John Edwards, founder of Residex and consulting analyst at On The House, says the market has reached its ceiling in terms of rapid growth, and he predicts a much slower 4% p.a. growth over the next five years. “Affordability is always going to be the limiter of growth in any market,” Edward says. “Houses and units in Sydney are now so unaffordable. I think you’ll find that Sydney is already showing signs that it’s hit its peak.” Edwards points out that wages haven’t kept up with the strong surge in property values during the last quarter of 2013. In addition, concern about the rising level of unemployment and sluggish job growth has weighed on sentiment. “The poor news on the employment front will be impacting on consumer sentiment, and without strong consumer sentiment the market is unlikely to stretch beyond affordability comfort levels,” says Edwards.
Andrew Wilson, chief economist at APM, agrees that Sydney is approaching its peak but believes it has some growth left in the tank. “We’re talking one, maybe two more quarters of peak activity. But a 6% quarterly growth as we’ve seen in the December quarter is unsustainable,” he says. “Sydney doesn’t have a strong level of employment, population and immigration growth to support that kind of growth. So I believe we’re near the peak of the market at the moment.”
Peaking or not, investors are advised to look at other capital cities yet to experience a growth spurt, such as Brisbane. “Brisbane is in very solid catch-up mode. It’s about where it was three to four years ago, so there’s a bit of catching up to do,” says Wilson. “Brisbane is the second most affordable market; it offers the highest yield for houses and it’s currently being targeted by investors, so there’s plenty of potential to grow this year. I think it will grow by 5–7% this year. This will bring it on par with where the other markets are.”