The month in review: Regional NSW
By Herron Todd White
As we settle into the new year, the market fundamentals for the Southern Highlands remain bright and strong. There are several new land releases throughout the region coming on line in the first quarter of 2018 across the main townships of Bowral, Moss Vale and Mittagong, bringing ongoing increased construction activity and anticipated retail spending. The most recent announcement by the NSW Department of Planning and Environment in November 2017 of the rezoning of rural lands on the south end of the township of Moss Vale to provide up to 1500 new homes to be progressively released brings both opportunities and civil, social infrastructure challenges.
As mentioned in earlier versions of the Month in Review, announcements over the past couple of years by Federal and NSW Governments of Priority Growth Areas in our region to provide an additional 17,000 new dwellings, including Wilton Township, and major infrastructure projects including Western Sydney Airport at Badgerys Creek, will have medium to long term accretive benefits for the Southern Highlands.
Affordability relative to Sydney remains the foundation for demand across the Southern Highlands. As mentioned in the last Month in Review for 2017, the northern villages and townships located in the Wollondilly Shire have seen a big uptick in residential and commercial activity, with affordability and ease of access to the freeway a factor.
Generally across the Southern Highlands, the market up to $1.5 million remains liquid. Above this point there is a wide choice of property types available: prestige residential; rural and lifestyle; and acreage properties, with purchasers tending to be discriminating in their purchasing decisions.
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NSW Mid North Coast
This month we are looking at what’s in store for the 2018 property market on the Mid North Coast.
Last month we reviewed 2017, which saw housing prices in the Port Macquarie area increase throughout the year, although with a slight slowing in growth towards the end of the year.
In 2018, we can see Port Macquarie and surroundings continuing to grow into the new estates with a continuation of blocks being released. These areas will mainly accommodate families moving into the area, local families upgrading to newer homes and first home buyers. We predict there will be a slowing of houses with attached flats and the like which were popular in 2017 as the rental market weakens. We have recently seen a softening in rents in the larger towns and in Port Macquarie there has been an increase in rental vacancies mainly due to the increased construction activity bringing additional dwellings onto the market. The weakening rental market and tightening of lending policies to investors is likely to see less investors in the market in 2018.
There are a number of centrally located higher density developments underway but a lack of presales has seen construction stall and it is unlikely they will be completed in 2018.
The other coastal towns and villages all along the Mid North Coast are also experiencing good demand for land and modern dwellings at present, but it is expected to stabilise somewhat over the coming months with a significant amount of vacant land and recently completed dwellings coming online and available for sale. This expanding market may not be sustainable over the long term in these smaller coastal towns and may result in an oversupply of dwellings and land if demand was to lessen during 2018.
The higher value, prestige properties and rural residential property markets in the region remain slow but steady, with slow demand combining to produce slowly increasing values.
We have been quite optimistic for the region over the past two years and our optimism continues for the coming year, tempered with a more cautious approach for residential investors in our region.
NSW North Coast
Lismore / Casino / Kyogle
The residential market for the year ahead in the Lismore area is expected to stabilise following the last three months of 2017 where the demand for good quality residential stock was heightened due to the lack of available stock and real estate agents were desperately seeking new listings. Richmond and Kyogle Shires are expected to remain relatively steady.
A key factor that could potentially influence house prices is the much touted beginning of projected interest rate increases towards the end of 2018. However, if the availability of real stock remains limited, then demand may well remain strong despite any interest rate increases.
Whilst not at the same demand level as residential, the rural residential real estate market is likely to remain steady this year, with the possible exception of increases for the more well presented properties with highly valued features such as expansive views, creek or river frontage and high quality improvements.
Generally, properties within the $250,000 to $350,000 price bracket are likely to see most of the activity within Lismore City for 2018 although superior quality product within the $400,000 to $600,000 has improved markedly of late and will likely have the same amount of interest well into 2018, assuming current interest rates level remain low.
Casino and Kyogle houses in the $200,000 to $300,000 price range will still appeal to first home owners as they are very affordable at the current interest rate level.
The most affordable property type will continue to be older stock of the typical circa 1970s and 1980s 2-bedroom brick and tile units of which little sold in 2017. This is likely to continue throughout 2018, however at price levels of $125,000 to $175,000 depending on whether they are renovated or not, they generate a reasonable rent return in areas close to the CBD and major educational facilities such as Southern Cross University. Good buying opportunities may present themselves, providing the body corporate fees are kept in check and to a minimum.
We expect the larger rural lifestyle and rural residential property market in Lismore, Kyogle and Richmond Valley to be subject to the vagaries of distance and accessibility as well as maintenance of the land as determinants in the type of buyer. However, there is a continuing trend of real estate agents outside of the general area, such as Byron Bay based agents, bringing in potential buyers to the outer limit of the Lismore City Council area and achieving improved sale prices for well presented rural residential properties. As the more traditional sought after areas have become increasingly expensive, these outlying areas of the Lismore City area become attractive.
In summary, we expect the residential property market for Lismore, Richmond Valley and Kyogle Council areas for 2018 to stabilise overall with some assurance of stability. Whilst unlikely to see major growth, quiet confidence should remain while couched in the hope that a low interest rate environment remains, even if there are modest rises in bank lending rates.
After strong increases in value throughout 2017 across the majority of areas within the Ballina and Byron Shires, value levels appear to have somewhat stabilised, however extremely low stock levels across most market segments may result in some further increases in value in the short to medium term. Demand within the highly sought after areas of the Byron Shire appears to have slowed off the back of slowing Sydney and Melbourne markets, however again stock levels remain low. The amount of vacant residential land scheduled for release within the Lennox Head and Skennars Head localities will likely place a cap on any significant increases in value in the short to medium term in these locations. If market conditions soften, this may result in an oversupply of land in these locations.
During the end quarter of 2017, the market within Byron Bay remained strong with limited supply and strong demand from interstate buyers. Towards the very end of the year (close to Christmas) however, there were signs of the prestige market slowing with agents advising limited new enquiry over the $1.8 million mark.
Moving into 2018, things have remained somewhat steady with little change. This however, could be purely a sign of people holidaying in the northern NSW region without the thought of buying or securing a property. Moving into February as people filter back to work, we should have a good indication of whether the market will continue to steady as agents indicated close to Christmas or continue to surge ahead as was the case for the majority of 2017.
The coastal town of Lennox Head is expected to remain a place of interest during 2018 across all price points and property types. As the coastal resort town of Byron Bay saw a big increase during 2017 from interstate buyers, investors and occupiers alike, people are looking to Lennox Head as an alternative with a more affordable price point with many of the same desirable features that Byron Bay offers, such as beaches and restaurants.
During 2017, Lennox Head saw a number of long term Byron Bay residents sell in Byron to purchase in Lennox because of its village atmosphere compared to that of the changing pace of Byron Bay. If that sort of money continues to come from Byron Bay and interstate purchases as well, Lennox Head remains in a strong position for price growth.
It would seem that Byron Bay has become nearly unaffordable for everyday purchasers looking to buy a home for a principal place of residence, especially within walking distance to town, unless they have come from some sort of generational wealth or a strong interstate income based job.
Mullumbimby has seen massive growth over the past two years on the back of the strong prices being achieved in Byron Bay and the neighbouring suburb of Brunswick Heads. Given its inland locality five to ten kilometres from the coast, it remains an area of concern that average value levels of $900,000 plus may not be able to be sustained if the market changes direction. If the Brunswick Heads and Byron Bay markets have some form of correction, purchasers may look back to the coastal areas which could see values fall in Mullumbimby.
Job stability and low interest rates remain key to all of these markets in 2018. Should either of these market forces be impacted, we could see markets in these coastal resort towns cool.
The Clarence Valley
The Clarence, in particular Grafton, Maclean and Yamba, is looking set to perform positively in 2018, however, we may see some stabilisation in capital growth and sales volumes.
Vacant land looks set to be in high demand with residential land lots across the area continuing to be taken up by owner occupiers and investors alike. Similarly, properties with the capacity for good rental returns will continue to be popular with rental price increases across the market due to the continuing Pacific Highway upgrade.
New product (i.e. new dwellings and house and land packages), often with premiums being paid for new quality in peaking markets, should be treated with caution as any market softening conditions is likely to affect this segment of the market first if any oversupply or over-capitalisation occurs.
Overall looking forward, the market looks to remain steady with slight possible increases if market conditions continue with the upward trajectory recorded in 2017.
2017 realised significant growth throughout most market sectors due to increased demand and diminishing supply fuelled by continuing low interest rates, a strong rental market and infrastructure upgrades.
2018 has forecasters predicting interest rate rises which are expected to be moderate off the back of recent record low levels. January as always has started slowly however initial feedback from local selling agents indicates good levels of demand, however there is a feeling that the phone is not ringing as often as it was. There is still a lack supply in many market sectors which will continue to prop up the high value levels being achieved.
The one location where prices still appear cheap for a beach side property is Sandy Beach were you can purchase an esplanade position (opposite the beach reserve) starting at $575,000 to $700,000. This locality is traditionally considered a lower socio-economic area with little infrastructure, however a large 200 lot development is planned for the area and this coupled with good access and increased services offered in the nearby township of Woolgoolga, six kilometres to the north, make this a suburb to watch.
To the south of Coffs Harbour the townships of Macksville and Nambucca Heads have received a shot in the arm by way of the completion of the Pacific Highway upgrade, considerably reducing commuting time to the nearest major town of Coffs Harbour. Average prices range between $250,000 and $450,000 in these localities which offer good lifestyle benefits within small town communities.
The rural residential market has also recorded considerable increases in values, typically for well located properties close to Coffs Harbour in areas such as Boambee, Bonville, Karangi, Moonee Beach, Emerald Beach, Upper Orara and Bucca and typically within the $600,000 to $1 million price range. It should be noted that in our experience with this rural residential market, it is the last market sector to increase and the first to decrease when market conditions decline.
Vacant land has become scarce which has seen significant increases in land values and this coupled with normal building cost increase is seeing premiums paid for new homes. Typically new homes are at their peak of value upon completion and usually require upward market movement to maintain their value as the property ages.
Sales evidence within new estates such as Sapphire Beach Estate, Mariner Cove (Safety Beach), North Sandy Beach Woopi Beach Estate and Seacrest Estate reflect premiums being achieved for new homes above cost, however should market sentiment and conditions soften over 2018 and supply of spec homes increase, we may see these premiums deteriorate.
In summary, we do not see any major correction in the market in the short to medium term, although there is a sense we are at the top of the wave and waiting for it to break. Any lift in interest rates would only add to this expectation and may see consumer confidence waver.
It is reported that banks are clamping down on higher risk loans with reduction in interest only lending and higher deposits required for investors in line with regulatory recommendations. These restrictions may limit some potential investors’ options and soften investor demand.
It is no surprise that it is the affordable end of the market sector (sub $600,000) that will experience the most activity with prices remaining strong and shortened selling periods. The prestige market has seen increased sales activity for residential product over $1 million within the greater Coffs Harbour locality, although property over $1.5 million is still thinly traded with limited sales and extended selling periods generally expected. Local agents are reporting the majority of this activity is from out of town purchasers coming from the metropolitan areas, who were notably missing from the market over the GFC period.
We caution that this is a more volatile market with the most likely buyer being a high net wealth individual, these buyers being limited in the local market and dependent on greater economic market conditions at the time of sale.
Albury / Wodonga
The Albury property market is in good shape as it enters 2018. Since 2013 the market as a whole has been on a gentle incline, however it is difficult to discuss the market as a whole in Albury as there are many different housing stock options and submarkets to consider. Regional Australia is poised to continue capitalising on the housing affordability crisis in Sydney and Melbourne. Progressive regional cities such as Albury-Wodonga have been investing in infrastructure and development, securing an advantageous position for 2018. As a border town, the achievements of one side of the border benefit both cities, and both Albury and Wodonga have had major projects completed in 2017: Albury with the Regional Cancer Centre, two new child care centres, a public fitness station at River Park, upgrade to Murray High School in Lavington and the nearcomplete relocation of Bunnings and Total Tools to much larger sites near the existing homemaker centre in East Albury.
From new to old, Albury is alive with activity. New land releases were a feature of 2017; to that end we expect the influx of dwelling construction to continue with new housing stock in Thurgoona, Lavington, Hamilton Valley and Springdale Heights. Out of town investment in this new housing market cooled somewhat in 2017—we think this trend will likely continue in 2018. Investors and banks will be training a watchful eye on any softening in rental returns and the cost to build, which increased as did vacant land allotment prices. We think residential land may not run as hard in 2018 due to supply and the inability of market evidence to support higher values from the land, as well as the build dilemma when it does not add up for the customer. The more established areas, with stock ranging from mid-1980s to mid-2000s will continue to hold or slightly increase in value, with location and presentation factors maximising sale prices.
East Albury is a very popular suburb; the stock in old East Albury will continue to achieve similar results as its counterparts in highly sought after Forest Hill and Monument Hill. Many will opt to buy and undertake extensive renovations to attain a property within walking distance of the CBD. Over the hill in new East Albury, proximity to the hospital, IGA, Lauren Jackson Sports Centre and Bunnings will continue to attract interest for home owners and investors alike. In the middle to the north, the cheap seats of East Albury are already being discovered as good buying for townhouse development.
Albury often impresses property seekers (locals and newcomers) most with its tree-lined streets, showing off beautiful character dwellings a stone’s throw from the CBD, Botanic Gardens and Murray River. Central Albury is the strongest sub-market in this regional city; agents’ overuse of terms such as “sought after” and “tightly held” in this area, along with high demand and rising princes, leave one wondering just how much steam this sub-market has left in 2018. There has been solid investment in renovation and extension of these character dwellings and the area may have been undervalued a few years ago. It will be an interesting area to watch this year, with many consumers priced out and heading north or south to acquire proximity and character at a more affordable rate.
Overall, the Albury property market reflects the depth and breadth of the region; we have a broad and diverse employment base, the Murray River and Lake Hume at our doorstep, mountains, rivers and wineries and heritage surrounding. It is a great place to live and work with a variety of housing stock and an affordability which means turnover of stock. Choosing a house to suit a purpose at any life stage is achievable for many.
Bathurst / Orange
Property values increased in 2017, although the start of the increase was a delayed kick-off in comparison to metropolitan areas. Likewise, the slowdown is expected to be delayed and 2018 is not expected to see a fall in prices until perhaps very late.
Positive employment conditions in the area, continued affordability, a weekly spending pledge from the local member, lifestyle and aged care options mean the economic fundamentals are good for 2018 and a soft landing late in the year is a worst case scenario.
The construction of new houses is expected to continue in suburbs such as Kelso, Llanarth and Windradyne. Recent land releases by the local government have been popular and will continue to be so for developers and land bankers.
The median house price will increase towards the $500,000 mark as the number of residential properties sold above this figure increases.
The Tamworth market is expected to continue its steady growth throughout the different segments in 2018. With the continuing low interest rates it is expected that interest from owner occupiers and investors alike will remain strong. The overall cost of property in Tamworth compared to larger metro areas continues to attract those looking for a lifestyle change from the cities as well as investors looking to capitalise on the good rental yields and low costs. Tamworth continues to grow in all sectors with strong agricultural, industrial, commercial and professional sectors providing good opportunities for employment.
Last year, our suburbs to watch were the emerging suburbs of Calala and North Tamworth as they provided the opportunity for well priced new construction, enticing both first home owners and upgraders alike. This year, with the introduction of the stamp duty exemption for first home buyers we expect this trend of construction to slow slightly and that the houses that will be built to be of a slightly higher value than in previous years at around $400,000 plus. This expected shift will mean that the established parts of North Tamworth and the suburbs of East and West Tamworth will be the suburbs to keep an eye on. As competition increases for the lower end of these suburbs ($300,000 to $450,000), we expect values to be driven up by this competition.
The suburbs of South Tamworth, Hillvue, Oxley Vale and Westdale all offer affordable housing without having to sacrifice a good neighbourhood. While patches of these suburbs have historically been more aimed at investors, this is slowly changing to include owner occupiers.
The area of West Tamworth known as Coledale continues to provide reason for concern with an increase in new development located in a nondesirable location with much of the new and surrounding development consisting of housing commission. While high rental yields can be achieved, the risk of damage to property is high and the potential for capital growth is limited.