Is it too late for me to Invest in Sydney? Have I missed the Boat?

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The latest interest rate cut has sent the media into a frenzy about a Boom Bust scenario for the Sydney property market!

I am an accountant not a real estate agent nor am I an economist, however I like analysing numbers and researching facts and data to then try to make commercial sense out of something, rather than reacting to the emotion of the moment and making a poor Investment decision. The Sydney property market has always been the market that investors look to for sustainable long term growth and with prices increasing at significant rates over the last few years I asked myself ‘Are these increases sustainable or is Sydney a bubble about to burst’? Let me share with you my research and some interesting data that may surprise you about the demographics of Sydney, give you an insight into the changing face of the Sydney property market and help calm the situation so investors can make rational decisions.

  • Figures published by the Department of Planning and Environment predict an additional 2 million people are expected to call NSW home by 2031, when the state’s population will reach 9.2 million and we will need 1 million extra homes with the majority of this number in Sydney.
  • Two babies are expected to be born for every person who dies in NSW, where three overseas migrants will arrive for every resident who departs for another state.
  • Single households will be the fastest growing type, increasing by more than 40 per cent across the state as the population ages.
  • They will also remain, or increasingly become, the most common group within the inner Sydney area bounded by Ashfield, Botany and Mosman.
  • It is in stark contrast to the trend in Sydney’s west, where families are expected to remain the most common household type.
  • Urban planners say the projections also reveal the ”real tension” in matching population growth to the right housing stock as Sydney also contends with the growing challenges of an ageing population.
  • Sydney’s market for new homes is at a 10-year high and the city is sprawling. NSW Housing approvals are at their highest levels since 2000 according to the Australian Bureau of Statistics, with more than 52,000 approvals made in the past 12 months alone.
  • Federal government data shows where new homes have been approved for construction in Sydney over the past two years. Not all will be built, but the figures indicate where the development is focused and how it will change the face of the city. It’s either low density [on the] fringe or high density in the central city.”
  • Apartments make up 70 per cent of these newly approved homes and the next three years will bring an all-time record of apartment construction.
  • In 2011, only about one-quarter of Sydney’s residents lived in apartments; this is going to increase. Sydney will become more dense more quickly not unlike big international cities of the world New York , London, Paris.
  • The figures also show that Sydney is skewing north. The state government has two big priorities for new development on the city’s north-western and south-western fringes The north-west is peeling ahead. Apart from a boom in Sydney’s centre, developers are targeting Parramatta, Blacktown, the Hills and, increasingly, Auburn and Ryde for a wave of new residents drawn by better transport and proximity to professional jobs.
  • The trouble of travelling from western Sydney to the CBD has been Sydney’s most obvious transport issue for decades. That is likely to be compounded by surging growth in Parramatta and Blacktown hence the State Government Light Rail  projects and major focus on transport infrastructure.
  • A lack of transport connections and overcrowding and what in urban planning lingo is called “connectivity”, are linked closely to the other major problem of Sydney’s development: jobs. The government’s strategy is to move both people and jobs into its growth new areas in the north and south-west.
  • There are nearly 400,000 workers in the north and south-west, according to a report by consultancies Essential Economics and Geografia, but only about 250,000 of them have jobs within the region. In a little more than a decade, 200,000 new workers will pile in, putting further stress on transport networks if local jobs are not created.
  • The Education Department is anticipating a massive shortfall in school funding over the coming two decades. On its own projections, the department will fall about $7 billion short of the money needed to fund 230 new schools for a rise in Sydney’s student population of one-third.
  • The City of Sydney’s demographic forecasts predict the school-aged population will grow by more than 7000 between 2006 and 2021; nearly three-quarters of those children attend public schools.
  • National Centre for Social and Economic Modelling shows household incomes in NSW climbed by an average of $1730 in 2014, more than double the increase in Western Australia and about seven times higher than in Victoria.
  • The combination of higher incomes and modest cost of living increases meant NSW households experienced the equal strongest growth in living standards compared with other states last year. Natsem’s index of living standards rose by 2.1 per cent in both NSW and Tasmania in 2014, well above the national average of 1.2 per cent.
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Mmmm Interesting stuff eh?  So what does this data all mean to the Sydney property investor? Well one thing for sure based on the statistics it tells us that the NSW economy is doing very well and leads the country in both growth and living standards. There will always be a demand for the right property so expect continued long term growth in established areas close to transport links like railway stations, major bus routes and established schools. Also it’s simple maths that we are not building enough property to house the expected increase in population in Sydney over the coming decades. Yes, over the next three decades we will see the normal cycles and corrections occur in the market especially off the back of worldwide economic issues, performance and interest rates. The old saying, ‘When America sneezes we catch a cold!’ still applies although now it’s even more global, but the foundation for continued long term growth is in place. Statistic’s point towards the changes in the fringe areas of the city which over time will end up like the property markets of the larger International cities and what I mean by this is that there will be property markets within markets. Just like New York and London where the inner fringe markets always out perform the overall market, if you invest in the inner fringe (which is widening) where land is scarce and demand is high the markets will always be strong and grow long term. The most common form of accommodation in these fringe areas are apartments.

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However one area of personal concern is that because rates are at historic lows the younger generation may be over committing to debt to enter the property market and may not have factored for the inevitable increase in rates. The younger generation have not seen rates above 7% and although we seem a long way off, it is inevitable that rates will increase and there is a concern of potential mortgage stress when this happens. So my advice to these people is to keep a close eye on rates and consider locking part of your loan on a fixed rate giving you certainty and minimising risks.

 David Naylor

Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

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