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Non-dwelling construction is the second largest contributor to GSP at 1.2%. Most of its growth comes from the commercial infrastructure sector, which has grown from 23.2% one year ago to 30.7% in the latest quarter. However, the sector reached a peak last quarter and will gradually ease from its present position. Total dwelling construction only contributes 0.1% to GSP, however new dwelling construction contributed 0.3%. This was modified by -0.2% growth for additions and alterations. New dwelling construction grew by 16.0% in the latest quarter. Graph 2 For the last 15 years, the state has had a persistent and growing balance of payments deficit (see Graph 2). Despite the significant deficit, NSW exports grew by 7.9% in the latest quarter while imports slowed to 0.4%. The deficit has been trimmed slightly in the last two quarters with a slowing of imports from 8.0% growth one year ago to 0.4% growth in the latest quarter. The import share of GSP is slowly changing. In the last 12 months it has moved from 20.5% of GSP to 20.0%. On the other hand, exports share of GSP is still 10.6% and as evident in Graph 2, considerable improvement is needed to restore a balance. The weakening position of the Australian dollar will help as we move forward.
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The current unemployment position is provided in Graph 3. The unemployment rate was 5.4% at June 2013, which is about 16.4% less than it was at its peak following the GFC. Importantly, the rate is less than the national average of 5.7%, and it is relatively stable and not growing to the same extent as in other states. In the NSW Government's 2013-14 budget speech, delivered by the NSW Treasurer, the Honourable Mike Baird MP, said New South Wales has registered the strongest employment increase of any state in the nation. We promised 100,000 new jobs in our first term, but total employment has increased by 128,900 in just two years.1
NSW is fortunate in the sense that State Government policies have been relatively expansionary in the recent past as they peruse a path of investing in much needed new infrastructure and encourage increased activity in the new housing development. The budget speech points to the following important points 2: Achieving a smaller deficit of $329 million in 2013/14 (previous forecast of $423 million), followed by a surplus of $829 million in 2014/15 (down from $1.3 billion forecast) Newcastle Port to be leased for 99 years. The Port is expected to raise more than $700 million, with $340 million to be spent on revitalising Newcastle, including light rail. Payroll tax threshold to rise from $689,000 to $750,000 from July 1. NSW Government to spend $1.8 billion on WestConnex road project over four years, funding the first stage itself to prove traffic usage before seeking private investment. $220 million to pay for an extra 69,000 emergency department visits and an extra 34,000 hospital admissions (including 3,000 extra operations). Stamp duty collection is at a record high of $4.39 billion. Stamp duty on residential transfers in 2012-13 is expected to be 18.4% higher than last year, which suggests the government is anticipating an increasing level of sales activity. $300 million to be spent on new infrastructure to support the development of 43,000 new homes in areas such as The Hills, Green Square, Blacktown and the Hunter Region. A total of $14.6 billion to be spent on public transport, roads and maritime services and infrastructure, including $806 million for the North West Rail Link, $353 million for the South West Rail Link and almost $1 billion for Pacific Highway upgrades. The $15,000 First Home Owner Grant to be extended by two years. $300 million to be spent on providing priority infrastructure to allow the release of new land via the construction of Old Wallgrove Road, as well as supporting 11 critical projects to accelerate the delivery of approximately 43,000 new housing lots.
In the section Important State Statistics for NSW various important indicators are presented. You will note that both housing commencements and housing approvals are in an upturn and are currently above the five year quarterly median. Population growth is also in an upturn, but the quarterly number is still below the five year quarterly median. This suggests that there is a chance of some oversupply developing. However, in the last five years the provision of stock failed to meet market requirements and there is currently around 3,000 dwellings in surplus on Residex calculations. This suggests the supply level needs to be monitored and population growth numbers need to improve.
NSW Government. (2013). Budget Paper No. 1 New South Wales Budget Speech. Retrieved July 23, 2013, from http://www.budget.nsw.gov.au/__data/assets/pdf_file/0019/25192/BP1_Budget_Speech.pdf 2 NSW Government. (2013). Budget Paper No. 1 New South Wales Budget Speech. Retrieved July 23, 2013, from http://www.budget.nsw.gov.au/__data/assets/pdf_file/0019/25192/BP1_Budget_Speech.pdf
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In the graph Sydney by Price Ranges in Dollars over 12 months, it is very clear that the Sydney housing market is generally improving with a clear trend to lower numbers of suburbs falling in value. In Graph 4, the capital growth trend for Sydney is presented. The graph clearly shows the trend is now very positive and is no longer adjusting. In fact, the growth rate for houses in the last 12 months was a very respectable 7.37%. This rate of growth is better than the average rate achieved over the last 20 years (6.82% per annum). Graph 5 presents sales market activity since the GFC. While sales are at last starting to pick up, activity remains relatively weak and current growth and auction clearance rates are more a function of stock levels being lower than demand. The real test in the market will come after the election as we move into the spring selling season when a higher level of available stock on the market is expected.
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Overall, it is clear that the Sydney market has entered a new growth phase, however 0 affordability is still poor and it will remain like 09 09 09 09 10 10 10 10 10 10 11 11 11 11 11 11 12 12 12 12 12 12 13 13 13 n- g- ct- c- b- pr- n- g- ct- c- b- pr- n- g- ct- c- b- pr- n- g- ct- c- b- pr- nthis even if we see a further interest rate Ju Au O De Fe A Ju Au O De Fe A Ju Au O De Fe A Ju Au O De Fe A Ju reduction. The real telling point is the amount of after tax cash a borrower has post mortgage repayments. In Sydney, it is only $835 per week (see Affordability NSW).
Series1 Series2 Trend
Given the above, Residex is of the view that the growth period we are entering will be relatively small by comparison to what has been seen over the last few decades. However, it is anticipated that growth will be close to the average per annum growth achieved over the last 20 years. Regional NSW Graph 6 Regional Growth Trend
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The fortunes of regional NSW are going to be driven by gas resource projects and the governments infrastructure spend. While there is clearly opposition to the development of the gas resource, Residex backs a positive outcome as NSW is dependent on new gas supplies being delivered to meet demand. The Newcastle and Central Coast areas are most likely to be the largest beneficiaries of these. Like Sydney, Regional NSW has also entered a new growth period, however it is not as strong as it is in Sydney (see Graph 6).
Dec-12 Feb-13 Apr-13 Oct-12 Jun-13
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Graph 7 presents the regional sales trend. Also similar to Sydney, the trend is moving up. Overall, the NSW market has a positive outlook compared to other states and should perform well as the economy is stimulated by positive State Government action. Interest rates will increase in the medium term, which will occur following a period of house price growth. This will further diminish affordability and put pressure on dollar weekly rentals. The outcome will be significantly better rental yields and lower levels of risk for leveraged investors.
Trend Change Last Quarter Last Six Months Last 12 Months Median Quarterly Change last 5 Years Current Difference to Median % Change due to Immigration Last Quarter Last Six Months Last 12 Months Median Quarterly Change last 5 Years Current Difference to Quarterly Median Trend Change Last Month Last Three Months Last 12 Months Median Monthly Change Last Year Current Difference to Monthly Median 22,238 45,968 85,954 22,782 -544 72.25% 71.98% 71.53% 70.34% 1.91% 2.20% 7.06% 5.43% 0.65% 1.55%
Residex developed all information presented in this table from ABS publications.
Affordability - NSW
Median Household Income: Median House Cost: Median Unit Cost: Assumed Deposit: Assumed Interest Rate: Rental Yield Houses: Rental Yield Units: $103,872 $715,500 $501,500 20% 5.56% pa convertible monthly 4.27% 5.25%
Loan repayment for house = 49.31% of A/T household income or after loan repayments borrower has $835 per week to spend on other things. Rent for house = 35.56% of A/T household income or after rent tenant has $1,062 per week to spend on other things. Loan repayment for unit = 34.56% of A/T household income or after loan repayments borrower has $1,079 per week to spend on other things. Rent for unit = 30.59% of A/T household income or after rent tenant has $1,144 per week to spend on other things. Based on history it seems as if a comfortable commitment level for a household is something in the order of 35% to 40% of A/T household income.
The State Housing Market at a Glance Sydney - Combined Houses and Units
The median value of Sydney properties as at 30/06/2013 was $601,000 The overall rate of growth for the quarter ending 30/06/2013 for Sydney property was 2.88%
Median Value - Sydney Houses
800000 700000 600000
Sydney Houses There were 40,852 house sales in Sydney during the last year. Capital growth in the Sydney housing market over the last year was 7.37% and the Sydney median house value is now $715,500. The Sydney house median rental yield is 4.27% and the median weekly rent is $585.
Median Value
Current Quarter Median Value: $715,500 Number of sales: 12,060 Median rent: $585 Capital Growth: 3.13% Rental yield: 4.27% Total return: 2.37%
Sydney Units
Median Value - Sydney Units
There were 37,500 unit sales in Sydney during the last year. Capital growth in the Sydney unit market over the last year was 2.29% and the Sydney median unit value is now $501,500. The Sydney unit median rental yield is 5.25% and the median weekly rent is $505.
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Median Value
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Current Quarter Median Value: $501,500 Number of sales: 10,541 Median rent: $505 Capital Growth: 2.43% Rental yield: 5.25% Total return: 1.85%
Unit Price Ranges From $214,500 to $383,000 From $383,000 to $501,500 From $501,500 to $653,000 From $653,000 to $1,503,500
Sydney by Price Ranges in Dollars over 12 months By looking at the change in the sectors over the last 12 months, it is possible to understand if a segment is moving into or out of trouble, or if it is simply stable. Houses
Units
*Note: A positive change indicates the number that is showing growth has increased while a negative number indicates the number showing growth has decreased.
Market Activity
Lower Quartile Houses Units 27.69% 22.81% 2nd Quartile 25.30% 24.15% 3rd Quartile 24.46% 23.15% Upper Quartile 22.55% 29.89%
Sales Activity
50,000 45,000 40,000
Number of Sales
Houses Units
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 2004 2005 2006 2007 2008 2009 2010 Year Ending June 2011 2012 2013
Market Activity
Lower Quartile Houses Units 22.85% 23.95% 2nd Quartile 26.27% 22.29% 3rd Quartile 27.07% 21.62% Upper Quartile 23.80% 32.14%
Sales Activity
60,000 50,000
Number of Sales
Houses Units
40,000 30,000 20,000 10,000 0 2004 2005 2006 2007 2008 2009 2010 Year Ending June 2011 2012 2013
Houses
Units
Note: 2.5% represents the very low cost properties and 97.5% represents the very high cost properties whilst 50% represents the median value properties. These graphs display the segment(s) of most growth within a market and can often be an indicator of where the market is heading. Government actions like the First Home Buyers grant can distort markets and make it hard to see what is happening. Notwithstanding this, careful consideration of the data in conjunction with knowledge of the government's actions can still allow an understanding of where we are in any housing cycle.
Disclaimer
The Parties* making this report available to you give no warranty nor accept any liability for any decision based wholly or in part on this report, such as any decision to invest in, to buy or not buy property described herein. The Parties believe the statements, information, calculations, data and graphs contained herein to be correct and not misleading but give no warranty in relation thereto and expressly disclaim any liability for any loss or damage which may arise from any person acting or deciding not to act partly or wholly on the basis of any such statements, information, recommendations, calculations, data or graphs. Residex is subject to Privacy Legislation, including the National Privacy Principles ("NPPs") under the Privacy Act 1988 (Cth), The Privacy and Personal Information Protection Act (1988) and contractual requirements relating to Privacy pursuant to a number of State and Territory Government Licence Agreements. Material published in this report is protected by the same laws of copyright which apply to books, videos and music. The right to 'copy' always remains with the owner of the material. Unless expressly stated otherwise, you are not permitted to copy, republish or alter anything you find in this report without the express permission of The Parties. By using this report you are have agreed to the terms above. * Parties means Residex Pty Ltd, their customers and clients, and the customers and clients representatives. Residex Pty Ltd is authorised as a Property Sales Information provider by the Department of Finance and Services, Land and Property Information. The information provided in this report contains property sales information provided under licence from the Department of Finance and Services, Land and Property Information. Issue date: 2013-7-5