Latest NewsFirst Home Buyers to Make a ComebackFriday, 28 April 2017

First-home buyers numbers may be on the rise again this year with a range of motivators in the market.

The end of the financial top-up to the first home owner's grant took many first-timers out of the Sydney apartment market last year.

The increased federal government incentive - to offset the confidence-shattering effects of the global financial crisis - had doubled the grant to $14,000 for established homes and encouraged people to purchase during 2009.

There were 59,100 grants in 2008-09 in NSW, which was 40 per cent higher than the previous six-year average.

It slipped back to 51,800 in 2009-10. But with the grant dropping to $7000, in the second half of last year just 16,200 people bought a first home.

It's widely assumed this year will mark the return of first-home buyers to the market, as tenants become disillusioned with increasing rents.

And without the luxury of the 2009 top-up from the federal and state government, they will look at the most affordable entry point - and that means apartments.

First-timers to return...

The number of first-home buyers will slowly pick up towards normal levels by the end of the year, says Angie Zigomanis of BIS Shrapnel.

Even without the extra money, there are still plenty of inducements for first-home buyers. The January 1 lifting of the purchase price for grant eligibility - from $750,000 to $835,000 - will help Sydney buyers.

And with state stamp duty concessions, an extra $17,990 is possibly available. Those who buy new houses or apartments are eligible for total savings of up to $29,490 under the NSW home builders bonus.

The chief economist of AMP Capital Investors, Shane Oliver, says a fresh set of first-timers will enliven the Sydney apartment market.

"This, combined with very low rental property vacancy rates of around 1 per cent to 1.5 per cent, is likely to add a bit of strength to some key segments of the unit market this year," he says.

"Rising interest rates during the second half will constrain unit prices but the return of first-home buyers combined with very low rental property vacancy rates will likely result in modest gains in average unit prices this year of around 5 per cent."

The case for apartments...

The research director for RP Data, Tim Lawless, says: "In 2010, Sydney apartments slightly outperformed Sydney houses, returning an annual capital gain of 6.8 per cent compared with the growth rate for houses of 6.4 per cent."

The median apartment price sits between $438,800 - the Australian Property Monitors estimate - and the $477,500 median given by Residex, as at the December quarter. RP Data-Rismark puts it at $461,000.

And prices look set to rise this year. Lawless believes apartments will once again outperform houses. "More and more prospective buyers are targeting unit and semi-attached homes due to their more affordable price points and what is often a better location," he says.

"The affordability gap is likely to narrow during 2011 as more buyers decide to target medium- to high-density product."

Investors to return...

Zigomanis says more investors will wade into the apartment market during the year, given economic growth and improving confidence.

"This should lead to further price growth," he says. "BIS Shrapnel expects price rises of 3 per cent to 5 per cent for units across Sydney overall. With interest rates rising, the company anticipates increased demand for apartments that offer a more solid yield.

This will include second-hand apartments in some of the more affordable areas and areas that offer good transport and employment infrastructure." The chief executive of Aussie Home Loans, John Symond, says new units close to the CBD and public transport will be the winners.

Lower-priced properties will be the strongest performers - especially new ones, where depreciation can also be claimed by investors.

"Investors have returned to the market following the global financial crisis and they are fuelling demand in the lower price range," he says. "The supply of new rental properties continues to be slow, leading to an acceleration in rents - creating further pressure on those who are keen to get into the property market for the first time."

Many young people are in effect priced out of Sydney property ownership and face increasing rental payments. "This problem of affordability should be urgently addressed at both a federal and state level," Symond says.

Also fuelling demand for units are empty nesters, who are leaving houses for townhouses or apartments. "I expect units to experience average price growth in 2011 of up to 8 per cent, especially as unemployment levels remain low and demand outpaces supply."

Rental growth...

Accelerating rental growth will play a key role in higher apartment prices. Rental yields on units are 5 per cent, gross, compared with 4.3 per cent for houses, according to RP Data.

But the supply of new investment property is tightening. It's predicted this year will bring a fall in building completions; projects started before the GFC are now mostly built and most of those placed on hold during the GFC have begun construction but are not expected to be finished this year, according to Herron Todd White.

Christopher confirms there has been a significant undersupply of new apartment stock. "It was only recently that NSW was building less apartment stock than what was occurring in the early 1980s," he says.

And despite his optimism about the prospects for capital growth for inner-city apartments, he says buyers of units further out can benefit from lower prices and faster-growing rents. "If there's one area where there is a genuine shortage of accommodation, it's Sydney's outer ring," he says.

"Rental vacancy rates in Sydney's west are at five-year lows. Rents are likely to grow faster in Sydney's outer ring than in the inner areas."

With the housing shortage at critical levels, ANZ Bank economist Dylan Eades expects the competition in the rental markets to intensify, with vacancy rates forecast to fall below 1 per cent in the second half of the year.

"Rental growth will be close to double digits by the end of the year, causing deterioration in rental affordability," Eades says.