Sydney outer ring vs inner suburbs

With recent price data showing strong divergence between outer suburbs of Sydney and inner suburbs of Sydney (down 5-8%) in regards to recent performance.

If you had to buy in Sydney (gun to your head ), WHERE do you think will have strongest relative price performance over next 5 years in a falling market.

Inner city Sydney property prices slump

Place your vote PC members!!

 

If inner ring didnt hold up better than outer ring I'd be very surprised.

 

yes history would certainly suggest that... Will be interesting to see how the price action unfolds and what the time-lag is with inner city dropping first .. .

 

Blue mountains

 

Hmmm yes perhaps I should have had more categories... What's the appeal of Blue Mountains for you that will buffet it from falls?

 

High winds and hand rails?

 

LOL

 

Wow a lot of people not caring... too easy a question perhaps?

 

I would guess inner ring overshot more at peak so is seeing the bigggest initial drop. I would say if as a whole we have increasing prices then outer ring will perorm better as it is set to gain from infrastructure and increasing desirability. On the other hand if we were to see a crash of sorts outskirts will cop it the worst, far flung new estates could see values cut in half as folks with negative equity hit the wall and forced sales in a time of little demand.

 

Yep the inner city could just be a leading indicator for outer suburbs... More discretionary spending etc.

 

Sydney is a massive place with so many different sub-markets. Generally speaking areas more prone to mortgage stress will suffer more when markets turn (outer areas).

There's the countries largest ever infrastructure boom happening in Sydney over the next few years, this has a fundamental increase in values of certain pockets of land. Some of this will impact positively in specific pockets. Add to that a very motivated government, cashed up incentives for councils to get moving & a clear affordability initiative, there's scope for big $$$ to be made IMO for those with very specific assets for property investors with big risk profiles.

I'd bet if you could buy serious land content in Canterbury 250m from the Station or very close in @ East Rhodes - you'll likely make more money in the next 10 years than median growth rates in every major capital combined. Actually, plenty of plots around NSW metro will do that are a little behind in the planning phase compared to stage one of the metro completion in Norwest.

You can look at very specific blocks of homes in Castle Hill who currently have offers on the table 300% more than the market value of their home as evidence of what can happen following an infrastructure spend (700sqm homes with 6mill offers!). Or Kogorah in Sydney's south where houses will turn into high rises over the next decade. Or in Canley Heights where this has already happened relatively recently (last few years). There's so many examples in a city this large. Look West, Outer West, East, South, North, etc - there's scope all over the place (22 Mcilvenie St, Canley Heights, NSW 2166 - Property Details vs 23 Ascot Street, Canley Heights, NSW 2166 - Property Details - what 500m in distance & a few friendly neighbours can do to price!)

Simply, an infrastructure boom this big is an opportunity goldmine. If the sheep start running the other way may present some very good buying opps too.

Sydney is massive & there's plenty of ways to make $$$ here in a market where median prices may generally fall. If your doing a simple Buy and Hold for a unit purchase and accepting a 3% yield in an oversupplied area, you may be in a bit of trouble. You'll need to tweak your strategy, have some serious play money & accept a higher risk profile. If you buy the right asset, you could do far better than other areas/cities.

 

Redom - why do you expect more mortgage stress in outer areas. I imagine wage to house price ratio would be relatively similar across Sydney?

 

They're more likely to have overstretched themselves in the first place. Lower socioeconomic status's, more prone to changes in conditions, etc. Also a general greater % of mortgaged households there. 30 odd % of households aren't mortgaged in Aus, those rates will be higher in affluent inner areas and lower in outer areas.

Also, doing some basic maths - assume you use 50% of your income for housing (very high multiple). In outer western areas this leaves a smaller absolute $ amount. In inner areas where medians are triple the value, the same % of income being used on housing still leaves a relatively large $ amount left for other expenses. Other expenses don't actually cost THAT much more in different parts of Sydney (other than housing, e.g. fuel doesn't cost 200% more, etc)

 

have you found a way to short Sydney yet ...

Cliff

 

It's a law of investing.

Low yields are a result of speculative investing. What goes up as a result of speculation, always comes down at the same speed.

Bottom line: Suburbs where yields are lower or in other words have greater holding costs will suffer the most.

Three investments:

A: $800k House in Blacktown, rent $500 pw
B: $1.5m House in Castle Hill, rent $700 pw
C: $2.5 m House in Lane Cove, rent $1000 pw

Most likely, it will hurt more to hold more expensive properties which happen to be in inner rings.

Also, both market recoveries and market collapses always start from the inner rings.

 

A friend bought a run down house in Rhodes in 2012 with the intention to build PPOR there. I think they paid $1.1 million for the house but could never get around to start the build.

They have just been offered $3 million for that house which has been renting out to international students for $500 pw since nobody else was willing to live in there.

 

Gees all the big banks are jumping on board in a rush to downgrade Sydney....

What interesting is foreign buyer levels are noticeably lower in NSW than Victoria...

Overall, foreign purchases of new housing fell to 9.5 per cent of the country's total, a five-year low, the NAB report shows.

"Lower foreign buying activity in new property markets was led by Victoria, where the share of sales to foreign buyers fell to 14.4 per cent (from 20.8 per cent in Q2)," the report said.

"Foreign buyers were also noticeably less prevalent in NSW, where their market share fell to 7.8 per cent - its lowest level since Q1 2012 and down from 12 per cent in Q2. The proportion of foreign buyers in new property markets also fell in WA to 4.5 per cent (6.9 per cent in Q2). In contrast, foreign buyers increased their market share in QLD to 11.4 per cent (8.6 per cent in Q2) despite the introduction of a foreign investor land tax surcharge in July 2017."



Read more: NAB cuts Sydney house price outlook, upgrades Melbourne
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While I agree with Redon above that once all is said and done more stress and defaults will occur in outer rings...

Any idea why the big market moves start in the inner ring? Is it smarter money, more informed?

 

I'm not surprised by this. If the current downturn was caused by economic fundamentals -- rising unemployment, interest rate hikes, sharp fall in immigration etc -- then you'd expect the housing market in the poorer socio-economic areas to suffer most. But this is different, for now at least. It seems to be the slow deflation of a classic speculative bubble, and history shows that speculative asset bubbles do not require external shocks to burst but will eventually do so of their own accord, when they have exhausted themselves. Sydney house prices simply could not rise much further, and APRA was the final straw.
In the outer suburbs, FHBs are propping up the market for now. In places like the Inner West and Eastern suburbs, house buying is more discretionary: potential buyers deciding to stay put where they are (if they can) rather than upgrade.