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Sydney land release could spell disaster for investors

New land releases in a capital city’s fringe, aimed at reducing housing undersupply and affordability issues, could hurt investors in the region.

Investors pushed out of Sydney’s inner and middle ring have been warned against rushing into new land releases in the city’s outer suburbs.

The warning comes as the NSW government last week announced the staged release of new land in Sydney’s south west, with up to 35,000 new dwellings expected to be constructed in the coming years.

Describing the release as the first major land release in Greater Sydney for a decade, NSW planning minister Rob Stokes heralded the number of new jobs and infrastructure it would create.

“We will create vibrant new communities with new homes close to jobs, transport, shops and recreational areas. Through good planning, we will also ensure we maintain the rural lifestyle and heritage of the area,” Mr Stokes said.

The land being released falls south of Campbelltown, and will occur in three major stages.

Construction in Mount Gilead is expected to commence within the next two years, with the commencement dates for Menangle Park and Wilton Junction unspecified.

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Despite welcoming the announcement, Christian Sharpe, director of Combined Real Estate Camden and Narellan, cautioned investors to consider development plans in full before making a purchase.

“It all comes back to the infrastructure and what the plans are for those things. I think it bodes well for the area overall […] we are just waiting to have a closer look at the detail to get a handle on what it bodes for the area as a whole,” he said.

Mr Sharpe stressed the importance of establishing local employment hubs to reduce the pressure on existing transport links, raising concerns that the rate of housing construction would outpace infrastructure development.

“I’m a bit skeptical about planning in the south west of Sydney sometimes, in my opinion we've never been very good at planning. There have been some better developments […] which I think they did a very good job with, but there’s also a lot of other ones that I think you could be very negative towards,” he explained.

He used the example of a previous development where investors had been burnt by unrealistic expectations.

“Using Menangle as an example, we were selling land 10 years ago in that precinct and I know a lot of investors bought up tracts of land in that area with the expectation that that was all going to become business hubs over a decade ago,” he said.

Despite these concerns, a highly controlled pricing environment means that the land release won’t have any negative impact on values in the region, according to Mr Sharpe.

“Even in the markets right now as we speak you could pretty much nominate any of the estates running down from Camden Valley way from Leppington through to Camden, they've been drip feeding them in," he said.

“Essentially, as they develop they release 20-odd blocks at a time. They’re even basically treating them like auction terms now, where you can go on a list and they contact you and ask you what you’d be prepared to pay, and if you’re in the highest batch then they come back to you and make you an offer on the block. So they’re not even setting real prices on the land.”

The pace of building approval in some developments in the region has resulted in investors on-selling their properties to generate a faster return, Mr Sharpe said.

“There’s been a number of people who have been on-selling blocks because by the time they buy them, registration comes around, the land goes up by $100,000 minimum even before anyone’s been able to start building in these new estates. If the margin is in the land, to a lot of people there’s not much point in going through the process of building the house,” he said.

Buyer’s agent Kevin Lee predicted that road infrastructure in the Campbelltown area simply would not cope with the increase in population associated with the land release – limiting the areas future growth potential.

“You put another 35,000 houses down there, you've got an average of two adults and a child or two and those children or two become teenagers, and then you have four cars. So you could have an extra 60,000 cars a day wanting to get in and out of that area.”

He advised investors to seek renovation opportunities in other areas rather than pursue new-build opportunities.

“I’d be buying an existing house somewhere, probably in the outer suburbs, that needs some renovations. I’d be looking at what everybody else is paying to take advantage of that. Because those house and land packages, they’re full of profit and costs,” he said.

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