NSW Excerpt from the 2011 January Market report

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Sydney sees increased activity

Buyers start to pick up the pace in the state capital as rental vacancies tumble.

Undersupply is still the buzzword in Sydney property investment circles, with the gulf between supply and demand fuelling growth in both housing prices and rental yields.

Pair this with an increase in the level of buyer activity in recent weeks, and the Harbour City’s property market looks to be staging something of a comeback.

“At the moment, Sydney’s in a recovery phase,” says Josh Brown, research analyst at PRDnationwide Research. “It felt the pinch but has moved into a recovery phase, the extent of which is mainly determined by larger economic factors such as interest rates.”

Brown sees this recovery period lasting for the next two to three years, but warns that a prolonged renaissance is dependent on interest rates staying low enough to keep the financial pressure off potential buyers.

“If interest rates go up strongly, potential buyers may begin to think that they can’t afford to enter the market at this point in time when things are uncertain,” says Brown.

The uncertainty of the economy has weighed heavily on sentiment over the past three months, as reflected by the 2.07% drop in median house values according to the Residex figures. However, September saw some recovery with a 0.69% increase, taking the median to $663,000.

Raine & Horne CEO Angus Raine points out that while interest rates are a big deciding factor for Sydney investors, he believes that the undersupply issue will continue to fuel buyer activity and push up prices.

“For now, with consumer and jobs confidence relatively high, we are seeing higher buyer activity for apartments and houses,” says Raine. “Add Sydney’s chronic housing shortage, which is set to hit a high of 200,000 homes by 2013, and buyer demand will push up prices for homes priced between $500,000 and $700,000 by the middle of December.”

Starr Partners Real Estate CEO Douglas Driscoll echoes the sentiment that the Sydney market is looking strong, having recently seen a record breaking increase in listings and sales in some suburbs.

“A couple of months ago we saw a definite dip or lull,” says Driscoll. “Buyer activity was down, but in the last four to six weeks some of our offices have reported record figures. For instance, our Campbelltown office has just had a record listing month, and our Auburn office has had a record month for both listings and sales.”

Given the prevailing huge demand for Sydney properties, Driscoll believes that such an increase in new listings will inevitably have a positive knock-on effect on buyer activity.

“If we list something, we sell it, unless it’s catastrophically overpriced or something like that,” says Driscoll. “There’s definitely more demand than there is supply, and listings are still hard to come by.”

Heading west

The bulk of Starr Partners principals are based in western Sydney, and Driscoll doesn’t hesitate to flag up his home turf as an area that investors would do well to keep an eye on.

“The thing about Sydney is that you can’t move further east, or you’ll end up in the sea, so there’s only one place you really can go,” says Driscoll. “The western suburbs are definitely growing and they’re becoming increasingly more popular.

“People with families are finding that if you want to buy a house in the eastern suburbs, you’re paying ridiculous money. So we’re definitely seeing people moving out of the city and into these areas.”

Brown, too, sees potential for good returns in the west, highlighting Newington’s phenomenal population growth and good transport links as the perfect concoction to fuel price rises.

“Newington has a lot of transport portals and has 6.6% population growth according to the Australian Bureau of Statistics’ estimated resident population figures,” says Brown. Newington hasn’t shown any growth recently, but over the last quarter there’s been a strong spike in activity.”

Looking elsewhere in the state capital, Cronulla, Pennant Hills and Maroubra also get the nod from Brown, showing population growth of 1.8%, 3.2% and 2.2% respectively. One of Maroubra’s neighbours, Matraville, has also seen increased buyer activity, with townhouse prices in the suburb going up by about 5% over the past three months, according to Raine & Horne Maroubra principal Tony Lucas.

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