‘Abrupt halt’ felt by Sydney investors

For Sydney, the research shows varied results depending on the inner, middle and outer rings.

“The residential property investor market has had some significant hurdles placed in front of it in recent years,” the report noted.

“Tougher lender and regulatory requirements around investor loans, and the threat of removal of negative gearing and capital gains tax allowances prior to the federal election in May last year, significantly reduced the number of investors looking to get into the market.

“As these lending restrictions eased and the threat to tax allowances was extinguished, the investor market began to recover along with the wider market as prices started to rise.”

That recovery, Herron Todd White noted, “has now come to an abrupt halt as a result of COVID-19”, adding that asking rents have fallen sharply, while vacancy rates have climbed, across many parts of Sydney. 

CoreLogic research showed that across the financial year to June, Sydney dwellings saw an average 16.7 per cent return, with 13.3 per cent of that through capital growth. Meanwhile, houses enjoyed a 17.7 per cent return with 14.5 per cent capital growth. Units had a 14.7 per cent return, with 10.6 per cent of that being capital growth. 

“However, with prices now falling and rental yields also under downward pressure, returns in the current financial year are likely to be significantly leaner,” Herron Todd White said.

“Vacancy rates in the inner and middle-ring suburbs have been particularly hard hit since March, while the outer suburbs have continued to see a tightening vacancy rate.”

Breakdown

The inner-ring suburbs have seen an increasing supply of properties, particularly units, “as previous holiday-stay properties were switched over to the long-term rental market, and new unit completions have continued to hit the market”, Herron Todd White said.

“New unit completions are also impacting supply in some middle-ring suburbs. 

“Demand levels are not increasing at the same levels as supply as immigration has been stopped and is likely to be impacted for some time to come. Demand from international students has also dropped dramatically as a result of COVD-19.”

Hotspot

There is a clear frontrunner for investors when it comes to selecting a location with the most potential, according to Herron Todd White.

“With values at the lower end of the market holding up better than other price points, and vacancy rates continuing to tighten in the outer ring, Western Sydney is looking like the best place for investors for returns in the short to medium term,” it said.