Real estate investment Sydney: Investors shift property as western Sydney becomes a ‘smart choice’

Despite Sydney’s affordable housing crisis, there is one popular suburb where homes are still going for under $500,000.

Western Sydney represents a ‘smart choice for real estate investors throughout 2023. Picture: NCA NewsWire / Gaye Gerard

Residential vacancy rates across Sydney have remained at their lowest levels since 2011, at just 1.3 per cent during January and February.

It compares to 2.3 per cent and 2.1 per cent in January/February last year and 3.5 per cent and 3.6 per cent in January/February 2021.

At the same time rents have been increasing, with weekly house asking rents up 19 per cent annually, and apartments up 24 per cent, according to SQM Research.

Now with increased levels of international students arriving in Sydney, the rental squeeze could get even tighter.

The Herron Todd White valuation firm has noticed investors across Sydney have shifted focus from anticipating easy capital returns to chasing higher income returns.

The tightening rental market along with softening property prices has had a “significant impact” on gross rental yields especially after the return of international students, HTW director Shaun Thomas noted.

It has certainly been highlighted in the university precincts.

As studies resume at UNSW, Kingsford’s gross unit rental yield has increased from 3.2 per cent to 4.9 per cent annually, while Kensington’s has risen from 3.5 per cent to 5.2 per cent.

There is a shortage of rental properties near Macquarie University with only 110 units recently available for rent with an estimated 1500 renters looking for accommodation. The Macquarie Park rental yield is 3.6 per cent with HTW anticipating increases in unit values due to the shortage.

Meanwhile investors on the Upper North Shore have been “extremely quiet” but are starting to see opportunities arise, although less active in high density cookie cutter developments given the preference for smaller developments.

The inner west investor grade strata properties – having experienced lesser capital growth – appear to be performing stronger and are expected to perform stronger this year.

The report cited a three bedroom Homebush apartment, which leased for $680 per week in August 2020 and recently came with an $850 weekly asking price through Exclusive Real Estate, reflecting a 25 per cent increase.

That’s three times the typical Homebush rise in the recent PropTrack report.

Out west gross Western Sydney rental yields for units have moved above four per cent for the first time since 2016, while houses are now at 2.8 per cent, the highest since 2019.

“Western Sydney has always been a smart choice for investors and despite the weaker market, we consider this should continue throughout 2023,“ Thomas said.

He pinpointed Blacktown where the median price for a two-bedroom unit is $420,000 with the median two-bedroom rental being $400 per week, reflecting a 4.95 per cent yield. The median rental was up 6.7 per cent annually with the median prices steady at $420,000.

Blacktown median house values have dropped 1.2 per cent to $870,000 but there’s been a 7.5 per cent median rental to $457 per week.

“This reflects a gross yield of 2.51 per cent last year to 2.73 per cent today,” Thomas noted.