Top of the scoreboard
Sydney’s property market continues to lead the pack, but another powerhouse New South Wales market – which offers steady growth and solid yields - is starting to attract interest too
Predictions of slowing growth in Sydney’s stellar property market continue, but – for the time being – it remains lodged firmly at the top of the scoreboard.
According to the latest APM Quarterly Housing Report, the Sydney market once again claimed its position as the best performing market, with a strong quarterly result for both houses and units. Over the June quarter, the median house price rose by 3.1% (taking it to a new record of $811,837), while the median unit price increased by 3.9%.
APM senior economist Andrew Wilson says that, while December 2013 was the high watermark for Sydney’s current growth cycle, the market continues to perform.
“Sydney’s median house price has smashed through the $800,000 barrier to a new record high. Over the 2014 financial year, the Sydney median house price increased by +17.0% or just under $118, 000” he says.
However, he added that, as with its closest competitor Melbourne, the annual outcome for the city is likely to be around half of its spectacular 2013 results.
Meanwhile, the latest RP Data Rismark home value results also showed that Sydney has continued along a strong capital gains trend. Overall, dwelling values rose 2.0% over the three months ending July 2014.
RP Data research director Tim Lawless says that, since June 2012, the absolute standout performer for capital gains has been Sydney where values have soared almost 25% higher over this time.
He believes that capital gains will continue, but that the rate of gain will continue to reduce – especially in cities like Sydney where affordability constraints are significant and rental yields are low. “Low yielding market conditions in Sydney are likely to act as a disincentive to investors, as well as the fact that the market is well advanced in its growth cycle,” he says.
With affordability becoming a more pressing issue in Sydney, Lawless says buyers are most likely to seek out medium to high density dwellings located close to the city rather than where they could afford to buy a detached home.
“Any slowdown in market conditions will be a gradual one. The real litmus test for the market will be how much buyer demand is apparent during the spring selling season,” he says.
Newcastle: an alternative NSW market?
Overall, the New South Wales economy is firmly on the rise, according to a number of reports and commentators. This means that other NSW property markets are starting to post some attractive results too. One such market is the Newcastle market.
Newcastle is Australia's sixth largest city and has an economy that is performing strongly across a number of key sectors. Situated in the Hunter Valley, which is home to over 650,000 people - more than Tasmania, the ACT or the Gold Coast, the region is expanding rapidly.
This means opportunity for both investment and for business. For example, the government's Lower Hunter Regional Strategy calls for 90,000 new residential dwellings over the next 30 years catering to 160,000 new residents.
PRDnationwide Newcastle/Lake Macquarie managing director Mark Kentwell says Newcastle’s market is buoyant and that sales have surged in the past year. Further, the consistent run of robust sales has lifted the city’s median price from $408,000 in June 2013 to $494,500 in June 2014.
“The sales momentum has not wavered and we are not seeing the traditional dip in transactions that occurs during the winter months. We see this strong sales trend continuing for the rest of 2014.”
Frenzied sales activity and the resulting price hikes in the Sydney market were driving some investors to look elsewhere for a better deal, Kentwell says. “Investors are finding great value and potential in Newcastle. We’re not far geographically from Sydney, but the pricing situation is quite different and more accessible for buyers.”
Urban renewal driving growth
State government plans for the revitalization of Newcastle are also playing a part in the growth of the city’s property market. Plans include the $94 million Newcastle Courthouse development, the $400 million redevelopment of the Hunter Street Mall, and the $80 million expansion of Newcastle’s airport.
Kentwell says many investors have taken note of the plans to transform the CBD into a dynamic 21st century regional city. “They can see the faith government and the development industry are showing through infrastructure and major projects, and this has cemented their decision to invest here.”
These urban renewal plans are driving the delivery of new apartment projects. But Kentwell adds that another key factor is the University of Newcastle’s $100 million vertical campus development in the CBD.
“The market is active, prices are trending steadily upwards, we’re undergoing a major urban renewal and developers are pushing ahead with their projects.”
Suburb to watch
Islington: High growth, high yield prospect
Situated in NSW’s Hunter region, Islington is a suburb of Newcastle, which is starting to turn heads. It is known as an affordable alternative to the popular, neighbouring suburb of Hamilton.
Primarily residential, Islington is just 3.4 kms from the city’s CBD and is on one of its major arterial roads. The suburb’s south eastern border is occupied by the Hunter and Newcastle and Central Coast railway lines. It is also adjacent to the Newcastle campus of the Hunter Institute of Technology.
PRD Nationwide Newcastle/Lake Macquarie managing director Mark Kentwell says the suburb’s close proximity to the CBD and beaches, along with its wide range of facilities and amenities plus good public transport, is the reason for its increasing popularity.
“If you compared it to a Sydney suburb, it would be like a suburb in inner west Sydney. Thanks to some new development, there is a bit of a trendy urban industrial feel to it these days. Yet it retains a neighbourhood village feel.”
Character cottage style houses – both wood and brick & tile – dominate the area and are appealing to families, but some recent warehouse apartment developments have proved a hit with young professionals.
Kentwell says the Islington market has seen significant growth recently, and it has great potential for more. Yet it is still affordable with a median unit price of $308,000 and a median house price of $386,500.
“Investors might also be interested in the healthy rental yields - 6% for units, 5% for houses – currently being delivered,” Kentwell adds.