Parramatta on list of eight danger property market suburbs: Terry Ryder

Many of the Sydney residential markets are showing resilience – refusing to lie down – but the overwhelming weight of evidence is that the big price boom has run its course.

You will note my reluctance to speak about “the Sydney property market” as a single entity. The tendency by media (and many of the attention-seekers, like economists and publicity-obsessed research companies, who feed journalists misinformation) to distil market dynamics for a major city to a single growth figure is really unhelpful and often misleading. 

The Sydney metro area, with over 700 suburbs, has many different markets. They’re not all moving as one. To describe Sydney house price movements as a single figure might satisfy a simplistic media but it tells no one anything useful. 

My latest analysis of sales data reveals there are still a small number of Sydney suburbs with growth markets, a much larger number which I classify as “plateau” markets (have levelled off a little below the peak), a few that show notable consistency of sales over time, and a small but growing number that I categorise as “danger” markets.

That amounts to lots of different scenarios within the boundaries of the Greater Sydney Area. 

If there is any commonality to be found, it’s that the volume of sales overall has dropped in 2016 and that most research sources are publishing data which confirms that the overall rate of price growth has dissipated considerably.

The other common feature is that many Sydney areas are hanging tough. Some of the key factors that drove the boom – the strength of the Sydney/NSW economy and the high level of spending on infrastructure – are still in place.

But some of the other influences – the absence of major growth in the decade pre-2013 and the relative affordability it created – has passed into history. There’s no way that strong level of price growth could continue beyond three years, because price becomes an issue for more and more people.

But a lot of Sydney markets are showing resilience – still making good sales and maintaining strong prices, just without the double-digit annual growth of the recent past. This is one of the reasons I’m not expecting any significant decline in Sydney markets in the near future.

But there are exceptions. There are now eight suburbs which I classify as danger markets. They’re all locations dominated by apartments and they’re places where sales rates have dropped markedly at a time when developers are still bringing lots of new supply to the market.

In some of those standout locations, like Parramatta, the rate of sale is a third of the levels of three years ago. Practitioners who claim Sydney can build unlimited numbers of new apartments because the city has a dwelling shortage are deluding themselves and others. There are specific markets in Sydney heading for major oversupply, regardless of the overall supply-demand situation for the metro area as a whole.

The areas showing the most solidity in the face of the overall decline in the market heat are headed by the City of Penrith. There’s still plenty of life in markets out in the far west – and this is typical of the Sydney places investors should consider to achieve growth in coming years.

Sydney’s property boom was caused by a number of core factors, including the overall strength of the NSW economy and the lengthy period without strong growth pre-2013.

But the biggest single factor for me is the high level of spending on infrastructure. Tens of billions of dollars are being invested and that’s generated economic activity and jobs, while improving the amenity and/or accessibility of locations. Transport and medical-educational facilities are the big ticket items.

So the way forward for investors in Sydney is to follow the infrastructure trail – and, in general terms, that means looking west where the second airport is being built, as well as new motorways and rail links.

Municipalities like Penrith, as well as Blacktown and Liverpool, are the most likely beneficiaries.

Buying property that lies in the path of progress has always been a core method of making money in real estate – and that’s one of the keys for investors contemplating the inevitable wind-down in markets in Sydney.

Terry Ryder is the founder of hotspotting.com.au. You can email him or follow him on Twitter.