Property investors must follow the infrastructure trail: Terry Ryder

The most common “common denominator” of boom property markets over time is an elevated level of spending on infrastructure.

It’s not coincidence that Sydney has been having its strongest market in 12 years at a time when the level of infrastructure development is the highest it’s been in 12 years. It’s not the only reason but it has played a significant role.

And as Sydney starts to shows signs of beginning the fade-out that’s inevitable after three years of heightened activity and prices, investors seeking long-term growth are well advised to follow the infrastructure trail.

Real estate that lies in the path of progress usually grows at superior rates.

The property cycle in Sydney has reached the point where investors need to be extremely careful with their locational choices.

The Sydney market has been percolating for three years and most locations have recorded significant price growth, including double-digit annual increases in median prices across much of the Sydney metropolitan area.

This scenario has meant that owning real estate almost anywhere in Greater Sydney has delivered good capital growth.

But it will not be so simple moving forward. There are already indications that the Sydney boom is beginning to fade. It was inevitable that this would occur and it was most likely to happen in the third year of heightened market activity – i.e. during 2015.

Our latest analysis of sales data shows that there are fewer growth suburbs (in terms of sales activity) than before, which is an indicator that the boom may be fading. I do not expect any dramatic decline, but the high level of price growth of the past 2-3 years is unlikely to continue.

I note that other research sources, including BIS Shrapnel and National Australia Bank, have also forecast that the rate of price growth in Sydney will decrease over the next year or so.

Investors now need to be selective to achieve capital growth – and the best strategy is to focus on locations where spending on new infrastructure, particularly transport infrastructure, will be a catalyst to real estate demand. 

Currently, the outer reaches of the metropolitan area are the market leaders in Sydney. Penrith, Camden and Campbelltown – as far as you can get from the CBD and still be in Greater Sydney – have the most upwardly-mobile markets.

Some Top End suburbs remain vibrant. But, increasingly, we are seeing the biggest growth in the middle and bottom tiers of the market. This continues a process which evolved throughout 2014, with the millionaire suburbs a little less prominent and the more affordable areas rising. 

Western areas are prominent, including the far south-west of the Sydney metropolitan area where both the Campbelltown and Camden LGAs still have numerous growth suburbs, the Liverpool LGA and the Rouse Hill precinct in the far north-west. 

These are all areas which will benefit from infrastructure spending, including projects currently under construction and those in the planning stages.

In some instances, the level of new transport infrastructure is quite exceptional. Take the north-west precinct centred on the emerging growth region of Rouse Hill. This area is an obvious and direct beneficiary of the $9 billion North west Rail Link, now under construction. 

Currently the main transport link to this precinct is the M2 motorway, where a significant upgrade was recently completed.

Other accessibility improvements are being made with the upgrade of Schofields Road,linking Windsor Road at Rouse Hill to Railway Terrace at Schofields. The two-lane rural road will be transformed into a major east-west connection between Windsor Road and Richmond Road over three stages costing about $200 million.

Stage one opened to traffic in July 2014. Stage two should be complete in early 2017 while stage three remains in the planning phase.

Richmond Road has also undergone a recent $46 million upgrade.

The north-west region of Sydney will benefit from the M9 Orbital road, which will connect it to the far south-west of Sydney. The M9 will link Camden in the south-west to Penrith in the west and continue north to Windsor, a near neighbour of Rouse Hill.

The link is in the early stages of planning, with $4.6 million set aside in the FY2015 State Budget for a feasibility study on the construction of the M9.

The north-west region will also benefit from the NorthConnex motorway, the $2.6 billion project designed to address the missing link between the southern end of the M1 Pacific Motorway at Wahroonga and the M2 motorway at its Pennant Hills Road interchange.

Spanning 9km, NorthConnex will be the longest road tunnel project in Australia. Construction of the tunnel is expected to be completed in 2019. It was announced in February 2015 that Lend Lease had won the contract to construct the motorway.

These infrastructure projects are part of the mix that will make the north-west a growth market long-term, beyond the current boom.

TERRY RYDER is the founder of hotspotting.com.au. You can email him or follow him on Twitter. 

Terry was recently joined by Property Observer editor at large Jonathan Chancellor for a webinar on why research is the key to successful property investing in 2015. You can download slides and audio from the webinar here.