Property market update: Sydney, April 2021

Australia’s property market boom slightly cooled during April, as the months-long buildup of pressure due to increased buyer demand and low listings eased with the injection of new stock on the market. 

CoreLogic’s research director, Tim Lawless, said the rate of capital gains could slow further over the coming months as inventory levels rise and affordability constraints weaken housing demand. He added that the slowdown is “unsurprising given the rapid rate of growth seen over the past six months, especially in the context of subdued wages growth.”

Despite the slowdown, Sydney’s property market is still in the green as it claimed the spot as the second best-performing capital city for the month. 

Here’s how the NSW capital’s property market fared in April 2021. 

Property values 

Australian housing values rose by 1.8 per cent in April, according to CoreLogic’s national home value index, with the monthly rate of capital gains edging down from a 32-year record high in March (2.8 per cent).

Although growth conditions have lagged, dwelling values are still increasing at a fast pace, up 6.8 per cent during the first quarter of the year to be 10.2 per cent higher than the COVID low hit in September 2020. 

Sydney recorded a 2.4 per cent monthly increase in median dwelling values in April, second only to Darwin, which led the pack with a 2.7 per cent increase. 

The latest monthly gain brings the NSW capital’s median property value another step closer to the $1 million mark. Median dwelling values in Sydney now stands at $950,457, marking an increase of $22,429 from March. Annually, Sydney property prices clocked a 10.1 per cent price increase. 

The broad trend of houses outperforming the unit sector continued through April, as buyers were less interested in higher-density styles of housing amid increased supply across inner-city areas.

Sydney’s house market saw a 2.8 per cent increase in dwelling prices on a monthly basis and a 10.4 per cent increase on an annual basis. At the end of April, median house prices stood at $1,147,352. 

Meanwhile, the unit market recorded a 1.3 per cent increase over the month and a modest 0.9 per cent increase compared with the same period last year, bringing the median value to $771,859. 

Mr Lawless said the increase in flexible working arrangements may be underpinning the demand for houses. He added that the weak investor activity, compounded by a supply overhang in some high-rise precincts, is also slowing down the price growth in unit markets. 

Supply and demand 

Despite the increase in new listings, strong demand is keeping the total advertised stock levels low, according to CoreLogic. 

The number of new listings added to the housing market has shown a significant increase relative to the past two years. Data shows that 40,630 new residential property listings were added to the market nationally over the four weeks ending April 25, almost 14 per cent higher than the five-year average. 

Figures released by SQM Research revealed that national residential property listings rose in April by 2.4 per cent to 262,617 from 256,568 in March. Sydney recorded a 5.3 per cent increase on a monthly basis, rising to 28,446 from 27,011 in the prior month. Over the year, listings in the NSW capital rose 5.0 per cent from 27,101 in April 2020. 

Louis Christopher, the managing director of SQM Research, said the strong increase in Sydney’s property listings in April was partly due to having five weekends during the month and because property owners are eager to take advantage of the strong market conditions.

“Property owners have clearly responded to all the talk about a property boom and have aggressively lifted asking house prices over April, particularly in Sydney,” he said. 

According to Mr Lawless, the surge in new listing numbers signals an improvement in vendor confidence. “More home owners are taking advantage of strong selling conditions while they remain skewed towards vendors rather than buyers.” He said that the low listings, despite the higher than average number of new listings, reflected the strength of buyer demand, driving the current fast pace of absorption. 

Auction market

The latest figures from CoreLogic showed 2,014 capital city homes were taken to auction over the week ended 25 April, with a preliminary auction clearance rate of 78.5 per cent.

While auction market activity appears to be cooling, it’s still worth noting that the recorded activity was significantly higher than the figures compared with the same period in 2020, when only 41.1 per cent of 413 auctions found buyers, with much of the nation’s auction activity dampened at the time by restrictions around onsite auctions and inspections.

Sydney recorded an 82.1 per cent clearance rate for the 777 properties that went under the hammer in the week ended 25 April. The NSW capital’s auction clearance rates remain consistently high throughout the month, hovering around the 80 per cent mark or upper 70 per cent range as buyers rush to secure a property amid record-low interest rates, a long-term undersupply of properties on the market and a general sense of FOMO that's yet to be dispelled. 

Rental market

While home values in Sydney are recovering well, the city’s gross rent yields continue to be the worst among its capital city peers. 

The latest consumer price index data released by the Australian Bureau of Statistics (ABS) revealed that rental yields for investors in Sydney are now down 2.9 per cent over the last 12 months.   

REIA president Adrian Kelly said the capital city weighted average showed that rents remained unchanged for the March quarter following an increase of 0.1 per cent in December 2020. Only Sydney had a fall of 0.5 per cent for the March quarter, marking its sixth quarter of decline.

At an annual rate, house rents in the NSW capital rose by 4.1 per cent, while units slid by 3.6 per cent. Gross rental yields in the city stood at 2.7 per cent, falling from 2.9 per cent in the same period last year. 

According to CoreLogic, rental conditions have been stronger outside of Melbourne and Sydney, where demand is less dependent on overseas migration and interstate migration trends have provided an additional lift. Rental supply has also been less significant outside of Sydney and Melbourne due to record-low levels of investment activity and less construction aimed at the investor segment of the market.

Vacancy rates

Data from Domain showed that the national vacancy rate declined in April after three consecutive months of steady rates to stand at pre-pandemic levels of 1.8 per cent. The monthly vacancy rate is the lowest since March 2020, the month before the widespread lockdowns and international border closures initiated to contain the COVID-19 pandemic. 

Sydney was one of the three capital cities that trended higher during the month, with vacancy rate in the city sitting at 2.9 per cent from 3.0 per cent in March. While the monthly decline is modest, the annual decline from 4.0 per cent in April 2020 is a good news for landlords in the city. 

Areas with the highest vacancy rates in Sydney were Auburn (4.8 per cent), Parramatta (4.8 per cent),  Strathfield – Burwood – Ashfield (4 per cent), Canterbury (3.8 per cent) and Botany (3.5 per cent), Meanwhile, the areas with the lowest vacancy rates were Camden (0.3 per cent), Wyong (0.4 per cent), Gosford (0.5 per cent), Blue Mountains (0.5 per cent) and Sutherland – Menai – Heathcote (0.7 per cent). 

Rental conditions have been changing across Sydney and Melbourne after they were hit the hardest by the COVID-19 impact, particularly the decline in interstate and overseas migration due to travel restrictions, according to Domain’s senior research analyst, Dr Nicola Powell. 

Looking ahead, Dr Powell said conditions are expected to improve for landlords in Melbourne and Sydney as vacant rental listings start to decline, with both cities dominating the top 20 areas experiencing a fall in vacant listings.

In fact, the regions with the largest decline in rental listings are largely located within inner-city regions and close to universities with a large concentration of apartments and share houses. This can be an indication that people may in fact be returning to the cities, Domain said. 

Outlook

While market conditions continue to be stable, there are signs that the Australian housing market has reached its peak growth. CoreLogic noted that in the last six months, the growth of property prices has been notably unsustainable. Several factors, including worsening affordability constraints, a rise in fresh inventory, higher levels of new detached housing supply, and less government stimulus, will ultimately lead to a slowdown. While house values are expected to continue rising throughout 2021 and into 2022, experts now believe that the growth will be at a slower pace compared to the start of the year.  

For the second quarter, SQM’s managing director Mr Christopher said that expectations of the low interest rate environment prevailing for some time, a benign end to JobKeeper and with many households flush with cash, moderate to strong activity in the housing market can be expected during the period, which is seen to consequently drive prices even higher. He also noted that the oversupply of units in Sydney and Melbourne, with declines in asking unit prices over the month, leaves some space open for first home buyers and investors to enter the property market.