nsw market view q32008 email version1

www.cbre.com.au/research Third Quarter 2008

© 2008, CB Richard Ellis, Inc.

NSW Residential

Hot Topics

Sydney house market slides •

Newcastle market wavers•

Sydney unit rents steady•

Wollongong investor haven•

What lies ahead for •the New South Wales residential market?

Cyclical downturns are nothing new to the property

market. The remaining months of 2008 and

the market outlook for 2009 are likely to prove

challenging but we must remember the meaning of

cyclical - something that happens periodically.

Following 2007, a year of divided growth for the

residential market in New South Wales, 2008 has

been dealt a combination of high interest rates,

reduced state population growth and diminishing

capital growth. These factors resulted in three

consecutive quarterly reductions in Sydney’s house

market prices. Although small, the March 2008

quarter recorded a drop of 0.15% while June

decreased by 1.81%, followed by the September

quarter experiencing a further reduction of 0.35%.

These quarterly decreases have resulted in a 2.31%

drop in Sydney’s house prices over 2008 thus far,

producing a median of $571,000.

As with all capital cities, increases or decreases in

house prices can vary across local governments,

suburbs and even from street to street. Sydney’s

overall housing downturn of 2.31% in 2008 has

not been experienced in all areas. The September

2008 quarter recorded capital growth on Sydney’s

northern beaches. Suburbs such as North Curl Curl

recorded a 4.9% increase in median house price to

$1,252,000 and Collaroy’s house price jumped 4.5%

over the September quarter to $1,006,500.

Another result of the current financial and economic

conditions in New South Wales is the significant

reduction in housing construction. Housing

construction has fallen rapidly in reaction to high

interest rates, rising construction costs, labour

shortages and a downturn in the residential market.

Nationally, housing starts have dropped by one-

seventh since early 2004. New South Wales has

accounted for two-thirds of the national fall. This

sector, under normal circumstances, accounts for 5%

to 6% of the state’s economy.

An increase in housing construction has been seen

over the past month due to an increase in the First

Home Buyer Grant, although much of this activity

occurs in the sub $500,000 range of the market.

The period set by the Federal Government for the

First Home Buyer Grant (July 2009) may need to be

reviewed if they do not wish to seek an artificial spike

in property prices.

It would appear the timeframe set is likely to

only allow developers with existing development

approvals in place to take advantage of the increase

in the First Home Buyer Grant. In addition, the NSW

Government’s Mini Budget will be contradictory in a

number of areas to the Federal Government’s stimulus

package. There remains no incentive for developers

to venture into “green field” estates, under the burden

of increased state taxes, and now deferment of critical

infrastructure such as the North West and South

West rail links. Thus, increased demand can only be

serviced by existing stock and any new undertakings

developed quickly within existing urban areas.

Access Economics predicts New South Wales,

although not there yet, will recover in the short term.

That day grows closer with interest rates having fallen

in September, October and November with another

cut likely before Christmas, the exchange rate

decreasing and petrol prices coming off their peaks.

All these factors are likely to help restore a weakened

residential market to an upward trend.

ANZ economists also support the notion of a

turnaround for New South Wales. New South Wales

is facing a critical shortage of housing buoyed by

continued international migration and reduced net

interstate outflows. Therefore, underlying housing

demand is running well ahead of new housing supply

and this gap is likely to widen in coming years. This

ongoing shortfall of housing supply could see the

current already low rental vacancy rate approach 0%

in the years ahead. The current rental vacancy rate

is 1%. This, as well as improving affordability with

interest rates decreasing and incomes increasing,

could be the catalyst for a long awaited upswing in

New South Wales’ residential building activity and

house prices.

Although further price softening is expected in the

New South Wales residential market over the coming

months, there are positive signs for a turnaround in

the near future.

Market Overview


House Market No. of Sales (last qtr)

Median Price% Growth (last qtr)

% Growth (last year)

Median Weekly RentRental Yield

(last qtr)

Church Point 8 $1,473,500 5.04% 12.21% $795 2.82%

Putney 12 $1,181,000 4.99% 16.20% $455 2.01%

North Curl Curl 15 $1,252,000 4.96% 10.69% $845 3.52%

Marsfield 17 $783,500 4.64% 6.21% $505 3.36%

Collaroy 44 $1,006,500 4.54% 9.24% $700 3.64%

Sadleir 6 $263,000 4.47% 10.24% $270 5.35%

Manly Vale 8 $913,500 4.45% 10.76% $535 3.05%

Narraweena 20 $747,500 4.32% 8.69% $605 4.23%

Hammondville 12 $370,000 4.32% 0.68% $330 4.69%

Sydney Houses 10,527 $571,000 -0.35% -0.10% $480 4.38%

Source: Residex (suburbs with >5 sales for the quarter)

Sydney House Market Slides Further

Sydney retains the highest median house price of the Australian capital cities at $571,000

for the September 2008 quarter, despite there having been no growth in the Sydney market

over the last year. The housing market has been suffering from a lack of affordability

combined with nervous and vulnerable prospective buyers whose inaction has kept the

lid on prices and sales during the last 12 months. Over the September quarter, growth

of approximately 4% continued at the top end of the market especially on the northern

beaches, while falls of 4% were experienced in many western suburbs. House sales

in Sydney dropped 4.6% over the September quarter while only 1% less than the year

before, which is a positive sign that Sydney house sales are holding steady. Sales activity

is likely to be assisted by overseas migrant families settling in Sydney, first home buyers

entering the market over the next seven months and the increasing housing demand in

an undersupplied marketplace.

Sydney House Rents and Yields React

Following a succession of quarterly rent increases over the past year, Sydney’s median

house rent reduced by $10 per week over the September quarter. A median house rent of

$480 per week retains Sydney’s national ranking at number one, with Darwin following

at $460 per week. This slight rental decline reflects the uncertainty in the general housing

market but is likely to be only a temporary pause. Sydney house rental yields are still

trending upwards from the 3% low in December 2003. The year ending September 2008

saw yields increase to 4.38% and expectations for yields reaching 5% by the year’s end is

welcome news for investors. Variations in rental demand are occurring throughout Sydney.

The middle-western suburbs have experienced rental increases of over 30% in the last

year, whereas demand has lessened in some harbour side and beachside suburbs. Manly’s

median house rent, for example, dropped $125 per week over the September quarter and

Dee Why decreased $85 per week.

Newcastle Market Wavers

Newcastle’s bolstering coal export market has supported the local economy, which in

turn has promoted growth in the housing market. Relatively isolated to Sydney’s market

adjustments, Newcastle recorded a 1.08% increase in capital growth over the year to

September 2008 and a small decrease of 0.10% for the quarter. The September quarter

produced a median house price of $355,500, a weekly rent of $310 and a rental yield

of 4.55% (higher than Sydney’s rental yield at 4.38%). House sales have dropped around

9% over the September quarter, revealing diminished buyer confidence and resulted in

an increased number of properties on the market. The unit market across Newcastle saw

the majority of suburbs record healthy growth for the year to September. Newcastle’s unit

market recorded a 2.45% growth over the year to produce a median unit price of $315,000.

Suburbs experiencing the largest unit capital growth over this period included Hamilton

with 12.73% and 10.15% in Mayfield. The weekly median rent for a unit in Newcastle was

$290 producing a rental yield of 4.07% with vacancy rates remaining low at 1.6%.

Sydney Median House Price and Sales

Source: Residex/CBRE Research & Consulting (Sep 2008 Qtr)

Mar

200

4

Sep

2004

Mar

200

5

Sep

2005

Mar

200

6

Sep

2006

Mar

200

7

Sep

2007

Mar

200

8

Sep

2008

Per Week

$450

$470

$490

$510

$530

$550

$570

$590Median House Price ('000)

0

2

4

6

8

10

12

14No. of Sales ('000)

Median House Price No. of Sales

Sydney Median House Rent


Mar

200

3

Sep

2003

Mar

200

4

Sep

2004

Mar

200

5

Sep

2005

Mar

200

6

Sep

2006

Mar

200

7

Sep

2007

Mar

200

8

Sep

2008

$0

$100

$200

$300

$400

$500

$600Weekly rent

Houses (3 Bedrooms)

Newcastle HousesCapital Growth v's Sales Volume


Sep

1999

Sep

2000

Sep

2001

Sep

2002

Sep

2003

Sep

2004

Sep

2005

Sep

2006

Sep

2007

Sep

2008

0%

5%

10%

15%

20%

25%

30%Capital Growth

0

2

4

6

8

10


Capital Growth No. of Sales

Sydney’s Top Performing House Suburbs - September 2008 Quarter


Sydney Median Unit Price and Sales


Mar

200

4

Sep

2004

Mar

200

5

Sep

2005

Mar

200

6

Sep

2006

Mar

200

7

Sep

2007

Mar

200

8

Sep

2008

Per Week

$0

$100

$200

$300

$400

$500Median Unit Price ('000)

0

3

6

9

12


Median Unit Price No. of Sales

Wollongong HousesCapital Growth v's Sales Volume


Sep

1999

Sep

2000

Sep

2001

Sep

2002

Sep

2003

Sep

2004

Sep

2005

Sep

2006

Sep

2007

Sep

2008

(percentage)

0%

5%

10%

15%

20%

25%Capital Growth

0

1

2

3

4


Capital Growth No. of Sales

Unit Market No. of Sales (last qtr)

Median Price% Growth (last qtr)

% Growth (last year)

Median Weekly RentRental Yield

(last qtr)

Putney 5 $553,500 3.33% 17.08% $455 4.28%

Oatlands 8 $433,000 3.13% 16.19% $430 5.18%

Arncliffe 10 $306,000 2.67% 4.82% $350 5.97%

Constitution Hill 7 $305,500 2.67% 5.44% $355 6.02%

Burwood 38 $430,000 2.64% 9.51% $405 4.90%

Banksia 8 $286,000 2.63% 10.10% $310 5.63%

Holsworthy 18 $363,500 2.60% 12.47% $320 4.62%

Monterey 13 $388,500 2.60% 5.38% $350 4.72%

Sydney Units 9,983 $394,500 -1.67% 1.13% $420 5.56%

Source: Residex (suburbs with >5 sales for the quarter)

Sydney Unit Market Stagnates

The unit market’s slowdown in growth has been less pronounced than that of the

Sydney house market over the last quarter. Sydney retained the nation’s highest

median unit price of $394,500, followed closely by Perth with $387,500. A 1.67%

drop in unit capital growth over the September 2008 quarter contributed towards

an annual growth of only 1.1%. Even so, unit sales increased in the last 12 months

by over 9.4% to 37,522 sales compared to the previous year to September 2007.

This was the largest increase in unit sales of any state capital city over this period.

By 2031, Sydney requires an estimated 640,000 new dwellings to accommodate

its growing population. Two-thirds of these new dwellings will be units concentrated

in and around current transport corridors.

Sydney Unit Rents Steady

Sydney is still the most expensive city in which to rent a unit with a median rent

of $420 per week. Sydney’s median rent has increased 10.5% over the year

yet remained steady during the September 2008 quarter. Sydney’s rental yield

remained attractive at 5.6% at the end of September with Darwin being the only

city with a higher yield (6.1%). Rent fluctuations have been far from uniform, with

falls of over 5% recorded in some inner southern suburbs, lower north shore

and northern beach suburbs during the last year. On the other hand, the inner

south-western suburbs of Auburn and Lakemba have benefited from an influx of

overseas migrants increasing rents by 30% and providing investors with rental

yields of over 6%. Supported by a lack of rental properties, unit rents in Sydney’s

high demand areas are likely to continue their upward climb, which may entice

investors back into the market.

Sydney Median Unit Rent


Mar

200

3

Sep

2003

Mar

200

4

Sep

2004

Mar

200

5

Sep

2005

Mar

200

6

Sep

2006

Mar

200

7

Sep

2007

Mar

200

8

Sep

2008

$0

$100

$200

$300

$400

$500Weekly Rent

Units (2 bedrooms)

Wollongong Investor Haven

House prices in Wollongong over the last two years have remained reasonably

steady, recording just under 1% capital growth in 2007 and 2008. The September

quarter of 2008 saw a median house price increase of 1.94% to $379,000,

replacing the 1.64% decrease of the June quarter. While sales volumes have

declined in reaction to tougher financial times, rental yields have increased

significantly over the year. The median rent for a house in Wollongong for the

September quarter was $350 per week, resulting in a rental yield of 4.82% (higher

than Sydney house yields). Wollongong’s high unemployment rate of 7.0% is

offset by a strong investment market. Vacancy rates remain low (1.4%) due to the

university and large industry employers in the area. This is keeping Wollongong’s

rental levels healthy and growth consistent.

Third Quarter 2

00

8N

SW

Resid

en

tial

Sydney’s Top Performing Unit Suburbs - September 2008 Quarter

Information in this document may have been provided to CB Richard Ellis by other people and we do not warrant that it is accurate or correct. Figures quoted are approximate only and financial information is provided without reference to the possible impact of GST. Interested parties should make their own enquiries and seek independent advice before acting. Subject to any statutory limitation on its ability to do so, CB Richard Ellis disclaims liability under any cause of action including negligence for any loss arising from reliance upon this document. This document is not an offer or part of a contract of sale. CB Richard Ellis respects your privacy and is bound by the National Privacy Principles. If you would prefer to be removed from this mailing list, please contact our Privacy Officer via phone 61 3 8621 3497, facsimile 61 3 8621 3330 or email [email protected]. A copy of our Privacy Policy can be viewed at www.cbre.com.au.© 2008 (CB Richard Ellis Pty Ltd) This publication is subject to copyright protection. All rights reserved. Subject to the conditions prescribed in the Copyright Act (Cth) 1968, no part of this publication may in any form or by any means (electronic, mechanical, photocopying, recording or otherwise), be reproduced stored in a retrieval system or transmitted to any other person, without the specific permission of the copyright owner.CB Richard Ellis Pty Ltd ABN 57 057 373 574, Licenced Estate Agent, Level 26, 363 George Street, Sydney, NSW 2000 T 61 2 9333 3333 F 61 2 9333 3330

NSW Residential

Market Outlook Local Offices

For more information regarding the MarketView, please contact:

Toni McKnightSenior Manager, ResidentialCB Richard Ellis (C) Pty LtdABN 64 003 205 552T 61 7 3833 9773F 61 7 3833 [email protected]

Ted HoskinSenior Director, Residential Mortgage Valuation ServicesM 61 418 474 [email protected]

SYDNEYLevel 26363 George StreetSydney NSW 2000T 61 2 9333 3333F 61 2 9333 3330

SOUTH SYDNEY8a, 11 Lord StreetBotany NSW 2019T 61 2 9316 8611F 61 2 9316 8411

CAMDEN5 Broughton StreetCamden NSW 2570T 61 2 4655 8700F 61 2 4655 8766

PARRAMATTALevel 510-14 Smith StreetParramatta NSW 2150T 61 2 9891 3330F 61 2 9891 5533

NORTH SYDNEYSuite 1401, Level 14100 Pacific HighwayNorth Sydney NSW 2060T 61 2 9954 3333F 61 2 9954 3332

NORTHERN BEACHES477 Pittwater RoadBrookvale NSW 2100T 61 2 9939 6788F 61 2 9938 2446

LIVERPOOLLevel 5, 26 Castlereagh StreetLiverpool NSW 2170T 61 2 9608 7933F 61 2 9608 7930

TWEED HEADSSuite 8, 1 Sands StreetTweed Heads NSW 2485T 61 7 5536 2322F 61 7 5536 7432

NEWCASTLE Suite 1, 101 Hannell StreetWickham NSW 2293T 61 2 4926 6433F 61 2 4926 6430

TELOPEA Suite 3,63 Tintern AvenueTelopea NSW 2117T 61 2 9873 5599F 61 2 9873 4299

Over the past two years, Sydney has experienced

two distinctive residential markets. The inner

city ring and the prestige residential upper end

has continued to show buoyancy while Sydney’s

mortgage belt in the Western and South Western

suburbs has generally been depressed since the

Christmas/New Year period of 2003.

Sydney’s prestige sector has sof tened noticeably

however over the six months to September 2008,

particularly for properties over $3 million, which

are experiencing extended marketing periods,

influenced by a dif ferential between vendors

and purchasers price expectations. Prestige

auction clearance rates are currently weak with

the outlook for 2009 remaining sof t. There is

now evidence of forced sales occurring in some

prestige suburbs possibly due to demographics

of the area, with many owners in these suburbs

working within the finance, banking, insurance

and stockbroking industries.

Recent interest rate cuts and the revised First

Home Buyer Grant is having an influence in

Sydney’s Western and South Western real estate

markets, particularly in the sub-$500,000

range. Activity is forecast to increase in the

December quarter in these areas.

Some suburbs closer to the Sydney CBD have

also benefited with increased market activity

for units in the lower price ranges. Real estate

agents on Sydney’s Northern Beaches have noted

an increase in activity between the $350,000

and $500,000 price ranges, though purchasers

still maintain some hesitancy and negotiate to

achieve a price level acceptable to them.

Some areas in Western Sydney are reporting

a shortage of stock with a number of buyers

actively negotiating on the same property. These

activities have not been seen in Western Sydney

since late 2003.

Leading into this new round of buyer activity

in the lower end of the Sydney market, fur ther

reductions in building approvals were witnessed

over the last six months, which were already at

all time lows.

Sydney could see fur ther reductions of available

rental accommodation if those selling in the lower

price ranges consist of investors selling existing

rental property to reduce debt or to recover

from other financial hardships. A scenario of

this nature could see rents skyrocket with no

additional available rental accommodation,

despite increasing demand from population

increases.

The 2008 Newcastle residential market is

currently one of sand and soil. Beachside property

values appear to be holding with a couple of

benchmark breaking sales recorded this year.

Newcastle’s beachside property benchmark of

$4 million in 2007 was trumped when a house

on Ocean Street in Merewether sold for just

under $5.5 million this year. Undoubtedly, such

high-end sales are infrequent for Newcastle but

assist in boosting the regional city’s evolution.

Moving inland from the beach, the September

quarter saw Newcastle’s median suburbs react

to tougher economic trends with an increased

number of houses on the market and a significant

reduction in buyers. This has caused a slight

correction in house value of approximately 5%

over the last six months.

The recent interest rate cuts by the Reserve Bank

of Australia along with the prospect of fur ther

cuts are likely to bring Newcastle’s buyers back

into the market. Agents are eager to dust of f

“SOLD” stickers and dawn them across “For

Sale” signs when market activity slowly returns,

albeit at corrected values.

Newcastle’s unit rental market has enjoyed

the influx of resource employment and Boeing

calling it home, inner city units are the leading

choice for these short-term renters. This increase

in demand has accelerated rents, which in turn is

likely to entice investors back into the market.

nsw market view q32008 email version1

Real Estate