According to Domain figures, Sydney’s median house price has escalated by approximately 47% between 2017 – 2025. In comparison, the median unit price has risen by a far more modest 10%.
However, in recent times, affordability constraints, high interest rates, and cost-of-living pressures have reshaped buyer preferences and market dynamics. In 2025, we are observing renewed attention on Sydney apartments, particularly as rising house prices and new government policies shift the landscape for property buyers. As experienced buyers’ agents operating in Sydney’s Inner West and beyond, we offer an objective analysis of whether the Sydney apartment market is indeed making a comeback.
Recent Performance of Sydney Apartments
As highlighted above, the Sydney apartment market has experienced a period of relative underperformance compared to houses. In 2024, both segments faced headwinds, but units demonstrated greater resilience. Domain data indicates that Sydney units increased by 0.4 per cent in the final quarter of 2024, compared to a 0.1 per cent drop for houses. By December 2024, the median unit price reached $812,863 – the highest in the country by quite some margin – underscoring continued demand for apartments in Australia’s most expensive city. This suggests that apartments are weathering recent market corrections more effectively than houses.
As we reported in a recent article on 6 February, 2025, units are already clearly outperforming houses in some areas. For example, unit prices in Lilyfield have risen by 14.2% in the last year compared to just 3.1% for houses.
Drivers of Renewed Interest in Apartments
1. Affordability Pressures and Changing Buyer Preferences
Affordability remains a central issue. The median house price in Sydney is now $1,691,731, compared to $812,863 for units. As house prices continue to outpace wage growth, many buyers are priced out of houses and are turning to apartments as a more accessible entry point. This trend is particularly evident in high-demand areas such as the Inner West, Parramatta, and Green Square, where buyers seek value and proximity to amenities.
2. Rental Yields and Investment Appeal
Apartments generally offer superior rental yields compared to houses. As of January 2025, the average rental yield for Sydney units is 4.6 per cent, significantly higher than the 2.45 per cent yield for houses. This differential enhances the investment appeal of apartments, especially for investors seeking cash flow in a high-priced market.
3. Government Policy: Labor’s Expanded 5% Deposit Scheme for First Home Buyers
A major catalyst for renewed demand is the expansion of government support for first-home buyers.
Starting January 2026, all first home buyers will be eligible to purchase a home with as little as a 5% deposit, regardless of income. The Government will guarantee up to 15% of the home loan allowing buyers to avoid paying Lenders’ Mortgage Insurance (LMI).
Under this policy, a Sydney buyer can purchase a $1 million apartment with a $50,000 deposit, with the government guaranteeing the loan and waiving lenders’ mortgage insurance. (Previously a buyer would have needed a deposit of $200,000 in this scenario.) This is a substantial reduction in the financial barrier to homeownership, particularly in the apartment segment where median prices are below the $1 million threshold.
Additionally, the Help to Buy Shared Equity Scheme will allow eligible buyers to enter the market with just a 2 per cent deposit, further stimulating demand for affordable housing options such as apartments.
Bear in mind however, that when more people are able to buy and at the same time, supply does not increase, prices will inevitably rise.
4. Supply Constraints and Urban Renewal
Despite policy efforts, new housing supply remains constrained due to high construction costs and project delays. This limited pipeline of new apartments, particularly in well-connected and gentrifying suburbs, is likely to stimulate robust capital growth.
Area Focus: Inner West
Inner West: The Inner West has become a hotspot for buyers seeking value after being priced out of the Eastern Suburbs. The median unit price in the Inner West is $830,000, compared to $1.3 million in the Eastern Suburbs. The area benefits from ongoing gentrification, improved transport infrastructure (such as the Sydney Metro extension), and a vibrant lifestyle, making it attractive for both owner-occupiers and investors.
The region offers a diverse range of apartments catering to demand from downsizers, professional couples, first home buyers and investors.
Challenges and Risks
While the outlook for Sydney apartments is improving, buyers should remain vigilant regarding:
Building Defects: There have been recent high profile cases such as Opal and Mascot Towers, which illustrate concerns with building defects, particularly in modern apartments. The concerns have reached a point where, in certain suburbs, older and unrenovated apartments with fewer amenities are actually selling for higher prices than newly built apartments, simply because older apartment buildings are generally understood to have been built with fewer problems.
High Strata Fees: Buildings with extensive amenities or older structures may have elevated strata costs, impacting net returns.
Poor Strata Management: Recent media articles have highlighted poor strata management practices and conflicts of interest leading to higher strata levies.
Oversupply in Certain Precincts: High-density developments, particularly in areas such as Green Square, Parramatta and Wentworth Point, may face periods of oversupply and slower capital growth.
Macroeconomic Uncertainty: Interest rate movements and broader economic conditions will continue to influence buyer sentiment and borrowing capacity.
Conclusion: Are Sydney Apartments Making a Comeback?
We are witnessing growing evidence that the Sydney apartment market is poised for a comeback. Affordability pressures, superior rental yields, and expanded government support are driving renewed interest in apartments, particularly in well-connected and gentrifying areas such as the Inner West. While challenges remain, the combination of policy stimulus and constrained new supply is likely to underpin demand and support moderate capital growth in 2025. For buyers considering an investment or home in Sydney’s Inner West or beyond, now may be an opportune time to act before prices rise further.
Indeed, Oxford Economics Australia’s Senior Economist, Maree Kilroy has forecast that units are expected to outperform houses in capital growth from 2025 through 2027, with an annualised growth rate of 6.7% (versus 6.2% for capital city houses).
For property buyers navigating this evolving landscape, the expertise of buyers’ agents is invaluable. We leverage our market knowledge and negotiation skills to identify high-potential opportunities, assess strata risks and rental yield potential, and secure properties that align with your financial and lifestyle objectives.
If you are considering purchasing an apartment in Sydney, particularly in the Inner West, contact Buyer’s Domain for tailored guidance and access to off-market opportunities. The Sydney apartment market’s comeback is underway-let us help you make the most of it.
