NSW Excerpt from the 2011 November Market report

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Sydney has been seen as the most robust market in Australia over recent months, partly due to its longstanding housing shortage. Indeed, the overall figures look good in comparison with other capitals. According to RP Data’s June figures, Sydney has overtaken Canberra as the only Australian city to show value growth over the last 12 months. Admittedly, it’s only an increase of 0.5% overall – primarily led by units, which are showing year-on-year growth of 2.3% – but it’s still overall growth in a very difficult market.

‘Difficult markets’ have been a familiar sight over the last couple of months. The stock market volatility that followed in the wake of the US credit downgrade in August hasn’t boded well for Sydney, which counts financial services among its major industries.

 The upper end of the property market – already quiet – is set for more of a slowdown, reckons APM senior economist Andrew Wilson.

“Sentiment is still reasonably strong because we’re still firmly aligned to China and to some extent quarantined from the global malaise,” says Wilson. “However, you’re never completely quarantined, and our share market’s been quiet for a long time. That’s not a good thing as it does work into wage and company growth, as well as investment decisions.”

Further wobbles could result from the retail slowdown. Wilson highlights that unemployment rates have risen marginally and jobs growth has slowed in the NSW capital, and attributes this to retail sector woes.

“Sydney is NSW’s largest retail centre, after all,” he adds. “It reflects the lack of discretionary buying and selling that’s going on. It’s an attitude switch from spending to saving – a prudent outlook that Australians have, which is starting to impact on things.”

 Even so, Wilson is confident that Sydney’s overall market will remain robust. He comments that there’s still buying activity in the lower and middle brackets, with first homebuyers and investors tentatively returning to the market. The best part of the year without an interest rate increase is also seeing fragile confidence return.

“Things aren’t as bright and shiny as they appeared to be in terms of the economy; still affordability is improving, incomes are still rising, and NSW still has a robust economy despite the wobbles; that’s helping to keep the heart beating in Sydney,” says Wilson.

The elephant in the room with Sydney is supply, however. The widely-acknowledged shortfall of properties – which has been estimated, by Raine & Horne, to affect as many as 10 new suburbs a year – is undoubtedly contributing to the solid market. While research firm BIS Shrapnel estimates that supply will increase over the next few years – by 15% in 2011/12 and a further 14% in 2012/13, it highlights that it’s coming off a ‘very low base’. There may well be more stock coming onto the Sydney market, but its supply woes don’t look set to improve any time soon – and that’s likely to be good news for investors seeking a safe market in which to invest.

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