, the Shire of Hornsby LGA includes suburbs that had the second highest price gains and the third biggest price falls in Q1 2020.
Suburbs with highest gross yield for houses
In the rental market, investment activity has the reverse dynamic to the house sales market. The very high sales prices in the high-spec suburbs of Sydney make it very difficult to make any money on renting properties out in those areas. The cheaper LGAs in Sydney offer better rental yields and so are more attractive prospects for landlords.
Gregory Hills, Jordan Springs, and Bradbury have the highest rental yields (we only considered suburbs with High Confidence forecast data for this analysis) in the Greater Sydney property market. However, the yields on houses in Sydney are not as good as the yields on units. Gregory Hills is a semi-rural suburb in the Campbelltown City LGA and has a 3.89 percent rental yield on houses. Both sales prices and rental levels fell in the suburb, by 1.25 percent and 1.44 percent respectively, so rental yields fell slightly in Q1 2002, but still managed to remain higher than in other suburbs. Jordan Springs comes close to the yield levels of Gregory Hills at 3.87 percent. This suburb went up in the yield table in Q1 2020 because house prices fell by 1.91 percent and rent levels fell by just 0.7 percent.
Jordan Springs is on the western edge of Greater Sydney in the Penrith City LGA. The third highest rental yields can be found in Bradbury, to the south of the city in the Campbelltown LGA. The suburb was higher up in the yield league table until Q1 2020. Rent levels fell in that quarter by 1.45 percent and the median house sales price fell by 0.05 percent lowering the yield on houses for rent to 3.8 percent.
The lowest rental yields can be found in Strathfield, Concord, and Epping. House sales prices are very high in these areas. The median sales price in Strathfield in Q1 2020 was A$2,495, 589. Sales prices fell there by 4.32 percent, which is an uncharacteristically large drop for high-priced suburbs. Rent levels fell by 7.2 percent, which gives the suburb the worst yield performance of 1.72 percent.
Strathfield lies in its own LGA close to the inner cluster of Sydney suburbs. Concord is a neighbouring area with some attractive waterfront areas on the Paramatta Ricer. It lies in the City of Canada Bay LGA. The average house sale price in Concord rose by 4.07 percent in Q1 2020 while rent levels plummeted by 13.87 percent, giving the suburb a rent yield of 2.03 percent.
Epping is well out of the centre of Sydney, but manages to command high sales prices for its properties. It lies in the City of Paramatta LGA. House prices in Epping fell by 1.71 percent in Q1 2020, while rent levels fell by 6.61 percent, lowering the rent yield in the suburb to 2.18 percent.
Sydney property market overview for units
Aspirational properties in the outer suburbs are houses for families and units are bought by those who can’t yet afford to buy a house. In the inner LGAs, units are built and designed for high-flyers who want to be close to their high-paying jobs in the central business district. Central LGAs are also top investment suburbs for those who have enough money for a family home elsewhere as well as a place in the city. Businesses that need units to house specialist staff on temporary assignment tend to invest in property close to the central business district. Overseas buyers that want a place in Sydney for occasional use will buy units in the centre of the city rather than houses that need regular maintenance and are less secure when left unoccupied.
Once again, the inner Sydney LGAs have a different market for units than the outer suburban LGAs. Again, prices in the outer suburbs are linked to the employment market, whereas the price trend of units in the inner LGAs are linked to the price of the Australian Dollar and the level of the stock exchange index. Prices are falling at a faster pace in those more accessible LGAs than in the investment-grade inner suburbs. This is because units have been priced beyond the reach of target buyers in the residential market, while the international market and out-of-towners still have money to spare for prestigious unit developments.
What is the trend for unit prices in Sydney?
The forecast graph for unit sales in Greater Sydney property market shows that the steep increase in prices peaked a little earlier for units than it did for houses. Whereas the sharp incline in prices for houses levelled off in Q3 2018, that slowing of the rate of price increases in the market for units began in Q1 2018.
All sales markets in Australia showed a sudden decrease in sales in Q3 2018 to Q2 2019. This drop in demand is behind the slowing of price rises and, in the case of many Sydney suburbs, the beginning of price falls. HtAG forecasts expect demand for units in Greater Sydney to increase over the next two years. This should bring the median price of units back to a rising trend.
Sydney suburbs where units had best annual capital gains
Unit prices saw the biggest gains during Q1 2020 in Darlinghurst, Chatswood, and the City of Sydney. Darlinghurst lies within the City of Sydney LGA, while Chatswood is away from the city centre in the northern suburbs and part of the Willoughby City LGA. Unit prices rose by 6.2 percent in Darlinghurst, by 6.14 percent in Chatswood, and by 5.66 percent in the Sydney. Willoughby City LGA as a whole experienced a fall in the median sales price of units by 0.66 percent. Unit prices in the entire City of Sydney LGA fell by 2.52 percent in Q1 2002.
The largest fall in the median unit sales price in Q1 2020 occurred in Ryde, which is part of the Ryde City LGA. The average unit sales price in Ryde fell by 5.78 percent, while unit prices in the Ryde City LGA rose by 0.48 percent. Merrylands in the Cumberland LGA had the second largest price drop in Greater Sydney at 5.05 percent. The third largest price drop for units in the Greater Sydney property market was experienced in Wolli Creek in the Bayside LGA. While average unit prices fell by 2.33 percent in Bayside LGA as a whole, the median unit price fell by 4.31 percent in Wolli Creek.
Which Sydney suburbs have the highest gross yield for units?
As at Q1 2020, the suburb with the highest rental yield (with High Confidence Forecast) for units is Penrith. This district sits in an LGA of the same name in the western outer suburbs of Greater Sydney. The average unit sales price in the Penrith suburb is A$395K. Prices there fell by 2.77 percent in Q1 2020. At the same time that unit sales prices in Penrith fell, rent levels for units rose by 0.26 percent, improving rent yield and giving Penrith units for rent a yield of 5.01 percent.
The next most profitable rental market for units in Greater Sydney is in the suburb of Auburn, which is close to the centre of Sydney and located in our old friend, Cumberland LGA. Unit price falls in Cumberland have really benefited the landlords in the area. Auburn rent levels actually fell in Q1 2020, by 0.25 percent. However, unit sales prices fell even further – by 2.07 percent. Those price movements improved rental yield in Auburn to 4.82 percent.
The third best suburb for those who want to buy to let is Merrylands, which is also in the Cumberland LGA. Merrylands has a cheaper unit sales market than Auburn and prices fell there by 4.78 percent in Q1 2020. The fall was severe and rent levels also fell in the same quarter. However, rent levels only fell by 0.99 percent, resulting in a yield increase to 4.8 percent.
Overall, property investors considering the Greater Sydney property market for capital gains should look for properties in high end suburbs. Those areas will avoid the price falls occurring in the cheaper areas as of Q1 2020. Investors aiming for best cashflow opportunities should look to the cheaper suburbs and focus on units in order to get gross yields above 3%.