by John McGrath

Last week we released our annual McGrath Report and over coming weeks I’ll be delving into some of the themes we’ve covered with greater focus here on switzer.com.au

This week I’m going to tell you what’s happening in Australia’s strongest and fastest growing residential real estate market – Sydney. And next week we’ll take a look at the next capital city market expected to boom – Brisbane.

Often called the ‘New York of Australia’, Sydney had about 14.8 per cent price growth across the board over the past 12 months to August and I’m expecting more growth to come.

The key drivers of this growth include:

  • The return of investors and influx of SMSF direct investments
  • Significant inflow of overseas investment 
  • Record low interest rates alongside record high rents
  • The impact of a new State Government
  • Approval and commencement of several major infrastructure projects
  • Underlying housing shortage coupled with an anticipated population growth of 1.57 million by 2031.

These factors are likely to continue the growth curve for several years to come, albeit (thankfully) at more modest rates of growth from here.

The hottest price growth will continue in the inner ring and beachside suburbs but there is a sharp increase in demand for new residential areas in the outer ring like Kellyville and Rouse Hill, heightened by new scheduled transportation links. This will continue as Sydneysiders strive to balance the competing factors of proximity, convenience, lifestyle and affordability.

If you study the price growth history of homes located close to the CBD compared to property located in the outer areas of Sydney, you will see a significant difference over the past 20 years.

Inner Sydney Paddington median values grew by 350 per cent compared to outer Sydney Penrith at 250 per cent. Parramatta, which is one of the largest CBDs in the country, delivered a formidable 335 per cent growth over the same period. This really underscores the distinct yields of different locations over time for those investing in property.

In recent times, the majority of Sydney’s price growth has been in the sub-$2M range. Given the improving share market, we are likely to see demand for property above $2M start to escalate this year with many undervalued prestige markets about to surge ahead.

We must remember that much of Sydney’s growth over the past 12 months has been catch up for lost ground during the GFC when prices either slumped or plateaued for several years. I believe Sydney has 10 - 20 per cent growth left in it this cycle over the next few years.

Here are my top suburb picks for Sydney

  • Millers Point/The Rocks: this historical northern fringe of the CBD is about to explode. With the top end of the town as one neighbour, Barangaroo as another and Sydney Harbour at your door it is the best located suburb in the country.  
  • Camperdown/Erskineville/Newtown: close to the CBD and benefitting from Sydney University embedded within. King Street retail strip and Erskineville village offer great coffee and shopping and the streets lined with Victorian terraces add heaps of charm.
  • Botany/Mascot: once working class industrial factory suburbs, this area has transformed itself completely and is fast becoming a fashionable address. Right next door to the airport it will come into its own for commuters.
  • Balmain/Birchgrove: this area is not cheap. Nor should it be. Minutes by car or ferry to the CBD. 
  • Earlwood/Bardwell Park: under the radar for many years and only 12km from the CBD, it is now being discovered by buyers who may have previously bought in areas like Haberfield and Five Dock. 
  • Concord: walk down the thriving coffee strip on Majors Bay Road. Look around and you’ll feel that this is an area on the move. While prices are no longer the obvious value they were a few years ago, they’re still well short of where they will be in the next 10!
  • Little Bay/Matraville/Chifley: Eastern Suburbs beachside locations without the price tag. Full of leisure and sporting pursuits, these areas offer better value and more land.
  • Forestville: surrounded by bushland, this cosy neighbourhood is rapidly becoming the preferred address for many buyers from the East and Inner West craving more land and value for money. 
  • Rouse Hill/Castle Hill: thriving area with new transport links expected to contribute to strong growth over the next five years.
  • Dolls Point: this picturesque pocket on the edge of Botany Bay is home to a small tight-knit group of 1,500 residents and is an increasingly popular enclave.