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Affordability pressures are likely to increasingly push Sydney buyers into units and apartments over the next 12 months, but where should they be looking and what suburbs are better placed for investment success?<\/p>\n
Fundamentals are aligning for an uplift of activity in Sydney unit markets, with international borders set to be swung open and affordability constraints combining with lending restrictions to push buyers towards multi-residential dwellings.<\/p>\n
But acknowledging that not all markets are created equal, and many apartment and unit owners are still reeling from plunging rents over the pandemic, which suburbs are better placed for investment success?<\/p>\n
Analysis by RiskWise Property Research and buyers agency aggregator BuyersBuyers may have provided a clue; suburbs that have the greatest price difference between units and detached houses are likely to deliver strong price increases in the near future.<\/p>\n
RiskWise chief executive Doron Peleg said the strongest unit and apartment price rises were likely to come in the eastern suburbs, in locations such as Vaucluse and Bellevue Hill.<\/p>\n
But the research also indicated suburbs in the inner west such as Strathfield and Summer Hill could be in line for similar quick gains.<\/p>\n
\u201cThere is also a range of suburbs on the north shore and in the northern beaches, which look attractive from a unit to house price ratio, including Mosman and Cremorne, and some of the other premium locations,\u201d Mr Peleg said.<\/p>\n
\u201cMedian unit prices in the $1 million to $1.4 million price bracket, with a high land to asset ratio available on boutique unit block purchases, are relatively more accessible to the booming investor cohort.\u201d<\/p>\n
Top 15 Sydney suburbs to buy a unit in<\/strong><\/p>\n Source: RiskWise Property Research\/BuyersBuyers<\/p>\n BuyersBuyers co-founder Pete Wargent told Australian Property Investor Magazine<\/em> that the research was initially based on the ratio of unit prices to house prices.<\/p>\n \u201cIt doesn\u2019t necessarily follow that if the house prices in a suburb rocket that unit prices will follow in lockstep, but when you have got that dynamic of land prices trending higher very quickly then usually it is indicative of supply-constrained locations,\u201d he said.<\/p>\n \u201cThe ones that came out at the very top of the list are the places you might expect; Centennial Park and Darling Point, which are basically unit markets where when you get new construction it is really just replacing existing stock and the uplift in stock is minimal.<\/p>\n \u201cPart of our thinking was that APRA has just started to tighten lending criteria, mortgage rates are starting to creep up, and APRA is probably going to do more on higher debt-to-income borrowers and possibly higher loan-to-value ratio borrowers next year, so I think that\u2019s going to force more buyers away from detached houses into units in Sydney.<\/p>\n \u201cFrom an affordability perspective, even for dual income earners, prices are getting out of reach.\u00a0<\/p>\n \u201cAlthough not directly substitutable, I think that\u2019s going to push more people into units next year.\u201d<\/p>\n Mr Wargent said while rapid price growth would not begin in line with borders reopening in November, apartment and unit buying activity was likely to lift substantially in the New Year, which would push up rents as well as values.<\/p>\n \u201cTechnically there are flights from the first of November and I\u2019m sure the early ones will all be full, but I think it will take a bit of time before we start seeing meaningful numbers in the property market,\u201d he said.<\/p>\n \u201cThere are also still a lot of vacancies in the short-stay and student rentals markets near the CBD, so it might take a bit of time for those to actually fill up and put some upward pressure on rents.<\/p>\n \u201cRents for Sydney apartments have been pretty flat for four or five years now, and in some cases much longer.<\/p>\n \u201cI think it will eventually start to become a numbers story but it will take longer than a month or two.<\/p>\n \u201cIf you are going to do it, I think now is the time, and the same holds true for Melbourne as well. Arguably, you can pick up some bigger bargains there if you are prepared to be counter-cyclical.\u201d<\/p>\n But as with any property purchase, Mr Wargent urged investors to consider the location of their prospective purchase carefully.<\/p>\n \u201cIf it was me, I wouldn\u2019t be buying in the CBD itself, but if you can get into those more supply-constrained markets like these, then I think now would be a good time to get in,\u201d he said.<\/p>\n Another element crucial for investors, Mr Wargent said, was the size and amenity offered as part of the apartment development.<\/p>\n And while some may find this counter-intuitive, he said the apartment blocks that did not boast additional features such as swimming pools, gyms or cinema rooms were a better bet for investors.<\/p>\n \u201cThere are certain types of things you would generally look for as an investor; relatively modest body corporate or strata fees, and particularly at the moment as well, there has been a real shift away from blocks where you have got shared facilities like elevators, gyms that you can\u2019t use and pools that you can\u2019t use,\u201d Mr Wargent said.<\/p>\n \u201cI\u2019ve got some sort of form on this, we bought a couple of units in Sydney a long time ago, and the thing is with strata fees, they never go down.\u00a0<\/p>\n \u201cIf you\u2019re paying for pools that people don\u2019t use much, gyms and concierge services and all of the other stuff, it can actually be a constraint on price growth.\u00a0<\/p>\n \u201cBecause when new buyers come in, if the strata fees are $2,500 a quarter, it\u2019s like an ongoing tax on ownership.\u00a0<\/p>\n \u201cSome developers such as AV Jennings have recognised this and they deliberately build lower strata fee developments.\u00a0<\/p>\n \u201cI would say as an investor, most often you don\u2019t want to be paying for all that sort of stuff, because it doesn\u2019t necessarily get used all that much.\u201d<\/p>\n Mr Wargent said smaller blocks of units and apartments were often lower maintenance than bigger complexes, a fact which should also be considered by those thinking about where to invest.<\/p>\n And rather than buying off-the-plan, investors should stick to established properties, Mr Wargent said.<\/p>\n \u201cInvestors should be looking at the boutique blocks where the land value is a big chunk of the investment and definitely should be looking at established blocks more so than the new stock,\u201d he said.\u00a0<\/p>\n \u201cYou can anger developers by saying that kind of thing, but statistically, the loss on resale by buying new units is statistically much higher than it is for established units.\u00a0<\/p>\n \u201cDefects are definitely a reason to buy established units in an established development.\u00a0<\/p>\n \u201cIf something has been around for a long time, then it\u2019s probably going to last for a long time.\u00a0<\/p>\n \u201cWhereas a unit that\u2019s been thrown up in the last six months, who knows? There are a lot more things that could go wrong and a lot more unknowns.\u201d<\/p>\n<\/p><\/div>\n\n\n
\n Suburb<\/strong><\/th>\n Median unit price<\/th>\n Median house price<\/th>\n Unit to house price ratio<\/th>\n<\/tr>\n \n Centennial Park<\/a><\/td>\n $851,190<\/td>\n $6,173,138<\/td>\n 14%<\/td>\n<\/tr>\n \n Vaucluse<\/a><\/td>\n $1,168,518<\/td>\n $7,168,101<\/td>\n 16%<\/td>\n<\/tr>\n \n Darling Point<\/a><\/td>\n $1,677,120<\/td>\n $9,051,670<\/td>\n 18%<\/td>\n<\/tr>\n \n Bellevue Hill<\/a><\/td>\n $1,367,845<\/td>\n $7,188,375<\/td>\n 19%<\/td>\n<\/tr>\n \n Double Bay<\/a><\/td>\n $1,468,691<\/td>\n $5,539,003<\/td>\n 27%<\/td>\n<\/tr>\n \n Strathfield<\/a><\/td>\n $692,835<\/td>\n $2,918,446<\/td>\n 24%<\/td>\n<\/tr>\n \n Summer Hill<\/a><\/td>\n $787,314<\/td>\n $2,070,893<\/td>\n 38%<\/td>\n<\/tr>\n \n Croydon<\/a><\/td>\n $761,830<\/td>\n $1,991,609<\/td>\n 38%<\/td>\n<\/tr>\n \n Mosman<\/a><\/td>\n $1,175,420<\/td>\n $5,091,737<\/td>\n 23%<\/td>\n<\/tr>\n \n Greenwich<\/a><\/td>\n $927,300<\/td>\n $3,295,565<\/td>\n 28%<\/td>\n<\/tr>\n \n Cremorne<\/a><\/td>\n $1,152,206<\/td>\n $3,862,186<\/td>\n 30%<\/td>\n<\/tr>\n \n Roseville<\/a><\/td>\n $923,805<\/td>\n $3,069,079<\/td>\n 30%<\/td>\n<\/tr>\n \n Gordon<\/a><\/td>\n $923,180<\/td>\n $3,055,622<\/td>\n 30%<\/td>\n<\/tr>\n \n Manly Vale<\/a><\/td>\n $917,830<\/td>\n $2,580,403<\/td>\n 36%<\/td>\n<\/tr>\n \n Narrabeen<\/a><\/td>\n $1,089,439<\/td>\n $3,040,190<\/td>\n 37%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n