Property oversupply in Sydney through the roof warns market analyst

Excessive Sydney building approvals in recent years have contributed to an oversupply of dwellings when measured against the population, one market analyst has warned.

“Sydney is about to enter new territory. Its average annual population growth rate has consistently hovered around 1.6 per cent but supply is really ramping up – things are out of sync,” said Simon Pressley from Propertyology.

Research by the property investment body revealed 18 out of Sydney’s 43 local government authorities have a property supply 100% higher than historical averages. It also noted that suburbs most at risk of oversupply in the short-term included Lane Cove, Ryde and Willoughby in the Lower-North Shore, plus several south and west pockets in Sydney.

Pressley predicted housing affordability in other states would likely increase migration out of Sydney, further worsening the problem of oversupply.

"For the same price that we can buy a median value Sydney apartment, we can buy a house in every other city in Australia with the exception of Melbourne and Perth," he said.

"New South Wales has a long history of people migration away from Sydney to alternative locations and history has taught us that the biggest driver of housing demand is affordability."

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The market analyst also noted that while Sydney’s economy and property scene is likely to remain strong, that’s not to say there aren’t a few cracks.

“Several pockets may well see price declines,” Pressley said.

Tips for investors

If you own an investment property and are worried about falling rental yields, here are a few tips:

1. Ensure you're signed up with the lowest rate loan. With home loan rates at record lows now is the perfect time to make the switch if your mortgage isn't competitive. The savings made will help bridge the gap if you do find your rental yields fall down the track.

2. Have an emergency fund in place. It's also wise to put aside money in your offset account or savings account that you can dip into to meet your repayments if you do see your rental income fall.

3. Spruce up your rental place. With the EOFY just around the corner now's the time to make any upgrades to your investment property. Not only are renovations tax deductible if your property is negatively geared, but you'll make your tenants happy too.

4. Buy in areas with high potential for growth. If you’re looking to buy an investment property, make sure you do your due diligence by researching the potential for capital growth in those areas. Look at suburbs that have amenities nearby like parks, public transport and shops.

Thinking of switching your home loan over to one with a better rate? Compare now via Mozo’s refinancing hub.