NSW The definitive Sydney 2022 Q1 and Q2 market analysis and conclusions

Wow!

Shows what greed can do huh? He had a offer for $2.2m now sell for $1.78m..... as you said...Icarus falls to earth.

 

Recently saw a house on decent land (900m2) sell for $2.2m in the St George area. Rent was $35,000 gross p.a. That is 1.6% gross yield.

This maybe a duplex site, but with construction cost increases and rate raises… how are they going to make a margin.

Maybe I’m wrong. I valued this property at 2.5% gross yield, so this one would be $1.4m ($35k / 2.5%)… buff it up to a range of $1.5-$1.7m for capital growth… $2.2m is a bullish price still.

 

Sounds like fair value given the condition of the property.
This being at 1000sqm+ sold at 1.7x , will definitely help some of my negotiations easier on other properties in nearby areas.

 

Could you please clarify how you do that valuation , interested to do some math as we inspect properties .

Apologies if you have already shared this.

 

Appreciate everyone has different ways of valuing property. I also use different models.

Because the rate raise environment we are heading into in the next 12-18 month, I’m putting more focus on yield %.

For reference, risk free 3 year Australian bond yield is now 3%. When buying property, one would expect the return (rent + capital) is more then the risk free 3%.

There is recession risk and rate increase in next 2 years, the capital increase won’t be massive. Therefore, I’m using a 2.5% yield as discount.

2.5% discount is also a good rule of thumb right now, as home loan interest rates will soon be 3%-4% therefore as an investment, rental income will still be materially below interest expense.

To get the value of property, you just get the per annum gross rent and divide it by the discount yield (2.5% in this case).

Example, a property is rented for $1,000 per week, that’s circa $50k gross. $50k / 2.5% = $2m

 

You are spot on to raise this.

I would envisage in areas like St George the norm return should be 2.8-3.2% so the price guide would be $1.1-$1.25. But a small uplift for devie potential so 150k seems right to reach 1.4m.

People don't think these sorts of drops can happen...it does its just on stuff that have not sold for many years they are still up as they were bought over 30 years ago.

 

Would anyone with good contacts know how much this house was sold for please ?

https://www.realestate.com.au/sold/property-house-nsw-randwick-139265479

Sold last week prior to auction with undisclosed sold price so one of the reasons could be that it was not a great sale?

It would be a good price indication for detached houses with pool and parking in the area I am monitoring (randwick/coogee/clovelly), as most properties on the market are either semi, apartment or detached but no parking.

At recent inspections in the area, I could see that FOMO has been replaced by FOOP and a number of sale agents have mentioned that "sellers can not expect the price of a few months ago".

Many thanks in advance.

 

Sold for $ 4.5m

 

Beautiful house. Kitchen a bit undersized for a 5 bed but

 

At the current speed, I reckon some good buys will be available within 6-8 months. 24 months is a pretty long period; by then even the reversal of the cycle may have started. My comment is just based on the speed at which things are changing. I don't think one will need to wait for 12 months to see some good value options.

 

Thanks ParraEels.
Wow, no wonder.. It was in the 5+ price range on realestate.com

 

For PPOR purchase I think a good time will start in the next 4-6months. Cash rate will over 1%, buyer will take RBA seriously, borrowing will be adjusted, valuation will come low, Inflation pickup, Correction in NZ, USA, Canandian RE.

If one waits for the absolute bottom then there may be no suitable properties available.

 

Look at the mortgage commitment chart from New Zealand. Buyers demand is collapsing fast after several rate hikes. Mortgage commitments collapsed 30% in the year to April 2022 – a sharp turnaround from the 128% annual growth recorded in May 2021

We may see a similar trend in the coming months (4-6 months).

 

Are you after an investment or to live ?
As we are looking for our PPOR, it will be a hard call if we see something we really like now, tossing between buying now and wait a bit longer hoping for cheaper.

 

I am in the same camp. In a way I sort of hope I won't find anything suitable in the next 4-6 months to save me the headache

 

It's going take a bit longer as people adjust to the new normal rate which I think will be 3.75 to 4.5%. Even if it goes past 5% can't see it there for long ...maybe 6-9 months max. By rates I mean home loan rates not RBA ratrs

Real issue is how long can people who bought at 2% rates continue to pay 4%. That is when it affects prices the most. And that takes time.

When this thread started myself and a handful of others were laughed at to suggest Sydney would come off by up to 20%. Please read the entire thread to see the facts and to verify I am not gilding the lily.

Now there is broad acceptance market is falling quickly question is how much I was in the 10-20% camp. Now it looks like the top end of this figure.

I see Brisbane doing the same with a few months.

 

Hard to do this back of the envelope for sites though. It’s essentially meaningless valuation technique for this type of product where the actual realised yield isn’t known. A feaso is how to value these products. Eg We just sold in Liverpool (a site) in early 1% yield territory. Doesn’t make sense but it was an older home turning into a few nice new ones. The buyer will likely make money, pending their valuation assessment. Once it’s built and fully realised the yield is 5ish, can use this figure or buyers own for new properties, input into feaso to work out land value.

I do calcs like this on realized properties though as sense test for valuations.

 

Surprised they’d quote that high.

This one was an outstanding result at the time (+10% that quarter alone in values), and is a fair bit more valuable given it’s near new and has parking. Would probably trade a bit over 5 now.

5 Coogee Street, Randwick, NSW 2031
https://www.realestate.com.au/sold/property-house-nsw-randwick-135241710

 

Don’t disagree with what you have said. The thing I’m trying to work out is, with construction cost increasing are these duplex sites going to be feasible at yields with 1.x%?

As I don’t do developments I’m not close to the happenings of that market. If I were to do a development and do a back of envelop calc, I think this is still a bullish result.

Admit the purchaser could be smarter and more astute then me.

 

Construction costs are the issues....the big boys (project homes) won't touch the more complex stuff as they are too busy just building on freshland.

Do a custom....the sky is the limit on the pricing. And the other is solvency of some of the smaller guys.