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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Saturday, 31 January 2015

Sydney inner suburbs have outperformed...and will "stay hot forever"

Sydney's inner suburbs "to stay hot forever"

Unsurprisingly Domain's research shows that the big property price gains in Sydney in 2014 were experienced in the inner- and middle-ring suburbs.

Equally unsurprisingly, the performance of dwelling prices over the past decade in the inner 10km ring (+71.5 percent) has been a world apart from properties outside the inner ring (+48.4 percent), a point made many times on this blog, of course.

From Domain:

"Economists and property agents are talking up the long-term prospects of properties in inner ring suburbs in Sydney as new figures reveal house prices within a 10 kilometre radius of the city have outstripped outlying suburbs over the past decade.
Suburbs close to the city are becoming so desirable that they will be "hot forever", according to one of the city's most high-profile agents John McGrath.
Although he stopped short of declaring property prices - in those suburbs in a radius roughly 10 kilometres from the city - immune from price falls, the chief executive of McGrath Estate Agents said these areas would always be attractive to buyers because of their proximity to the city, beaches and other lifestyle amenities such as art galleries and restaurants.
"There is just no end of demand from overseas and local buyers who want to live in those precincts," he said.

"There is sometimes a very minor price correction for a small amount of time but generally speaking Sydney is becoming a New York. It's a big international city and people want to live in it ... and there's very limited stock available. It's always going to be blue-chip and a market leader."

Inner suburbs outperform

The article goes on to confirm that Sydney's inner suburbs have massively outperformed those further out over the past decade:

"The latest data from Domain Group that shows the 10 suburbs with the biggest price growth in 2014 had largely been in the middle and outer rings.

Analysis by Domain Group's senior economist Andrew Wilson found over the past 10 years the average price of properties within that 10-kilometre radius had risen 71.5 per cent, compared with 48.4 per cent for those more than 10 kilometres out.
AMP Capital chief economist Shane Oliver said there were always circumstances where inner city prices could fall but any fall would be "short-lived and minor".
"There's still going to be interest rate cycles, recessions, building booms and busts, but ... the impact of them on the inner city suburbs tends to be far less than the outer suburbs," he said.
In decades past, residents left the inner city in droves for the space and tranquility of the suburbs. 
But since the 1960s, waves of gentrification have transformed many former gritty working-class areas of the inner city, such as Paddington and Balmain, into enclaves only the well-heeled can afford.
Bill Randolph, director of the City Futures Research Centre at the University of NSW, said these changing demographics were largely driven by the shift from manufacturing to "high-end, knowledge-based" jobs. 
And despite more and more dwellings being built in these areas, the exorbitant prices for houses and apartments in most parts of the inner ring was creating a divided city. 
"The middle and lower incomes are being pushed out of the inner city by and large. That's a global trend and I think here to stay for the foreseeable future," he said."
The wrap
Nothing too surprising here, of course!
Inner capital city suburbs will perform better over the longer term simply because there such a minimal supply of available land within that radius and such a huge demand for it.
Properties with a high land value content therefore outperform.
Conversely, even in Sydney there is a mass of land available for development on the outer, but very little demand for it from either investors or from owner-occupiers.
It's largely a case simple geometry as I discussed here.
The trend is accentuated by a shift towards centralised capital city living and employment growth, as quite rightly highlighted by the Prof. Randolph.
Not that you need to be a Professor to understand much of this!
Sydney's population is forecast to explode to 8 million by 2050, and since most people favour the inner suburbs, construction fails to keep pace.
Supply and demand!