- Herron Todd White has released its latest Month in Review
- Increasing rental yields make residential property more attractive to investors
- This has been offset by declining capital returns along with an increasing cost of finance
In line with national trends, Sydney’s rents have surged over the last year while property prices in the city have dropped nearly 14%. Analysis from Herron Todd White‘s latest Month in Review reveals unique conditions could place the New South Wales capital in a “sweet spot” for investors.
Herron Todd White Director Shaun Thomas says current conditions generally would see both investors and first homebuyers becoming more active in the market.
The increasing rental yields in Sydney have made residential property more attractive to investors. Data from SQM research reveals that rental yield in Sydney is 4.5% as at April 2023, up from 3.7% the same time a year ago.
Although improving rental yields have made residential property more appealing to investors, the Herron Todd White analysis reveals this trend has been counterbalanced by declining capital returns and an increasing cost of finance.
“As we edge closer to the bottom of the current market decline, this could provide somewhat of a sweet spot for investors as conditions return to a period of both strong rental returns and increasing capital returns,” Thomas says.
Beyond investor buyers, first-home buyers typically become more active during the current conditions according to the report.
“We have seen a slight increase in first homebuyer activity over the past six months, with first homebuyer financing making up 20.2% of owner-occupier financing as at January 2023,” Thomas says.
The current market figures do not yet reflect the impact of government incentives for first homebuyers, such as the First Home Buyers Choice policy in New South Wales, which enables first homebuyers to pay an annual property tax instead of an upfront stamp duty payment.
However, according to Herron Todd White, selling agents are noting a growing number of first homebuyers becoming active in the market.
Downsizers and prestige buyers, particularly in the over $10 million market, are less affected by the sharp increase in interest rates compared to other buyer types.
Despite a lack of new listings, prices for prestige units and houses have held up much better than the wider market. However, activity for these buyers has still been somewhat subdued.
