FYI | Mar 03 2008
By Chris Shaw
Limited supply and strong demand have pushed up rents throughout the Australian property market in recent years but a suggestion of a slowdown in the pace of increase for rental growth in the inner city market in Sydney is well off the mark according to BIS Shrapnel.
The forecasting and industry analyst group has just completed its “Inner Sydney Apartments, 2007-2014” report and come away with the conclusion rents in this market should rise by as much as 29% by 2010 given the underlying supply and demand dynamics.
While this is good for those already owning investment properties those looking to enter the market may not see such gains shorter-term as the group expects rising interest rates to limit price gains and demand in the shorter-term.
The Sydney inner city apartment market is essential a split market, the group noting rental demand is being driven by young professionals who want to live closer to where they work. The 2006 census showed 33% of inner city residents in Sydney had moved there to be closer to their place of employment.
On the other side BIS notes investment demand in the inner city apartment sector is heavily weighted towards owner-occupiers, most of whom are either single or couples with no children. There was a slight increase in favour of owner-occupiers in the period between the previous census in 2001 and the 2006 census, as 35% now own or are paying off their properties as opposed to 33% in 2001.
The group’s report also shows a move away from new developments, as new completions totalled 2,300 apartments in 2003/04 but this had fallen to less than 1,000 in 2006/07 and shows the lack of supply despite demand continuing to increase given higher overseas student numbers and increased numbers of professionals making a move for lifestyle reasons.
A slight improvement is expected in coming years as BIS is forecasting apartment completions of 1,250 in 2007/08 and an increase to 1,500 in 2008/09, but the group points out this won’t be nearly enough to satisfy demand and so rents will continue to move higher for at least the medium-term.
But interest rate increases mean only limited growth in property values through to 2008/09 before an acceleration in 2009/10, with BIS expecting a peak in values around 2011/12. The owner-occupier side of the market is tipped to do better, the group forecasting total rental growth through to 2012 of 44%, while price growth in the same period is tipped to be 29%.