Sydney helps NSW pull through
Signs of recovery remain strong in New South Wales, but it is Sydney that continues to help the state weather the economic downturn.
There were small sighs of relief in New South Wales in September when house prices rose and the Australian Bureau of Statistics revealed building approvals in the state increased 19% during July - a sharp turn on the 3.4% recorded the previous month.
While approvals are still 5.3% lower compared to a year ago, the monthly upturn and a strong market in Sydney are encouraging. "As with all areas, Sydney is starting to move, with some of the premium suburbs bouncing back," says Cameron Kusher, senior research analyst at RP Data. "The downturn really affected high net worth individuals, many of which were in the financial industries."
Last chance to cash in
Unfortunately, with the market on the move again, the opportunities to cash in on this are receding. "The best time to cash in on premium property was five or six months ago," says Kusher. "However, for those who can afford high end prices, there is still long term potential."
Areas such as Bellevue Hill and the northern beaches have seen tremendous growth this year, although the exclusive suburb of Mossman remains slow. "The only area of Sydney to still be dropping in price is Lower Northern Sydney," says Kusher. "Investors interested in yields should look at units in the inner city and houses near major working hubs. For capital growth, investors must position themselves as close to the CBD as possible - it's all about position, position, position."
Louis Christopher at SQM Research echoes Kusher's thoughts on premium property. "Overall the market is recording positive capital increase," he says. "I think if investors were to buy a home in the $1 million and above bracket now, they could make a good return once the prices start to rise again."
Where to put your money
The median house value in country NSW sits at $321,000 - a growth of 2% on last month and 2.3% on the last quarter. Median weekly rents across country NSW dropped from $300 to $280 in the year to July, with yields averaging 4.8%.
In comparison, the Sydney market is performing much better, with dwelling values rising 6.6% to $537,396 in the first seven months of 2009 and house values outperforming units by rising 7.2% and 5.4% respectively.
According to Quartile's Residential Market Study of Sydney, vacancy rates have fluctuated between 0.8% - the lowest in 21 years - and 1.5% over the 2 years to June 2009. Quartile cites undersupply and high demand as Sydney's key problems and estimates it will take at least three years before new build catches up with this demand.
To avoid the high prices created by this competition, Quartile recommends investors concentrate on medium density property in middle to outer distance suburbs, in price ranges from $250,000 to $470,000.
Homes spend an average 28 days on the market in Sydney - the shortest of all mainland capitals, while rental yields just exceed the national average, with houses returning 4.5% and units returning 5.6%. However, as the initial First Home Buyers Grant Boost reduction takes place in September, there is likely to be a change in the buyers who keep the city's market moving forward.
"We can see that for much of last year it was established home buyers taking up the market and this year it has been mainly first home buyers," says George Raptis of Metropole Buyers Agency. "Looking at the recent finance approvals it is now established buyers and investors taking up home loans, so there will definitely be people ready to step into the market once their confidence is satisfied."
Raptis recommends investors look towards inner west suburbs such as Annandale and Rozelle, north shore areas of Mosman and Neutral Bay and the surfing meccas of Bondi, Clovelly, Bronte. "There are lots of apartments there and the vacancy rates are very low," says Raptis. "A lot of people aspire to live in those bay side suburbs. They want to live by the sea and while they can't afford to buy there, they are willing to rent."
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