Sydney Property Investment Overview

According to RP Data Sydney is seeing a surge in residential property prices at the lower end of the market while the more expensive properties at top end are continuing to stagnate. Supply of housing remains a problem with underlying demand for around 41,000 dwellings and a completion rate of little more than 16,000. Rental demand remains very strong and things are not expected to improve for renters during 2010 and beyond.

Sydney property is very much a fragmented market. However, buoyed by strong international migration and reduced net interstate outflows, underlying housing demand is running well ahead of new housing supply and this gap is expected to widen in the years ahead.

New South Wales faces a critical shortage of housing and the supply shortfall has already driven rental vacancies down to just 1.1 percent and boosted advertised rents by 15.3 percent over the past year. According to Australian Property Monitors, rents will rise by an incredible 50 percent in most capital cities over the next four years. In Sydney, the gross rental yield for apartments is now 5 percent with houses at 4.14 percent. There is a significant shortage of rental properties in Sydney and construction isn't keeping up with strong migration rates.

Growth in Sydney's residential market was the lowest of any capital city, except for Perth, over the past financial year. However, improving affordability as interest costs fall and incomes grow, could be the catalyst for a long awaited upswing in home building activity and house prices.

In choosing the right suburb for property investment in Sydney, if possible, invest within 15km of the CBD, or within 3km of suburban business hubs such as North Ryde and Parramatta. As always proximity to infrastructure is important, this encompasses employment, shops, cafes and transport. Investors can do well but they have to be very careful, do your homework and be aware that the market is patchy, the area where you invest is crucially important.

The issue in New South Wales is the land tax and stamp duty which adds considerably to the purchase price. Excessive infrastructure charges continue to weigh on New South Wales home building activity with building approvals currently at their lowest level in 24 years of data. The fact that building approvals in most other states remain close to their long term averages points to the urgent need for New South Wales to reassess their infrastructure charging models.

Further information on property investment in Sydney available in Infopack and Newsletter

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