Is the Sydney property market heading into oversupply

Cranes in Sydney Olympic Park

What is going on in the Sydney property market exactly? As reported by the ABC, the east coast of Australia (population 13 million) currently has more cranes on its skyline than the major metro’s in all of North America (population 350+ million).

Sydney has a total 305 cranes, of which 258 are on residential properties out of the 454 on our east coast. This compares to the entire North American skylines (Miami in the US all the way to Calgary in Canada) total of 419.

No doubt Sydney is about to receive a huge supply of properties, specifically high-density luxury apartments.

Here is a heat map of where the cranes are situated within the Sydney metropolitan area:

Source: RLB Crane Index

Many commentators have argued that we have a “shortage” of housing in Sydney due to our geographic limitations and short supply of land. The fact is we have plenty of land around Penrith, Leppington, Richmond, Camden and Wollondilly.

The problem lies in the land supply being restricted by the NSW government & zoning not being changed for development which places upward pressure on property prices. This has led to huge demand for well-located apartments close to local amenities and transport.

This is the reason why we are seeing such numbers of cranes on our skyline. This building cycle is different, for the first time we are seeing Sydney building upwards instead of outwards signaling a major slowdown in urban sprawl.

The graph below shows the massive increase in residential construction value from 2012 through to 2016:

Source: ABS

According to Domains auction results in Sydney last weekend the average sale price was $1,200,000. The average wage in Sydney got reported today by SMH at $80,000 per year meaning house prices on average sold for a multiple of 15 times pre-tax yearly incomes.

The deposit needed would be $240,000 which is 3 years income before tax signaling just how expensive the Sydney market is, can it absorb all the excess supply? time will tell.

Sydney has the highest ratio of the income-to-house price after Hong Kong in the developed world at 12.2 years income before tax for the average property according to official reports.

When you consider the facts, it may not be so crazy to think Sydney may be in a property bubble after all.