Is Now A Good Time To Invest In Sydney’s Inner City And Inner West?
Sydney’s inner city and inner west have always been perennial favourites for property investors.
But is 2024 the right time to buy into the local market? Or would you be better off waiting until conditions change? We explore the pros and cons of investing in Sydney’s inner west property market right now.
How Sydney’s property market has been performing
According to CoreLogic, Sydney’s median property price rose 9.6% to $1,139,375 in the year ending 30 March 2024. That means the median Sydney property value has now lifted 25.4% since the onset of the COVID pandemic.
While this figure is impressive, the pace of growth has been slowing over the past six months. In the March 2024 quarter, Sydney’s median home value lifted 0.9%, while in the December 2023 quarter, it rose 0.8%. This compares with gains of 2.5% in the September 2023 quarter and 4.9% in the June 2023 quarter.
Meanwhile, Domain has recorded the Sydney-wide auction clearance rate at between 60% and 70% over the last six weeks - still healthy but well shy of the 80-90% clearance rates we were routinely seeing at the height of the COVID pandemic.
In other words, the latest Sydney-wide data paints a picture of a market characterised by steady, rather than spectacular, growth.
Weekly asking rents across Sydney have risen by roughly the same amount as sales prices: 9.2% over the past 12 months to $851. However, that growth has been more steady, with 2.5% growth over the March quarter, according to SQM Research.
As a result, Sydney’s median gross rental yield is as high as 3.1%, or 4.0% for apartments and 2.7% for houses.
The Sydney-wide vacancy rate is also low - down to 1.1% in March 2024. That means for every 1,000 investment properties in our city, just 11 were on the market last month.
The growing gap between apartment and house prices
A key feature of our market over the past few years has been the divergence of house and apartment prices. CoreLogic data shows that in March 2020, the gap between Sydney house prices and Sydney apartment prices was 32.9%. By January 2024, this had grown to 68.4% - the highest it has ever been.
This is reflected in the sales prices in Sydney’s inner city and inner west, with houses outperforming apartments in virtually every suburb, as the table below shows.
| Suburb | Median house price March 2024 | Median house price March 2020 | Difference | Median apartment price March 2024 | Median apartment price March 2020 | Difference |
|---|---|---|---|---|---|---|
| Alexandria | $2,167,500 | $1,677,500 | 22.6% | $880,000 | $730,000 | 20.5% |
| Erskineville | $1,784,500 | $1,480,000 | 20.6% | $1,000,000 | $925,000 | 8.1% |
| Redfern | $1,802,000 | $1,400,000 | 28.7% | $1,007,500 | $908,500 | 9.8% |
| Newtown | $1,730,000 | $1,505,000 | 15.0% | $732,500 | $718,000 | 2.0% |
| Marrickville | $1,960,000 | $1,442,500 | 26.4% | $872,500 | $790,000 | 10.4% |
* Source realestate.com.au suburb data, accessed 23 April 2024
A different story for rents and yields
While houses may have experienced more capital growth than apartments over the past four years, the difference in rental values is less pronounced.
In fact, in most suburbs, the growth in apartment rents has outpaced the growth in house rents.
| Suburb | Median house rent March 2024 | Median house rent March 2020 | Difference | Median apartment rent March 2024 | Median apartment rent March 2020 | Difference |
|---|---|---|---|---|---|---|
| Alexandria | $1,000 | $800 | 25.0% | $725 | $600 | 20.8% |
| Erskineville | $892 | $785 | 13.6% | $790 | $650 | 21.5% |
| Redfern | $950 | $800 | 18.8% | $745 | $640 | 21.1% |
| Newtown | $880 | $780 | 12.8% | $575 | $480 | 19.8% |
| Marrickville | $900 | $750 | 20.0% | $600 | $490 | 22.4% |
* Source realestate.com.au suburb data, accessed 23 April 2024
As a result, apartments usually return significantly higher yields for their owners, which in many cases more than offset lower capital growth.
What does this mean for investors?
So, what does all of this data mean if you’re looking to invest in Sydney’s inner city and inner west? We think it shows several things - many of which are encouraging signs that now is a good time to add to your property investment portfolio.
- Population growth. First, growing apartment rents and low vacancy rates are signs that demand is outstripping supply in the rental market. One reason for this is that Sydney’s population is rising again. In the year to September 2023, NSW grew by almost 200,000 people, the ABS reported. Every one of these new residents needed somewhere to live, and statistics show that most new arrivals tend to rent, at least initially.
- Low supply. There is a genuine housing shortage across Sydney right now and, and unless we build substantially more properties, strong population growth means it’s likely to remain that way. When a property does come up for rent it is usually in high demand and leases quickly. This is helping drive rents up even further.
- A move back to the inner city. One feature of the pandemic was that people wanted more space. For the first time in a while, outer suburbs and regional areas started to outperform the inner city. This trend is now noticeably reversing, with people once again returning to the inner city for work, study and leisure. As a result, both rents and sales prices in the inner city are likely to outperform the market in the coming years.
- Relative affordability. We know that Sydney property isn’t cheap. However, the same COVID-related trends mean that some properties - particularly apartments - in our area represent relatively good value at the moment. For instance, the median price of an apartment in Alexandria ($880,000) is a fraction of the median Sydney dwelling value. Yet, it is a high-demand, convenient suburb that offers a gross yield of 4.8% - way above the Sydney median.
- Potential for both rental and capital growth. Each of these factors means our area is likely to outperform much of the city over the next few years - both when it comes to rental income and also capital growth.
What should you be looking for as an investor?
If you’re looking to buy an investment property in Sydney’s inner city and inner west, the good news is that the current market conditions mean that, while prices are rising, they aren’t running away. This means you also have the time to make a rational and sensible decision.
Remember that this is a business decision, and you should approach it differently from buying your own home: what matters are the current numbers and the likelihood of future income and capital growth.
Want more?
If you need help reaching a decision, contact our team today to find out more about how we can help you buy the perfect investment property in Sydney’s inner city and inner west.
