NSW Excerpt from the 2011 October Market report


Australia’s largest property market has been notable in recent months for also being one of the most robust in the country. According to figures from RP Data, the Sydney median dwelling value only saw a marginal fall of 1% in the year between May 2010 and May 2011 – only outstripped by Canberra, which saw a median price increase of 0.8%.

Also, while house values fell by 0.9% over the year, unit values increased by 0.8% – adding fuel to the fire that Sydney buyers are increasingly opting for more affordable units over the traditional quarter-acre block.

Part of this could be down to first homebuyers beginning to return to the market. Andrew Wilson, Australian Property Monitors (APM)’s senior economist, highlights that May saw a significant uplift in the number of first homebuyers in the Sydney market – fuelling activity in the lower- to middle-end of the market.

 Angie Zigomanis, project manager at BIS Shrapnel, suggests this could be the beginning of a trend of activity that will increase.

“The First Home Owner Boost had a massive impact by bringing forward first homebuyer demand. People who would have been in the market now, ended up buying earlier to take advantage of the grant,” explains Zigomanis. “We estimate that, on average, there’s about 130,000 first homebuyers in the market every year. In 2009, the number was 190,000; last year the numbers fell back to 90,000 – which still only accounts for 40,000 of the 60,000 bought forward.”

Zigomanis believes first homebuyer numbers have bottomed out, and will pick up as the year goes on.

“It won’t be until end of next year to get back to long-run average numbers, but it will still assist volumes. First homebuyers create activity as bottom of market, which encourages upgraders to move onto next dwelling. It’s a knock on effect, and has a big effect on turnover.”

Another factor that’s helping Sydney values hold up is supply constraints. Both Wilson and Zigomanis agree that dwelling shortfalls have been a key reason that values have remained solid, as well as fuelling rental growth. Wilson also highlights a relatively robust economy in comparison to other capitals as another reason for Sydney’s strength – but warns of forthcoming headwinds.

“The economy’s going ok, but there are just a few signs that it’s softened a little – unemployment rose by 3 points in May, so we’re just keeping a watch on that,” says Wilson. “It’s nothing to get too nervous about, but I think the softness in the retail sector has hit Sydney, which is obviously a big retail centre. However, that’s good and bad news, as that softness is probably contributing to moderation in talk of interest rate rises for the rest of the year.”

Playing it safe 

Unsurprisingly, it’s Sydney’s more affordable areas that are drawing most of the experts’ recommendations. Wilson highlights that the areas west and south-west of the city are seeing good results; he also pinpoints the outer northwest Hills District – particularly Kellyville and Kellyville Gardens – as an area that is doing well. This may partly be down to the renewed emphasis placed on the north-west rail link by the new state government.

University lecturer and author of Australia’s Top Suburbs, Peter Koulizos, highlights investor favourite Newtown, as well as neighbours Darlington and Chippendale as good options for investors seeking affordable properties.

“Houses are expensive, but median unit prices are below the Sydney median,” he says. “Plus, they’re only 3–5km from the CBD, which you have access to by two train lines, you’ve got Sydney University – one of the most sought after unis by international students – and the Royal Prince Alfred Hospital. There’s a lot of people that work and study in those places, so again a lot of demand.”

Outside of the capital, Zigomanis suggests the Hunter region and Newcastle, due to the resurgence of coal mining in the area.

“There are a lot of big coal projects there as well as a broader economic base,” he comments.

“There’s also infrastructure spending with the Hunter Expressway bypass, and port expansion. There’s potential for growth, and prices are affordable relative to Sydney.”

Prestige pains 

It’s the top end of Sydney’s market that is suffering most, says Wilson.

“It’s still quiet at the upper end of the market: we’re really looking for the next phase of economic recovery to give those areas a boost,” he says. “That is something that will take time: it’ll probably be signalled by some growth in the stock market, and the stock market is struggling to get to 5,000 – I think it’s got to be up around the 6,000 mark before we see those areas really move.”

RP Data research director Tim Lawless agrees that the weakness across equities markets is likely to be an important factor affecting the premium housing market.

“The S&P/ASX 200 Index remains almost 35% below its November 2007 peak and the index is down 8 per cent since the start of April. The top end of the market clearly benefitted from the circa 40% rise in share prices following the trough in March 2009. However, the recent share market weakness is affecting premium demand.”

Rismark Joint Managing Director Ben Skilbeck adds that demand for luxury homes has also been sapped by the high dollar.

“[The] surging currency has made local housing much more expensive for expats located in Europe, North America and Asian countries with US dollar currency pegs to buy,” he says.

While Wilson says “extra-special” premium properties are still being sold, Skilbeck is hesitant about a wider recovery for the top end of the market.

“Financial markets are currently pricing in a decent chance of an interest rate cut over the next six to nine months,” he comments. “If the RBA reduces rates, this would provide substantial support to the market. However, our central case remains that rates are heading up, not down, and thus we are not looking for any capital gains in 2011.”

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