Newcastle Property Watch Q1 2013

Newcastle LGA Market Overview
This report examines the market conditions of the Newcastle Local Government Area (LGA) and provides specific scrutiny of the inner city market. Despite somewhat softer conditions in the Hunter Valleys coal industry, record trade throughput in the Newcastle port is driving the employment market in Newcastle, with infrastructure investment in the City positioning it as one of the most robust regions in NSW. The residential real estate market has strengthened in the six months to December 2012 as evidenced by rising capital and rent prices. A new master plan for the Newcastle CBD announced by the state government in December prescribes the vision for the revitalisation of the Newcastle City Centre. Marked by the termination of the railway at Wickham the plan prescribes a replacement of the existing railway line with a pedestrian-friendly corridor and is expected to stimulate investment in the CBD.

The region experienced an increase in activity from the first half of 2012, closing the December six month period at a total of 1,649 transactions. While activity for the December period remained below the long term average, this figure is expected to mirror the December 2011 period once all sales are settled.

The LGAs Sales Cycle graph revealed a steady growth in the median house and unit price since June 2008 (units) and early 2009 (houses). The strong market performance in the aftermath of the 2008-2009 financial crisis and amid softer market conditions in 2011 and 2012 was initiated by first home buyers and upgraders, with investor activity increasing in 2012. In the second half of the year first time buyers activity remained stable despite the cancellation of incentives for existing dwellings. A growing number of second home buyers purchased units as a medium-term investment with an outlook to use it for their main residence in the long term. Investors were induced back into the market by rising rent prices and a decline in the cost of funding. Anecdotal evidence points to a growing out-of-town enquiries, with particular interest in inner city apartments.

Newcastle Inner City Market Overview
Momentum for unit developments in the inner city is growing, as self-managed super funds expanded the client base for multi residential dwellings. Realistically-priced off-the-plan stock also experienced strong uptake from investors and first home buyers, with first time buyers taking advantage of the first home buyers grant and stamp duty exemptions. There are currently approximately 250 units under development in the inner city, with a large portion of units sold off the plan. This level of development is considered adequate when the growth in demand for units is taken into consideration.

On average property transactions in inner city suburbs represent 40 per cent of house and 68 per cent of unit sales in the region. Unit median price increased over the 12 month period to December, recording a 6.4 per cent growth. Comparing the December 2012 unit price point with the corresponding period in 2011 revealed a seven per cent decline in units selling between $300,000 and $399,999 along with an increase in the size of price brackets between $400,000 and $800,000. The demand for luxury apartments priced $800,000 plus declined by two per cent from 2011.

Toward the lower end of the market the share of units priced below $300,000 remained unchanged at 24 per cent. Units at this price range yielded rental returns between five and seven per cent and proved attractive to investors. The rental vacancy rate returned to 1.7% in January 2013 after dipping during the preceding months. Over the 12 months to December the council area recorded a strong median rent price growth equating to 7.3 per cent for a two bedroom unit ($346 per week) and 5.4 per cent for a three bedroom house ($400 per week). Of particular interest was growth in rents for single bedroom apartments, with a median price increasing by 10.4 per cent over 2012. Not surprisingly, the inner city represented 50 per cent of single bedroom dwellings within the LGA.

The inner citys house market registered softer activity from the 2011 December period, with 488 transactions for the December 2012 six month period. However, a 9.3 per cent rise in median price over the 12 month period highlighted the growing demand for well-located houses. The House Price Point chart highlighted a concentration of sales in the $400,000 to $499,999 price point. While the share of sales in the $300,000 to $399,999 price point declined, price points toward the top end of the market increased, with the $900,000 plus bracket almost doubling to represent 13 per cent of the market in the second half of 2012. Merewether recorded the highest number of sales for the period (85 sales) followed by New Lambton (79 sales).