Sydney’s inner west continues to defy market odds

Close to the CBD and brimming with culture, trendy-chic shops and great restaurants, it is no wonder that Sydney’s inner west has quickly become one of Sydney’s most desirable living locations.

In general, Sydney property markets are in a period of consolidation (flat prices). The property market has weakened in 2011, with RP Data figures showing a decline of 2.2% nationally for the March quarter. For Sydney we registered a decline of 1.1%. More specifically, Sydney auction clearance rates have hovered around the 52-58% mark in the past few months.

However, the inner west continues to defy the odds and show strong demand. This can be attributed to the favourable buyer demographics – young professionals and investors. Many couples with children are choosing to renovate or upsize and remain in the inner west for lifestyle reasons, rather than relocate further out to suburbia. This has contributed to the gentrification of many pockets of the inner west.

According to Domain, Balmain East is currently the fastest-growing suburb for houses in Sydney, with median prices now at $1.9 million, and Glebe the second fastest growing suburb for units with median prices at $614,000. St Peters is third with a median of $494,000.

With forecast rising rental yields, investors are starting to buy into the inner west market, especially units. Sydney’s gross rental yield for units is now 5.01% and houses 4.38%, according to March 2011 APM data.

Australian Property Monitors’ prediction of top-10 best performers released in February 2011 included inner west suburbs of Balmain East, Breakfast Point and Leichhardt, all with 10%+ return forecasts.

Inner west houses are slated by APM for 6% growth this year (with places such as upper North Shore at only 3%). Inner west units are slated for 5% growth (with upper North Shore and northern beaches at -1%).

Development

With the current light rail planned extension adding nine new stops from late 2012 at Leichhardt North, Hawthorne, Marion, Taverners Hill, Lewisham West, Waratah Mills, Arlington, Dulwich Grove and Dulwich Hill interchange, the inner west will become even more appealing to potential buyers who are looking for an ideal work/life balance.

The inner west has been a bastion of stability in a Sydney market, which has generally deflated since last November. We haven’t seen double-digit growth here like we did in 2010, but turnover is steady – properties are selling. Buyers and sellers alike are achieving results, which are not the case in many other Sydney regions.

Top picks for hot growth spots

The following suburbs should continue to do well as demand for houses outpaces supply:

Erskineville, Newtown, Glebe and Lilyfield for units. Breakfast Point, Balmain (including Balmain East), Rozelle, Lilyfield and Newtown for houses.

With the rebound of CBD-based jobs and salaries for professionals, and increasing rental yields for investors, the inner west finds itself a shopping ground for a diverse set of buyers, fostering a steady and healthy property market. Owner-occupiers and renters alike are choosing the inner west for lifestyle reasons.

So, if you are on the lookout for your first property, or your next investment, here are five tips to help you along the way:

Know the neighbourhood inside-out. Inner west has many sub-pockets. Some areas are gentrifying and attracting professionals, while others are still run-down. Prices in one zone may be significantly different from another just two streets away.

There is a lot of new development in the inner west. If you are buying anything built within the last 10 years, do your research on the building! Many people assume that new buildings have fewer problems; in fact they tend to have more, due to the fact construction defects are still being sorted out. Despite required builders’ warranties, many are not honoured and lawsuits are common.

For units, look for features that appeal to gentrifying buyers: security, parking, internal laundry, large living space. A unit can be renovated, but key features cannot be added.

For houses, make sure you understand the details. No two houses are alike and there can be significant variation in price on one street alone. Factors such as aspect, high/low side of street, structural integrity, easements and zoning can affect value significantly.

Appraise the unit and make a fair offer as soon as possible. Given the negative headlines, vendors may be a bit more nervous than last year about selling and thus are more likely to accept offers before auction. However, the inner west market is still strong and the longer you wait, the more buyers who will be ready to compete with you.