15th May 2009
It's been a while since Sydney took the lead the property market, but the pieces are in place for it to happen again, say some experts.
The sleeping giant, Sydney's property market, could be waking up from its slumber for another climb.
Experts have been tipping the long-stalled Sydney market to begin outperforming the other states, and the moment may be here. It's already showing better growth than other major state capitals.
But don't expect Sydney prices to skyrocket. Rather, say experts, Sydney and NSW as a whole will be in the best position first to hold on through the tough global economic situation.
"In NSW, we're not going to get as big of a negative shock like the other states," says Frank Gelber, chief economist for BIS Shrapnel. "We've got three tough years to live through, but then we've got a strong recovery coming."
Gelber spoke about the property market of Sydney and NSW at a recent BIS Shrapnel conference and highlighted how the local economy would outperform others that had heavier reliance on mining resources.
"I'm really worried about the mineral investment states," he says. "I'm less worried about NSW."
Sydney median home prices have remained flat for years, while other capitals have shown strong increases. It's only a matter of time before Sydney catches up, says Gelber.
"The housing prices [in NSW] are still the highest, but they haven't increased as much as the other states in the last five years," Gelber says. "We're set for an upswing."
Pino Tedesco, director of Metropole Property Investment Strategists' Sydney office, says he's noticed an upswing in investors from around Australia who sense this local property strength as well.
"I've had calls this week from Brisbane, Perth, even China," he says. "They all believe it's deflated and there's great opportunity to come in now on the upswing."
Some see it as a similar situation to 1999, when a lack of confidence kept some investors sidelined, says Tedesco. People who waited until 2002 or 2003, however, when the property values did increase, have since seen little capital gain.
"Brisbane, Melbourne, Perth, they've all seen growth," says Tedesco. "Sydney hasn't. And when it does, historically it's shown to come up in a big way. A lot of people want to be around for that."
Weak dollar, strong NSW
One of the reasons NSW has remained mostly flat is that its economy hasn't had the boom of other states such as Western Australia, Queensland or South Australia, which are rich in resources, explains Gelber.
The NSW economy is more diverse and has a focus on tradable goods that will benefit from the low Aussie dollar and encourage more export demand and profit, he he says.
In recent years, the state had struggled with tradables due to a high-valued Aussie dollar - which was almost on par with the US dollar last year.
"The rise of the [Australian] dollar is over, yes - and we've got a demand shift," says Gelber. "Once we get through that, the shoe will be on the other foot and we'll see a much higher-growth demand in tradables."
Gelber also pointed out an overwhelming housing demand in NSW and said the stock deficiency could reach 77,900 homes in NSW by 2010 according to one BIS Shrapnel chart - more than double that of any other state or territory.
On that note, one of the better areas to invest in Sydney is the eastern suburbs, says Tedesco. See the story on Elizabeth Bay to the right for more on one such area.
There's no room to really add any more housing supply, and the location along the harbour and near the CBD ensure there will always be demand, providing rental yields of 6% in some cases, says Tedesco.
What to buy
Art Deco properties are especially sought after, so finding these in an area of tight demand can be an especially good score for an investor, he says.
Off the plan and newer properties in and around the city are proving to be too expensive for many investors currently, and are showing much less demand.
"You're talking about a very large difference in purchase price," says Tedesco of comparing new and older properties in Sydney.
Instead, some investors are looking to older properties, then touching them up with some renovations.
"Some people are making equity gains now if they buy well and renovate well," he says.
While renovations might not pay off in the short run of the current economic climate, they should pay off later down the line.
"If you have sell in two, three years time, then you will probably realize a loss," says Tedesco. "But property is a long term asset."
Can you afford to buy in this suburb? Find out how much you can borrow