Newcastle Property Watch Q3 2012

Newcastle LGA Market Overview

This report aims to navigate through the historic and current market conditions of the Newcastle Local Government Area (LGA) and provide an overview of the outer and inner citys market conditions. A booming coal industry in the Hunter Valley has led to the strong economic momentum prevalent in Newcastle. The record trade throughput of the Newcastle port is driving the employment market in the region, with infrastructure investment in the City and the nearby Tomago areas positioning the region as one of the most robust in NSW. While demand for industrial and commercial properties is strong, the residential and retail sectors have experienced softer conditions in the past two years. However, recent land purchases by the state government set a brighter outlook for Newcastle CBDs retail market and strengthen the long term position of the residential market.

The LGAs Sales Cycle graph reveals stronger growth in the median house and unit prices in the past three years, compared to the preceding period. This is largely attributed to the stimulus dispensed by the government over 2008 and 2009 in reaction to the Global Financial Crisis. Since the October 2009 peak, activity softened by approximately 30% for both houses and units, despite an increase in median price of 10.5% for a house and 3.3% for a unit. In the past 12 months the median house price declined by 2.6%, while the median unit price rose by 1.4%. The fall in activity over the past three years has seen the contraction of the aspirational buyers market and the increase in the number of cautious purchasers who are attuned to the state of the housing market and are factoring in the risk of potential falls in capital values.

An analysis of days on the market was conducted to ascertain the liquidity of dwellings in the region. The study revealed an average of 91 days to sell a house in the Newcastle LGA, compared to over 118 days in the neighbouring LGAs. This figure increases to an average of 122 days for units, but remains favourable compared with 136 days or more for the adjoining regions.

Newcastle Inner City Market Overview

Property transactions in inner city suburbs represent the bulk of sales in the region, with a strong performance compared to the broader market. A look at the Sales Cycle graph points to a robust incline in the median house price from April 2009 to $472,490 in April 2011, before easing to close the April 2012 half year period at $459,975. While the increase to the median unit price was more gradual, it recorded a similar long term growth (3.4% per annum) to that of houses over the past five years. The House Price Point graph indicates that the decline in activity toward the upper end of the market is the main reason for the softer median price, while an increase in sales volumes was recorded for houses selling between $300,000 and $399,999.
Buyers in this price bracket are taking advantage of the decline in prices and cheaper cost of finance to dispose their outer ring homes in favour of a superior location or better quality accommodation. Unit rental yields of 5.1% to 7.2% are proving attractive to investors, who are targeting properties selling within lower price brackets. Despite a seasonal rise in the rental vacancy rate (1.7% in June 2012), the Citys high demand and short supply of quality residences further reduces the risk to investors. The strong rental price growth of 6.1% for a three bedroom house and 7.1% for a two bedroom unit brought the median rents for the March quarter to $383 (house) and $360 (unit).

The growth of properties is best measured through the capital gains achieved by individual vendors over a period. A house resale analysis carried out by PRD Research revealed a strong average capital gain of 6.4% per annum for sales between November 2011 and April 2012. This figure equates to a doubling in price every 11 years. However, current estimates predict future growth to be more closely aligned with growth in wages, equating to 3 to 4% per annum. That said, a sustainable growth in income is expected to continue in Newcastle, as the port operations expand and its close proximity to the Hunter Valley keeps employment levels steady.
The Suburb Performance table includes the most active suburbs in the inner city. The table demonstrates the difference in house and unit activity, with a softer house performance and a rise in unit sales between the April periods in 2011 and 2012. The sharp growth in unit sales can be explained by buyers demand for lower priced product and the low number of sales compared to houses, making any change in activity more obvious.