In total, approximately 10,500 apartments (out of 58 projects) have begun construction in Sydney's densely populated city center and will likely be completed at various stages over the next three years.
The area has become a major attraction for investors and homeowners alike, but has been more resilient to capital growth in recent times – those who bought off-plan apartments or those who bought apartments
Analysis by the BIS Oxford Economics found that it is the established apartments that have always generated higher capital growth when resale than non-plan apartments. This research was based on initial sales of apartments since January 2011 and subsequent resales of these same homes. The same analysis was also undertaken for apartments purchased and resold since January 2015, to show what a more recent capital growth looked like.
While investing in apartments in central Sydney was largely a profitable prospect for long-term contract holders – with only 4% off plan sales and 3% of the total apartments initially purchased Since January 2011 recording a loss – resale of apartments since January 2015, the investment landscape has become much more difficult lately.
However, even in this more difficult financial environment, about 89% of the established apartments were resold for a gain (while 11% were resold at the same price or less), with the results for larger apartments being higher than those smaller apartments on the resale market. This indicates that while the investment market in apartments in central Sydney has definitely softened over the past four years, insightful buyers still manage to obtain profitable investment results. .
For comparison, about 21% of off-plan apartments purchased since 2015 were resold at a price below their purchase price. The implications of a softer resale environment could be significant. Since these lower value sales define the benchmarks for the valuation of new apartments in settlement, it would appear that the highest settlement risk for the current apartment portfolio will occur in areas with resale the weakest. Indeed, the later the sale, the higher the settlement risk.
While those who buy the plan enjoy several tax benefits, avoid the uncertainties associated with auctions and profit from the "smell of new car" associated with a new home, they are also subject to market-related risks to purchase property in the market today and install in the market of tomorrow.
The apartment market in central Sydney has been resilient lately. however, a further downturn in the resale market could result in the re-entry of properties that will not solve the market, especially apartments purchased at the end of the cycle. This will put downward pressure on prices and could have repercussions in the event of a failure of this by-law, which would then force developers to save money to clear unsold properties.
Geof Snell
is the main property
economist at BIS Oxford
Economy
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