Median house prices fell in almost 40 per cent of NSW suburbs, and in 2009, it is expected this will increase to 70 per cent.
The market, particularly in Sydney has been weakening for almost five years.
NSW residents, particularly at the top end of the market, will be hardest hit by increases in state and federal government charges which took effect on January 1. These include property transfer fees to double from $92 to $184 per transaction and land tax to rise from 1.6 per cent to 2 per cent on properties worth more than $2.25 million.
According to the NSW Business Chamber, the higher taxes will constrain business and the state’s ability to lift the economy.
Sydney and Surrounds
Sydney’s housing boom peaked five years ago and since then prices have slowly been readjusting to more realistic levels. Today, in real terms (i.e., after inflation), Sydney house prices are now 20 per cent cheaper than in 2003. Affordability has improved, and with chronic under-building, investors have enjoyed a substantial rise in rents.
Home affordability significantly improved over the second half of 2008, with the RBA lowering interest rates by 3 per cent in an effort to raise consumer confidence after the marked deterioration in economic conditions and the uncertainty surrounding the cost of global credit funds.
Sydney’s median house price is expected to show a slight improvement in 2009. After declining by a forecast 5 per cent in 2008/09, we expect price growth to improve to 2 per cent in 2009/10.
Once the Australian economy does start to improve, due to the stabilisation of the economy, and the unemployment rate begins to slow, Sydney is expected to be the first city to recover.
In 2008, the median price in the Point Piper and Darling Point areas, fell by 10 per cent and in Double Bay it fell by 17 per cent.
Falls were also recorded in Rose Bay, Paddington and Centennial Park, along with Mosman, Northbridge, Artarmon, Wollstonecraft and Greenwich.
Substantial price drops were experienced in the South West and Western suburbs of Sydney including Liverpool, Campbelltown and Penrith. Housing values in Sydney’s western suburbs have been adjusting downwards since 2004, however, the federal Government’s First Home Buyers Boost has stimulated a rush of activity with properties valued up to $500,000 since its announcement. In the $250,000 to $350,000 price range, stock levels are declining and demand has put upward pressure on prices - some agents report price lifts of as much as 10 per cent.
In Neutral Bay, the average annual increase in median price over the past decade is just 4.9 per cent.Similar low long-term growth is seen in Sydney’s north western outskirts including Glenorie where the median price dropped 30 per cent.
Median prices rose in Bellevue Hill (the highest priced suburb in the country), Bondi, Bronte and Vaucluse. However, it is expected the median house price will fall in all these suburbs in 2009.
In the northern beaches retreat of Palm Beach, and the water access only enclaves of Coasters Retreat and Great Mackerel Beach – the median price fell 20 per cent.
The median price also dipped in the high-end Central Coast strips of Terrigal, North Avoca, Wamberal and Forresters Beach and in Nelson Bay, Shoal Bay, Forster, Tuncurry, Boomerang Beach and Blueys Beach.
Regional – Newcastle and Wollongong
Price growth in Newcastle and Wollongong has recently been negative, but it is expected prices will hold up slightly better than in Sydney in 2008/09, with only minimal declines of 1 per cent forecast.
The slowdown in economic conditions is expected to have a negative impact on purchaser sentiment and house prices in Newcastle over 2009. However, the Hunter region’s superior affordability compared to Sydney should see house prices hold up a little better in Newcastle, with prices falling by less than 1 per cent to $317,000. A forecast increase in underlying demand in the Hunter region (as migration from Sydney remains high) and improved affordability due to the interest rate falls, will be reflected in higher price growth, with Newcastle’s median house value likely to increase to $353,000 by June 2011, representing 11.4 per cent over the two year period.
It is estimated a deficiency of dwellings will remain in the Wollongong market and that affordability will continue to be an issue. This has been compounded by the 1.4 per cent increase in variable housing rates in 2007/08, resulting in house prices falling by 5.5 per cent to $359,000.
A scarcity of residential land in the Illawarra region is a chief cause of the tight residential market, with the vacancy rate at 2.2 per cent in October 2008. The lack of available land has been reflected in rising land prices and this has constrained dwelling commencement activity, which is anticipated to provide further upward pressure on house prices once economic conditions rebound.
Improving home affordability in Wollongong over 2008/09, due to a projected 3.8 per cent fall in interest rates during the year, and the region’s relative affordability advantage in contrast to Sydney, is expected to preserve an element of demand for residential properties. Subsequently, house price growth of 2.8 per cent is forecast to return in 2009/10, and then improved to 6.8 per cent below the 2004 median.
Far North Coast/ Hunter Valley/ New England
Byron Bay median house prices rose 12 per cent, Kingscliff was up by 16 per cent and Pottsville gained 17 per cent. These centres also show some of the best growth over the past 10 years.
The best median price growth was Murrurundi at the top end of the Hunter Valley where the median price jumped 50 per cent. The Hunter Valley will continue to prove popular for retirees and with plenty of planned infrastructure development will become increasingly attractive as an alternative living option for people moving out of Sydney north.
An expanding population will continue to drive investment in infrastructure development in regional NSW, like the new dam planned for Chichester and a new equestrian centre at Tamworth.
ACT and Canberra
Canberra’s high average income, low unemployment rate and undersupply of housing protected it from a major downturn in 2008. Expected job losses did not materialise, which helped to underpin activity in ACT.
Prices in well-established areas in the inner city, such as O’Connor and Ainslie rose 11.3 per cent last year and are forecast to go up by about 2 per cent this year.
In Canberra, 102 buyers took advantage of the increased First Home Owners’ Grant in the month after its announcement.
Any fallout from the financial crisis has been limited in the ACT due in part, to the fact that, unlike Sydney and Melbourne, the ACT does not have a large network of financial executives.
Areas that are expected to do well are the inner north, where there are limited numbers of new stock and demand is still strong.
There has already been an increase in activity at the end of 2008 and since the New Year, with the First Home Owners’ Grant kicking the lower end of the market along.
Commercial and Rental
The rate of growth in rents in Sydney increased to 4.2 per cent in 2007. For the first time since 2001 this rate was above CPI and has accelerated to a rise of 6 per cent over 2008. It is forecast median rents in Sydney will rise by a total of 27.3 per cent over the three years to June 2011.
The average gross apartment return in Sydney is estimated to be in the vicinity of 5.5 per cent – up 1.6 percentage points since the lows of 2003, and back to the pre-boom levels of 1995.
According to Residex, the median yield for Sydney units was 5.6 per cent at September 30 2008.
Analysts predict Sydney’s typical unit is probably going to have a rent increase of about $115 a week over the next two years, while rents for the typical house could be expected to increase by something in the order of $200 a week in the same period. This equates to 6.3 per cent rental yield for houses and 6.9 per cent for units. The long term average yield for Sydney is of the order of 11 per cent.
Vacancy rates in Sydney were at a relatively balanced position in 2005 averaging 2.5 per cent, although, since then, Sydney’s rental market has tightened considerably with new rental supply suffering from the collapse in overall dwelling construction over the three years to 2007/08. Sydney’s vacancy rate fell to below 2 per cent in September quarter 2006 and has continued to tighten, reaching 1.1 per cent in June quarter 2008.
Rent rises over the three years to 2010/11 are forecast to be strongest in Sydney. Modest rental growth between 2000 and 2007 has seen median rental levels in Sydney move back to similar levels to other capital cities. However, with new dwelling construction falling to long term low levels in 2007/08, and well below what is required to meet demand, vacancy rates have tightened to just over 1 per cent. This has subsequently driven sizeable rental growth of 17.9 per cent in Sydney in 2008. With new dwelling completions forecast to continue to remain significantly below underlying demand, there is scope for substantial growth in rentals. We are forecasting for median rents in Sydney to rise by a total of 27.3 per cent over the three years to June 2011.
With median house prices in Sydney declining, rental yields improved modestly to 3.2 per cent at June 2008. Further forecast rises in rental, together with flat prices, will result in further improvements in yields. By June 2011, it is forecast indicated yields will have recovered to 3.9 per cent back to 1998-1999 levels.
Hot spots
Ultimo and Chippendale have been reported as the best places for buyers seeking value in New South Wales. Other Sydney suburbs predicted to outperform in 2009, are Granville, Macquarie Park, Toongabbie, Greenwich, West Ryde, Canada Bay, Crows Nest and Chiswick.
The most affordable regional oceanfront suburb is Corindi Beach, 29 km north of Coffs Harbour where the median house price is $272,500. Other affordable waterfront suburbs include:
• Sandy Beach with a median house price of $279,500
• Dalmeny with a median house price of $280,000
• Diamond Beach with a media house price of $282,000
• Nambucca Heads with a median house price of $283,750
The regional suburbs likely to outperform during 2009 include:
• Iluka, a popular holiday retreat close to the major centre of Grafton. It has a current median house price of $380,000, and represents extremely good value for a coastal, lifestyle location.
• Ballina, a town which is quickly becoming a viable alternative to nearby popular resort areas of Byron Bay and the Gold Coast. It has a current median house price of $422,500 and is a much more affordable option than its neighbouring tourist spots.
• Woolgoolga, a popular tourist destination with a median house price of $330,000.
The vacancy rate at 2.2 per cent in October 2008. The lack of available land has been reflected in
rising land prices and this has constrained dwelling commencement activity, which is anticipated
to provide further upward pressure on house prices once economic conditions rebound.
SOURCES:
BIS Shrapnel – Residential Property Prospects 2008-11
BIS Shrapnel – December Update (Residential Property Prospects 2008-11)
Real Estate Institute of Australia (REIA) Focus Group Final Report
REIA – Media Release “Signs of Positive Activity in the First Home Owners Market,
Let’s Keep it Going (10 January 2009)
Real Estate Institute of Tasmania (REIT)
November, Tasmanian Property Market (23 December 2008)
REIT – Tasmanian first home buyers up 10 per cent in December, 2 February 2009
Real Estate Institute of Victoria (REIV) – State of the Market
RPData – Top Performing Rental Yield Areas
RP Data Media Releases – Property Hotspots for 2009 (26 December 2008)
Property Pulse – Industry Market Wrap Up
Macquarie Real Estate Economic Research
Weekend Australian Financial Review (Weekend AFR) articles over November and December 2008
Sunday Tasmanian, Boon in Burnie’s Upper Echelons (4 January 2009)
Money, Your Home – Property Outlook 2009-01-14
BRW – Top 500 Private Companies, August 28-October 1 2008
BRW – November 6-12 2008
The Australian, Darwin Goes Through the Roof as Rental Hotspot (26 January 2009)
Realestate.com.au – Rental Yield 2009 Winners
The Australian Financial Review – Special Report (January 23-26, 2009)
Real Estate Institute of South Australia Market Update – SA Property Market
Reliable in Long Term (23 January 2009)
Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.
Commercial Property Outlook 2009 - New South Wales 
