NSW Exerpt from the May 2010 Market Report

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Property buyers shrugged off the recent rate hikes and continued to plough through Sydney’s red-hot property market 

By most accounts, the Sydney market has had a stronger than expected start to the year. Prices are on the move and buyers are becoming more eager to secure a purchase sooner rather than later.

Over the past 12 months ending January, median house values jumped 13.10% to $629,000, according to Residex. Units performed well too, with median values climbing by 11.38% to $443,500 over the same period.

“The markets are pretty strong, and that’s reflecting the growing confidence in the economy. It’s clear now that the unemployment rate has peaked at a level well below what anyone was expecting. The banking sector and equities market is more settled, and the volume is more positive now, particularly the upper end of the Sydney market where there are some big prices being recorded,” says Paul Braddick, head of property and financial systems analysis at ANZ.

A report from property valuer Addison Opteon confirms that the Sydney property market, with the exception of commercial property, appears to be continuing to recover. “The fundamentals of low interest rates, high population growth and historically low vacancy rates in Sydney have had a positive impact on value levels in all tiers. Prices continued rising despite Reserve Bank rate rises in October, November and December, and additional increases from the banks that, combined, have lifted the average mortgage rate from 5.8% to 6.65%,” it states.

Rich Harvey, REBAA NSW spokesperson, says Sydney will continue to see this healthy capital growth over the near to medium term. “I believe the property market is in a rising phase which should continue solidly for the next three years. With population rates rising, upward pressure is being placed on demand.”

Oversupply/undersupply
Geographically, the growth is not evenly spread. Inner-western areas such as Leichhardt, Newtown and Marrickville defied a shrinking pool of buyers to post increases in median house prices, no doubt due to continuing tight supply. Unit prices within these localities, however, remain flat in comparison.

According to WBP Property Group, prestige markets such as the Lower North Shore, Northern Beaches and eastern suburbs continue to improve, buoyed by increased buyer activity combined with limited stocks.

Western and south-western areas are now experiencing the anticipated slowdown following the removal of first homeowner stimulus funding. The downwards trend in first homebuyer activity saw lending to this segment decline from 26% in October to 22.1% in November 2009. The NSW government has extended the Housing Construction Acceleration Plan (HCAP), which provides a 50% stamp duty saving on homes up to $600,000, for a further six months to 30 June 2010.

“Areas such as Blacktown, Penrith, Liverpool and Campbelltown, which were major beneficiaries of first homeowner stimulus, 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,” says Chris Lackey, state manager NSW, WBP Property Group.

Oversupply/undersupply

Geographically, the growth is not evenly spread. Inner-western areas such as Leichhardt, Newtown and Marrickville defied a shrinking pool of buyers to post increases in median house prices, no doubt due to continuing tight supply. Unit prices within these localities, however, remain flat in comparison.

According to WBP Property Group, prestige markets such as the Lower North Shore, Northern Beaches and eastern suburbs continue to improve, buoyed by increased buyer activity combined with limited stocks.

Western and south-western areas are now experiencing the anticipated slowdown following the removal of first homeowner stimulus funding. The downwards trend in first homebuyer activity saw lending to this segment decline from 26% in October to 22.1% in November 2009. The NSW government has extended the Housing Construction Acceleration Plan (HCAP), which provides a 50% stamp duty saving on homes up to $600,000, for a further six months to 30 June 2010.

“Areas such as Blacktown, Penrith, Liverpool and Campbelltown, which were major beneficiaries of first homeowner stimulus, 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,” says Chris Lackey, state manager NSW, WBP Property Group.

Indeed, while Sydney’s scope for greenfield property releases on the fringes remains limited purely for geographical reasons, the media hype around property undersupply needs to be taken with a pinch of salt. In some markets – particularly the top-end – there’s too much housing. At the lower end there’s not enough to feed the demand.

“Sydney simply does not have the potential to spread because of the Blue Mountains and the coast, and that means that infill development will have to be a serious driver of new supply going forward. Not only is the cost of new developments prohibitive, but the problem becomes a ‘not in my backyard’ situation where people support the idea but don’t want the five-storey block of flats next door,” says Braddick. This was particularly evident in North Sydney when thousands of residents marched in protest of the new housing developments in the Lower North Shore last year.

Best areas to invest in
Most analysts predict the eastern suburbs to take the lead in terms of growth performance in the coming year with the southern suburbs also predicted to show good growth in the median and lower ranges.

“The lower and middle sectors of the residential market across the eastern metropolitan area, northern and southern beaches are strengthening. This has been reflected in either stable or rising sale prices throughout these areas. The mid-tier market is showing steady signs of growth, with this beginning to influence the prestige market early 2010,” notes the Addison Opteon report.

Specifically, Harvey of REBAA adds that investors should investigate the inner west, eastern suburbs and select parts of the North Shore. “In regional areas we favour the Hunter Valley, Orange, Port Macquarie and the far northern coast of NSW,” he says.

Buyer’s agent Patrick Bright advises investors to look out for areas where there’s a limited supply of land, which reduces the development opportunities, and thereby protects the investment for the long term. He suggests the inner-ring of Sydney, land-locked areas and beach suburbs will continue to perform if they also meet other criteria such as easy access to reliable public transport, entertainment areas and schools.

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