Sydney Suburbs Primed for Downsizer Surge

Sydney may be an expensive market for development but projects are more feasible than ever, if you know where to look. That’s the message from CBRE head of research Sameer Chopra, who addressed developers at an MA Financial outlook lunch in the Harbour City late last month. “I am quite bullish,” Chopra told the event. “Building expensive apartments means you are trading in a liquid market.” His bullishness extends to his take on interest rates. Chopra believes the eventual lowering of the rates will mean projects are more affordable for buyers—and even more feasible for developers. “Once the brake is released, affordability will soar,” Chopra says. “The consumer is held back right now but will take off when the brake is loosened.” Locations key to success Chopra says that for the downsizer market in Sydney, developers should focus on three or two-bedroom apartments at Mosman, Castle Hill, Maroubra, Toorak, Brighton, Strathfield and Randwick. In Castle Hill alone, Chopra says, the potential downsizer market numbers about 700 households. ▲ CBRE head of research Sameer Chopra says Sydney’s residential developers can make projects feasible if the location is right. Chopra says it is easy to see why demand is centred around these suburbs, as much of the apartment supply for the city is earmarked for the inner west, the Hills area and Parramatta—but none for coastal areas. Current estimates are that Sydney needs about 30,000 new homes a year. Chopra is also an advocate for infrastructure as it signals demand for housing. “In Australia ... we are going through this massive infrastructure boom,” he says. “We will complain about it today and five years from now we will look back and go, ‘Oh, thank goodness ’ . “When we look around these big public transport networks, we find that population densities around these hubs tend to double.” Time and money saved using public transport is also time and money available to spend on rent or a mortgage, he says. According to Chopra, capital value growth is faster around metropolitan transport hubs than anywhere else. So those developing retail and mixed-use spaces also benefit. Workforce expansion drives demand Chopra argues that one of the most important factors affecting feasibility is a job. “We’ve added about 1.5 million people to the workforce in the past five years ... and our view is that in the next decade, 5 to 10 years, that will become 2.5 million,” Chopra says. ▲ Chopra says infrastructure projects like the Sydney Metro create new opportunities for residential developers around transport hubs. As the workforce increases so too does the amount of money that can be spent. Chopra estimates that there will be $940 billion in consumer income within a decade and that at least 20 to 30 per cent of that will be spent on rent or mortgage payments. The national average annual income is $104,000—that is expected to increase to $143,000 by 2034, and that, Chopra says, is why developers need to be positive about the market. And then there’s supply. Australia is expected to build just 50,000 apartments a year over the next four years, well below the predicted demand of 75,000 a year. Chopra says migration is not the issue, as the supply of new housing is already unable to meet the increased demand created by the normalised estimate of 400,000 migrants a year. “Even if immigration stopped we would still have an undersupply—all cities are struggling with an undersupply,” Chopra says. And, he says, while that might be an issue for all levels of government, it provides a bigger market for developers. Meanwhile, average rents nationally are predicted to increase by $170 a week to reach $715 a week over the next five years—some areas of Sydney will top $800. Building the right units Size and typology matters. Chopra says research shows that most prospective buyers, including downsizers, are looking for two or three-bedroom apartments. “Affordability increases as size increases,” Chopra says. ▲ A render of Winim Developments’ five-storey residential block at Mosman. Larger apartments with more bedrooms make it possible for individuals and couples to access more amenity and space by renting with roommates—each additional bedroom lowers the rental cost for each individual. Apartments also fare better than houses in pricing. Upsizers are looking at paying a 55 per cent premium for houses compared to apartments. In fact, in some regional and rural areas, houses are now 200 per cent more expensive than apartments. In most inner-city suburbs, Chopra says, prices are hitting more than $2.5 million for houses. In response, many buyers are choosing an apartment and upgrading it. “The good news for developers is that two and three-bedroom apartments are trading at 30 per cent and are up to 45 per cent more expensive than a new build,” Chopra says. And the market is not insubstantial. Chopra says that just within Sydney there are an estimated 60,000 to 70,000 people with a seven-figure income who therefore could afford high-end apartments. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

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