My gamble on the Sydney property market

Hi all.

I've been looking to purchase a long term 3 bedroom house PPOR in Sydney's north/ Northern Beaches, mainly in the suburbs of St Ives, Frenchs Forest, Belrose and Forestville.

If you're wondering why these suburbs, it's because this my wife and I work in different parts of Sydney neither of which are accessible by public transport, and these suburbs allow <40 minute car commutes for both of us.

We have a budget of 1.7-1.8M, and could stretch to an absolute maximum of 2M.

We've attended a few auctions where houses sold for 200-300K more than we were prepared to pay, and are currently not actively looking.

We currently have 1.05M in cash, and a pre-approval for 1.1M.

So we have two choices:

1) Purchase what we can, for 1.8M to 2M. Houses in this bracket would have sold for 1.5-1.7M six months ago.

2) Continue renting and save for another 2-3 years and wait/hope for a correction

We sold our PPOR (an inner west apartment) last year and are currently renting an apartment in a great location where house prices are completely out of reach. We have two IPs, a house in Sydney's west and a townhouse in middle north ring of Melbourne. There is 910K total in loans for these two IPs, which are currently completely offset.

So for the first time in 10 years I am debt free. I currently pay 0 cents in interest, and repay only the principal for each IP, which went from negatively geared to the tune of 4-5K per property per year, to positively geared with estimated 15-17K income from each property per year.

We are in our late 30s with one pre-school aged child. I make around 240K gross and wife makes 170K. We can now save around 160-170K per year.

We're going for option 2. It's a gamble, because in 2-3 years we might find that prices have gone up more than our savings.

I'm guessing everyone here think it's a gamble I'm sure to lose, and that the 2M house that cost 1.7M six months ago will cost 3.2M in 2 years and I'll find myself priced out of the market completely.

If that were to happen and we find ourselves unable to afford a 3 bedroom house with a 1.5M deposit and 410K income in these areas, then we're off to somewhere affordable, most likely a state capital but not Melbourne or Brisbane.

I've often wondered what life would be like where I can buy a house for less than half of what they would cost in Sydney, but never found the courage to make the move. Even if I lose this gamble, there might be a silver lining in finally being forced to move to a place where I get more value for my money. We make good money but never lived like we do. And maybe being forced to move would allow a lifestyle we can only dream of in Sydney.

Thanks for reading this long post, and I'll try to keep you updated!

 

My gut (based off the current economic stats) tells me in 2-3 years you'll likely end up paying more than now or best case similar.

 

Unrelated, but what industry do you and your wife work in? Helluva dual income

 

I have voted for opt 2 however I don't think you will have challenges building a good nest egg given the incomes, discipline, current equity & savings and age being on your side.

You could always keep on renting and invest in shares or more leveraged prop with a good yield but you have choices. However, I very strongly believe that prop values in cap cities will be much more higher than now in 3 years - I would hazard c30%-40% higher.

I don't think uprooting yourself and your family with possible switching your employer and all that trouble just to own a house is worth the effort, given you are renting and quite set financially - I would stay put where you are and just keep on investing or buy a new PPoR now. Then re-asses strategy in another 3-4 years.

 

I'm a doctor and wife works in the pharmaceutical industry.

My job is more flexible as I could work just about anywhere, but she works out of the Macquarie Park hub where all the pharmaceutical companies have their Australian headquarters. But even as a doctor I find it takes 2 years to get to know my patients and would prefer not to move jobs unless I was forced to.

 

With such a high income I'm not quite sure why you feel the need to take any gambles. Just do what you want. It's not like you don't have IP's and are sitting on the sidelines. Your reasoning behind it all is a bit odd, personally speaking.

 

That's a scary prospect. Isn't the average Sydney house above 1.2M at the moment? 40% increase would see the average Sydney house just under 1.7M which would be about 17x the average household income.

If that were to eventuate, then Sydney will be unaffordable to us and we would leave and not look back.

 

We went to an auction for a 3 bedroom house with 2 bathrooms and a car port on a busy road, with a guide of 1.6M and it went for 2.25M.

So far, any houses under 1.8M in the area we like are dilapidated and in need of major reno.

Current asking prices are 300K more than they were a few months ago. And you're wondering why we aren't buying now?

 

If you think the market is overpriced, ok that's fair enough. As long as that's really the only consideration.

 

Not sure why you are limited or limiting yourself to 1m loan on 400 income, but if you think it’s overvalued and will fall, make the bet. You can probably save enough and have other property assets to mitigate some of the risk. But you might miss out on the cgt free ppor.

You are also betting on being willing to buy in a few years IF it falls back. That’s a big ask for anyone. What were you thinking in 2018 and 2020 then?

 

Did you ask for advice on your situation from the fellow PI forumites or did you really intend to restart a new argument about the 'scarier' prospects of prop values? If the former, then take the advice that you are getting with a thank-you note and be gracious about it and then do what you think works best for you - if the latter, then start a new thread or continue on with the similar ramblings you went on in the earlier thread..

 

Dont think there are any new arguments or viewpoints to this. Other people have different views on what is risky and how to invest.

Take a chance either way. No one can predict the future. At least with that income and the other assets your choices are much broader.

 

i agree with Trainee's comments above.

If a doctor and a pharmacy wife cannot afford a house in Sydney, then there is something really gone wrong ..

I have a feeling it is not Affordability you are wrestling with but the fact that you feel pained having to pay for the extra price increase ??

Don't forget 2 things: 1. You are in a stable profession; in fact salary should only increase from here...

2. Not sure if you move away from Sydney, will you have the same high demand salary ? (esp. wife)...

3. The answer to 2. will help answer if you need to buy in Sydney; if so, i will bite the bullet and pay ; after all based on your salaries, you will quickly make back the differential...less than 2 years?

You must recognise that yours is a very different scenario from the norm; good luck!

 

Your situation sounds a lot similar to friends of mine that just recently purchased at St Ives for $2.5m. It seems to be a great buy compared to other recent sales.

Your budget seems a bit low for that area and that is unlikely to change. Probably suggest you up the budget and increase the buying effort.

 

My gut feeling is we won't have the same increases in Sydney in the next couple of years that we've seen in the last six months , but I expect Brisbane to boom . ( it hasn't in the last 10 years ).

There was a member who bought multiple cheapies in Geraldton in the preceding boom , sold them and then paid cash for a house on the Northern Beaches before she was 30 ( or so I recall ) .

You could do the same if you geared in Brisbane at the moment , but remember the middle in Brisbane has moved .

We did the same in the last cycle . Cheapies in Logan / rockhamptom and now have a house in turramurra and a waterfront weekender in port stephens . We do have mortgages on them , but those are LOC's to pay for the deposits on our current round of buys in Brisbane and Tasmania . Otherwise we'd be debt free.

Cliff

 

You're in a great position. $1 million in cash, 400k household income and 2 IPs. Do whatever makes you feel comfortable.

 

@poby I am currently rentvestor with rentals offsetting my live style rented property in Sydney in a great area. My income is nowhere near your level and my wife is working 3 days a week. At your kind of income, I think you will do a lot better financially and lifestyle wise by rentvesting by buying high return and high growth upcoming markets and rent something decent that matches your lifestyle and work location. Don't get to hung up on owning your own place. There are multiple ways to achieve your lifestyle goal. Owning an expensive ppor a liability down the track to create greater wealth.

 

An alternative is for the both of you to work for the next 10 years, invest your savings into stocks etc and have the option down the track of buying a bling PPOR or retiring early.

 

Part of the reason why I don’t think prices can go much higher is the affordability .

have relatives wanting to be able to buy on northern beaches and have been looking for a year . Were looking at low 2’s , now around 3 and they need a top up for a deposit from a parent to help them make it and they’re on good incomes .

cliff

 

Ditto.