Despite continuing affordability concerns, activity looks to be picking up in the NSW capital with investors eyeing bargains in the south-west

 While the focus has been on the mounting affordability concerns in NSW of late, indications are that the market is slowly beginning to gather strength, and as usual it all starts with the capital.

Sydney already has one of the lowest unemployment rates in Australia and that rate is now falling, edging very close to 5.0%. Combine that with improving international markets, a diverse range of industries and employment opportunities and a vacancy rate around 1% and experts are not surprised that Sydney has been having some of its biggest auction numbers since 2010.

“This is another strong indicator,” says Rich Harvey, managing director of Property Buyer. “It’s starting to show that we are trending in the right direction.”

Harvey says attendance at open houses is also on the way back up again and that this is a sign buyers and sellers are becoming more active, shaking off the hesitation brought on by negative press about the market and talk of global financial troubles.

The Sydney market was suffering from what Harvey terms as a ‘Mexican Stand-Off ’. “People hesitate in listing their properties because they think, ‘if I can’t find something to buy, I won’t sell’,” he explains. But as the market slowly gathers more strength, he says, buyer sentiment will continue improving and more properties will come online.

The availability of credit is another key market driver that Harvey says is thankfully also showing signs of relief. “If money supply and credit is flowing then that translates into a more fluid property market. So the banks are beginning to lend again, but obviously at qualified rates,” he says.

Rents on the up

Rising rents have also been a key ray of light for property investors across Sydney, with RP Data showing growth of 5.4% for houses and 6.4% for units across the region last year. While rising rents are not necessarily news in Sydney, experts say rents now appear to be reaching a crucial tipping point in many areas of the capital.

Charles Tarbey, owner of Century 21 Australia, points out that a $400,000 property will often cost as much as $450–$500 pw to rent, meaning it might cost tenants less to buy. “So what that’s currently indicating is that there will be a lot more people out in the market soon looking to buy because it’s a better financial choice for them to come into the marketplace,” he says.

“I think that the bottom end will be stimulated in that way.”

Harvey adds that in the current market a good place to buy isn’t so much being dictated by ‘hot spots’, so much as affordability, desirability and proximity.

“I think it’s not so much suburb, but more price range,” adds Tarbey. “The price range of $250,000–$450,000 will attract a lot more interest predominantly because the rent is in pressure.”

But Harvey says he expects the higher end to take a little longer to rebound, as the equity markets hold sway in that price range. “Yes, we are seeing some enquiries for the prestige market, but we are not seeing a lot of merger-and-acquisition activity taking place,” he says. “When that happens, that will trigger the prestige market.”

Head west

With more promise in the low end, Century 21’s Tarbey says Sydney investors should be looking out west. “The south-west region, extending from Bankstown right out to Campbelltown, are the areas that I think will get a good increase,” he says. “I think that the inner and north-west sectors have had a good run, and the south-west is still a little bit under-priced compared to the rest of Sydney.”

Southern corridor suburbs are on tap to benefit from some big infrastructure improvements as well, as preparation is underway for the motorway’s expansion later this year. The M5 is to be widened to three lanes, which will benefit a number of key suburbs already on investors’ radar due to their affordability.

Cautious optimism is the overall message for buyers and sellers alike, but Tarbey says investors are still backing Sydney in the near term. “The housing market in NSW is the strongest across the country without any shadow of a doubt,” he says.