I think if APRA really cuts the legs off of local investors, it'll see a reduction in Sydney investment by locals, simply because at the paultry DSRs and LVRs that lenders will allow, no 'mum and dad' local investor would realistically have the means to touch Sydney. Those folks will go elsewhere. QLD maybe, or regional NSW, who knows.
So, who does that leave remaining in the Sydney 'game' at that point, then? Well, good old home buyers (the FHB's who can afford it, and the upgraders mostly), and oh, of course the Chinese. Big time. In fact, it'll be even more of a cashed-up playground for the Chinese if their local investor competitors pull out of the game.
Hence my belief that we may (possibly) see a scenario where many non-Chinese-interested suburbs in Sydney will plateau (offering home buyers perhaps a better chance in these suburbs), whilst all those good old Chinese hotspots (the Eppings, the Chatswoods, the Hills Districts, the Strathfields, the Hurstvilles etc.) Will continue to throttle along at full pelt.
So; in my mind; no Sydney crash, just a muted plateau in say 70-80% of wider metro suburbs, and continued silliness in the Chinese favoured + top-end local buyer postcodes.
Just my two cents though, based on observations. Nothing is a certainty in this wild marketplace