As we step into 2025, the outlook for Sydney’s property market is showing signs of improvement, with anticipated interest rate cuts on the horizon. However, affordability concerns and high household debt remain significant challenges for buyers and investors alike.
After nearly three years of high interest rates and escalating living costs, many homeowners have decided to sell, increasing the number of properties on the market. This trend has been particularly noticeable in Sydney, Melbourne, Perth, and Brisbane, giving buyers more options than they’ve had in recent years.
Despite a recent slowdown in overseas migration, the fundamental imbalance between housing supply and demand remains. Australia faces a shortfall of at least 200,000 dwellings, which is expected to maintain upward pressure on property prices over the medium to long term.
The impact of high interest rates and large mortgage sizes is becoming evident, with property prices in Sydney and Melbourne experiencing a dip. In January, Sydney’s median house value declined by 0.4% to $1.47 million, with a total three-month decline of 1.6%. Apartment values also saw a decrease, falling 0.2% in January and 0.9% over the quarter.
With weak capital growth and rising holding costs, many investors are choosing to exit the Sydney and Melbourne apartment markets. Data from CoreLogic indicates that more than 6,000 former rental properties were listed for sale in Sydney, a 1.7% increase from the previous year and 2.8% above the five-year average.
While Sydney and Melbourne markets have struggled, Brisbane, Adelaide, and Perth have experienced strong property growth. In 2024, Sydney apartments saw just 1.8% growth, while Melbourne’s dropped by 3%. In contrast, Brisbane surged by 16.6%, Adelaide by 16.9%, and Perth led the way with a remarkable 22.7% increase.
Falling demand has also impacted the rental market, with Melbourne rents declining 0.5% over the past year and Sydney rents dropping 0.2%. Investors are feeling the pinch, as mortgage repayments outstrip rental income. A Sydney investor with a median mortgage repayment of $1,384 per week is facing a shortfall of $611, with rental income averaging just $773 per week.
While lower interest rates may provide some relief, affordability remains a key issue for buyers and investors. With a persistent housing shortage and shifting market dynamics, Sydney’s property landscape in 2025 will likely continue to be a mix of opportunities and challenges for those navigating the market.