PPOR sell or not to sell ?

Hi,

My husband and I bought a house 2 years ago in Panania (Sydney South West) at $490k.  It was under the FHOG scheme under my name (the Mrs).  We've pretty much paid it off now (sold an IP and some shares).  The funds are all sitting in the offset account so we can pull it out anytime.

We have decided however its too far out of Sydney due to work commitments (I got posted in the north for work) so am now looking for a house closer to the city somewhere in the Five Dock/Drummoyne area at a budget of $850k. 

I'd like to hear your thoughts on whether we should sell Panania (estimate sell $490-500k today) in order to put it into our new PPOR and not bear the cost of holding Panania.

Some considerations:
– Panania would cost $10k each year negatively geared after we take the cash out of the offset account, it will have an LVR of 80% to avoid the mortgage insurance
– we are expecting our first baby in October and not sure when I'll be going back to work and whether it will be full time, ultimately I'd like to be running my own business one day (something property related – mortgage broking, property development, property investing)
– we can use the equity in the PPOR for further investments, this time looking at neutral and/or cashflow positive

Its hard to walk away from the loss we would be making…. but we are thinking its better to cut our losses, take the lessons and move on

What do ppl on this forum think?  Is there any growth in Syd SW that would make this worth holding onto?

Thanks!!