Is Now the Time To Put Your Clients Back into Sydney Property

In 2003, the boom in the Sydney residential investment property market ended.Since then, there has been nothing but negative press reporting on the Sydney residential property investment market, and (until recently) investors have deserted the market.

Sydney residential rents are predicted to soar by 20%

In 2003, residential vacancies were approaching 4.5% … today vacancies are sub 1.5% … the lowest in 10 years. (Source: Real Estate Institute)

Research confirms that a vacancy factor of 3% represents the equilibrium between demand and supply.

Therefore, the current vacancy factor of sub 1.5% means we are now experiencing a serious under supply of rental accommodation in Sydney. Industry economists are forecasting rents will soar by 20% in 2007. (Source: Sydney Morning Herald – 9 January 2007)

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NSW Housing Starts are at their lowest in 62 years

Do you realize that:
• the number of new homes approved in November 2006 was 2,496 compared with 6,000 in 2002 (Source: Australian Bureau of Statistics), and
• NSW housing starts are at their lowest in 62 years (Source AFR 6/12/2006).

This can only exacerbate the chronic shortage of rental accommodation and put more pressure on spiralling rents.

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PRD shows that Residential property outperforms other investments over 20 years

Over a 20 year period to December 2003 the gross annual return for various asset classes are as follows.

Cash 8.2%
Fixed Interest 10.7%
Listed Property 11.2%
Australian Shares 11.7%
Overseas Shares 12.2%
Residential Investment Property 15.1%
(Source: PRD Nationwide Research)

For a more recent article demonstrating showing that residential property has outperformed Australian equities over the 20 years to 2006 click here.

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Residential property is at a cyclical bottom

There are four main categories of Street Property investment, i.e.; residential, retail, industrial and office. Of these, most Australians choose to invest in the residential sector and it is little wonder they do, as residential investment property out-performs all other investment categories including listed property.

Of all property categories, only residential property has been in a slump. Office, retail and industrial property has been booming during 2004, 2005 and 2006 in all capital cities. Some commentators are predicting a slowdown in growth during 2007 and 2008. This in turn will lead to more money finding its way into the residential investment market.

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The Sydney residential property market is poised to recover

All indicators point to a recovery in the Sydney Residential market.

• Interest rates have probably peaked,
• Residential approvals and starts are at a 62 year low,
• An undersupply of rental accommodation,
• The market has already experienced a major correction,
• Net interstate migration to Queensland has slowed to 6,700 to March 2006 compared to 8,320 the previous year Sydney is the main beneficiary of this slowdown, and
• The share market has shown signs of some volatility which may indicate that investors are nervous. When the share market experiences a correction, more money flows into the property market.

CommSec is reporting that the “fundamentals of Sydney property are very, very good” (Source: Sunday Telegraph March 2007). Respected residential property price forecasters are predicting capital growth over the next five years averaging 8% per annum.

The Property Editor of the Sydney Morning Herald reports that “home units on the lower North Shore, houses in the eastern suburbs and units in the inner west are the best-selling properties in Sydney's improving residential real estate market” (30 June 2007).

It is our opinion (before the taxi driver realizes the Sydney residential market has bottomed) that now is the time to make a decision and invest in the residential market that has created enormous wealth for so many Australians.