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Is Greater Western Sydney the Gold Mine it’s Spruiked to be?

Is Greater Western Sydney the Gold Mine it’s Spruiked to be?
April 24, 2013 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Gold is rare because it’s not found everywhere. And yet, if you listen to some in the property investment industry (often those whose income depends on a particular ‘scheme’), you’d swear there was a glittering new gold mine discovered every other day. There are some who have been giving Greater Western Sydney the gold-plated sales pitch. So is this densely populated and diverse region of Australia’s most expensive city really worth plundering for profit? Let’s replace the spin and wishful-thinking with objectivity.

For Greater Western Sydney (GWS), which takes in 14 local government areas (LGAs) as far west as the Blue Mountains, the hype is all about population booms, better housing affordability, and major infrastructure projects in the pipeline. While there might be some truth to these tales, the only story that ever matters is: how will this influence property values?

It’s densely populated and demographically diverse.

A whopping 9 per cent of Australia’s total population (that’s one in 11 people) lives in GWS. If you put all the people from South Australia, the ACT, Tasmania and the Northern Territory within its borders, you’d still fall short of the 2.02 million people who actually live in the region. And that 2011 population figure is increasing by 1.6 per cent a year (above the state average of 1.1 per cent and the national average of 1.4 per cent) so that by 2036, it’ll be tipping the 2.96 million mark.

The region is demographically diverse: around 35 per cent of the region’s population was born overseas, and 37.3 per cent of all residents are aged 24 years or younger.

Crime is a significant factor too. Half of New South Wales’ recorded incidents of ‘discharge firearm into premises’ were recorded in GWS in 2011, according to a report from the state’s Bureau of Crime Statistics and Research.
It’s no wonder then that GWS is a political battlefield in the lead up to every federal election as both sides of government attempt to buy votes with (broken) promises ranging from reducing crime to easing traffic congestion to creating jobs. For certainly these are some of the greatest problems facing what is the most densely populated part of our country.

The economy and employment aren’t real rosy.

The region’s gross regional product in 2010–11 was $95.6 billion, accounting for one-third of the entire Sydney Metropolitan GRP. Manufacturing made up 16 per cent, which is quite a worry when the Aussie dollar is so high. A fifth of all businesses are in the construction industry, and some big multinationals including BHP Billiton, Coca-Cola, and Qantas have a presence in the region.

GWS’s median household income is well below the national average and unemployment is significantly higher. Jobs for white-collar professionals are light-on. Accordingly, a lot of people have to commute out of the region, which puts strain on the region’s roads.

By 2036, when the population is nudging the three million mark, forecasters project the region will need an extra 450,000 jobs. Already there’s a jobs deficit of 182,000, which is expected to grow to 290,000 over the next 25 years (according to the Penrith Business Alliance’s Metropolitan Plan).

In 2011, 12 per cent of Sydney homebuyers and 25 per cent of renters were experiencing housing stress. These figures are higher for low–middle income earners, and eight of the 10 worst affected areas are in GWS.

Housing is more affordable than Sydney metro, but some of it’s a bit misguided.

Since Sydney Metro has the most expensive housing in Sydney, a lot of locals look to GWS to invest because it offers a considerably lower entry price and a higher rental return. Interestingly, granny flats are at almost plague proportions, especially in the Penrith and Blacktown LGAs. Some investors think granny flats are a great way to generate a dual income stream, and the NSW Government supports granny flats through its Affordable Rental Housing State Environmental Planning Policy. But lately there’s been a rise in the number of property valuers not supporting purchase prices, and banks are also being more conservative by limiting the amount they will lend for these purchases or not recognising the dual income stream.

I’m not a big fan of granny flat properties – not just in GWS, but across the board. Granny flats can be a triple whammy. High initial purchase price, extended vacancy rates (because not everyone wants to live with someone else in their backyard), and a restricted resale market (because 70 per cent of buyers, the owner-occupiers, aren’t real keen on the set-up) can combine to give the investor limited capital growth. Others may (conveniently) overlook these important investment fundamentals.

Transport infrastructure is appalling.

While Sydney’s 2000 Olympic Games was a roaring success its infrastructure planning was deplorable at best. The city has never recovered. Transport routes in GWS are the least efficient in Australia and will get worse as population grows.

Infrastructure upgrades have not kept pace with population growth. The rail network has not been significantly expanded since the 1930s, yet the region’s population is now five times greater. So the region relies heavily on passenger cars, adding to traffic congestion, fuel costs, poor air quality, and stress-related health issues. Not surprisingly, people aren’t keen to cosy up in places with such financial and emotional stressors, and potential property investors would soon see the results of this in their capital return.

Education and social infrastructure are sadly lacking.

GWS has the University of Western Sydney (36,000 students), Western Sydney TAFE and South Western Sydney TAFE. The region has a high proportion of low income families and staff shortages are a major issue for its early childhood centres. High school retention rates for GWS are the lowest in the Sydney Metropolitan area, sitting at 69.5 per cent compared with 95.2 per cent for Northern Sydney.

Western Sydney’s Urban Frontiers Program: A new vision for Western Sydney – options for 21st century governance (April 2002) probably best sums up the social infrastructure: ‘Decades of under-investment of policy and fiscal resources in Western Sydney by successive State and Federal governments have left many of the region’s cultural, social and environmental needs unmet. The legacy of this undernourished development includes mounting social and environmental problems, including hardening pockets of poverty and social exclusion, a dwindling and fraying public sphere and ever increasing ecological stress.’

Major projects are stalling at the starting gates.

GWS’s infrastructure problems are dire and a growing population continues to accentuate the problems. Decades of state government instability, poor planning, and limited funding continues to prolong the chaos for GWS residents.

Take the North West Rail Link, first proposed back in 1998 and redesigned a few times since. The O’Farrell Government has declared the latest design (a 23 kilometer line from Chatswood to Riverstone, including eight new stations) will commence late-2014, but doubt remains and there’s (still) no federal government funding for this project, which some say could cost as much as $10 billion. Or take Westconnex, a proposed $10 billion road project to extend 33 kilometres of motorway along the M4 from Parramatta to Sydney and unclog arterial roads around Port Botany and Sydney Airport. Planning is not finalised, federal and state governments don’t see eye-to-eye and funding is not in place so the 2022 completion date is dubious.

So where does this leave us?

I personally wouldn’t recommend GWS to my clients now or in the foreseeable future, but what I would recommend about GWS—and every property investment opportunity you’re ever presented with—is to push past the glitter to see what really lies beneath. You’ve got to go in with your hard hat on, get your hands dirty and be prepared to drill down into the details to determine the real and potential impacts on your capital return. Because sadly, all that glitters is not gold. And it’s not called fool’s gold for nothing, folks!