Regional NSW May 2017

The month in review: Regional NSW

By Herron Todd White
May 2017

Southern Highlands
The Southern Highlands market continues to show steady growth, with the average price (land, units, houses) across the Wingecarribee Shire increasing 8.65% for the four months’ year to date, to $879,000. Of note is the brisk rate of sales in the up-to-$1.5 million sector, most notably located close to the townships of Bowral, Moss Vale, and Mittagong. The table below summarises average sales by value and number in LGA and major townships, with the second row summarising 2017 year to date (April 2017) market movement.

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The market continues to benefit from the ripple effect, predominantly by Greater Sydney buyers looking for affordability and lifestyle. New land releases in the region have seen an influx of purchasers, ranging from first home owners to executive home buyers at price points from $300,000 to $800,000, and land sizes from 450 to 8,000 square metres.

What is also evident with the influx of new land releases is the pressure to upgrade transport infrastructure in the region, with calls by state government MPs for additional direct trains to Central station, road upgrades, and larger infrastructure projects such as the Sydney-to-Melbourne Fast Train gaining momentum.

With respect to accommodating additional residents in the region, the recent announcement by the NSW Department of Planning that Wilton Junction has been designated as a priority growth area has brought the reality of the new township (to accommodate up to 16,500 dwellings across the 4,175-hectare site located off the M5 East Freeway), a step closer. Other areas earmarked for residential development include Tahmoor and Appin. Closer in to the existing townships of Mittagong, Bowral, and Moss Vale, it is anticipated there will be limited releases of land, predominantly restricted to re-subdivision of appropriately zoned larger lots.

Regarding social infrastructure, the state government has committed to a $50 million upgrade of the Bowral Public Hospital in 2017, and in September 2016 the NSW State Government called for expressions of interest in a public-private partnership for the upgrade and operation of the hospital.

Being one of the regions in New South Wales to get early access to the NBN, there has been an emergence of commercial serviced office developments over the past 12 months, allowing for professional services personnel to have the flexibility of working locally and efficiently, an attractive alternative to the daily Sydney commute.

There has been emerging chatter about the prospect of lenders further tightening lending criteria and increases in interest rates. This undoubtedly will have a cooling effect on the rate of sale in the marketplace; however, we don’t foresee any major market adjustments in this case, with the exception of the rural and lifestyle acreage properties, predominantly located on the outskirts of the major towns.

Southern Tablelands
The Southern Tablelands has continued to trade along at a consistent pace, with the average price remaining flat as a result of new land releases coming onto the market year to date. New land releases are trading for $220,000 to $250,000, with house-and-land packages ranging from $500,000 to $550,000. Likewise, some of the villages between Sutton Forest and Goulburn, such as Marulan, have seen an uptick in first home owner activity, with new land releases being quickly absorbed by the market in the $160,000 to $190,000 range for 1,000 square metre blocks. Part of the attraction here aside from lower entry price is ease of access to freeway. As with the Southern Highlands market, the only real slowdown foreseen in the market would be as a result of a lender change in credit policy or increases in interest rates.

NSW Central Coast
The Central Coast region of New South Wales is sandwiched immediately north of the Sydney metropolitan area and south of the Hunter region.

Almost daily, we are asked about the state of the Central Coast real estate market, and while we could use some loose economic jargon, the most apt and professional term we can use in our description is that it’s ‘hot’. Naturally, there is some fluctuation across the region, with some locations outperforming others, but in a general sense the region’s real estate space has been quite strong for at least the past two years.

At the forefront of the strong performers would have to be the Peninsula area, which includes Umina Beach, Woy Woy, Ettalong Beach, and Booker Bay.

These areas have seen remarkable growth in values and in discussions with agents, buyers, and sellers, the chief reason for the popularity of these areas is the perceived close proximity to Sydney and the level of affordability of property here. These areas have traditionally seen streets of older-style housing (2- and 3-bedroom fibro dwellings), but more recently many of these dwellings have been renovated and extended, or replaced with newer, modern dwellings. Owner-occupiers and investors have been competing to secure property in these areas, with the latter seizing the opportunity to value-add by way of backyard garage conversions to granny flats or constructing a second dwelling.

At this time, there are no quantifiable signs of activity relaxing – demand is too strong with prices in the $700,000s regularly paid, which is near double the prices of just a few years ago. However, we do think that the rising values can’t last for much longer and that demand will soften when buyers find more affordable property elsewhere, or lenders increase interest rates.

A majority of the region’s other suburbs have seen good demand and rising values, but not generally at the levels seen on the Peninsula.

Overall though, we can confidently say that the rise in demand and values can be attributed to the overflow of Sydney buyers unable to afford to break into its market, realising there may be better value elsewhere both in monetary and lifestyle terms.

To put that into perspective, a new or near-new 4-bedroom, 2-bathroom, double garage dwelling towards the northern end of the Central Coast at Woongarrah or Hamlyn Terrace can be purchased for less than $600,000 – well below prices in the Sydney market’s outer-lying suburbs. The attraction of these areas is younger families, good shopping and schools, with beaches and motorway access close by.

These areas are about an hour’s drive to Sydney via the motorway and while this may not appeal to some, many of the people we speak to say it is an easy drive compared to the congested roads of Sydney and a more pleasant environment to live in when arriving home after work – a realistic and easy compromise in their view.

Along the coastal strip and the rural-residential areas of the region, we have also seen an increased level of activity. These areas include the beachside suburbs of Terrigal, Avoca Beach, Wamberal, Blue Bay, Toowoon Bay, and Norah Head, or the likes of the Matcham and Holgate Valleys, Glenning Valley, Yarramalong and Dooralong Valleys, and Somersby Plateau areas. These are some of the areas holding our higher value properties. Some might say, and we tend to agree, that when these areas trade and transact above normal levels, the region is going well. It is rare these days to see a sub-$1 million transaction, and increasingly common for $3 million-plus sales.

Adding to this, there appears to be a genuine effort by those having the ability and will to shape the region with a noticeable continuity in government spending on infrastructure and reinforcing the region’s importance. Property developers have rediscovered the region and are committing to it, with a number of new residential apartment complexes completed. The local economy appears outwardly to be in good shape and should this continue, we would expect to see the arrival of new business enterprises.

With all this said, though, we wonder what it would take to disrupt this idyllic arrangement. A suitable starting point to answer this may be to glance back at past property cycles and we can see that things are pretty good at the minute. We can also see that increases in bank lending rates, an upward shift in the unemployment rate, diminishing consumer confidence, or media influence can rapidly change the real estate landscape.

As with many other regions, the local market suffered during the bottom of the last property cycle and the cycle before that. We can’t predict the future, but if history repeats itself, then we can expect the same in this cycle.

NSW North Coast
Lismore/Casino/Kyogle

Lismore house prices have been in a state of growth both in sale numbers and prices. There has been a lack of stock, which is pushing prices up – particularly at the middle to top end of the market. As house prices strengthen in what were traditionally relatively affordable areas, purchasers start looking to the lower end of the market in the low-lying part of Lismore (North and South Lismore), and as a result we have seen strengthening in sale prices and transactions.

The market was relatively complacent with little to no discounting for properties likely to be affected by flooding. Now a major flood event has occurred with the river reportedly peaking at between 11.5 and 11.7 metres Australian height datum, and after the devastating effects of this event on the town, properties that are impacted by flooding are likely to experience a period of lower demand, increased sale periods, and falls in value. We note that until such time as data is collected of the volume of rental and sales of flood-affected properties, it is difficult to accurately predict the level of discounting that may be required to achieve a sale.

This could possibly have a flow-on effect to properties above the flood level and it could go either way: the stigma from the flood may impact the wider Lismore area, with properties not affected by flood being bundled together with flood-affected properties and experiencing lower demand, coupled with the economic hit of a town with its CBD in recovery mode; or, the flood-free properties could see an increase in demand as a result, pushing prices higher.

At the other end of the spectrum is the top end of the market. We have seen modern, 4-bedroom, 2-bathroom houses being snapped up, sometimes within hours of hitting the market. There is a lack of stock with high demand for this type of product and people are paying a premium to secure it, but looking forward there is a large number of land developments in the pipeline. The North Lismore Plateau development alone has a reported 1,300 new residential lots. With a lack of quality vacant land available and strengthening prices, when these lots become available it will be a viable option for many to buy land and build to either live in or on-sell. This will impact the existing stock as supply will increase to meet demand.

Ballina/Byron
Market conditions across the Ballina Shire remain strong; however, sale volumes appear to be slowing. This is likely due to low stock levels: however, this may also be an early sign of purchasers beginning to be more cautious.

The strong market conditions experienced across the sought-after coastal areas over the past 18 to 24 months have been driven by strong markets in the capital cities, most notably Sydney and Melbourne. When the prestige market throughout the Northern Rivers began to soften in 2011, it was on the back of a softening market in the capital cities. Continued strong market conditions in the Northern Rivers for the middle and upper price brackets will be heavily reliant on the performance of capital city markets.

We note that the current market state for the northern New South Wales coastal resort towns of Lennox Head and Byron Bay (as well as surrounding areas), have had an extended period of growth for the past two years. A limited supply and increase in demand have seen the market remain extremely strong in all property types (houses, duplexes, and units) and price points.

The biggest driver of the market presently would be an increase in demand from purchasers from the major capital cities of Melbourne and Sydney, and other cities such as Brisbane and the Gold Coast. We note that as the way business operation has changed nationally, some workers have increased flexibility with business hours and no longer needing to be specifically located within the major cities, but can choose to only commute once every two weeks or so. This flexibility, coupled with the services of the nearby airports of Ballina Byron, Gold Coast, and Brisbane (international), have been key factors in providing a massive impact on the Northern Rivers market.

Purchasers are choosing to exit the major cities for a better lifestyle and working environment.

The current market has been tracking well as interest rates remain low, the demand for properties has increased, and supply has remained low. The only things that could change this market would be for interest rates to begin to rise, or local jobs to become jeopardised.

More investment in infrastructure would be beneficial to see a further rise in the current market. Specifically, the local coastal resort towns of Lennox Head and Byron Bay continue to expand, therefore the need for better infrastructure is apparent.

In the Byron Shire, we do not see the need for private industry to pick up the pace in employment, as this is not currently affecting the market.

The Clarence Valley
For Yamba and Maclean, the Pacific Highway upgrade continues to drive the property market in a positive direction. This is due to the influx in workforce, generally firming consumer sentiment and affordability of most products.

Increases in sale prices over the past year show a slight increase across almost all sectors, particularly the sub-$400,000 market and properties with potential for pleasing rental returns.

The prestige market on the other hand remains relatively stable, with limited stock available and steady levels of demand.

At the completion of the infrastructure surge, it is possible that the market may decrease slightly; however, the rise has been so gradual in nature, and with some taking into consideration the positive consumer sentiment across the board and the still somewhat undeveloped nature of the Yamba beach front and town, it is unlikely that a sharp or sudden dramatic decrease will occur. That is, it is more likely that the quantity of sales will decrease somewhat in line with the level of demand while prices soften slightly.

Coffs Harbour
The Coffs Coast is experiencing one of its strongest markets in recent times, with demand exceeding supply in many areas, which has resulted in shortened selling periods and substantial increases in values. Typically, it is the affordable price point in the sub-$550,000 market that has seen the strongest demand from both owner-occupiers and investors; however, market confidence has spread through all sectors of the market including rural-residential, which has seen a recent resurgence in demand.

There are several factors driving the market, including low cost of finance, increasing population due to lifestyle benefits for both retirees and families moving from southern regions, infrastructure upgrades in the form of the Pacific Highway, limited available stock for vacant land, and diversity of housing product ranging from coastal to rural communities, with good access to regional facilities provided at Coffs Harbour. To a lesser degree, investors are being driven towards SMSF property investment and with the ALP pushing for restrictions on negative gearing, this may be driving investors to enter the market prior to possible changes to tax benefits.

A major factor in the cooling of the market will be rising interest rates, which will dampen long-term consumer confidence; however, continued population growth should see demand remain strong against the current limited supply. Wage growth is also an issue. With the exception of the public sector, wage growth and employment are not rising at the same rate as property prices. This will affect the affordability of property within regional localities, which has traditionally been a major factor in deciding to relocate to regional New South Wales.

Tamworth
Tamworth is currently experiencing a rising market with notable increases in vacant land values, sale prices for established homes and a strong demand for housing. New and established homes within sought-after suburbs are where the strongest growth and demand is being seen. While there are still plenty of sales occurring within the less desirable suburbs, there has been less growth with some re-sales within 12 months increasing very little ($5,000 to 10,000) or staying the same if the property condition is worse than on the initial purchase. Over the past 12 months we have seen vacant land values continue to rise. Within the suburb of Calala, a block worth $120,000 last year is now selling for $140,000 plus. The demand for prestige homes within East Tamworth is also showing signs of rising as properties over the $1 million mark are selling within shorter time periods and for higher prices.

The two factors driving the Tamworth market are affordability and employment. With strong professional, agricultural and commercial industries, there are plenty of employment opportunities within a range of fields. Along with the ability to find a job, housing is comparatively cheap with a comfortable 4-bedroom, 2-bathroom family home able to be purchased for $400,000. There is certainly a trend of families making the country change to Tamworth where they can afford a family home while still having a large employment market.

The market has been doing well lately due to the affordability of housing for both owner-occupiers and investors. The 2016/17 financial year has been good for the agricultural industry, with good rain resulting in favourable seasons for farmers, which in turn encourages them to spend – and others to invest – in the industry, resulting in further employment opportunities. The expansion of the hospital is also helping, with an increase in the number of staff required.

If the market continues on its current path, the increase in people moving to the town, along with the increase in employment due to the expansion and establishment of businesses, will see Tamworth experience several more years of steady growth. Tamworth would be at risk of a declining market if current demand for vacant land were to be overwhelmed by supply, and if the local commercial and rural industries were to suffer a decline due to drought or a skills shortage. If confidence in the industries was to fall, there would be a decline in investment in the town.

Griffith
The Griffith residential property market appears to be approaching the peak of the market. Values have been increasing in most market segments over the past six to nine months, largely due to a shortage of stock relative to demand. The fear of missing out is pushing more affordable brackets ($250,000 to $350,000) well above expectations.

The rise in the market is not limited to entry and middle-market segments, with buyers in the upper end of the market also showing a strong appetite, producing strong results.

So, what is driving the market at present? A combination of things, including low interest rates, a shortage of land, and the biggest factor being the optimism in the local agricultural sector and its impact on employment and investment.

What is likely to slow it down? The cost of money rising (interest rates), employment instability, the release of more land, or the inability of the economy to retain its confidence.

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