NSW Sydney Price Correction 2019 - post examples

Have to agree with John that's a terrible spot and a good example from what ive seen of the property type which has been most affected by the downturn.

John,

Do you see flatlining from here for a number of years or will we see some price inflation?

 

My view is that either rents have to go up or prices have to go down to be sustainable.. otherwise most people buying are 20k+ out of pocket with negative yields not including potential repairs/ maintenance... I'm not sure who these people are but that doesn't seem sustainable even with negative gearing tax offsets.

 

Sydney is a completely different beast and it has amazed me that how yields become irrelevant for some people. I went to an auction in Pennant Hills last year where a Sri Lankan couple (husband surgeon, wife well known GP) outbid everyone and easily paid $200k over what I thought the place was worth but people pay top dollar for a house they want to live in. Except it turned out later that this house was an IP and was rented out at $1000 p/w (purchase price $2.1 million). Now while this looks like a poor buy, they probably earned a million dollar a year between the two and could easily write off losses from a very large tax bill they already have.

Sydney is definitely not for the beginner investor but still plenty of established investors who don't care about cashflows or yields in the short term.

Another segment is short term investors or syndicates. While many have lost money in last 1-2 years, Sydney has been a sure bet for a long time. They buy a property for $1.5m, may be spend $50k, hold it for 12 months and aim for 10%+ margin after costs and this bet becomes even more fruitful when you bring in 50% CGT tax concession. This strategy is very appealing for someone paying top marginal tax on their income and have excess cash or equity available.

 

I see a short bounce from here just due to the looser credit.

There is still a lot of supply that needs to be worked off this year, so the rebound will be slow at first, and then very sharp. We will swing from excess supply to supply shortages within about 2 years, which is quite quick.

A lot of damage has been done over the last two years, which will lead to sharply higher prices in the next couple of years. I would think that between 2021-2025 we will be talking about a bubble again. The damage over the last two years was caused by the simultaneous convergence of:

- Credit was completely choked off, while simultaneously interest rates were left at "emergency low" levels.
- New construction approvals have fallen off a cliff.
- record high population growth continued.

Now that the election is over, I would expect significant intervention to prop up the housing market - and they could well over react. I would expect efforts to prop up real estate to come at the expense of the value of the AUD, which is partly already expected by the markets. We'll see.

 

I hear you. Sydney is not a market for yield.

But two things on yield:

1) yield is not an absolute concept - yield is high or low depending on the interest rate. The interest rate is the hurdle to deciding what an acceptable yield is. So yes, yields are low, but so is the interest rates against which yields are measured.

So when people talk about the Sydney yield being too low -the answer is, "compared to what"?

2) Yield also measures "risk". If you are chasing yield you are simultaneously chasing risk. Sydney is low risk, because it has a number of factors (demographic, economic, geographic, political, cultural etc) that make it a very low risk market to invest in. The lower yield and lower risk profile of Sydney is broadly justified (to a point)

 

For investors, yes.

i dear say owner occupiers/home owners have an entirely different view and obviously aren't worried about yield. Hence why if you buy this stock and not run of the mil investor stock you will be ok.

Sentiment in this demographic will change and swing back shortly as people can start to see value, sell & upgrade PPOR's etc. Remember something like 70% of the population only own 1 property so assessment rates don't affect as much. And away we go again

 

I'd say owner occupiers are in the same boat since wages aren't rising, how is that going to drive higher prices?

 

In my opinion, Investors (whatever that % is lets say 30% if that) are looking for a return, be that in yield, speculating CG, or even just a storing of wealth. far less likely to over pay or have emotion in the deal. And a good reason why investor stock or lower socio economic area's full of renters feel the dips in value more.

Precisely why i aim to purchase in 70%+ owner occ area's being the opposite, owners looking for a PPOR will pay a premium for the house they want, in the location they want, be that a school, cafe, work etc.

2 completely different groups with motivations that are certainly not in the same boat. And partly why i agree with John on Sydney being very close to the bottom in a bunch of suburbs.
Maybe not Sydney as a whole, but you dont just buy Sydney, you buy a certain type of property, in a certain suburb, in Sydney.

 

Chinese know this and hence why they are no where to be seen. Why pay $2K a month without a reasonable prospect of capital gains.

28 years of largely economic growth. Now we are entering a recession.... those who say yield isn’t important have never seen a down cycle properly.

 

overseas investors have also had that new rule put in place that comes in in July? Possibly another reason why.

 

NOTHING is ever static.

Today's oversupply will be tomorrow's undersupply, today's bust will be tomorrow's boom, today's record low interest rates will eventually go up, today's stringent lending standards will loosen tomorrow etc etc etc.

I invest for the LONG TERM not to cream it in 2-3 years. Where will house prices be in 10, 20 years?

 

https://www.google.com.au/amp/s/amp...-struggle-to-bounce-back-20190524-p51qoa.html

 

As Keynes said - In the long run we are all dead

The short run is harder, but more rewarding. You can make a lot of money depending on when you buy!

Most people, including Chinese, prefer large discounts when buying

 

1 Valda Place, Marsfield, NSW 2122

Beautiful fully renovated house in quiet street, great spot

Sold today at auction for 1.303m

Sold Nov 2014 for 1.337m (http://house.ksou.cn/p.php?q=Marsfield&sta=nsw&id=553575&address=1+Valda+Place,+Marsfield)

That’s after massive renovations, including removal of pool, new kitchen!!

 

My told you sooze moment....

The Sydney suburbs where property prices have slipped back to 2015 levels

 

Auction clearances also didn't see the bounce some were expecting. Sydney barely up on last week, Melbourne solidly down. Of course this doesn't necessarily mean much, as we need to look at clearance rates over time. Still, we're not seeing the recent enthusiasm bear out in early results.

 

You can be as enthusiastic as a In Mud but if you can't borrow more it will not translate into sales.

If/in 1/2 months if APRA relaxes it's 7% rate and banks lex their policies accordingly within 3 months we will see market reflection.
Not withstand RBA also lower official cash rate. The combination of both.will almost 100% reflect in upturn of some magnitude.

 

If that were true, increases would only exist as rates were cut, and decreases would not evere exist when rates are cut.

It probably has more to do with mindset and what the mob are doing in an area, and once the figures do not add up, well it means sentiment prob wont change.

There has already been significant drops, people would have been snapping them up if they were appealing, I do not think it matters what the RBA does now.

 

I agree. I don't think people will borrow more in a falling market just because it's "allowed"

 

Cuts will at least reinforce prices and slow a decline. People like cheap money, if your holding costs are lowered And rents stay the same. With a sentiment shift of course it matters what the RBA does.