There's no doubt that Sydney, and NSW in the wider context, has performed strongly in 2014-2015 in terms of capital growth. Though the property market has slowed down by the end of 2015, we can still expect investor activity in more affordable regional markets as we head into 2016.
Sydney's House Price Growth Slows
According to Australian Mortgage Options managing director Robert Projeski, "the price growth for Sydney will probably continue, albeit not as spectacular as in past years, but with some short term gains to be had. Melbourne will likely take the mantra and become Australia's hottest property market in terms of capital gains in 2016."
Indications are that we are likely to see ongoing low interest rates, with a possible rate reduction in early 2016. With that being the case, property prices will likely continue to rise by a further 5-10 per cent, as Sydney has suffered from property undersupply for years. We don't expect to see interest rate rises for another two to three years which will continue to fuel property prices, but not in the double digits we're used to seeing."
The bonus for first home buyers and investors who have brought into the Sydney market is that they will not experience mortgage stress until 2017-2018 at the earliest. This will give buyers time to build a buffer until interest rates start to rise.
Cooling Rental Market Trends
He believes rental demand will still be very high, with low vacancies due to the undersupply of property in Sydney.
"With low vacancy rates, and a significant undersupply of housing, we're likely going to see a steady, slower and more sustainable market than previous years. We will also likely see rents rise as worried investors try to pass on borrowing costs to tenants in this tight, post APRA (Australian Prudential Regulation Authority) lending environment."
If there is an extension or a granny flat on a property, you will likely see continuing demand for these properties and then it will get to the stage where supply will be reduced and demand increased."
So areas still geographically close to transport and other facilities could still find some very good growth, especially in areas that have been suffering for the last couple of years including areas in the west and south-west of Sydney.
"Although unemployment is a concern, the good news is that NSW is still the strongest state financially with a strong population growth," he said.
Investors Look to NSW Regional Suburbs for Growth
The newer properties coming into Sydney's market may not offer much relief to renters as many of these properties have been snapped up by eager overseas investors who do not necessarily buy for rental yield.
"We see 2016 as the year that smart investors make the most of opportunities in regional markets as the wave leaves Sydney and ripple outwards - particularly into areas with good transport infrastructure, schools and healthcare facilities."