Sydney sees sharp drop in investor activity: HTW residential
Agents within Sydney inner city/east are reporting only a slight drop in listing numbers for owner occupier type properties, with an increase in off market activity within this market segment, according to the latest Herron Todd White (HTW) residential report.
The valuation firm presented an 'investor playbook' of real estate performance within each service area this month.
"However, investor activity appears to have dropped sharply, particularly in more homogenous medium and high density areas such as Haymarket, Zetland and Forest Lodge. This is largely driven by declines in rental demand pushing rents lower and therefore reducing overall returns," the valuation firm said.
According to SQM Research residential vacancy rates for Zetland peaked in May at a record high of 6.0 per cent and have slightly reduced to 5.7 per cent throughout June.
A similar trend can be seen at Mascot with vacancy rates peaking in June at 7.4 per cent as per SQM Research. Across the city within the inner west suburb of Pyrmont house rents fell by 11.8 per cent over the past year (Domain).
The report notes the sharp reduction in rental demand within these locations is resulting in lower rents and extended vacancy periods, this ultimately has a negative effect on sale prices given that investors are concerned about rental returns and also whether there will be any upside capital growth in the next few years.
A recent sale of a two-bedroom apartment at 612/149-161 O’Riordan Street, Mascot (pictured below) is a good example of this.
Previously sold during April 2016 for $800,000 and has recently been sold during July by the same agency for $790,000.
This result demonstrates how investment grade properties within certain high-density locations are performing subpar when compared to owner occupier style properties such as freestanding homes or larger modern townhouse/terraces within the surrounding area, the report noted.
Current asking rents for two- bedroom units within the building range from $600 to$700 per week.
"Based on what we are seeing, and information from local real estate agents, it appears that more first homebuyers are entering the market which does help increase demand for some of the investment style apartments, however there is still an oversupply of apartments advertised for sale and lease within these locations such as Zetland and Mascot," the valuation firm said.
Going forward it seems unlikely that this trend will significantly improve in the near future particularly while the impacts of COVID-19 are at play.
There are currently opportunities to purchase investment properties at prices similar or even lower than what they were sold for over the last few years, however this is assuming that someone can tolerate the reduced rental income and ‘ride out the storm’ until the market starts to recover.
"On a positive note this region of Sydney is always going to benefit from proximity to the CBD, good infrastructure and various services and amenities which make the inner suburbs of Sydney a popular place to live and invest in property," the valuation firm said.
The area is already well serviced for public transport, however the future Metro West and Metro City & Southwest lines will provide additional transport options for some of these inner ring suburbs.
"As always we believe that the strongest investment properties over the long-term will be those that are well-positioned, quality-built/designed, lower density developments and freestanding/semi- detached dwellings or the older properties that have renovation upside."
