NSW Sydney Update Please

This would be very interesting.

and assuming there's good CG in the horizon, 5 to 10 years?

 

If its a unit in a sydney suburb and its not costing me anything to hold, and with depreciation i get something back, i can hold it for a much longer time horizon and not care.

That said, increased strata must be factored in - by that i mean the BS low strata rates developers put on, only to have it jacked up by double within 6 months (which is what it should have been from the start).

 

I mentioned earlier my parents place in Hornsby heights was for sale for offers over $1.15. Ended up getting $1.15. Probably would have gotten $1.2 a few months ago but this is speculation.

Cousins place at Quakers hill is for sale. Agent said he thought they'd get around $650. It's now for sale for $550.

Monitor the northern beaches market quite closely. Seems to business as usual. Good prices still being achieved.

 

Property is different to shares and commodities . My observation based on watching the market for over 30 years is that the doesn't really go down until they have to sell . Transaction cost are higher . The real bargains only occurs when a sellers hand is forced by cold reality or banks .

There will be a softening as some people rush to sell near the top ( that what makes a peak ) , but if people can't get what they think their property is worth , most hang on regardless of whether it makes sense or not

Having said that , I haven't factored in some factors that will impact how quickly some areas might drop .

Just had an informative chat with a RAMS lender while getting a couple of low doc loans .

First factor is vacancies in some areas where there has been extensive development . He quoted an example of one client who has just settled an OTP buy and can't get a tenant . Search on line shows there are around 500 similar properties for rent ...

Impact of LVR changes , and banks putting in caps on LVR's in certain areas . As an example apparently many people have bought in green square with expectations of an 95% loan , and some borrowers will now only loan to 80 % LVR .

His observation is there are quite a few places close to finish with completion dates in March next years .

Developers are being hit by banks being wary about ongoing development funding , with potential for half finished blocks popping up

Those may well result is sharp pull backs in those areas specifically affected by those factors .

Does that make it a good time to buy in those areas ?

Personally no . I'm still looking north , but if you were looking at a buy in something like that anyway , may be a good time for a bargain buy.

Cliff

 

This is exactly what is happening....the real elephant in the room are the banks...at what point will they call the developer loans.....hopefully they have learnt from the 80s and 90s...

 

I'd just like the banks to say Barangaroo is a really high risk area and we won't lend over 50% LVR ...

From what I understand CBA are the bank with the biggest exposure to developers and Westpac to OS investors .



Cliff

 

Yeah this is an interesting one...

The first question is; even if we assume vals stack up at settlement, will there be sufficient appetite or capacity from lenders to fund all of these settlements, particularly if a large amount of it is for Investors seeking I/O terms? Remembering that they have limited scope to grow their I/O books, this is a real issue. I continue to hear from people in the know within the banks, that this is where the greatest risk lies in their view (and its why commercial funding has suddenly become so hard for developers in recent months) If lots of this stuff is INV and there is too high a demand for I/O facilities, it may end up being a case of banks only being willing to approve P&I on a lot of this stuff....

I've heard from several sources that they believe the OTP stock due for delivery across the next 12-18 months would consume more than 55% of all available I/O debt the banks feel they can fund while remaining under the APRA thresholds, during that period. Thats quite a bottleneck forming, as a lot of these projects require hundreds of deals to settle within days of each other. The APRA 10% thresholds arent just annual targets, they are month to month, year to year targets so banks cant just write 100% of their threshold across 3 months and then shut down for the other 9 months as a work around... there is a month by month rationing required.

Banks with commercial exposure to these projects will want their money back so they will almost certainly prioritise funding as many of these as they can, meaning they may need to turn off the taps elsewhere in the country to provision for the amount of I/O debt they are forecasting will be required for these projects. Either way, there may not be enough I/O money to go around for the months these projects are settling, so somewhere, some one may have to take P&I or miss out on funding altogether. I guess that will depend on how much investment finance demand there is at the time, outside Sydney....

The second question is; even if vals stack up and banks have appetite, will those who purchased based on pre APRA servicing assumptions, still have the capacity to secure large enough loans to settle?

So a number of hurdles sit ahead. valuations at completion, funding availability at completion, and borrowing capacity at completion . Only time will tell how this evolves, but one would have to assume that something's going to give, somewhere amongst all of this...

 

A third of off-the-plan buyers are in trouble

 

Banks do not have to honour the pre-approval LVR. During the end of last boom in 2003/04, Sydney CBD was the place of lots OTP to settle(this time it is somewhere else). I remember banks dropped the LVR to 75% to settle OTP.

 

Scary stats for those involved .

Would be hard for the government to get the banks to do anything . If they intervened in anyway , it sets a precedent .

One thing the RAMS broker also mentioned he's seen is banks not lending the full amount but then say , we can do a personal loan for the difference ...

Unless the banks do a backflip , which they have no reason to do , there will be pain for some .

I know there have been similar situations in previous cycles .

Cliff

 

There will be a lot of pain and quiet in the Sydney market over the next few years.. As there has been in the most recent Sydney cycles. While rest of the country has much slower, but steady growth, Sydney is 2 year boom, and 5 year flat.

 

One local agent in Epping NSW is stating the heat is leaving the market and now those who are able to buy are starting to make low ball offers.

 

Still very high entry price for first home buyers.

 

Was selling a townhouse in Quakers Hill and could only get 2 buyers for each weekends open house and took a 10% discount. That's the sort of correction we will probably see in most areas.
Some prices have already reduced, so it won't be long until everyone has to adjust pricing to meet the market.

That's a 15% discount. This shows that prices were pushed too high too fast if only a few months later people are not buying at the same price.

 

@Nick Valsamis which areas are you looking at the moment? I wonder how much more the prices will be reduced in the quakers Hill and surrounds.

 

Wow Nick..did not expect that in Quakers Hill....10-15% in a matter of months...

 

Pretty extraordinary.

 

I met a pregnant woman in February who wanted to become a mortgage broker.

I asked about her portfolio.

"3 apartments in Sydney".

I asked more.

"All new off the plan. They finish in 2017 so we have lots of time to save for them".

There will be pain indeed.

 

Whoever advised her to do so needs to be shot !

 

I was only looking at Quakers Hill but those are more investment type properties which I think could go down to 5% gross yield prices, but not there yet.