Overy will look to emulate the trajectory of Paul Okon-Engstler, who broke into the senior national side and earned a transfer to FC Koln after flourishing in Sky Blue colours.
Welcoming the teenager's arrival, Sydney head coach Patrick Kisnorbo said: "James is an extremely exciting young Australian player who we believe has a very big future. He has spent two important years developing in an elite environment at Manchester United, and now he needs regular senior football to take the next step in his career.
"He has already been around the Socceroos at only 18, which demonstrates how highly regarded he is, and what a good character he is as well."