Sydney’s apartment market is seeing a growing price gulf between new and established unit pricing after an extended dramatic increase in building costs, combined with a plethora of taxes and levies.
Charter Keck Cramer advised the distortion was making the feasible delivery of new apartments “extremely difficult,” noting that for a unit project to be financially feasible, gross realisations would need to be increased well above current market price points.
“It is going to take time and significant government intervention to allow the markets to … revert back to equilibrium,” CKC research director Richard Temlett says.
While the NSW government was commended for taking action to stimulate supply through “unprecedented planning changes and reform”, CKC says elevated levies and charges are exacerbating feasibility challenges.
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Sydney’s real estate market is witnessing a growing gulf in prices due to building costs and a plethora of government taxes and levies Picture: Sam Ruttyn
New planning controls have also created industry confusion in relation to affordable housing. Many developers are rethinking projects.
“With the planning changes slowly being implemented, it will take one or more market cycles before they translate into the delivery of dwellings,” Temlett forecasts, adding he expects 2025 to be more active and positive as various key metrics start to shift.
Sydney apartment completions remain well below necessary which is of concern given the reliance on new apartments to boost supply.
CKC notes Sydney’s launches of 7690 apartments in 2024 – down 1 per cent on 2023. Apartment commencements of 8400 were down 8 per cent against 2023.
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Sydney’s apartment market is seeing a growing price gulf between new and established unit pricing. Picture: Supplied
Launches and commencements declined to about half of their 10-year averages.
Prices at the upper end of the build to sell market continue to rise, but are “largely stagnant” at the middle and lower end of the market.
Temlett says the government will need to stimulate demand and purchasing activity.
“There is a chronic shortage of rental accommodation with a content of investors divesting stock as a result of high interest rates and cost-of-living pressures,” he says.
Accordingly, rental growth was expected for investors over the next few years in most markets until there is a supply response.
Build costs have dramatically increased in Sydney since the pandemic but are stabilising, CKC notes. There is a much larger (albeit shrinking) labour pool in NSW, so Sydney is not expected to experience the same stress in the construction market as Brisbane, the Gold Coast, Perth and Adelaide, where building company collapses are a regular occurrence.
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There is a chronic shortage of rental accommodation.
Concerns remain in the planning and regulatory side of the development phase with councils and the state government needing to align agendas to facilitate meaningful new supply in Sydney.
“This has not materialised in the first six months of the National Housing Accord … with metro Sydney completions already falling well short of requirements,” CKC notes.
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