If Sydney property prices fall, will that affect other capitals?

Discussion in 'Property Market Economics' started by GalacticExplorer, 19th Jan, 2017.

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  1. GalacticExplorer

    GalacticExplorer Well-Known Member

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    This is a question I have been pondering for some time now.
    If say, the Sydney median declines by 5-20% etc within a fairly short time frame, will that drag down the other capitals?

    This makes sense as property across a country can move in a domino effect in a significant downturn/correction.

    However, most of the other capitals have *just* not boomed all that much or at all. E.g. Adelaide, Hobart, Perth, Brisbane etc

    Do you think we will have some contrary movements? E.g. Brisbane and Adelaide prices rise or don't drop if Sydney or Melbourne prices drop.


    If contrary movements are the case, then it would seem advisable to split one's property portfolio across A-grade property in different capitals. What do you think?

    My current plan is mainly to accumulate capital, though will have some significant capex this year. You can never have too much capital. Among the last 2 properties I purchased was in Sydney in 2015 and 2014. Currently in the process of developing a unit in Balmain. The latest Bijou development in Balmain sells for 14-18k per square meter, and that's no car space.
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    Depends on the cause of the decline.
    If the effect is local - eg Sydney suffers major bogan uprising and all businesses leave the city and move to Melbourne, then Melb prices will boom.

    Or if the cause is national/international - eg interest rise 5% in a year - it will affect across the board, particularly cities where people have borrowed heavily and are on the edge of the serviceability.


    The Y-man
     
    Last edited: 19th Jan, 2017
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  3. Marg4000

    Marg4000 Well-Known Member

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    I would not be relying on a domino effect, either to increase prices or to decrease them.

    Many people expected Brisbane to "boom" following hefty increases in Sydney and Melbourne markets. Though prices have risen gradually, Brisbane has hardly "boomed" just because other cities did. And Perth is marching to its own drum.

    So, in short, the answer is " not necessarily".
    Marg
     
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  4. Scott No Mates

    Scott No Mates Well-Known Member

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    It will be the end of the world as we know it.

    Provided that monetary policy doesn’t tighten significantly, it could mean happy days.
     
  5. GalacticExplorer

    GalacticExplorer Well-Known Member

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    Inner Sydney units are selling for sub 3% yields. I am tempted to sell something. But taxes and transaction costs. And I have a buy and hold strategy. "Buy and never sell."

    After selling, and accounting for transaction costs, its questionable whether or not the net value I would be adding is enough.
     
  6. JDP1

    JDP1 Well-Known Member

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    If sydney tanks, it will likely take melbourne with it...at least in the short term- despite melbournes strong economy; punters will apply a broad brush categorising melbourne in the same basket as sydney.
    Brisbane and adelaide will be steady. Downwards forces property wise, but improving fundamentals and economy will see brisbane afloat...adelaide also likely afloat due to cheapness ( opportunistic buying) as well the disproportionately large government workforce in Adelaide in particular. Brisbane too has a large state govt and social service workforce- supported by a labor govt.
    Perth will be smashed- median prices will correct to where they should be - and thats somewhere between adelaide and brisbane.
     
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  7. peastman

    peastman Well-Known Member

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    [​IMG]
    I think this graph shows capitol city prices move mainly independantly from each other, but there can be some co-relation, sometimes.
     
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  8. See Change

    See Change Well-Known Member

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    When Sydney stops " booming " it will come off slightly , simply because the competition isn't there for individual prices .

    IMHO brisbane's about 5-6 years behind Sydney cycle wise so a gradual increase gradually building up to a boom is what I'd expect .

    Cliff
     
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  9. Perthguy

    Perthguy Well-Known Member

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    I don't think so. Perth is already bottoming out and doesn't have much room to go lower - people simply won't sell. Some Perth property owners are already holding off selling until prices increase.

    Brisbane and Adelaide have not boomed and prices are far more affordable than a typical Sydney property. So even if Sydney declines by 5-20%, it will still be out of reach for many. Those buyers may move their funds to Brisbane, Adelaide and Perth, resulting in price increases in those markets. Don't know about Melbourne. I thought it was cooked a year ago but it seems to keep on keeping on.
     
  10. zed_kid

    zed_kid Well-Known Member

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    You and me both. I sold Nov 2015 thinking it’s been a good 3 year run, but nope 2016 had more growth. I take solace in the fact I sold an apartment (although it was a nice big 3beder) and looking for a PPOR house as I’m in that age bracket of 30+ and it’s time to settle down. Timing wasn’t perfect but not bad.


    Its markets within markets though. For example Moonee Ponds didn’t move much in 2016 but Ascot Vale went up 12% and now they’re about equal price wise. Moonee Ponds is a nicer area so I’m looking for a PPOR in Moonee Ponds as I think it’s ‘undervalued’ compared to Ascot Vale / Coburg. Even Pascoe Vale is approaching $1m, bigger blocks though. Anyway, my 2c
     
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  11. GalacticExplorer

    GalacticExplorer Well-Known Member

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    Interesting graph. It appears there is an extremely vague linear correlation. But I would agree that Perth, Adelaide, Hobart and Brisnane would not go down as much if Sydney prices were to drop.
     
  12. gman65

    gman65 Well-Known Member

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    Worth taking a look at the document here: Core Logic Housing Affordability Report and then factoring in say a 2% interest rate rise. The higher the debt, the higher the impact such a rise would have.
     
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  13. Whitecat

    Whitecat Well-Known Member

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    Partly it does.
    What it shows for the 3 major capitals is strong correlation over quite a long time period. What it also shows is a change to that strong correlation for Brisbane. A gap that is uncharacteristic.
     
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  14. Propertunity

    Propertunity Well-Known Member

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    Me too. :)

    .....and nobody can pick the timing right 100% of the time. Who'd a thought SYD would do 12+% in 2016 when all the so-called experts were predicting a bursting bubble?

    If you never sell, you never have to think too much on these things.
     
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  15. MTR

    MTR Well-Known Member

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    If interest rates continue rising all markets will be impacted negatively as this is a major trigger for market sentiment changing
     
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  16. zed_kid

    zed_kid Well-Known Member

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    But then what’s the point?
     
  17. Propertunity

    Propertunity Well-Known Member

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    The point is that if you never sell you never make a timing error or incur CGT etc. (retirement planning excluded)
     
  18. GetRIDof5CENTpiece

    GetRIDof5CENTpiece Well-Known Member

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    But why are they rising... and don't say to curb housing affordability concerns.
     
  19. MTR

    MTR Well-Known Member

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    its all to do with the cost of money, I am pretty sure its been mentioned many times, I don't know exactly the mechanics of it, but its costing banks more so its passed on to clients.
     
  20. CK_Invest

    CK_Invest Well-Known Member

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    because banks fund both locally (aussie bonds/notes/local deposits) and offshore (e.g. in USD)

    when US treasury yields go up (e.g. like we saw post trump being elected), so does the implicit cost of funding for aussie banks as investors wishing to purchase aussie bank bonds in USD need to be compensated for the additional credit risk (from the bank) over equivalent US treasuries ("risk free")

    this then eats into their profit margin when issuing loans to folks like me and you :)
     

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