Sydney cbd apartments. When will the bottom be?

I'm paying too much rent living in an apartment in the CBD I'm keen to buy a one bedroom but trying to consider timing.

How much will the oversupply affect apartments in the Sydney cbd? There seems to be high demand for cbd living and rents don't seem to have dropped that much? How much does the oversupply affect the CBD itself - which is pretty dense already? Eg for comparison I wouldn't be buying an apartment in Campbelltown right now.

I'm renting a dark studio the size of a one bedroom (seperate kitchen/bedroom) with a car park for $580 near world Square. That's $30k year in rent which is quite a bit for me. Seems wasteful. I'm in the position to buy a cheap one bedroom in the cbdu But having said that, if the prices drop further, throwing away 30 grand a year in rent may actually not be so bad.

Thoughts?

 

No it's only going to get worse.

Maybe sit on the sidelines. 2025 seems like a good year.

 

I don't think "too much rent" is ever a good excuse to simply buy in an area. Like you mention, it might be nothing compared to leveraging up to buy a falling asset.

 

I agree leveraging into a falling asset isn't a good idea but almost two years of falls I'm wondering when prices will stop falling.

 

Maybe it will be a long flat period? If you had the mentality to not expect gains .... Would you still buy? Check out the strata costs too.
I suppose the good thing about Sydney is that it's a very popular place, and there should always be tenant demand.

 

Yes I think there will definitely be a flat period. I think in a flat period it makes sense to buy rather than rent perhaps? Idk?
And yes I would only get an old one with very basic amenities and low strata. Nothing 90s or newer as in my experience that's when the quality started to drop

 

So here is the breakdown:

$30k rent a year = P&i repayment of a loan of $600k at 3.8% over 30 years.

Owning an apartment you also need to pay for Strata, Council, full water bill, electricity, Gas. Which should equals to approx an extra $10k per year on the Conservative side.

So you can now do your research if you can find a unit within the CBD that you can buy with a loan of $600k plus the additional fees associate with home ownership.

 

Live where you wish..........invest where it's best. Maybe continue to rent your lifestyle where you are and invest in something with more land component somewhere else. Also, do you need to be as central as World Square? Could you go out a suburb or two, say Darlinghurst, Surry Hills or nearby if rents are slightly cheaper there?

 

Saying that the rent is expensive doesnt mean anything unless you compare it to the cost of owning plus opportunity cost of the deposit / serviceability.

 

I think the rents just out of the city are quite high too.

 

Consider the alternative - you're not paying rent (no longer a $30k expense to the LL) but you are up for the costs of ownership (rates, taxes, levies etc). The interest component is the only variable which is an expense - the capital repayment of P&I is still yours as equity.

If prices keep dropping, the principal repayment is going part way to reduce the gap between the market value & what you paid, if prices move the other way it is all equity.

 

According to stats by HIA starts have been at near-record highs since about 2014, peaking in 2017 (when we began over 234,000 homes). According to BIS Shrapnel, we need 150,000-165,000 new homes annually to meet then record-high investor demand, and ordinary buyer demand (this also included rapid population growth). Supply has been accumulating because construction is at all time highs, and far higher (especially in the apartment sector) than we need. This is exactly the problem we had in Ireland. Buyers just don't bid up prices if they can get identical products in surrounding suburbs for cheaper. It's supply/demand basics.

 

dont tenants pay these already? i would not consider these as incremental cost.
i would also disregard the "P" in P&I repayments as incremental cost because you're owning an asset in the end. it's a form of forced savings and not comparable to rent.

 

Go a tiny bit further out to Potts Point or Elizabeth Bay. There will always be demand, the amenities are better than the CBD and the very small areas (that are pretty much fully built up already) makes it about as safe as possible for an apartment purchase. You can get some really nice historic buildings there too. I used to live there and could walk to work in the city in 20 minutes.

One of the big REAs in that area published an article earlier this year claiming that values have actually increased here recently but I haven't verified the data.

Edit: the article is here - Strong Capital Growth For Units In Elizabeth Bay

 

Sydney CBD unit will never be run out of tenant.

If you've ever seen any open advertisement in the Gum tree or in the street post, people will still be living in the overcrowded apartment due to proximity to cash in hand job.

 

Yes the demand is there for sure. I know who you are referring to. 3 to a bedroom. I meet them a lot. Not sure about timing on pricing though. It's for ppor

 

Well, that's a different question.
At least, try to avoid some apartment where it is being used for an overcrowded stay in the CBD.
Because that will be costing you higher maintenance fee and some other disturbances.