Australian Property Investor Magazine, Feb 2009
By Bronwyn Davis
SYDNEY has long been regarded as the most expensive capital city in which to live, invest or rent in Australia. According to a recent report from RPData however, Sydney has the greatest number of suburbs (224) with a median price below $400,000, demonstrating that a number of viable, value for money investment alternatives do exist throughout the city.
Buyers agent and director of House Search Australia Jacque Parker says the house and apartment markets in Sydney are two distinct entities and as such, it’s virtually impossible to pinpoint suburbs that offer good entry level options for both. Rather, Parker suggests the best investment alternatives for affordable detached homes exist in suburbs a little further afield, while the inner-city ring boasts some of the most promising apartment investments.
Suburbs high on Parker’s best value for money detached homes list include Blacktown, Quakers Hill, Seven Hills and Penrith where medians for September last year were less than $400,000, according to RP Data. All four suburbs are within a comfortable one-hour commute to the CBD (apart fromPenrith at peak hour).
She suggests that good buying for units and apartments can be found in 3 areas within a 10-kmradius of the city; Alexandria, Gladesville and Parramatta.
With regard to the future outlook of Sydney’s residential property market, Parker says, “I believe the key drivers will be affordability and rents, as we’re now entering a new phase of the cycle after a five-year period of minimal or flat growth.
“As interest rates decrease, affordability improves and confidence is restored, investors and buyers will re-enter the market causing a new period of steady growth. Already some of these suburbs are experiencing increasing demand, particularly from first home buyers.”
Parker reports that house growth over the past 10 years in the aforementioned suburbs has averaged between7.7 to 10 per cent which, considering the stagnant or negative growth over the past few years is, “actually very promising”.
“In the sub-$400,000 price bracket I consider these areas hard to beat in terms of value for money and location. All have access to rail, solid town centres and good infrastructure, as well as being affordable for first home buyers and investors,” says Parker.
BLACKTOWN, QUAKERS HILL AND SEVEN HILLS
Northwestern Sydney suburbs Blacktown, Quakers Hill and Seven Hills are located around 38 km or 40 minutes from the city. The adjoining neighbourhoods attract young families and migrants and boast good transportation links to the CBD including rail networks,theM4 and Great Western Highway and a recently opened bus transitway.
Agent Daniel Formosa with Blacktown’s Starr Partners says, “Currently we’re experiencing high demand for property and there’s a lack of stock,which is causing more competition in the market that will probably see prices rise in the near future.”
Formosa says three to four-bed houses in Blacktown, Quakers Hill and Seven Hills are moving rapidly, largely due to the increased First Home Owners Grant (FHOG) enticing many young couples and families to seek out value buys in the region.
“I think these areas are hot spots because prices have come down to a more affordable level compared to where they sat five years ago and we’re so close to everything,” says Formosa. “Transportation and a good mix of private and public schools attract a lot of people to the region and the new shopping centre in Blacktown has helped too.”
All three localities have enjoyed good rental returns of around 4 to 5 per cent and low vacancy rates at around 1.1 per cent, according to Formosa.
New South Wales manager of WBP Property, Gareth Woodham, suggests Blacktown is a reasonably good prospect for investors, offering affordable prices, a range of dwelling styles and good rail and road access. He says the recent development of key transport infrastructure and house and unit construction bode well for the suburb’s future growth.
Residential Division manager with Herron Todd White valuers in Sydney, Kim Quick, says although housing in the region, which is predominantly 1980 to 1990-style brick project homes, has experienced some reductions in prices over the past five years, “in the long term investment potential is sound and you could tenant a property there immediately”.
Quick says Seven Hills in particular is a “sleeper” suburb where you can get good value for money after the significant price decreases that have occurred there over the past few years.
“You can pick up some really good buys from a long term point of view. Situated on the Parramatta side of Blacktown, Seven Hills is that little bit closer and the M2 and M4 are both nearby so it’s in the middle of good transport links to the CBD,” she says.
“Seven Hills has traditionally been a working class suburb with quite a few fibro homes, then a lot of growth occurred in the seventies and there are pockets where redevelopment’s quite prominent, so the suburb’s evolving.”
It might be stretching it to suggest that Penrith is within an hour’s commute to Sydney CBD, with the outlying suburb that sits snugly at the foothills of the Blue Mountains located some 56 km north west of the city. However,there’s no denying that the area represents good value buying for investors seeking reasonably priced housing. RP Data reports that the median in Penrith for September 2008 was $302,500 after decreasing over the year by 2.4 per cent.
Director of Raine&Horne Real Estate in Penrith, Gary Rosetto, says there was a substantial increase in prices from 1999 until 2004 which saw values in some cases increase by more than 2.5 times their starting price. He says the slowdown that hit after the 2004 peak caused market turnover to fall by around 40 per cent.
Rosetto says,“Penrith offers a variety of property options. You could pay several million for an acreage property or a property on the river, then there are low cost areas, such as Cambridge Park, Cranebrook and Kingswood, where you can pick up an older style home for mid-$200,000.”
As with the Blacktown region, Penrith attracts a lot of younger families with its affordable real estate and has seen a substantial increase in enquiries off the back of the FHOG increase.
Rosetto says that as Penrith home owners watched values decline by up to 20 per cent for townhouses and units and 10 to 15 per cent for houses,many became reluctant to sell and as a result, stock levels have diminished significantly.
“Particularly in the lower price brackets, we simply cannot satisfy demand from first home buyers who are now looking to enter the market,” says Rosetto.
“There’s big demand forhouses around the $300,000 range and an even bigger demand for new property.
“Unfortunately in the last three years, because the sale of new townhouses dropped to the point where there was no profit to be made and some developers lost money, very little is in the pipeline by way of new supply.”
Rosetto says that due to this supply/demand imbalance, prices for new stock have already started to move and with rents increasing by as much as 30 per cent over the past three years, investors are starting to re-enter the market too.
He says Penrith is a town with great potential for future growth and long term investment gains,with growing demand and restricted supply, affordable housing for young families, well established amenities including one of the largest shopping centres in the southern hemisphere, recreational facilities and transport links such as the fast train service into the city all acting as primary drivers that will continue to entice buyers and tenants into the market.
Additionally, Rosetto says Penrith enjoys relatively low unemployment with a range of industries and professional services in the region.
Penrith’s rental market is incredibly tight with vacancy rates at around 1 to 2 per cent and gross returns of as much as 6 to 7 per cent in some cases, according to Rosetto.
Woodham says the area possesses good infrastructurewhichwill continue to support property prices into the future.
Alexandria is one of Parker’s picks for best value buying in the townhouse/apartment property sector of Sydney, with a median unit price in September 2008 of $379,500, according to RP Data.
Once considered overtly industrial in nature the suburb (only 4 km from the CBD) is currently undergoing massive residential redevelopment, transforming it into a trendy mecca for the young cafe culture set of Sydney.
Although the sustained saturation of apartment stock occurring in Alexandria left some Sydney suburbs with a price-draining oversupply in the not too distant past, Woodham suggests that planning constraints in the area could prevent such an occurrence.
Currently, he reports that the rental market is strong, with vacancy rates of only 1 per cent and unit yields in the order of 6 per cent.
He says, “Many investors fell victim to overpriced units in Alexandria in recent years, however current prices represent good value considering their proximity to the city. Purchasers of existing units are now buying at the right price and will only see upward movement in values into the future.”
According to Quick the area appeals to young Sydney professionals who want to remain close to the action and overseas buyers,who purchase units to be occupied by their children attending Sydney University.
Principal of My Place Real Estate in Alexandria, John Higgins, says that while other areas have been slipping backwards with regard to values over the past four to five years, the local market has idled.
“But it’s changed dramatically in that the factories are going and a mix of small boutique and larger developments are coming online.
“There’s a $1.7 billion town centre development about to occur at the train station and (recently) it was announced that Lend Lease and Mirvac won the rights to start the site off immediately. That will boost the Alexandria market tremendously over the next five years.”
Woodham suggests that the outlook for Alexandria’s property market is positive, as prices have the potential to be driven up by the innate popularity of highly sought after inner-city and surrounding locations.
Higgins says investors should remain in close proximity to the train line and seek out a good value two-bed, two-bath unit with car space for around $350,000 with the potential to attract a rental of $510 per week.
He observes, “Buyers are typically 25 to 35-year-old white collar workers. They still get affordability and don’t have to be crammed into a very small one-bed unit in the eastern suburbs. They’re looking for quality living at a good price point.”
Higgins claims that Alexandria represents the last remaining frontier of inner city Sydney that hasn’t been completely redeveloped.
“We have a possible 52,000 people coming into the area over the next 15 years and it was voted the biggest urban redevelopment in the southern hemisphere.
“This was an undesirable area that’s now becoming very trendy and investors have the opportunity to get in on the ground floor.”
The leafy riverside suburb of Gladesville is about 11 km from the CBD and offers a wide range of lifestyle choices from apartment living to multi-million dollar waterfront mansions.
Parker suggests that apartments in Gladesville, at a median of $366,500 in September 2008, provide investors with an opportunity to buy into this upper echelon market at a very reasonable entry level price point.
Director of Gladesville’s Richardson & Wrench Real Estate, Fred Jabbour, says “Gladesville has always been a hot spot for investment because of accessibility to the CBD,with fast transit bus lanes and express buses during peak hour which can have you there in 20minutes, as well as ferry access along Parramatta River. There’s a lot of demand from young white collar workers and there’s always plenty of people looking to rent, which is why it’s such an attractive area to investors.”
Jabbour reports that vacancy rates are around 2 per cent and says that prior to 2003 Gladesville underwent a mini boom,with property values increasing on a monthly, if not weekly, basis.
“Toward the end of 2003 and early 2004, like the rest of the market things slowed down and over the next 12 to 15 months prices dropped back by about 7 to 10 per cent.
“From 2005 the market was on a steady climb again, but recently in light of all the negative talk things have slowed down a little bit.”
Governing municipalities for Gladesville, the Hunters Hill and Ryde City Councils are putting forward a joint plan to beautify the suburb and make the Victoria Road corridor and shopping precinct more pedestrian friendly.
“It’s a long term plan, but that will put the area up there with the likes of Lane Cove,” predicts Jabbour.
“Youalsohave acres of foreshore parklands and walks, all within a few kilometres of the CBD.”
Jabbour says as an old, established suburb Gladesville goes through normal cyclical phases like the rest of Sydney, but it’s never experienced the significant decreases in percentile medians that some of the neighbouring suburbs have.
“I think moving forward Gladesville will become more popular because of the planned infrastructure to be put in place in the foreseeable future. The returns will always be attractive to investors,” says Jabbour.
Woodham and Quick agree that Gladesville is an attractive prospect for investors,with its close proximity to the city, good access to Sydney harbour andwell regarded schools.
Woodham says, “Houses are popular in Gladesville, but there’s also a good offering of units at reasonable entry level prices. Investors can purchase within their budget in the area as there are a variety of options to suit most buyers.”
Quick says Gladesville is an undeniable hot spot,with its varietal abundance of stock and a resilient market that keeps chugging along in spite of the ups and downs occurring elsewhere.
About 33 km west of Sydney lies another one of Parker’s suburbs for budget conscious investors seeking value-for-money units.
“Parramatta has been undergoing a CBD revamp with its civic place upgrade for some time now and has remained a popular choice for investors due to lowentry costs and status as Sydney’s second CBD,” says Parker.
Houses and units in the suburb are reasonably priced with median values in September 2008 of $454,000 and $305,000 respectively, according to RP Data.
Woodham says current unit prices represent good value investment and the area has a positive outlook, with many employment opportunities,good access to road and rail infrastructure and broad cultural diversity.
Parramatta is popularwith young professionals and has a very tight rental market, with Woodham reporting that returns are currently around 5.5 per cent.
He says of the area’s future potential that, “Sensible property purchases will appreciate, whilst strong demand from tenants will support investors in both the short and long term,” but cautions,“It’s important to conduct research on values and determine what you’re getting with your purchase as some overpriced units still exist.”