Sydney investors are flocking to Melbourne and Brisbane residential projects where they can buy more affordably and book in better rental returns.
Melbourne developer Ashley Williams, who co-founded Evolve Development with Ron Walker, has found Sydney buyers are stepping up to replace foreign buyers and even local investors who have been hit by negative sentiment.
At Jewel, a smaller project in inner-city South Melbourne, there was around 20 per cent inquiry from Sydney buyers, around half of which translated into sales.
At the Evolve's current project, Botanic on Coventry Street just off St Kilda Road, there is similar level of inquiry and a greater conversion to sales, around 15 per cent, Mr Williams said.
Evove's Botanic development Nick Lenaghan
"The feedback we were getting was that as the Sydney market had taken off the pricing had started to grow again. The affordability question keeps getting asked," he said.
"It's a reflection that the Melbourne peaked a little bit earlier and the Sydney market is still strong."
Botanic, a $193 million development with 288 apartments, is around 70 per cent sold.
For around 20 sales to first home buyers, Evolve Evolve matched a 5 per cent deposit on a $420,000 one-bedroom apartment with 5 per cent of its own money to ensure a minimum 10 per cent deposit is raised.
Two-bedroom apartments are priced from $655,000 and three-bedders from $1.78 million.
But Mr Williams also worries that higher taxes on foreign investors and credit constraint on locals could ultimately lead to an under-supply of apartments.
"There is not as much buying activity which means less projects are going to get started. That is going to mean the supply is not keeping up with demand."
Melbourne is not the only winner from Sydney's high prices.
Fellow developer and Financial Review Rich Lister developer Tim Gurner has noticed a similar trend in Brisbane, where he has a pipeline of around 1500 apartments across several projects, as well as his Melbourne projects.
Of 1000 apartments sold so far, around 30 per cent to 35 per cent have been sold to Sydneysiders.
"The reason they are there is purely affordability and also rental yields. In Brisbane it's 4 per cent 7 per cent, in Sydney it's 1 per cent to 3 per cent," Mr Gurner said.
Only a small proportion of that total were sold offshore buyers. Among Mr Gurner's Brisbane projects is the three-tower FV project.
"Sydney has done very well in capital appreciation. There is a lot of equity trying to find a place and they are looking for yields and affordable options," he said.
Rental yields are now at record lows according to this month's figures from CoreLogic, with Melbourne at 2.9 per cent and Sydney at 3.9 per cent.
Gross yields on apartments in Brisbane are the second highest in the country at 5.3 per cent, equal to Hobart and topped only by Darwin.
In Brisbane, Consolidated Properties managing director Don O'Rorke, whose $200 million apartment project Spire is sold out, has noticed Melbourne buyers are now joining Sydneysiders in his market.
Two more projects are underway. Around 30 per cent of Consolidated's buyers were from the south, he said.
One telling statistic driving the Brisbane market is the ratio of median house price to average salary, which is running at six times in Brisbane, at nine times in Melbourne and 12 times in Sydney, according to Mr O'Rorke..
That affordability metric, combined with jobs growth in Queensland over the last two quarters, has spurred interest recently
"Over the last two quarters it has," he said.
Read more: http://www.afr.com/real-estate/commercial/development/sydney-buyers-had-north-and-south-for-better-returns-20170908-gydcgq#ixzz4sYSSXIeF