Outlook good for Sydney's property market in 2012

The National Market

This year is set to be a year of recovery and consolidation for most Australia property markets, but Sydney is predicted to be a better performer of the capital cities.  Some areas will enjoy solid growth driven by latent demand or resource drivers while other areas will languish.  Last year’s market was dominated by natural disasters, mixed economic signals and fragile consumer sentiment.  Australian Property Monitors noted that national median house prices were down by 4.2% but are predicted to rise by 3% to 5% in 2012.  Sydney’s median house price only declined -0.9% last year compared with -3.1% in Brisbane, -1.2% in Melbourne, -2.2% in Perth, -1.4% in Adelaide and -3.5% in Darwin. 

The national economy is set to grow strongly on the back of mining and resources sector.  Treasury estimates are for around 3% to 4% growth in GDP (much to the envy of the developed world). Immigration is likely to increase as the demand for skilled workers intensifies from economic growth.  This will flow onto increased housing demand. Affordability will continue to be an issue for households on average incomes.  However, interest rates are likely to decline in the first quarter of this year, which will improve market confidence and turnover. I’m tipping around a 0.5 percentage point reduction in rates this year. 

The traditional spring selling season in 2011 did not eventuate. It was more of a fizzle and pop with lacklustre results. Auction rates hovered around 50% to 60% during 2011. Year on year results from October showed Sydney’s median house price fell 2.3% as reported by Australian Property Monitors. In contrast, Rismark International house price model recorded a 0.5% decline in median house prices over the year to the end of November. Sydney was one of the most resilient property markets of all capital cities over 2011. Brisbane and Melbourne recorded 7% and 5.6% decreases over the same period. Rismark International recorded a very small 0.1% increase in national house prices in November, which is signaling a projected rebound in property prices. 

The Sydney market

The Sydney market for 2012 looks more positive. Sydney has several reasons to smile compared with other states:

• NSW and Sydney is still the most fundamentally undersupplied market (we need approximately 60,000 extra dwellings but we are currently only building half that).
• Interest rates are set to fall at least another 0.5 percentage points.
• Unemployment remains low at 5.2% so job security is helping mortgage holders pay down more debt and increase their equity buffer. However, with uncertain global financial markets unemployment may nudge upward to 5.5%.
• The NSW government is getting on with the job of rebuilding transport infrastructure (and not just re-announcing it in press releases). The north-west rail link is first major infrastructure project to get the go-ahead. This will benefit the north-west area around Castle Hill significantly.
• The Barangaroo project has commenced to revitalise the commercial dock areas on the west side of the city.
• Commercial property values are also predicted to rise on the back of previous inactivity.
• Sydney’s climate, lifestyle and natural attractions continue to place the city as one of the best places to live in the world – it’s hard to beat the early morning swim or surf on the way to work!
• Sydney is poised for more growth on the back of latent demand from upgraders and downsizers that have been sitting on the sidelines.
• Rents have been rising strongly due to low vacancy rates around 1.3% on average.
• Overall, 2012 is set to be a year of recovery for the property market. 

I’m tipping that Sydney’s median price will rise by around 5% in 2012 given falling interest rates (and barring any other catastrophic economic event). This growth will largely come from the lower to middle segments of the market. 

The prestige market will continue languish – providing excellent opportunities for upper-end buyers. With a subdued share market, the level of executive bonuses is limited and buyers are cherry picking the stock that is available at the top end of the market. 

The potential impact of fallout from the European debt crisis continues to plague consumer confidence. If credit markets are affected, then property price growth will be subdued in Australia because the cost of bank funding will be higher.  If credit flows more easily then property prices have more ability to rise. 

Where to buy…

The east is likely to have a subdued year ahead, making it an opportune time to enter this market if you want to buy with less competition. The inner west of Sydney will continue to perform strongly due to price differential with the eastern suburbs. It contains a host of suburbs ripe for renovation and its proximity to the city is favourable to commuters looking for a shorter journey to work. 

Pockets on the northern beaches and north shore with median prices under $1 million will also do well, as “affordability” is one of the key factors driving demand for dwelling types.

Sydney’s western suburbs are likely to outperform the middle- and inner-ring suburbs on a percentage basis as they are coming off a low base. We are finding and creating excellent positive cashflow opportunities for savvy property investors in these areas with yields up to 10%. 

Good quality apartments close to the CBD will continue be in high demand as downsizers, professionals and first-home buyers compete for limited stock of established properties.

Rich Harvey is founder and managing director of Sydney buyers' agency PropertyBuyer

For more expert predictions on what lies in store for Australia's property markets in 2012, download our free eBook Property Forecasts for 2012.