NSW Excerpt from the 2010 November Market report

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Sydney’s strong fundamentals continue to serve its property market well into the July quarter.

It was another quarter of positive capital growth for Sydney’s property market in July, with both houses and units exhibiting growth within the top few positions on the national Residex leader board.

After taking the top spot in June, quarterly growth for houses eased slightly, with a 2.58% rise only being trumped by Canberra. Unit prices also showed a steady rise, boosted by 3.24% growth in the three months to July to reach a median value of $473,500.

Property expert Terry Ryder says conditions are looking good for the Sydney market. “Sydney has finally shown some life,” he says. “It had five or six years of being dormant and in the last six months, particularly the top end, it’s had a bit of a burst of life.”

Murray Wood, director – residential Sydney CBD with Colliers International, says it hasn’t been a particularly buoyant three months for the completed house market in Sydney.

He explains that while the higher end of the market has continued unperturbed, many buyers in the lower brackets have remained cautious in light of interest rate rises. “The rest of us who analyse all the normal factors aren’t as robust,” he says.

Wood adds that although there may be an increase in buying activity in the established house market over the remainder of the year, he doesn’t believe there will be any significant rush of buyers.

However, he notes that the off-the-plan market in the inner and middle rings has experienced a flurry of activity following recent stamp duty changes. Those who purchase new homes off-the-plan no longer have to pay stamp duty under the Home Builders Bonus program announced by the NSW Government in June. Wood says this is a very attractive offering for both owner-occupiers and investors and will drive growth forward in this sub-market.

Good conditions for landlords

As rental vacancy rates drop and the undersupply of rental stock worsens, landlord investors are well positioned to benefit in the Sydney market.

Residex recorded rental rates of 3.91% for houses and 4.85% for units in July, which translates to weekly rents of $500 and $440 respectively. Rental vacancy rates have dropped in recent months, particularly in the middle to inner-city suburbs. The Real Estate Institute of NSW (REINSW) recorded a drop from 1.3% to 1.2% in Sydney over the month of May, with falls felt in the inner-city and middle-ring suburbs, as the outer suburbs’ vacancy rates remained stable.

REINSW president Wayne Stewart says the tight rental situation looks to be here for the long term, with only one sector reaching above 2% in the past year. “Sydney continues to struggle under the strain of the rental vacancy crisis which shows no sign of abating,” he says.

Wood believes that the city’s low vacancy rates are a very good sign for investors. “A lot of new supply is going to hit the market within the next 18 to 24 months, but with the current population growth, vacancy rates are going to remain very low,” he says.

Affordability still a major concern

Housing affordability has been a major issue for Sydney for some time, but now the condition appears even more critical, with the latest HIA-CBA Affordability Report showing further falls in the city.

The study showed that Sydney experienced the largest fall in affordability in June, at 9.1%, meaning investors hoping to enter the market may find conditions even more grim. This was an issue broached at a recent WBP Property Outlook event, with chief economist for St.George Bank Justin Smirk explaining that price fluctuations can be wild in Sydney. “Prices in Sydney can increase in suburbs quicker than expected due to factors such as migration and an influx of high income purchasers,” he says.

Look further afield

Property experts are suggesting that those buyers priced out of the Sydney market look further from the city for great investment opportunities.

“Beyond Sydney, I think NSW has actually got lots of prospects for investors,” explains Ryder.

“I think investors need to think outside the capital cities. If affordability is the issue, there are lots of affordable places to buy in regional centres that have good prospects for growth, and NSW has heaps of them.”

Ryder points to areas such as Wagga Wagga, Dubbo and Parkes to the west, Tamworth, Gunnedah, Narrabri and Moree in the north-west, and the Tweed Shire further north.

“NSW has just got so many prospects that are affordable but they get continually overlooked because investors tend to think [of] capital cities or sea-change locations, and they miss some of the best opportunities,” adds Ryder. Residex records an affordable median of $336,000 for country NSW houses in July, with 4.97% rental rates for investors.

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