Demand to come in Sydney's off the plan apartment market: Charter Keck Cramer H2 2023 Report
Sydney's off the plan market could see an increased demand in 2024 as Sydneysiders grapple with the cost of living in the most expensive capital in the country, Charter Keck Cramer forecast.
The property advisory giant's Metro Sydney State of the Market H2 2023 said there is considered enhanced opportunity for apartment projects to receive increased demand in the Harbour capital, given buy to sell apartments represent the most affordable dwelling typology. They note however there needs to be a expectation recalibration due to budget constraints.
CKC believe 2024 will continue a growing trend of “sub-market division” where projects within the same precinct are either successful or not based on adequately meeting demand expectations.
"Projects that are design-led, respond to target market requirements and feature a reputable builder will mitigate risk and show greater success," the report read.
CKC believe the “cascade" effect will continue to play out in 2024
"The “cascade” effect can be described as the trade-off/s made by occupiers in terms of the type of housing, number of bedrooms, location, type of tenure and number of people per household," the report read, adding that the trade-offs are primarily driven by buy or rent price points and availability of stock."
Sydney's new supply issues
Supply has been an issue across every capital city for a number of years. The NSW Government has committed to the provision of around 375,000 new dwellings between 2024 to 2029 to assist in meeting the National Housing Accord which is 75,000 dwellings per annum.
Last year there were only 8,300 apartments completed in Metro Sydney, around one-third of annual supply requirements. Only 6,300 apartments were launched, -31% below the previous low experienced during the pandemic.
"Launches are anticipated to increase meaningfully when interest rates are cut and there is greater certainty around the suite of new planning controls," CKC noted.
In 2023, construction commenced on 7,200 apartments, the lowest number of apartment commencements recorded over the past decade and a decrease of -76 per cent on the peak commencements during 2016.
Sydney's middle and outer regions remain prevalent as new supply locations according to CKC.
"Sydney’s more centralised and middle regions have historically delivered the greatest volume of new apartments. Sydney’s Outer Region however demonstrates its growing importance to metropolitan Sydney’s apartment supply in an evolving market.
"The Middle and Outer Regions of Sydney are playing a key role in housing Sydneysiders and this trend is forecast to continue. The introduction of the Transit Oriented Development State Environmental Planning Policy will also provide a renewed focus on intensified infill development throughout a range of metropolitan locations."
Sydney off the plan apartment pricing
The report noted that the Sydney residential property market reflects a 68 per cent differential in median prices between detached houses and units.
"This median price gap is significant by historic standards and expected to funnel demand into the more affordable unit market, particularly as future price increases are anticipated to outstrip income growth," the report noted.
"The percentage of household income required to service a mortgage is close to the highest ever recorded and buyers now need to make tradeoffs should they wish to make a purchase decision."
CKC said price has become a more critical factor for apartments, with the differential between new off the plan and established apartments of greater consideration.
"This differential can often exceed 20% although the benefits of a new apartment have become less attractive than a more affordable established alternative product in the same location.
Recent median price growth in numerous established apartment locations has been driven by greater demand for more affordable secondary product. Until the price gap between “new” and “established” apartments narrows, there is considered less opportunity in the current market to increase off the plan pricing.
Sydney's 2024 Property Outlook
CKC believe that with expected rate cuts, or at least rate retention, coupled with the introduction of Federal Government Stage 3 tax cuts, the outlook for the residential property market is expected to be more favourable by mid-2024.
"Median apartment prices have shown incremental growth since the cash rate has (mostly) been on hold since mid-2023 and we anticipate that rate cuts will be a key impetus to stimulate confidence and accelerate price growth."
They said interest rate cuts and increased development capacity through planning policies will collectively not be enough to facilitate delivery of the unprecedented quantum of build to sell and build to rent apartment supply required to achieve the Federal and State Government aspirational housing targets.
"To conclude, the BTS and BTR apartment markets will continue to improve over the course of 2024 and with the market so chronically short of new supply there stands to be a very strong and elastic response as conditions start to improve over 2024 and into 2025."
