In November, when James Bond fever hit Sydney with the release of Skyfall and the subsequent visit of Bond actor Daniel Craig, observers of the property market would have been reminded not of the martini drinking, fast-driving MI6 agent, but of his comedic alter-ego Austin Powers.
It was in these films that the antagonist Dr Evil tried to extort from the world’s leaders, pinkie finger in mouth, the now infamous amount of “one million dollars” – quickly changed to “100 billion dollars.”
That last amount is what would have struck a chord with observers of the New South Wales property market. The reason is that $100bn is the amount of revenue that the state property industry is estimated to generate every year.
This gigantic figure includes both direct and indirect flow-on benefits and, because of this, some 10% of the state’s economic growth comes from the property market, according to a Property Council commissioned report by the AEC Group.
The report adds that the industry creates one in 10 jobs in NSW and provides $16.6bn in wages to workers and families.
Considering these numbers, it is not surprising that the state property market has its own dose of international mystery, conflict, heroes and villains. Among these, what is grabbing everyone’s attention, of course, is China.
Behind the scenes
According to Deloitte Access Economics’ latest Business Outlook report, a booming Chinese economy has been holding New South Wales back over the last few years, even though other states and property markets have been benefitting strongly.
One of the reasons is that the boom brought with it a rise in exchange and interest rates. “The extra national income [from China] did boost business for Sydney’s finance sector… but higher interest rates were toxic in a state with Australia’s largest residential mortgages, and the Australian dollar played merry hell with businesses in manufacturing, tourism and international education,” the report says.
Now that China’s rampant economic growth is expected to slow down a notch or two, the Business Outlook report adds that there will be some positive effects for the New South Wales economy and many of these could filter into the property market.
“The Reserve Bank has already moved interest rates down, and chances are there’s more good news still to be had on that score,” it says.
Flow on effects
Deloitte Access Economics says that some of this good news includes retail turnover growth and the fact that housing construction levels are finally starting to improve.
As a sign of this, the New South Wales housing sector has been slowly clawing back the share of the national residential construction market it was losing since 1995. This should go some way in making up for the low level of housing construction that has characterised the state property market over the last 10 years.
This is great news for investors. While Sydney will likely see some eroding of the ultra-tight vacancy rate and stock on market figures that have caused a lot of rental growth over the last two or three years, a slightly increased release of housing stock could mean more buying opportunities – especially in light of government measures to boost demand from first homebuyers through subsidies and stamp duty concessions.
“There’s an awful lot of ground to make up,” says the report. “The last 10 years were a truly dire decade for the housing construction industry in particular.”
Despite the changes that are expected to come within the state property market over the immediate future, Australian Property Monitors senior economist Andrew Wilson says a bit of caution is advised.
According to Wilson, buyer sentiment still has some catching up to do. “We still have fragile buyer confidence,” he says. “Housing markets are performing reasonably, but it’s still patchy and it’s still mixed. We’re not out of the woods yet in terms of a general upturn in sentiment and activity.”
Residex chief John Edwards agrees. “Housing is still relatively unaffordable in Sydney. It will take a little while for that to change. The other thing is market sentiment. If the Reserve Bank put interest rates down further, people might come out of the woodwork because they decide property is more affordable again, but everyone knows that when interest rates go down they have to go back up again.”