Sydney's real estate market is currently navigating a landscape of volatility and opportunity. Despite prices already posing affordability challenges for many buyers, experts predict that Sydney's property prices will continue to rise over the next year, with immigration policies and tax reforms seen as primary drivers.

According to the latest "Real Estate Market Outlook" report by PropTrack, Sydney's property prices are expected to increase by 3% to 6% over the next fiscal year, a growth rate anticipated to exceed inflation levels. The report highlights that while median prices for many properties in Sydney's city areas have already surpassed AUD 3 million, the expected increase could see some property prices rise by over AUD 100,000 within a year.

Over the past year, Sydney property prices have seen an average increase of 5.8%, which is considered robust despite relatively weak economic conditions. Cameron Kusher, Director of Economic Research at PropTrack, noted that the current market complexity is reflected in simultaneous increases in inflation rates and interest rates, posing a challenging environment for many prospective buyers.

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Although interest rate hikes typically lead to price declines, Kusher pointed out that strong population growth, robust housing demand, and a shortage of housing supply in Sydney are factors likely to offset any negative impacts from rate hikes.

The Labor Party's comprehensive tax reforms, set to be implemented from July 1, are expected to further stimulate buying power among purchasers, thereby driving up property prices. Kusher believes the impact of these tax cuts is equivalent to "two rate cuts," potentially further boosting property prices.

However, despite expectations for a "moderate" increase in Sydney property prices over the next year, market observers caution that Sydney's property prices have already reached quite high levels. Even minor increases could have significant implications for buyers. A recent global study by Demographia ranks Sydney as the second most unaffordable city globally after land-scarce Hong Kong, based on the gap between income and property prices.

According to reports from Demographia, Sydney's property prices are considered "severely unaffordable" for local residents. Additionally, a report by KPMG predicts that Sydney's property prices will continue to rise over the coming years, with an average increase expected to reach 4.9% by the end of 2024 and further increase by 5.3% by the end of 2025.

Brendan Lyon, Chief Economist at KPMG, highlights construction challenges as a significant factor expected to drive price increases. Despite stabilizing material and financing costs, high demand for qualified tradespeople continues to drive up labor costs, remaining a key challenge for developers.