After 18 months of strong growth, and with property prices on the Northern Beaches relatively high, there is much speculation in the media about whether or not a bubble has formed in the Sydney property market. inSynergy’s Richard Sheppard examines the state of the market.
As with most commodities, it usually comes back to supply and demand. Of course for property, there are many factors that affect supply and demand, but the foremost is population growth versus housing construction. Some other important factors that effect demand are affordability, employment rates and general economic conditions, but don’t forget, one of the key differences of property over most other commodities is that we all need a roof over our heads.
So, while many factors such as affordability and interest rates hikes can reduce the demand for purchasing property, if there is still population growth, the demand will turn more to rental properties, which in turn will drive up rental yields. After some time, increased rental yields appear more and more attractive to investors and more costly to renters, so the demand shifts back to buying, which will then push prices up. As long as the population is growing more quickly than homes are being built, property prices and rents will continue to grow, generally in cycles of stronger rent growth, then stronger capital growth.
Since the year 2000, Australia-wide, the level of undersupply has been increasing quite drastically to the highest levels ever experienced in this country. The highest level of undersupply of all the states and capital cities is Sydney, at more than double the undersupply of any other capital. So, while fairly low affordability levels may keep growth to modest rates below previous booms, we and the likes of BIS Shrapnel still expect growth of around six to 10 per cent per annum for the next four to six years and it is extremely unlikely there will be anything like a bubble formed.
Richard Sheppard is the Managing Director of inSynergy Property and Finance Solutions. inSynergy is also an accredited investment property buyers’ agent, which provides professional property investment advice, property market research and specialised mortgage broking services. Visit www.insynergy.net.au or phone 1300 308 808.