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Sydney Can Sustain its Property Prices

net interstate migrationIn an article for the website Property Update, Kevin Turner examines why Sydney property prices are not likely to fall. It is the third year that we are witnessing a formidable price growth. Already, in the year 2015, prices have risen by 7%, and let us remember, we are only midway yet. November 2014 brought us close to an alarm. Warnings of price correction were in the air but the government shot back with successive rate cuts and the property market came back into its own.

How true is the talk of price bubble?

When prices rise and keep doing so for a long time, talk of a price bubble always fills the air. Turner believes that the Sydney market has always beaten the predictions of the pundits and this is largely because its fundamentals are pretty well placed and this is not a small thing.

Unbreachable natural borders

Sydney has strong natural borders and it is tough to breach them. It is not hard to decipher that with such borders the question of undersupply always remains. Rampant population growth implies that unmet demand only keeps increasing.

Property prices will rise not fall

Turner uses Robert Gottliebsen’s observation to drive home the point. Sydney’s property prices, says Gottleibsen, will rise instead of fall and this can be put down to:

  • 80,000 people will enter Sydney’s shores each year from now on.
  • It will mean nearly 53,000 dwellings each year.
  • To meet this, NSW projections from the year 2015 is 54,000 dwellings. Put another way, the whole NSW will just about build what Sydney alone needs.

Demand-supply equation

So, demand will keep beating supply flat and this can mean a continuous streak of good days ahead for Sydney. Yes, the boom is likely to end sometime but it would not mean saying goodbye to price growth. Prices will keep rising albeit in a measured fashion.

Growth rate will mellow down

The slowdown in the price growth rate will largely be due to three reasons. 1) Interest rates will rise at some point and make the property market seem less lucrative. 2) Investor activity will fizzle, given the situation of low bond yield that may develop. 3) The market will reach its peak resulting in waning buyer interest.

You can read the original article here.

At the root of everything, in my opinion, will remain the question of net interstate migration. Sydney is drawing in a tidal wave of skilled and unskilled labourers. Much of that wave will support the construction industry but it can be argued that this volume of immigration will unbalance the demand-supply slope further. You can draw your own conclusions from that. And there is something to be said about the dwelling figures: Sydney alone will be gobbling the whole NSW pie!