Currently, there are an estimated 25,000 vacant dwellings in the Sydney property market (Australia), according to research conducted by Propertyology. This figure could increase to 30,000 across Greater Sydney by the end of the year.
The rise of vacant dwellings is caused by an oversupply of housing and an abundance of new build apartments. Consequently, rental prices have decreased.
With the above scenario in mind, is now a good time to invest in the Sydney property market?
Should you invest in the Sydney property market?
As an owner of two apartments in central Sydney, I no longer believe that this city is a good investment destination.
Sydney ranks in third place as the city with the least affordable housing, according to a Demogaphia report. Mortgage repayments are approximately 12 times higher than the average salary in Australia.
Compared to other international cities, rental yield in the Sydney property market is low.
As discussed in a previous post, rental yield is a formula whereby the rental income is calculated as a percentage of the property value. This is how the calculation is applied:
- On average, a home in Sydney costs $1,062,619* and the rental price is approximately $540* per week. The yield is 2.6%. This is calculated as ($540 x 52 weeks) / $1,062,619 X 100.
- On average, an apartment in Sydney costs $702,012* and the rental price is approximately $530* per week. The rental yield is 3.9%. This is calculated as ($530 x 52 weeks) / $702,012 X 100.
Personally, I would not buy a property with a rental yield lower than 5%. That is because the lower the yield is, the higher your mortgage repayments and expenses will be.
Buy low and sell high
Investors might argue that it’s more profitable to make money from capital gains, meaning the profit from selling your property. Maximising your capital gain would be more achievable if the average house price in Sydney was not a million dollars.
I’ve noted many people from Sydney, including my friends and family, have a ‘clouded’ property portfolio vision. This means buyers assume they are rich, or have hit the jackpot, when they buy a million dollar home.
These people forget that when you sell your home, your family must move into a new house. In other words, you may make one million dollars from selling your home, but it will cost you one million dollars to buy another home.
To be a rich investor, you need to buy low and sell high. But, the Sydney housing market is over-priced and competition among buyers is tough.
There are very little opportunities to buy properties at a low price in the current state of the Sydney property market. It’s best look for investment opportunities in other cities.
Source: Domain House Price Price and Domain Rental Report (December 2018)
So, do you think it’s a good idea to invest in the Sydney housing market?