Market Report New South Wales (June 2009)

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New South Wales property prices were some of the earliest to be hit by the economic slowdown but recently the state has shown signs of improvement. Is this a case of first in, first out? 

Sydney has long been the economic engine room of Australia powered by the strong presence of international financial institutions and other transnational corporations so, when the global downturn hit, it was no surprise that New South Wales' property market was impacted almost immediately. However, emerging positive signs indicate that the state's property slump appears to have come to an end giving hope to investors that New South Wales will lead the way out of the recession just as it led the way in.

Over the last seven months, the state saw housing approvals jump by 30%, providing a boost to the property market and ensured sales volumes have tracked close to the three year average. Auction clearance rates have also bounced back from lows to around 70% according to RP Data's latest report.

As with all the other states, the New South Wales market has been buoyed by the Federal Government's subsidy of first home buyers. This has been particularly effective in Sydney, says BIS Shrapnel analyst Angie Zigomanis, because the high cost of property has kept out many potential property owners.

"The activity's been at the bottom of the market, it's been driven by first homebuyers grant," Zigomanis says. "The Sydney market has been the most expensive of all capital city markets so the much lower interest rates and first homebuyer incentives have probably allowed a lot of people to enter the market who otherwise wouldn't have been there."

Residential suburbs that were considered as 'mortgagee in possession' areas 12- 18 months ago have seen some solid growth since the introduction of the extended grants says Kieran Clair of Herron Todd White. "The value levels have increased in line with the strong demand with many agents now commenting on a lack of stock. The savvy investor could look at these areas after the grant expires as potential for long term growth with solid rental returns relative to the value range," he says.

The growing confidence among property buyers helped Sydney finish the financial year on a positive note, virtually recouping its losses over the previous years. Median house price grew by 0.79% to $$577,500 according to Residex. Over the three months ending June, price rose by 2.31%.

John Edwards, CEO of Residex points out that during the last 10 year period, Sydney has experienced supply issues, yet this market did not grow at the same rate as other markets during the period of economic boom due to poor affordability.

"People simply could not afford to bid up the prices of the asset to the same extent as they could in other markets. They have sought out the affordable asset, units," he says. "When you look at the recent data the differential rate of growth between the asset classes has narrowed. Last year, the growth in the housing market has been less than the unit market with Sydney units to year end 4.03% versus 0.79%, he says.

"It seems to us that now and in the future, affordability is going to be the main driver of price growth. This infers that the unit market is in the best situation and has the most potential for investment profits."

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