NSW has continued to fall behind other states in terms of economic performance. However, it’s well placed to recoup all its recent losses.
The NSW economy has once again taken the wooden spoon, with just 2.7% annual economic growth; compare this to the impressive 8.1% recorded by the ACT and 6.9% for Western Australia, according to the latest rankings by CommSec.
NSW has also racked up the highest unemployment rate at 5.3%, just a sliver lower than the long-term average of 5.4%. This is in stark contrast with the Darwin
’s 2.8% unemployment rate and WA’s 4.1%.
Retail sales growth fell behind that of the other states; however, NSW’s trend growth of retail trade at 6.3% is the fastest rate of all states and territories. At the same time equipment investment in NSW is growing at the second fastest annual rate across the country.
Another positive for the state is the stronger population growth of 1.64% year-on-year, which is well above the 1.1% average during the past 10 years, and is around double the rate of growth experienced four years ago.
Craig James, chief economist with CommSec, says this has generated a solid pick-up in housing activity. However, undersupply remains an issue as dwelling starts have fallen 11% below the long-term average.
But the good news for residential construction-dependent industries, according to James, is that building starts are accelerating at the fastest annual rate in eight years and the number of starts has now hit four-year highs. “Faster population growth and long-term under-building have led to a super-tight rental market and finally the construction sector is responding,” he explains. “Looking ahead, WA is well placed to maintain its ranking as best-performing state, but the bigger states – Victoria, Queensland and NSW – seem well placed to regain some of the ground lost in the global financial crisis.”
Property market continues to heat up
While the NSW economy lags behind that of the other states, Sydney has continued to outperform thanks to many years of pent-up demand and relatively stable interest rates. The median house price surged by 17.17% to $677,000 over the past 12 months, second only to Melbourne’s 18.73% growth. However, Sydney trumped all the other capital cities with its impressive 5.63% gain over the three months ending June 2010. During the month of June, median house prices grew by another 2.97% even as Melbourne slowed to just 0.40% growth.
Sydney’s unit market also staged a stunning performance with 11.43% growth in the median unit value over the past 12 months. During the June quarter, unit values climbed by 3.52%, and 1.19% for the month of June, to $465,000.
Charles Tarbey, owner and chairman of Century 21 Australia, says strong population growth and the shortage of housing supply in and around Sydney will ensure that Sydney remains a good investment prospect moving forward. “We are currently seeing approximately 10–15% more investment enquiries in this market and we expect this trend to continue for some time,” he says. “Although first homebuyers may not feature as prominently as before, steady interest rates (in the short term) and modest house price growth of late are fundamentals that should encourage investors to begin seriously looking at suburbs in and around Sydney.”
Tarbey adds that investors looking to position themselves for growth in NSW should be looking at buying into areas with suitable public transportation systems, such as train lines and bus routes. “Transport infrastructure continues to be front of mind for people living in NSW.”
Areas to watch
Among the suburbs Tarbey believes investors should watch closely are Earlwood and Five Dock. “These areas haven’t seen as much growth as many other suburbs in their proximity, despite having excellent fundamentals and both being relatively close to Sydney’s CBD,” says Tarbey. “Five Dock is especially interesting, as capital growth in the suburb’s median house price has been lagging the market average of late, despite its being situated in a popular area with good bus routes.”
Hurstville is another suburb worth watching as data suggests it is becoming popular with homebuyers and investors, according to Tarbey. Not only is it a reasonable distance from Sydney’s CBD, it also has the added bonus of its own train station – a much sought-after convenience in NSW. The suburb recorded modest growth in the three years to 2009; however, median house values took off after that, jumping by 13% in 2009 and 11% so far in 2010. “With sound fundamentals and data suggesting the suburb is becoming fashionable, investors should aim to assess Hurstville’s growth prospects very closely,” says Tarbey.
With education continuing to be one of Australia’s top services exports, and Sydney remaining a highly rated study destination for international students coming to Australia, Tarbey also recommends investors seriously consider locations surrounding educational institutions. Ultimo
and Pyrmont, in particular, are very popular with students. “While education fares well during growth cycles, the sector also performs extremely well during troubled economic times as many laid-off workers, or those unable to find employment, decide to better themselves by going back to school.
“With many economists forecasting gloomy times ahead, buying property
around education centres in NSW might be a nice hedging strategy for your property portfolio if you can identify the right growth pockets,” Tarbey says.
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