What Are The Current Challenges Of Buying In Sydney?

Buying property in Sydney has become increasingly challenging due to a combination of factors. SydneySlice can help you overcome these challenges and help you purchase your ideal property at the best possible price:

1. High Property Prices: Sydney house prices more than doubled in the past decade, outperforming all other capital cities. We use a comprehensive pricing analysis to provide an accurate market analysis so  you don’t overpay. We negotiate aggressively and strategise to save you  money. In 2024 all of the properties we secured were in line with or substantially below our conservative market valuations.  

2. Lengthy Buyer Journeys: The average buyer journeys are around 16 months for apartments and 23 months for houses. The average buyer will look at more than 300 property listings and attend more than 11 open for inspections. Assuming you spend approximately 1 hour travelling and inspecting a property and about 10-20 mins assessing the suitability of each listing against your criteria, this amounts to about 111 hours of searching. This excludes time allocated to property due diligence and  negotiation. We save you time and energy by sharing our market knowledge  to help you refine your criteria and focus your search. We assist you to     secure a property prior to significant market shifts.  

3. Demand & Limited Quality Housing  Supply: There is a limited supply of quality housing available and demand is still outpacing supply nationally. We work hard to source off-market and pre-market properties to maximise available purchase options. For a client we assisted in Q2 of 2024 for a search in the Eastern Suburbs of Sydney, 51 out of a possible 205 properties we monitored between June and August, 25% were off-market or pre-market. In 2024 approximately 50% of the properties we purchased have been off-market and pre-market. While there is limited data available on  what constitutes a quality dwelling, on average, we would only strongly  recommend about 5% of available properties to our clients. We assess properties against stringent criteria which impacts the performance of the  asset and potential future saleability and rentability.  

4. Development Restrictions & Uncertainty Around Reforms: Stringent planning and zoning laws can restrict the construction of new properties. However, the State Government is implementing and proposing planning control changes. We work with a trusted team of  professionals who advise on the implications of reforms, development  controls and opportunities and we advise on the impacts on potential impacts on property values.   

5. High Competition: There is intense competition among buyers. We expedite comprehensive due diligence within 24 to 48 hours, to eliminate or minimise competition.  

6. Investment Attraction: Sydney remains a prime destination for both local and international investors. We provide a full solution for investor clients including     property acquisition and executive rental management. We can provide accurate rental appraisals and insights into the rental market.   

7. Stringent Lending Criteria: Higher deposit requirements and more stringent lending criteria can reduce borrower buying capacity. We have a network of excellent mortgage brokers who can provide solutions such as an LMI waiver for particular categories of buyers, so property purchases can be with less than a 20% deposit.

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We have set out below further detail on the current challenges facing Buyers in the Sydney Property Market:

1. High Property Prices: Sydney's property market has seen significant price increases over the past decade     due to high demand and limited supply. Housing affordability is at its  worst in more than two decades, according to an ANZ Housing Affordability     Report. In 2024 Sydney house prices lifted 6.1% and unit prices lifted  4.3%, according to Core Logic. CoreLogic research director Tim Lawless     said pent-up demand could fuel a rush in housing activity once interest rates come down. Domain predicts Sydney house prices will increase 8% and     unit prices will increase by 6% in the next 12 months, taking the median  house price to a new high of $1.76 million. By the end of the next     financial year, houses will cost approximately $130,000 more on average if the forecast eventuates.  

2. Lengthy Buyer Journeys:     The average apartment buyer journey in 2023 lasted around 16 months, with 12 months dedicated to research and 4 months actively searching. For standalone houses, the journey extends to 23 months, with about 16 months spent researching and 7 months actively searching, according to REA   Group's Developer Insights Series 2024. The average buyer will look at more than 300 property listings and attend more than 11 open for inspections. This lengthy process often means buyers miss out as the property market shifts. 

3. Demand Outpacing Supply: Demand     is still outpacing supply nationally. According to Westpac’s data, 60% of Australians are planning to buy in the next five years, which is well above the peak of 53.5% recorded in mid-2021. A growing population propped up by strong migration on the demand side and scarcity of land, a decrease in building approvals and high construction costs on the supply side has been fuelling property price growth.  Ultimately, affordability and borrowing constraints will slow down price  increases.  

4. Growing Population & Migration:  Australia’s population moving through the fastest rate of growth since the 1950’s and our cities and towns are densifying, according to CoreLogic. Sydney’s population was about 5.45 million as at June  2023. Sydney’s population increased by 2.8% between 2022-2023. After a record net annual increase of about half a million migrants in 2023,  driven by international students and workers on temporary visas, net overseas migration is starting to normalise due to changes to immigration policies implemented in 1 July 2024.   

5. Limited Housing Supply & Shrinking Household Size: There is a limited supply of quality housing available and a trend of a smaller     number of people per dwelling. Australia ranks 23^rd out of 33     developed countries for the number of dwellings per 1000 people (420 per     1000 people in 2022), according to figures from the OECD. Greater Sydney     housing supply is forecast to increase by 172,900 homes over the 6 years     to 2028–29, averaging 28,800 additional dwellings per year. The trend of     shrinking household sizes is adding to the housing under supply. The     average household size is now 2.5 people per home, down from 2.8 in the     1980’s. Greater Sydney housing supply is forecast to increase by 172,900     homes over the 6 years to 2028–29, averaging 28,800 additional dwellings  per year. In terms of types of new housing supply, it is expected that the 55% percent of Sydney residents living in a detached dwelling in 2016 will reduced to just 25% by 2057, while the proportion of Sydney residents living in apartments (mostly high-rise) is expected to increase from 25% to 50% over the same time period.  

6. Land Availability, Zoning, Development Reforms &  Declining Building Approvals: Sydney faces constraints on     new housing developments due to land availability, zoning regulations and location of infrastructure services. Seventy-five percent of Australia’s  population resides on just 2.6% of the land mass, highlighting our highly urbanised population. The State Government is implementing and proposing planning control changes, including the Transport Oriented Development and Diverse and Well Located Homes Program to increase housing supply and  density. However, it is anticipated that it will take approximately 15     years for this increased supply to flow through to the market and due to uncertainty around the proposed reforms, a number of vendors are holding off from selling. Residential building approvals have fallen since mid-2021, marking the lowest level of dwelling approvals in a decade and posing a significant risk to the pipeline of new dwellings.

7. Increasing Construction Costs: Residential construction activity is very low contributed to by workforce and materials shortages. While building costs are still 27.6% higher than at the start of the pandemic, growth in national construction costs has  continued to ease from the peaks of the pandemic.

8. High Competition: There is intense competition among buyers, including upgraders with strong borrowing capacity, cashed-up downsizers and luxury buyers, making securing a property more difficult. First home buyers crippled by borrowing constraints and investors have been struggling to purchase in a higher     interest rate environment. However, intergenerational wealth has been allowing first home buyers get into the market via the bank of mum and dad supporting with loans or cash.

9. Investment Attraction: Sydney is a prime destination for both local and international investors, contributing to increased demand and price pressure. Approximately 26% of properties are owned by investors, with investors owning a much larger proportion of the apartment stock (around two-thirds) than the stock of     houses (around one-quarter) according to RBA data from 2011. Between 2020-2021, approximately 2.24 million taxpayers in Australia were property     investors and collectively owned 3.25 million investment properties, according to ATO data. Foreign buyers purchased more Australian real estate this     past financial year with most of these buyers are coming from China, Hong Kong and India. But, foreign buyers make up about only 1% of all purchases     in Australia. A combination of factors may be contributing to a recent exit of investors from the market. In Sydney, as at June 2024, a total of     2372 investor-owned properties were listed for sale, a 17% jump from a  year ago. These factors include; tax law changes (see below section on property     taxes and costs); changing rental conditions including a persistent decline in views per rental listing (renter competition) which may be the     precursor to a rise in the vacancy rate sometime this year; and proposed tenancy law changes to end ‘no-grounds’ and ‘no-fault’ evictions, which would bring NSW tenancy laws in line with ACT, Victoria, Queensland and South Australia.  

10. Stringent Lending Criteria, Higher Interest Rates & Cost of Living Pressures: Stricter lending criteria, tighter mortgage regulations and higher interest rates has reduced     borrower capacity however, a number of banks begun to ratchet up discounts on home loans in mid-August, signalling interest rates are due to come     down. Higher deposit requirements can be a barrier for many prospective buyers. The time it takes to save for a 20% deposit has risen to  approximately 10.3 years, assuming households can save 15% of their gross income. This is more than a year longer than the long-term average. As at 6 August, the cash rate was left unchanged at 4.35%. The RBA ruled out     a rate cut before Christmas, warning the economy remains too hot, inflation is too high and that means “near-term interest rate cuts are not on the agenda”. Delays with rate cuts is likely to lead to continued  softening in buyer sentiment and uncertainty on the seller side. Between July and August, Sydney vendors reduced asking prices by 1%. A  staggering 30% of mortgage holders are at risk of financial stress. The average portion of income needed to service a new mortgage blew out to  48.9% nationwide during the March quarter, a sharp jump from the 34.8% decade average, according to an ANZ Housing Affordability Report. However,  relatively stable distressed listings activity across the country has, so far, defied expectations of significant rises for 2024, despite a slight rise of 0.5% in distressed listings in NSW between May to June 2024.  

11. Property Taxes and Costs: Buying property in Sydney involves significant transaction costs, including stamp duty, legal fees, and inspection costs. Higher ongoing costs, such as property taxes, maintenance, and strata fees (for apartments), can add to the financial burden. Recent land tax changes have been disincentivising investors and prompting some investors to exit the Sydney market. A total of 2372 investor-owned properties were listed for sale in May 2024, a 17%     increase from last year. The tax-free threshold for land tax will be     frozen at the 2024 level of $1.075 million and no longer indexed annually, in line with property price changes. As property prices rise, the frozen tax-free monetary threshold means the tax will apply more broadly, providing the State Government with an estimated $1.5 billion more over four years. Principal places of residence and farms will generally  continue to be exempted from land tax. Note also, the foreign purchaser duty surcharge will increase from 8% to 9% from 2025 and the foreign owner  land tax surcharge will also increase, from 4% to 5% in 2025.