NEW SOUTH WALES
Regional NSW awakens
Sydney is due some marginal growth this year, but investors in search of the best NSW property performers would do well to consider some of the state’s regional alternatives.
Just a few years ago, outside visitors to interior NSW towns such as Mudgee were tourists and not much else. Couples and small groups would head their way for wine-tasting weekends, content to leave sedate country living behind as soon as it came time to jump in the car back to Sydney.
For many of these regional towns, that picture is changing. On the one hand, mining activity is ramping up in regions as diverse as the Hunter Valley and the central-west of the state, but, more critically, these areas are set to receive the lion’s share of future infrastructure spending from state, federal and private company coffers.
Leading the infrastructure investment landscape is Xstrata’s $1.4bn Ravensworth coal mine expansion and the $1.1bn Ulan West underground coal project near Mudgee. These projects promise to continually create jobs, bringing additional workers to their surrounding economies and rental markets.
“Mining projects and road projects have led the pick-up in activity in NSW,” says Deloitte Access Economics’ latest Business Outlook report.
“The value of engineering construction work in NSW is starting to pick up to become a more respectable component of the Australian investment landscape.”
Deloitte Access Economics points to other key infrastructure projects that will have a major effect on local economies in regional NSW, including their property markets. BHP Billiton’s $833m Appin coal project in the Illawarra is one of them, as well as upgrades to the Hunter Expressway that are on track for completion by the end of the year.
NextHotSpots.com.au director Andrew Peterson says the roll-out of infrastructure projects will create some ideal investment conditions in select regional areas.
“Several regional centres continue to promise stronger growth than most parts of Sydney,” he says, listing Newcastle, the Lower Hunter region and the Gunnedah Basin as areas where property markets are set to heat up.
And it is not just infrastructure projects that bode well for these markets. The State government’s Lower Hunter Regional Strategy recently called for an astonishing 90,000 new residential dwellings over the next 30 years in order to cater for a forecasted 160,000 new residents.
BIS Shrapnel senior residential manager Angie Zigomanis sums up the situation in infrastructure-affected parts of regional NSW as being healthy on multiple accounts: “There are more mining and resources-related project proposals there, and if they get off the ground that should help the economy and prices in some of those areas. Even then, they may benefit from people in Sydney moving up to the area for more affordable prices as they have done in recent times.”
Flat times ahead for rest of 2013
If past trends are anything to go by, strong property price growth in the first quarter of 2013 is unlikely to last for the rest of the year, RP Data says.
According to its research, property growth has experienced the strongest rates of capital appreciation during the first quarter of the year in 10 of the last 17 years. This highlights the property market’s highly seasonal nature, which RP Data research analyst Cameron Kusher forecasts to continue.
Reflecting on 2.8% growth in the Australia-wide median property price over the first quarter of 2013, Kusher says that this rate will be hard to maintain.
“If the growth rate continued at this level for the remainder of the calendar year, it would represent a rise in capital city dwelling values of 11.2%. However, if history is anything to go by, this rate is unlikely to continue.”
Prestige sales break new ground
Multimillion-dollar properties haven’t sold well in Sydney since the GFC, but the recent sale of a massive mansion in Rose Bay indicates that perhaps the buying market for expensive property is returning. This alone could say something about improving market sentiment.
The five-bedroom mansion belonged to technology investor Neill Miller, who bought the waterfront reserve block on Bayview Hill Road in 2002 for $7.75m. After making additional improvements, including merging the property with the adjoining block, Miller sold the property for $30m in May.
This followed the Point Piper waterfront sale of the prominent ‘Altona’ mansion for $50m and the $33m paid for the Bang and Olufsen house. Both went to Chinese buyers.
Spotlight on: Affordable Sydney’s worst performers
Sydney’s prestige market has seen the biggest falls in median prices by a long shot, but that’s no surprise. In markets where median prices are over $1m, a (for example) $200,000 fall in prices is relative. Higher prices have much further to fall.
Investors can get a far more useful insight when looking at which affordable markets have struggled most. Here things get interesting. According to RP Data, some of the biggest price slides are being witnessed in some of Sydney’s historically trendy rental markets, including suburbs such as Glebe, Annandale and Ultimo.
The city’s worst performer among markets with a median price below $550,000 is Beecroft, situated northwest of the CBD and 10km north of Parramatta.
Ultimo unit values have also had a tough 12 months to April – the 40% decrease in prices constitutes roughly $166,000 in lost value. That said, Ultimo is a diverse housing market, and the median-value fi gures are often skewed whenever a lot of cheaper student accommodation changes hands and pushes median prices downward.
Kurri Kurri will strike most investors as a sleepy country town where not all that much happens. Granted the town is hardly large, even by Hunter Valley standards, but there is enough going on in the property market that it should warrant a special look.
As coal-mining activity ramps up in the Hunter region, more workers have come into the Kurri community in search of accommodation. This has resulted in a tight rental market, but with limited development activity on the horizon, the market should only get tighter.
More critically, completion of the Hunter Expressway, aimed to ensure better links between Newcastle, Sydney and the Hunter Valley, will put Kurri in a strategic position. This should encourage a growth in commercial activity, putting indirect pressure on rents in the residential rental market.
Kurri properties already enjoy strong rental returns,with houses showing yields of 6.5%. House prices are also highly affordable, and the median price is just $250,000. Together, these figures promise good cash flow for investors.
Kurri’s amenities are somewhat limited, owing to its size, but investors should look at the town in context: a number of other sizeable Hunter towns are a very short drive away, combining to make the region fairly densely populated. There may not be everything a tenant would want within Kurri itself, but those facilities could be in a neighbouring town just a short drive away.
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