As a background to the current Sydney bubble a report from Planning NSW based on the 1990 – 2010 period shows that there had been three clear cycles of population growth and dwelling completions. Where in the third cycle the massive population growth from net immigration was not met by any real increase in construction of new dwellings.
The report shows that in 2009 Sydney’s population was 4.5 million people or 63% of the state’s population of 7.1 million at that time. It suggests that by 2036 the Sydney’s population is forecast to increase to 6 million. Of course this also shows that 37% of the state’s population don’t live in Sydney, something Macquarie St often appears to forget.
It does appear that construction over the period lagged seriously behind growth, largely due to the unattractive return on investment for developers with construction and development costs dramatically rising over 15 years. While investor rental yields struggled to achieve 4% something that is now even more of an issue with current growing vacancy rates. Which is something of a contradiction however the current development boom particularly in high rise apartments may outstrip demand and push rental returns even lower.
Many people believe that low economic growth regulates interest rates however the Planning NSW report clearly shows that historically his has not been the case as the graph below shows the significant variance in the CPI as against the RBA cash rate.
During the second yearly LJ Hooker Mosman Investment Seminar, Dr Andrew Wilson of the Australian Property Monitors (ADM) said, while the growth in lower and middle markets is tapering off, properties in the northern beaches, city east and the lower north shore are experiencing rapid price growth.
“The middle and lower ends of the market are starting to taper off, but the lower north shore is really firing up, with eight per cent growth in the March quarter,” Mr. Wilson commented. This growth is more favorable than those in western suburbs that reported to have 3.9% increase in the same period.
Compared with their price cycle in 2009 and 2010, the prestige markets aren’t as developed. According to Dr. Wilson, “There is no stopping in the prestige market at the moment. There is still a lot of positive energy buzzing around with reports of the highest price growth since 2003”
As opposed to an underpinning driver, this positive atmosphere is playing as the driving force to gather more buyers and sellers in prestige market. As regards to growth, the upper market seems to be as good as the middle markets. Hence, more activities are expected in the colder months than in the past.
Bernard Ryan, the director of LJ Hooker Mosman, stated that the prestige area is attracting investors in an increasing number. “Investors and upgraders have been honing in on the lower north shore since interest rates started trending down in November 2011, but activity really gathered pace in the last year,” commented Mr Ryan.