The state of play Easing interest rates and a slight softening of prices should mean some rebounding of confidence in Sydney residential prices. However, caution prevails amongst buyers who are seeking solid underlying value. International issues like the European and US debt problems are resting heavily on buyers’ minds. Sellers are sensibly choosing private treaty sales over auctions to not limit the time frame for finding the right buyer. The rental scene Recent strong growth in rental returns is consolidating. We are seeing a clear shortage of well located apartments with strong competition for well presented properties. Vacancy rates are hovering around 1% in inner Sydney. A few years ago, gross rental yields on Sydney apartments were languishing around 4%. Some renovated one bedroom apartments are now yielding over 6%. Hot spots for strong rental demand are Glebe, Kensington, Potts Point and Neutral Bay. On the horizon The underlying imbalance between growing demand and stagnant supply suggests that Sydney residential property prices have a solid medium term outlook. We are particularly interested in apartments at the moment, as the GFC has left a hole in the supply pipeline that may see a critical shortage in supply hitting in 2013/14. People are amazed to hear that during 2011 there were approximately half the number of apartments constructed in Sydney as there were in Melbourne. The aging population, the growth in single person households and sky-rocketing utilities prices all bolster the case for increasing demand for apartments. We see real opportunities for growth in Cremorne, Artarmon, Elizabeth Bay, Randwick, Bronte and Surry Hills.