Authored by – Sumiit Gupta 

The real estate market, like most economic sectors, isn’t static. It throbs with a predictable rhythm, following business cycles defined by the National Bureau of Economic Research (NBER)[1]. This cycle consists of four stages: recovery, expansion, hyper-supply, and recession. Savvy investors can leverage their understanding of these cycles to maximize returns. This article explores the four stages of the real estate cycle and offers data-driven insights on capitalizing on each phase, with a specific focus on the Sydney market and its appeal to Indian investors.

Throughout the economic cycle, property markets experience distinct phases. The recovery phase ensues after a recession, marked by gradual increases in property values and a tentative return of buyer confidence. Subsequently, the expansion phase witnesses a surge in demand propelled by economic growth, low-interest rates, and rising consumer confidence, culminating in steady upward trends in property values. Notably, the Reserve Bank of Australia’s record-low cash rate in 2020 played a significant role in bolstering the Sydney property market. However, as the expansion matures, hyper-supply may surface,  leading to increased construction that could potentially outpace buyer demand, resulting in stabilization or slight decreases in property values. In the Sydney market, on the contrary, due unprecedented increase in immigration this is not expected to happen soon. Currently Australia, especially Sydney, has housing crisis where demand is way above current and future supply and expected to remain like this for next a few years Economic downturns, such as recessions, can trigger declines in property values and rental income, yet historical data suggests these downturns are typically transient in nature. Sydney real estate market has not seen such a period lasting for long and, in the last few decades, recovery has been much stronger than recession with every cycle.

Why Sydney for Indian Investors During Recovery?

Amidst the recovery phase, Sydney stands out as an attractive destination for Indian investors. With its combination of value plays and strong rental yields, coupled with long-term stability and growth prospects, Sydney offers promising opportunities for overseas diversification.

Value Plays: This is the prime time for bargain hunters. While Sydney’s market fluctuations are generally less severe than those in the US and Dubai, there can still be opportunities to find undervalued properties with high potential appreciation during a recovery phase. According to Corelogic as of 1st April 2024, Sydney’s median house price sits at $1,414,229  

 

Strong Rental Yields: Even during a recovery, Sydney boasts a healthy rental market. According to Domain, gross rental yield for houses in Sydney are at their highest point since December 2020, following the fastest annual surge on record.[1]. This provides a steady income stream for Indian investors looking for overseas diversification.

Comparatively, the Sydney house price growth in the last 20 years has outpaced other capital cities in Australia Sydney’s house prices have seen a 449% increase in the last 30 years, influenced by population growth and migration, economic conditions and government policies.[2] This represents long term stability and growth prospects insights for the Indian investors seeking value in a stable market.

Why Sydney for Indian Investors During Expansion?

Sydney emerges as an enticing prospect for Indian investors. Bolstered by its large and established Indian community, which provides a supportive network, along with its stable and transparent property market, Sydney offers a familiar and secure environment for overseas investment.

Established Indian Community: Sydney boasts a large and well-established Indian community. According to the Australian Bureau of Statistics (ABS), about 673,352 people in Sydney identified with Indian ancestry (2021 census) [Source: Australian Bureau of Statistics (ABS)[3]]. This can provide a support network for Indian investors unfamiliar with the Australian market and make Sydney a familiar and welcoming place to invest.

Stable and Transparent Market: Australia has a well-regulated property market with clear foreign ownership guidelines. This can offer peace of mind to Indian investors seeking a secure overseas investment.

Why Sydney for Indian Investors During Hyper-Supply?

Due to the current demand-supply disparity in Australian real estate, particularly in Sydney, where demand significantly outweighs supply, the occurrence of Hyper Supply is improbable in the Sydney property market anytime soon. Consequently, individuals who invest now can anticipate long-term capital growth and high rental returns for next a few years. However, even during Hyper Supply, in Sydney investors can get benefit of:

Income-Generating Properties: During periods of stagnant appreciation, rental income provides a steady cash flow. Look for well-located apartments or units with a proven rental history.

Diversification: Investing in Sydney allows Indian investors to diversify their portfolios and reduce exposure to fluctuations as in the Indian real estate market.

Quality of Life: Sydney offers a high standard of living with excellent schools, healthcare, and infrastructure. This can be an attractive factor for Indian investors looking for a potential future home for themselves or their families.

Why Sydney for Indian Investors During Recession?

A recessionary period can present a strategic entry point for Indian investors seeking value in a world-class city. With a long-term perspective, a downturn in Sydney’s property market can be an opportunity to acquire a foothold in a stable and prosperous economy.

Be Patient: Have a long-term investment horizon. While values might dip in the short term, the Sydney market has a proven track record of recovery. Focus on properties with strong fundamentals like location and good school districts.

Over the years, the Australian real estate market has demonstrated its resilience to economic downturns, particularly in the long-term. According to the Australian Bureau of Statistics (ABS), the residential market in Australia has risen to more than 10 Trillion AUD from 6.6 Trillion in just 5 years. This growth far surpasses that of countries like India and Dubai, and even today both these countries’ (India[1] and Dubai[2]) dwelling stock remains less than 1 Trillion AUD, which is far below that of the Australian Real Estate market. The substantial increase in the total net worth of the Australian real estate market highlights its potential and appeals to savvy investors seeking resilience.

Conclusion:

 

In conclusion, the Sydney property market experiences cyclical fluctuations. By understanding these cycles and the unique advantages Sydney offers Indian investors, one can develop a data-driven strategy to capitalize on each market phase. Australia has demonstrated its resilience to economic downturns through powerful tools such as immigration, which contributes to population growth and demand for housing. This, coupled with other measures, has successfully stabilized the market in the past and is likely to continue doing so in the foreseeable future. Whether it’s finding value during a recovery, profiting from a growing economy during expansion, or seeking stable income through rentals, Sydney presents compelling opportunities for investors with a long-term perspective. Remember, thorough research and professional guidance are key to navigating any real estate market, and Sydney is no exception. Therefore, to help and guide the aspiring investors, Haansal Estate is coming to Delhi on 11th and 12th May 2024 to host Sydney Property event. Aspiring buyers need to register for it in advance via Haansal Estate website.

(The Author Is Director of Haansal Estate)