Why the steep entry point into Sydney's property market is worth it for investors

While Perth has been capturing headlines with some stellar price rises, many experts continue to spruik Sydney as offering some of the best investment prospects nationally in terms of capital value and yield growth.

While it is the most expensive market to get into, the rewards can far outweigh the initial expense, making it the holy grail of any wise property investor, says James Brown, co-founder and director of buyer’s agency JamesKellie.

“People invest with different strategies, but the majority of our clients like to buy blue-chip properties and hold,” Brown says. “So, we look for strong, sustainable growth over the long term.

“We find that in Sydney’s eastern suburbs, particularly on the beaches from Bondi to Maroubra where tenants want to live, on the lower north shore around Neutral Bay and Cremorne, and in the Inner West, Balmain and Birchgrove.

“They do have a higher entry point, but properties are limited and prices historically double every seven to 10 years.”

Those areas certainly offer good price growth, with the latest Domain House Price Report showing units in the eastern suburb of Bellevue Hill rose 37.5 per cent in the past year, and those in Little Bay jumped 23.1 per cent.

At the same time, some of Sydney’s more affordable locations are also showing strong price gains, says Domain chief of research and economics Dr Nicola Powell. She points to houses in Wentworthville out west, with values up 31.9 per cent, and units in Kingswood, up 27.7 per cent.

“We have seen a lot of premium areas showing strong rates of growth,” she says. “But it is a bit of a mix, with premium and the more affordable suburbs both showing increases. Houses in Auburn in the west, for instance, have seen 12-month price growth of 21.5 per cent.

“When it comes to rental yields, those more affordable areas are also doing well, with units in Auburn at 5.06 per cent, Carramar at 4.98 per cent, Leumeah in the south-west at 4.88 per cent and Bankstown at 4.56 per cent.”

Powell notes that many investors in more premium areas have their properties negatively geared as they are at higher price points.

Even so, Sydney still offers tremendous promise for investors, believes Julian Fadini, founder of investment advisors PRPTY 360. While not everyone can afford to buy investments in Sydney, those who can usually benefit.

“In my professional opinion, the best place there is the unit market along the eastern suburbs, which is good for both rental and capital growth,” he says. “That’s Bondi, Coogee and Maroubra, especially.

“But there are more affordable areas nearby too, like Hillsdale, Pagewood and Eastlakes. They’re often $500,000 cheaper than homes closer to the beach, and offer a great deal of promise.

“But the reason Sydney is the best place to invest is that there’s so much pressure on the market, such an undersupply of property that will keep the returns high.”