Wondering whether or not to buy an investment property in Sydney’s eastern suburbs?
We explore 6 reasons why there may not be a better time to buy than right now.
1. The rental market is tight
While Sydney’s property market was in decline over 2022 when it came to sales, its rental market was booming. Over the past 12 months, the median Sydney-wide rent has lifted 26.0%, according to SQM Research, with apartment rents rising by 30.1%. Rents here in the eastern suburbs have risen even higher still.
SQM Research data shows that the median rent across our area has climbed 43.7%, with apartment rents rising 38.0% and house rents rising by an incredible 54.2%.
To put that into perspective, a house that was renting for $2,000 a week just a year ago, could now expect to lease for $3,084.
One of the main reasons for this jump in rents is that demand is far outstripping supply. In fact, in February 2023, the vacancy rate across the eastern suburbs fell to just 1.1% – a rate it has only reached twice since SQM Research began collecting data in 2005.
2. Yields have risen
Because rents are high, property investors are receiving a much higher income today than a year ago – potentially offsetting any increase in interest rates for those investors who have a mortgage.
But that’s only part of the positive equation for investors who buy right now. The other good news is that property prices are often lower than a year ago – sometimes as much as 15% lower – which means that investors can receive more income for less expense.
This is reflected in the implied gross yield, which now stands at 5.0% for eastern suburbs apartments and 3.3% for eastern suburbs houses, according to SQM Research. By way of comparison, in September 2021, investors were receiving a yield of just 2.9% for apartments and 2.7% for houses.
3. Historical rental returns have been top-of-class
While there may have been a spectacular jump in rental prices recently, the reality is that our area has a history of delivering strong rental returns.
SQM Research also reveals that the median 10-year rental growth in Sydney’s eastern suburbs is 4.9%, with rents on houses growing an average of 5.7% and apartments by 4.5% over the past decade.
It’s not only rents that have been growing. The other – and even more impressive – part is capital growth. Asking property prices have also grown by an average of 7.1% over the past decade and 8.5% over the past three years.
That means, based on the eastern suburbs average, someone who bought an investment property for $700,000 in 2013 could now expect it to be worth $1.29 million.
4. The population is increasing
While prices may be down at the moment, the potential for long-term capital growth in Sydney’s eastern suburbs remains undeniable.
One key reason for this is that Sydney’s population is increasing, and the pace of population growth is only going to get faster. While immigration levels were down during COVID-19, the federal government announced an increase to the skilled migration cap to 195,000 – and history shows around a third are likely to call Sydney home. We’re also seeing the return of overseas students en masse, as well as internal migration from other parts of Australia.
As a result, the Sydney region’s population is expected to swell to as many as 9 million by 2050. Every one of those new residents will need somewhere to live, and, as always, the eastern suburbs will be one of the areas with the strongest demand. This should put even greater pressure on house prices and rents.
5. There is an ongoing housing shortage (and no end in sight)
While the city’s population is growing, the rate of development is struggling to keep pace. The NSW Department of Planning revealed NSW will need to build as many as 62,800 new homes a year over the next five years just to meet the growing demand for accommodation in our city. Sydney’s east is one of the worst affected areas.
This housing shortage keeps sales prices high and is likely to mean demand stays strong for some time to come.
6. The eastern suburbs are resilient
Finally, property investing, like any type of investing, is a matter of balancing risk and reward. As an established area, buying into Sydney’s eastern suburbs is like buying stock in a blue chip company. Our area has high demand, strong fundamentals and a history of delivering stable growth.
So while Sydney’s eastern suburbs may be more expensive than some other parts of the country, they’re likely to hold their own even when the market is flat. This often makes eastern suburbs property a sound investment in any market cycle.
If you’d like to know more about buying or selling property in Sydney’s Eastern Suburbs, please get in touch.