Insights

In brief - The positives for real estate far outweigh the negatives

Negativity might sell newspapers, but it's not an accurate reflection of the present state or the future of the NSW residential property market.

Property market is driven by sentiment

First let me say that I am not an economist. When I did the HSC in 1969 I did not even study Commerce (as it was then called). Secondly these are purely my personal views, formed over the 40 years I have spent as a property lawyer.

I believe that the New South Wales residential property market is on the cusp of a significant recovery.

Certainly there is much doom and gloom in the media. Pick up any newspaper and almost invariably, the negatives abound. Typically we hear about the European economic crisis, the strength of the Australian dollar, the cost of land, the slow delivery of consents, the lack of infrastructure and Australia's two-speed economy.

Like most markets, the property market is sentiment driven. One only has to look at the performance of the stock market in Australia over the last few years. Even companies that consistently make healthy profits can experience wild fluctuations in their share price.

Because sentiment plays such a significant role in the property market, it is time that we considered some of the positives in New South Wales for the residential real estate market and talked about these more, as an antidote to the negativity that abounds.

Not only will this be good for our industry: it will be good for our state and our country.

Positive factors pointing to a recovery in residential real estate in NSW

There are many positives which should not be ignored:

  • Housing affordability has increased, because while there has been a continual increase in wages, the cost of housing has fallen due to the GFC.
  • Interest rates are lower than they were a year ago.
  • We have a new state government that is actually doing something about infrastructure and planning in this state. While many would be disappointed with the slow rate of progress of the O'Farrell government, there is no doubting that things are starting to happen. The state government has committed to significant PPP and social housing initiatives, as well as accelerating land release programs.
  • There are still significant government inducements being offered at both state and federal level to various groups like first home buyers and investors. Neither the federal nor the state government have taken the easy option of saving money by abandoning these.
  • Councils are beginning to realise that the procrastination in the development approval process is costing them investment and jobs in their local area. There are some signs that this is having an impact on the decision making processes within councils.
  • The underlying demand for housing exceeds the current rate of new supply.
  • We have an expanding population from a combination of births and migration and we need to produce more housing to cater for this.
  • More dwelling units are needed as the size of families decreases.
  • Rents are increasing while at the same time prices have fallen. This is the ideal scenario to encourage investors.
  • When compared to the stock market, the property market is extremely resilient. The modest fall in housing values over the past few years is dwarfed by the massive fall in the value of listed stocks.
  • Business sentiment is at its highest level for some time and this flows through to jobs and investment. According to figures released last week by the Australian Bureau of Statistics, unemployment has dropped to its lowest level in six months, bringing the rate down to 5.1 per cent.
  • Housing has become more efficient in energy and water usage. This means households save money which can be put towards improving the property or paying off a higher mortgage.

"Housing bubble" about to burst?

Now I hear you say that you have read many articles by commentators who preach that there is a housing bubble in Australia which is about to burst. This will only happen if negative sentiment prevails.

Our mortgage lenders are the most prudential in the world. Notwithstanding the GFC, our rates of default are extremely low.

Sentiment drives the market! I believe that the positive factors which point to a resurgence in the residential property sector far outweigh the negatives, but we have to start preaching this loud and clear, particularly to the peddlers of gloom in the mass media. The message needs to get out there to the general community.

I certainly intend to seize any available opportunity to preach a message of positivism about the residential property market throughout New South Wales. Anyone care to join me?

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

Related Articles