NSW why people are still investing in Sydney when market is near to high?

In 2015, we've all heard "property market will crash". It did not. So is it because that statement in 2015 did not reflect market sentiment and what most people thought was going to happen? In hindsight, answer has to be yes. If so, then we are also now hearing "property market will crash" so what is the market sentiment now and what do most people now think is going to happen?

What has the many mortgage brokers on this forum been hearing from their clients regarding market sentiment and why people are still buying? They and real estate agents are probably the closest to the wider market.

 

Guessing China didn't get internet until 2000

 

Personally I feel in 2015 we came close to a correction, but negative sentiment didn't really take off at that time. There were some significant price falls but rates then we had the situation of the RBA cutting rates, which improved affordability, and I personally feel positive sentiment remained strong. Oversupply was also something on the horizon at that time, instead of something having a current and tangible effect on the market.

It's not enough just to have negativity, it needs to become self-sustaining. I don't think we'll know we're at that point until we're well into it. In Ireland we had a long peak phase of a bit over 18 months, and in that time it was hard to tell what was going on. I don't know if we're in that phase now. Maybe. Maybe not. Media awareness of the bubble certainly seems strong, you can't go a day without a bubble article now. The whole market was down 10% or so in Ireland before people started really thinking the bubble had burst. The focus at that time turned to people saying "this is the bottom" and to ministers saying "there's no need to panic". Nothing starts a panic like trying to stop a panic.

I think until we're down 10% or more here we just won't know it's burst.

 

It depends what you call a bad decision, if you doubled your money and boom still going ... that's life.... you have made money regardless, no none can pick the top and you don't want to be caught with your pants down.

Also, its a forum there is also vested interest, some have a following on PC.... will call it a boom/talk it up..... while at the same time selling down, interesting strategy and smart at the same time Pretty sure you may know who I am talking abouit

 

Could be a number of reasons, buying primary residence and not interested in the cycle.

Fear of missing out and property market continuing to rise. No one knows how long it will continue to rise.

I believe the longest boom cycle in Australia to date has been 6 years - Perth 2001-2007, purely driven by the massive mining boom where population growth was also numero 1 in Australia and the State was thriving, business owners had to source labour from overseas could not meet demand.

MTR

 

So basically you are saying the reason Sydney prices have gone up is people have hyped it up? There was nothing but hype.... If that is so, then lending has tightened since mid 2014, interest rates have increased at least for the past 6 months, why the sentiment hasnt gone back? why does Sydney still have a very high clearance rate if it was all based on hype?


Market sentiment and hype is true for certain places. Such as Brisbane. People bought based on the fact that these places were cheapER than Sydney and could only go up. Obviously the only short-term growth was a result of investors being in the market based on an "assumption" but the underlying reasons of price growth was not there.

If you think Sydney is all hype and market sentiment let me break it to you, you are not the first one and you dont have to go far to find the club.

 

The reason some people are still buying and are not aware that Sydney has peaked:

• Do not have Internet, newspapers or TV or do not watch them much
• They already got finance pre-approved by the bank a month ago+ and determined to get their property
• TAX incentive before the end of the financial year in a month and just want to offload as much cash as they can on assets
• Have too much money and don't care
• Foreign investors with little understanding of English and have been told by their tour operators everything is fine and to buy buy buy before the tour boat heads back

 

The reason why people still buy in Sydney is because they can afford to do so and also because I believe yields will greatly improve in the not too distant future.

The number of people who still can buy must be dwindling due to APRA. Sure, there are obviously still a lot of buyers out there. But eventually prices will level out as buyers dry up.

Sydney is a big honey pot attracting people to work here with all the infrastructure going on (airport, roads etc). But if people can't afford to buy, what can they do? They have to rent.

Pressure on rents will see yields sky rocket. Especially, with families pulling in $2K pw, they can easily fork out 700 - 800 pw for a house out west of Sydney in a suburb like, say, I don't know, say Mt Druitt.

Gee, look at the time , I better get to sleep so I can get up in 4 hours and go drive a bus. If you see a bus driver nodding off on Broadway today just toot your horn lol.

 

Don't forget Shanghai Gockie, I read an article a few months back that said that in Shanghai average wages are $1200 per month but the average 3 bedroom apartment is $1.75m. Insane... But obviously not the same conditions as Australia

 

Who? Or what market at least? Sydney?

 

As an investor you need to weigh up certain things. Once your portfolio grows large (i.e) > 5 or so houses then cashflow is the ultimate game. Without good cashflow you are screwed.

In Sydney buying a 1 million dollar house and getting $750 a week rent doesnt make sense. The ROI is around 3% and your making up the difference with your own money. How many houses can you continue to do this for? You reach a ceiling at some stage. Cashflow is king if you plan to grow your portfolio > 10 or 20 or even 50 houses.

In places like Brisbane where now you have ROI > 6% well you sit back, relax and use zero of your own money. All the same time benefiting from tax/depreciation and other offsets. Real estate is a long term investment so over the period of 5 or more years the potential is huge up there. Your risk is low if there was to be a crash - the actual cost of rebuilding a house you couldn't achieve for $300k or $350k these days so if you can get a complete 600 sqm land and house package with rental of $390-$400 a week for a $340k investment if you cant see the investment upside on that purely as a numbers game then I'm not sure investing if for you.

After looking at all the infra projects going on in Brisbane in the next 5 years and the amount of expected population growth in the next 10 years I'm even thinking of selling some more of my Sydney properties to cash in and better my cashflow and re-invest all of it into Brisbane/Logan/Ipswich areas.

I would have loved to continue to invest in Sydney but purely working on a numbers game - its not attractive anymore. The capital growth may still be there in outer suburbs like Marsden Park and surrounding areas especially when that business park finishes and there are like 15,000 jobs plus the Westconnex project and new airport coming into fruition I'm sure the west will still see substantial growth but even now the ROI is getting low in these suburbs.

DYOR

 

This is music to the ears of every Brisbane spruiker/hyper /investor etc...
We welcome your pesos!

 

Good write up mate ... But where can you buy h&l on 600sqm land for $340k?

 

Why? Its like asking why are people buying in NY or London, Sydney is very stable, in high demand and short supply- why would you not want own here? Oh yeah because the sky is falling. The growth will be slow from here but Sydney is quality and if Sydney did crash, like a real bubble burst crash then the rest of the country is coming down with it anyways.

 

Do some research and you will find it. Areas in Logan is my pick for the foreseeable future. Good buys in Ipswich as well. Even areas like Forest Lake that reside in Brisbane council you can buy 3 bedders/brick/newish for like $370k (maybe a tad more - I actually bought one there for $347k so thats gone up for sure within the last 6 months. Heck even to the north of Brisbane in like Bald Hills/Bracken Ridge all those areas look pretty good too.

Like I said DYOR but I sold 4 of my properties in Sydney and reinvested it all in Brisbane/Logan/Ipswich that's how confident I am in my research. I've bought 7 properties in QLD in the last 8 months and I plan on continuing to do this to around 15 properties by a few years time.

I'm positive geared on each and every one of them so like I said I dont put a cent in and I get all the depreciation and tax offsets. Ive already experienced some capital growth as well with pretty much all of them. I can honestly see good things for Brisbane.

Do your due diligence and dont buy flood prone property. Make sure the numbers add up. Research the council and surrounds ensure significant development in the pipeline, close to schools,transport and train. Just the usual stuff and you have a winner.

Like I said DYOR.

 

And they are H&L on 600 sqm ?

 

Yes actually 2 of them are on 700sqm. Forest lake is a bit smaller on 400sqm but thats due to the suburb. ALL houses there are on small blocks.

The ones I have in Bald Hills is 645sqm and Ipswich property is 625sqm

 

Sydney, sadly only one property, however doubled my money Doonside.

also developed in Melb market, also rising of course.

I am in US at the moment another rising/booming markets.

 

Actually some Sydney agents are even now advising to not buy in Sydney but rather to sell Sydney and buy Gold Coast. See here:

Sydneysiders being advised by their agents to invest their money in the Gold Coast - realestate.com.au

I have said it many times. Very very obvious a boom lies ahead in the Gold Coast. We seen it all before in prior cycles ...

 

That is exactly what I'm saying. It's what a bubble is. A situation where prices rise basically because of hype. People start talking about property, everyone's doing it, you see it in pop culture (season 20 of the Block anyone?) everyone thinks it's a good idea. But sentiment can take a long time to turn and property markets move very slowly. If markets were rational prices would have turned way back in 2012 or so when things like population growth rates turned, or in the last couple of years when supply started to exceed demand, or when incomes stopped growing.

It's all down to human psychology. Bubbles are like a hive mind in a way. You may disagree with me that Sydney is all hype, and the thing about bubbles is if you're in the majority, that hype may well continue even without the support of fundamentals, but hype is self-limiting too because there's only so much people can pay, and only so long people can ignore properties that aren't selling. Fundamentals and sentiment can go in different directions for a long time, but they're basically tethered. If negativity becomes the majority thinking, it's over.

I'm not sure why you'd think Brisbane is more "hype" than Sydney. That's an interesting position to take.