NSW excerpt from the June 2010 Market report


Sellers enjoy the best season in over seven years as prices continue to surge

For some buyers in Sydney, no amount of apocalyptic predictions of property bubbles or dire warnings of the massive risks of property investment can dampen their enthusiasm. Confidence among buyers and sellers is reaching record levels amid signs that the economy is tracking upwards and the threat to employment has been greatly reduced. Even the certainty of further rate rises appears to have little impact on buyer sentiment.

“People are buying with confidence in the Sydney market,” says Peter Koulizos, author of Top Australian Suburbs. “People are bidding for more than expected at auctions, and properties are not staying in the market for as long as they were this time 18 months ago. Auction clearance rates also continue to increase.”

Over the year to February 2010, a total of 45,627 houses changed hands in Sydney – up a massive 23.73% from a year ago, according to Residex. The latest RP Data auction results show the auction clearance rate continues to remain high at 71%, with almost 1,000 properties up for grabs. While not performing quite as strongly as Melbourne, Sydney is currently outperforming the national average in both annual and quarterly terms.

The latest figures from Residex show median house prices added another 2.63% in the three months to February rising to $634,000. This takes Sydney’s year-on-year growth to 13.28%, double the average annual growth over the past 10 years. Investors continue to target units, resulting in a strong performance, with median values climbing 2.82% to $444,500 over the same period. 

“When we talk about markets catching up, Sydney is the best example of where prices have been going backwards for a long time and it wasn’t until mid-2009 that Sydney prices got to where they were back in 2004,” says Tim Lawless, research director with rpdata.com. “If you look over the last five years, Sydney was one of the worst performers, so it’s not surprising to see that Sydney values are ramping up.”

Mortgage belt feels the pain as top end sails through

While the overall sentiment in Sydney remains positive despite the recent rate hikes, the lower end of the market – the mortgage belt areas – are expected to feel the pressure of further interest rate increases.

“These markets are probably more sensitive to rate rises because they tend to be highly leveraged – they borrow a higher loan to value ratio (LVR) or proportion of loan against the value of their property, so they are likely to be more stretched, making the impact more pronounced,” says Lawless.

These areas were also the ones that mostly benefited from the first homeowner stimulus funding. With the withdrawal of the boost, there has been a marked slowdown in activity and price growth according to Chris Lackey of WBP Property Group.

“Western and southwestern areas are now experiencing the anticipated slowdown following the removal of first homeowner stimulus funding,” Lackey says. “Areas such as Blacktown, Penrith, Liverpool and Campbelltown, which were major beneficiaries of first homeowner stimuli, have experienced a noticeable drop in buyer activity during the final quarter of 2009, with supply now outweighing demand under a rising interest rate environment. House prices are softening with unit prices beginning to shed the healthy gains realised during the first two quarters of 2009. A market to watch closely as 2010 unfolds.” 

Lawless adds that a change in dynamics is emerging, where inner-city and coastal properties - the premium end of the market - are outpacing the broader market. “Buyers in these areas are less affected by rate rises and also there is an ongoing demand particularly from overseas, where buyers are targeting the upper to middle end of the property market,” he says.

Outlook for Sydney

As the economy continues to steam ahead, experts are predicting property values will accelerate further during the next 12 months.
Angie Zigomanis, senior analyst with BIS Shrapnel, expects prices to grow up to 10% over the next 12 months, taking into account the impact of rising rates.  

Zigomanis is also expecting rents to pick up following a sharp drop over the past 12 months. Residex reported a 4% fall in median rent to $480 a week over the 12 months to February – the largest percentage loss recorded of all capital cities. 

Koulizos is probably the most bullish with his growth expectations for the Sydney market. “I think Sydney will be the best performing market over 2010,” he says. “With the recovery in the banking and finance sector, we’re going to see some good growth coming in the property market as cashed-up buyers from the resurgent finance sector start spending big on the market once again. I’d say we’re getting double-digit growth around 12%.”

Sydney’s best buys

Koulizos tips inner-west suburbs such as Erskineville, Alexandria, Enmore and also Darlington as the best areas to invest in this year. “They’re all affordable, reasonably close to the CBD and there are multiple sources of tenants,” he says.

“If you have limited funds, look at Darlington – it’s only 4km to the CBD and right next door to the University of Sydney. Median price remains affordable at low $300,000s. It’s a nice area with lots of young people because of the university. If you have more money, you should buy in Enmore, Erskineville and maybe even Alexandria.”

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