Why the 2018 Sydney House price drop is a great reason to buy


“Be fearful when others are greedy and greedy when others are fearful” Warren Buffet

The property market in Sydney is a hot topic in every single media outlet. Yesterday the news reported that Sydney House prices drop, this “news” is an annualised figure across the Sydney wide market, it does not take into consideration micro markets and the 15km radius of the CBD. But these same people have been saying the same thing for 5 years, and if you had listened to them all along you would have missed out on amazing investment opportunities.

It is certainly true that the pace and level of increase in real estate prices has cooled off. However, the overall market is still growing. And it’s growing at rates that still make it a very lucrative investment especially in a low interest rate economy with few alternatives.

In this article you will find out some background to the realised growth of the past 10 years, and what the recent cooling actually means. And we will also focus on the most important reasons why Sydney remains a great investment opportunity.

Rapid Growth For 10 Years

The past 10 years have seen huge changes in Sydney. Between population and economic growth there have been huge gains, and such demographic and economic strength will always result in significant property price increases.

With the exception of the global financial crisis in 2007/2008, prices have been rising on a constant basis. In the last 5 years, that has resulted in several years of double-digit annual growth rates. Over the full ten year period that has resulted in a doubling in real estate prices in certain areas.

Growth Supported By Fundamentally Strong Economy

You will often hear the term property bubble thrown out there when it comes to analysis of the market in the last 5 years. The only basis for this is that there has been an average growth rate of around 8% per annum.

But none of these commentators actually look at what has driven those growth rates by looking at the economic and demographic data.

Fact is that Sydney has been one of the fastest growing cities in the western world. With a population growth of 1.6%, there is a steady stream of new residents, especially young people seeking out opportunities in a thriving job market.

Then there is the economic growth that has come from local and multi-national businesses. These have brought huge opportunities in very high paying jobs in areas such as technology, finance and pharmaceuticals. The result is a very young population with excellent career prospects and high levels of income.

Recent Cooling In Prices

While there are solid fundamentals that explain the growth in recent years, it is also important to look at the cooling that has been experienced in the past few quarters.

If you look at individual months or quarters in isolation then you will see that there have been some negative price movements in the last 6 months. But the overall annual trend is still on target for a very solid increase. And you have to also put these in perspective. Sydney has a population of 5 million and is sprawled out over 650 different suburbs.

It is perfectly normal to expect some areas to perform better than others. This is no different now than any other time period you look at.

What this actually highlights is how important it is to understand the market and where the best possible investment opportunities are. With a buyers’ agent like Flint Property you can take the guess work out of and increase your chances of better returns on investment.

Rental Prospects Remain Strong

When you are looking at investing in real estate then price increases are only one aspect. You will also be looking at creating a rental income, and for this the purchase price and value is only one part of the equation.

On the one hand, the price will be required to calculate your gross rental yield, by dividing the expected annual rental income by the price of the house. This yield is still averaging above 3% for the Sydney market, which is significantly more than the majority of other investment options in this low interest rate economy.

Sydney also has the benefit of having one of the lowest vacancy rates in Australia at just under 2%. That means that there is still a shortage of rental properties and when you combine that with a growing population, then you can expect demand to remain strong.

Sydney’s Population Continues To Grow

One of the most significant factors that drives demand for real estate is a steady growth in population size. The current total is right about 5 million, and what is significant to point out is that 1 million of those were added in the last 16 years alone.

Current census forecasts predict this trend to continue with a growth rate of 1.7%. That’s almost 90,000 more people every year, with a lot of them being young migrants coming from other parts of the country and world.

These new arrivals are coming to Sydney for the continued prospects of the job market, and because it is such a vibrant and dynamic city to live.

Conclusion

Yes, growth rates have started to level off, but annualised rates are still positive. This cooling is positive as double-digit growth is not sustainable in the long term, and could result in serious dislocations in home ownership and rental markets.

If you want to find out more about the best opportunities available right now, just pick up the phone and talk to us today for advice.