Apartment demand in inner Sydney likely to weaken as tougher regulation bites

Stricter regulation around lending and more levies on foreign buyers was likely to impact apartment demand in inner Sydney, according to BIS Oxford Economics.

Surging prices had also pushed yields to long-term lows, but this price growth is now slowing, the economic forecaster suggested. f

Foreign buyers still however prefer to invest in Australia given the stable political environment, while local investors still benefit from low interest rates, said BIS. 

It noted that while oversupply concerns had been voiced for Melbourne and Brisbane, Sydney’s new apartment supply had already peaked at 3,698 completions in 2015, falling to 2,521 last year, and it was likely to remain largely steady at 2352 in 2016-17.

Though demand is expected to be weaker ahead, new Sydney supply is set to surge over the three years to 2019-20, with completions averaging 4,650 apartments a year over the period.

About 2,800 units were already under construction, with other large projects locked in and pre-selling, the research said.

Occupier demand mainly came from three groups — students, particularly overseas, young adults in white-collar employment, and empty nesters. 

Vacancy rates have been tight for more than a decade, after falling below the balanced market rate of 3 per cent in inner Sydney in June 2005, as demand outstripped construction for much of this time, The Australian reported.

Vacancy rates also tightened to 1.7 per cent in February 2017 after rising to 2.6 per cent in June 2015. 

Meanwhile with price increases, yields on the median two-bedroom apartment dropped to an estimated 4.17 per cent at June 2017. The median two-bedroom unit rent in inner Sydney was an estimated $745 in June, with the median price at $930,000, said BIS.