INTENSE competition among property investors battling for a foothold in Sydney's unit market has fuelled exorbitant annual price growth of nearly 40 per cent in some suburbs.

Recent RP Data figures show 11 suburbs where unit medians have grown by 20 per cent or more in one year. Another 16 suburbs had growth of more than 12 per cent, while a total of 96 suburbs outperformed Sydney's year on year home value growth of 7 per cent.

While markets are performing strongly across Sydney, those closer to the CBD are best, with seven of the 20 per cent plus performers located on or within a 10km radius of the city centre. Mona Vale, Dolls Point, Punchbowl and Caringbah South led the inner city market trend.

Caringbah South experienced the highest growth, with 39.7 per cent, just edging out Lilyfield in the inner west with 39.6 per cent, Millers Point (35.8) and Hunters Hill (29.6).

The growth has been attributed largely to investors, lured into the market by record low interest rates, a falling Aussie dollar and government incentives for buying new properties. In a competitive environment, they are paying more to secure apartments.

"There is a lack of stock available, so investors have to pay more," said Mark Foy, of Belle Property Surry Hills. "If they don't buy what's available, the next place will cost even more."

Known for calm demeanours and the tendency to abandon sales when the numbers no longer stack up, investors are now entering budget-blowing battles over desired properties.

"They are competing with first-home buyers in that bracket up to $700,000," said Mr Foy. "They have to buy with a bit of emotion; otherwise they would go from auction to auction and never find a place to buy."

Mr Foy is selling a unit at 3/42 Bayswater Rd, Rushcutters Bay, which has had the fifth-highest 12-month growth of 27.4 per cent.

The vendor, publicist Nathan McIlroy, is confident of getting a good price, based on market strength.

"I've noticed prices increasing quickly over the last 12 months," Mr McIlroy said. "It seems like a great time to sell."

Rushcutters Bay is centrally located, appealing to professional tenants and therefore investors.

"I once rented it out for 12 months and got a great return," Mr McIlroy said. "Having lived there for six years, I know it's a great location."

Investors are often paying well over reserve, according to Helen Noble of Ray White Lower North Shore.

"I sold one in North Sydney for $75,000 over reserve and another in Neutral Bay that went for $65,000 over," Ms Noble said.

"In past years they would have purchased by private treaty, but there aren't many of those at the moment because the market's so hot."

Poor conditions for other investment classes make it worthwhile for investors to pay extra for property.

"Stocks are unstable and there are no returns in term deposits," Ms Noble said. "There's no talk of interest rates rising, so property has more potential for them."

The falling Australian dollar has fuelled growth in some markets, especially those in areas targeted by Asian investors. One such area is the Willoughby council, where North Willoughby and St Leonards have had growth of 24.1 per cent and 22.4 per cent respectively.

"Since the dollar started falling in March, we've seen a boom in demand for off-the-plan and near-new apartments," said John Simpson-Morgan of Raine & Horne St Leonards. "We saw a pick-up in interest from Hong Kong and mainland Chinese investors, but lower interest rates are also encouraging members of local Asian communities to buy in."