Property Strategists Market Outlook for 2010

As reported in the Sun Herald on 10 January 2010, the Sydney residential property market is set for more moderate growth in 2010 after significant rises being recorded in 2009. Four major property strategists have been interviewed with their comments summarised as follows:

Mr Craig James, CommSec chief economist

Mr James predicts an overall growth of 8 – 10% for 2010 but considers some slight softening may be experienced in the early months of the year due to changes to Government First Home Owner grants. He believes there will be a focus shift to the city centre and the coastline.

Mr Rod Cornish, real estate strategist for Macquarie Bank

Mr Cornish predicts a slow and steady year as long as interest rates are increased judiciously. He predicts a possible weakness in the first home buyer sector and believes investors are likely to return slightly to the market

Mr Christopher Joye, Rismark International

Mr Joye predicts single digit percentage growth in prices for 2010 and considers mortgage rates will normalise at around 7 – 8% this year. He predicts low mortgage rates, the strongest population growth since the 1960’s and unemployment lower than originally forecast, plus a shortfall of new homes, will all fuel housing demand and prices in 2010.

Mr Anthony Ishac, Australian Property Monitors

Mr Ishac considers that holiday destinations 1 – 2 hours outside of Sydney are likely to experience price growth during 2010.

Source: Sun Herald 10 January, 2010

Property Market Outlook

At the Australian Property Institute’s Annual Property Market Outlook Seminar Mr Rod Cornish, head of Property Research at Macquarie Bank, gave an overview for his outlook on residential property for 2010.

Mr Cornish referenced his statements by showing that the Sydney residential property market had increased its median value for a residential dwelling by 12% in 2009 with the value of median priced units increasing by 10% in 2009. Mr Cornish indicated the big driver in the annual increases of 2009 was the 4% reduction in interests by the Reserve Bank of Australia and not the first home buyers grant as widely commented on. Mr Cornish indicated that the residential property market will remain steady for the first half of 2010 however as interest rates are tipped to increase to around 7.5%, with rises expected up to around the early period of 2011, a slowdown in price growth in the second half of 2010 is considered likely.

Mr Cornish also indicated there will be a very tight rental market over the next two year period with moderate rent rises likely over the next 12 month period. Further Mr Cornish indicated price growth in residential property is likely to moderate in late 2010 through to late 2011 before a further uptake in property values and price growth.

Industrial Park At Warnervale

As reported by the Central Coast Business Review, the New South Wales Government has recently approved the $276 million “Warner Industrial Park” at Warnervale. The Warner Industrial Park is likely to support the delivery of up to around 3,200 local jobs and is to be located on the western side of the Sydney/Newcastle F3 Freeway north of Sparks Road and would be bounded on its western boundary by Hue Hue Road. The 104 hectare site is to be divided into 90 new industrial allotments and would be used for industries such as warehousing, distribution centres, transport depots and manufacturing.

Terrigal Development Gets Approval

In mid February 2009 Gosford Council granted Development approval for the $50 million Repedo Development at Terrigal. The proposed development is to comprise 6 buildings over an area of approximately 8,000m² with the development having frontage to The Esplanade, Campbell Crescent and Painters Lane. The proposed development is to be staged and would be known as “Aria Terrigal”. The development is to provide for exclusive residential accommodation with ground floor retail and commercial space and with underground security car parking. On completion the complex is to comprise approximately 90 units over 6 buildings, with around 2,000m² of retail/commercial space on the ground and first floor. A sales office based at Terrigal is now gaining expressions of interest from potential buyers.

Valuer General Data Released

The latest land valuation data compiled by the NSW Valuer General reveals that land values have barely changed in the 12 months across NSW. Across the state, land values rose only 0.18% compared with 3.3% a year earlier. Along the NSW coast land values generally fell, however Byron Bay remained the most expensive with median land value at $297,000 following by Kiama at $285,000 and Gosford at $230,000.

Sydney CBD property values fell by the largest amount since the collapse of the early 1990’s with a 12.5% drop in land values largely due to the financial downturn said the NSW Valuer General Mr Philip Western.

Boat Access Only Market Currently Slow

Discussions with selling agents specialising in the Hawkesbury River boat access only market, indicate limited activity on the market as at February 2010 with a significant number of properties listed for sale.  The Bar Point "boat access only" residential precinct has approximately 34 residential properties currently listed for sale out of a total of approximately 130 residential properties all up.

New South Wales Building Approvals at 43-Year Low

Housing approval figures published by the Reserve Bank during the week make for very poor reading for New South Wales. Nationally dwelling approvals fell 7.2% to a reading of 11,167 in September 2008 – the weakest reading in 7 years. Annually total approvals fell 21.6% in September – the weakest reading since May 2001.

Approvals in New South Wales however make very poor reading falling 26.2% in September to a reading of 1,594 approvals – lowest reading on record. Approvals in New South Wales are now down 40% on a year ago to 2007. Approvals in New South Wales are now at a 43 year low. Recent interest rate reductions and the prospect of further interest rate reductions may stimulate the market however confidence needs to be increased. Housing demand now far out ways the supply and therefore rents and house prices are likely to continue to rise.

Building construction activity levels in New South Wales were the lowest they have been in 35 years and approximately 35 to 40% below the levels of long term underlying demand.

Recent first home buyers grant increases for a new property of $21,000 is likely to stimulate the market in the short term however this will only apply to properties completed by the end of 2010 therefore approvals and commencement are required swiftly with contracts to be secured by 30 June 2009.

Avoca Beach Unit Defies Market Trend

As reported in the Sydney Morning Herald on Saturday 7 June, demand for coastal holiday weekenders had dropped significantly over the past 12 months with the market slowdown extending from Batemans Bay in the south to Byron Bay in the north. Market research indicates that expensive holiday homes have become a non-essential outlay which is highlighted by the Palm Beach market which has shown only a 10% auction success rate this year.

A high quality unit in the prestigious “Lighthouse” block at Avoca Beach has recently gone against the trend. Two sales have been recorded in the past month in excess of $4 million with Sydney broadcaster Alan Jones recently purchasing a four bedroom apartment with plunge pool for $4.5 million with this particular unit last trading in June 2006 for $3,750,000. Local Avoca Beach real estate agent Tim Andrews reported the sale took 45 days to achieve which is well below the typical Avoca Beach listing which takes approximately 207 days. 207 days is up from last year’s average of 190 days.

Source: Sydney Morning Herald June 7, 2008

Residential Market Firming In Sydney

A report in the Sunday Telegraph of June 03, 2007 indicates that the Sydney residential real estate market is showing signs of recovery. The report indicates there is a greater level of confidence in the marketplace and with the number of homes offered for sale now increasing. At the height of the residential property boom, auction clearance rates reached approximately 82%. Now for the first time in more than three years Sydney 's auction clearance rates have exceeded 60%. The last time the clearance rate was above 60% was in October 2003. Clearance rates in January 2007 were at approximately 41%. The property monitor "Residex" said the number of city properties listed for sale jumped by 17% in May to more than 63,000. The Real Estate Institute of NSW has indicated that rising rents were partly responsible for the market revival. Agents in some western parts of Sydney are also indicating that increasing numbers of residential properties are now selling quickly. Other Sydney agents are now indicating that the end of the downward trend in prices has occurred and that confidence is returning to the market.

Source: The Sunday Telegraph June 03, 2007

Investors Hit By Market Slump

An interesting article in the Sydney Morning Herald of 28 August 2006 outlines that the property slump has had a significant impact upon property investors. Statistics show that a number of the Sydney suburbs hardest hit by the property slump also had the most number of property investors.

The statistics show that on a post code basis, of those post codes showing the largest number of taxpayers reporting rental income from investment properties, 5 of the top 10 NSW post code areas were in Sydney 's south-west. Of particular interest for the Central Coast is that Gosford was ranked No. 4 with approximately 3,900 landlords representing approximately 13% of taxpayers. This compares with Liverpool which had 5,200 landlords representing approximately 15% of total taxpayers within the post code locality. An analysis of the tax office data by the investment bank, ABN Amro shows that of the south-western Sydney neighbourhoods, all areas had lower median incomes than the NSW average as a whole.

Separate research commissioned by the Sydney Morning Herald has indicated the housing market in the south-western areas of Sydney has weakened considerably in the year to June 2006 despite significant gains being shown in some other parts of the city. The unit market had been especially hard-hit in Sydney 's west and south-west. This also mirrors the reduction in unit values shown within certain sectors of the Central Coast ie. the Gosford City CBD, the Woy Woy/Peninsula and The Entrance town centre.

Source: Sydney Morning Herald 28 August 2006

Spurbest Site - On the Market

As reported by various media outlets and the Central Coast Business Review in July 2006, Spurbest, the company planning to build the Gosford Waterside Development is putting the development site on the market. The land was purchased from the Central Coast Leagues Club in December 2001 with development application submitted in around June 2002. It was October 2005 when approval was released from the Department of Planning following extended negotiations with Gosford City Council. The Spurbest Director, Mr Sulistio said the company's direction has now changed.

Strong Sales at Avoca Beach

High quality properties at Avoca Beach continue to defy the current strong buyer's market sentiment and the continued current general downturn in market activity. A high quality oceanfront property selling on 828.0m² direct beachfront allotment sold for $5,250,000 in September 2005 setting a new benchmark level for an oceanfront allotment. No. 146 Avoca Drive , Avoca Beach sold for $1,390,000 at auction on 18 February 2006 to a Sydney purchaser who intends demolishing the existing older style, well presented dwelling to make way for a new architect styled dwelling.

September 2005 - A Buyer's Market

Detailed sales analysis carried out by Cameron & Links Valuer's professional staff throughout the past 6 months has shown a genuine slowing of the market with a trend toward reduced sales volumes and an increase in the number of properties listed for sale.

Our analysed sales data shows the residential property market on the Central Coast cooled throughout all quarters of the calendar year 2004 following on from a very buoyant market throughout the calendar year 2003. It is our opinion the residential real estate market peaked in the latter quarter of the year 2003 and into the early first quarter of 2004. The residential property market has continued to weaken within the first 2 quarters of the year 2005 and we are of the opinion the market represents a genuine and strong buyer's market as at September 2005.

Our opinions above have been supported by recent data released within the Macquarie Bank Property Market Outlook and the "Mortgage Choice / REIA Real Estate Market Facts Report of June 2005".

The Macquarie Bank Property Market Outlook report has indicated that a recovery for property markets in the Sydney , Melbourne and Perth markets is likely over the next 18 months. The bank has recorded a slowing of the market over the past 12 to 18 months noting that house prices have reached historically high levels within Sydney . The bank expects a turnaround in activity over the next 18 month period with greater demand for residential property.

Wyong Plaza Sale

As reported by the Central Coast Business Review of 14 June 2005 it is understood the Wyong Plaza has recently been purchased by a Melbourne based property group "MAB Funds Management" for $7,120,000.

It is understood the Wyong Plaza will be re-developed and will include a full sized Coles Supermarket. Any re-development of this major key site within the Wyong town centre would provide a major impetus to future town growth.

Source: Central Coast Business Review 14 June 2005

DA Approval for Long Jetty Development Site

A prime residential unit development site at Toowoon Bay Road, Long Jetty with total site area of approximately 12,026m², formerly used as a timber yard and building supplies depot, has recently obtained development approval from Wyong Shire Council for a residential flat development comprising seven buildings up to 10 storeys in height and comprising a total of 217 units with three basement levels of carparking.

Source: Central Coast Business Review 30 August 2004

Auction Clearance Rates

As reported in the Sydney Morning Herald Domain, 19 August 2004, prices and auction clearance rates are continuing to falter as at July 2004. According to “CPM” research the median price of a house sold at auction in Sydney was $727,500 a fall of 7% on June figures. This fall was the fourth consecutive month of price declines this year.

Auction clearance rates in July were less than 50% for the third month in a row. CPM’s Managing Director, Mr John Wakefield, has stated “there is only one way this market can go – vendors must lower their reserve prices if the market is to clear even the very low level of listings”.

Date: August 2004

A Stable Market

As reported in the Sydney Morning Herald Domain, 19 August 2004, the half yearly PMI residential property overview by property analyst BIS Shrapnel has predicted that improving economic growth and employment will prevent any “bursting of the house price bubble”. BIS Shrapnel has predicted that Sydney prices would remain stable over the next three years although this would represent a 10% reduction in real terms. Sydney house prices would rise by approximately 2% this year and then rising interest rates would stop any further market rises until around 2007.

Date: August 2004

Gearing. Positive or Negative?

There is much confusion surrounding the debate over positive versus negative gearing. Many investors take advantage of negative gearing tax breaks and buy a property that will ultimately cost the investor money each week.

Some people now pursue properties that are positively geared that not only pay for themselves but put extra money into the investors pocket each week.

Before making the decision whether to pursue negative or positively geared property an investor must first ask themselves why they wish to invest in property. When ready to invest in property it is important to consider both the negative and positive aspects about negative and positive gearing as both have legitimate strategies and one should not be fixated solely on tax minimalisation alone.

The main reason for investing in real estate is to make money. There are two strategies in this regard, one is to purchase property that appreciates substantially in value over time so that eventually its worth is a lot greater than the money that was paid to secure it. There is also the option of buying real estate that will provide more in rent than it costs you to finance and own and therefore provide a steady income stream over time.

It is our experience that properties that are purchased in the hope of making major capital gains often tend to be properties that are purchased as negatively geared while those properties that are purchased to produce good rental returns over time are often positively geared with lower likelihood of major capital gains.

The advantage of negative gearing is that investors can claim the loss from a negatively geared property against their taxable income thereby reducing the amount of tax payable by them. This strategy is fine as long as an investor intends to continue working, thereby paying tax and that the property will continue to appreciate in value by more than the amount the investor needs to pay to keep it. When investing for negative gearing it is very important to time the market. It is important to realise that it is unrealistic for a property market to continue appreciating forever. Markets will continue to go up and down and many negatively geared property investors are known to purchase during a booming market when there is an unrealistic and general mass optimism that the boom will continue being a boom forever.

Investing in positively geared property can be an excellent way to supplement an income and even in some cases eventually replace the income earned from a job. For a property to be positively geared, “cash in” has to be greater than “cash out” excluding tax deliberations. Therefore rental income must exceed finance and other costs. The advantages of positively geared property are that an investment that will generate positive cashflow income is likely to be less sensitive to interest rate fluctuations. When interest rates do rise the extra cost can be paid by the profits in the positive cashflow income. In this regard the extra cost to hold the property is not adding to an investors losses. Also generally when an investor is looking to buy second, third or more properties, financiers will often look more favourably on a loan application if existing investments produce a positive cashflow income.

Date: July 2004

Increased Rents for Waterfront Leases

Crown Leases on waterfront jetties, boatsheds, slipways and private swimming pools attached to privately owned land are to rise substantially under new formulas recommended by the Pricing Regulator and accepted by the Lands Minister, Tony Kelly.

The changes will lift the average rent payable on about 7,000 waterfront structures in New South Wales by between $399.00 and $870.00 a year. The new rental increases will be phased in over the next two to six year period depending on the size of the increase.

It is argued that private jetties, boatsheds and other structures built on publicly owned waterfront land can add significant value to a property, however rents on these structures have not risen in recent years in line with booming property value increases. The new formula replaces a system of rents that is not necessarily based on the value of an adjoining property. Currently there are approximately 8,000 such leases in New South Wales waterways including approximately 1,480 on Sydney Harbour alone. Under the current system more than 80% of Crown Leases on waterfront land pay between $70.00 and $1,000 per annum with around 10% paying between $1,000 and $2,500 per annum. The new rents will be payable when the leases fall due for their next rent determination.

Source: Sydney Morning Herald 4 May 2004

Recent Strong Coastal Sales

In September 2003 an older style weatherboard home on a 1,012m² absolute beach front property on Ocean View Drive, Wamberal sold for $3,700,000 to a local business person. Just prior to Christmas we are advised another similar Terrigal beach front property sold prior to reaching the market for $4,050,000 with this property previously having sold for $950,000 in 1998.

We have also been advised of the recent reported sale of a North Entrance beach front which sold for $1,600,000.

Sales at the "Star of the Sea" development continue to set new benchmark levels with a penthouse within the complex report recently sold for $3,100,000. Remaining penthouses have an asking price of $3,600,000.

Land Tax Issues for Holiday Homes

As recently reported in the Sydney Morning Herald Land Tax could become an issue for holiday home owners previously exempt from such tax. Following the latest re-valuations by the Valuers Generals Department revised valuations have put average properties in five coastal Council areas above the Land Tax threshold.

Land Tax is payable on a property where it is not a principal place of residence and where the land value is above $317,000 which is up from a threshold of $261,000 for last year.

According to estimates of the NSW Valuer General average land values affecting Central Coast Local Government areas are as follows:

The valuations used to assess Land Tax are also used to assess local Council rates, however local Councils adjust rates every three years in a rolling cycle.

In addition to Land Tax the NSW Government charges a premium property tax only on principal places of residence where the land value is greater than $1,970,000. The threshold for the principal property tax last year was $1,680,000.

Source: Sydney Morning Herald

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