Ugly truth about regional NSW
AS the dynamic property cycle currently sits, regional NSW is a stronger property market than Sydney, but beware - it has more pitfalls.
Regional NSW values climbed 3.2 per cent over the last financial year, while metropolitan Sydney was down 4.5 per cent.
There had been strong price growth in the 2016-17 financial year too, when regional growth was up 11.9 per cent on the coat tail of the stellar 16 per cent growth in Sydney prices, according to CoreLogic.
But scratch below the headline statistics, and the regions are rife with loss taking.
Yes Sydney is now feeling the pinch with some vendors selling their properties at less than they originally paid. But not at anywhere near the levels experienced in the regions.
Over the first quarter of 2018, the proportion of resales at a loss across Sydney was 2.4 per cent. Botany Bay, Hunters Hill, Mosman and Willoughby had no resales at a loss while Burwood, Canterbury and Hurstville had the highest proportion of losses.
The resales at a loss across the NSW regional markets sat at 4.2 per cent. So even in times of continued regional price strength, its loss taking was almost double Sydney; and at a time when the share of resales at a loss in regional NSW was at its lowest since 2005.
The resales at a loss were up in the Illawarra, Newcastle and Lake Macquarie, but down on the Mid North Coast.
CoreLogic research analyst Cameron Kusher forecasts the price decline in Sydney was now resulting in a significant deceleration in growth in regional markets.
"These regions may see values fall on an annual basis over the coming months," he anticipates.
Loss taking remained higher among regional investors than owner occupiers. Investors, because of taxation rules, are more prepared to incur a loss because they can offset loses against future capital gains.
As declines set in, CoreLogic noted investors, who have been increasingly active in the housing market, may make for the exits which in turn could result in much more supply becoming available for purchase at a time when demand for housing might weaken because values are declining.
The key demographic backdrop remains unchanged, with the latest Australian Bureau of Statistics population figures showing about two-thirds or 15.8 million of all 24.6 million Australians live in Sydney, Melbourne, Brisbane, Perth and Adelaide.
This concentration of people prompted the director of research at The Demographics Group Simon Kuestenmacher to note Australia's fortunes depended heavily on a handful of capital cities.
"We built one big city with one big central business district in each state, gave each a few satellite cities (for example Wollongong) and also threw in some small towns to manage farming and mining … and, voila, that's the Australian urban landscape," he suggested.
The silliest thing for cashed up investors to do at this point in the cycle is speculative regional buying which seeks to time the market.
The best risk mitigator is a long-term strategy. And don't for one moment think we are seeing any permanent passing of the baton from Sydney to the regions.