Sydney Leads the Nation…Downwards

You obviously do. You have purely selfish reasons.

Unless you are from another planet or just looking around the forum with your one eye closed (as usual), you would know that I no longer write loans. In any case, even if I did, in an upward market, people buy and in a downward market, people consolidate or refinance.

I have also publicly stated that I intend to no longer directly invest in property.

Can you please tell me how I have a “vested interest” in the health of the property market?

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Dmichie,

The aging population problem (fewer young people, many baby boomers) is a National problem – not the least exclusive to Sydney. In fact, the problem is more exasperated outside of the major hubs as young people relocate to where there are jobs, while the increase in older people is simply because they have become older (they generally haven’t *migrated*).

I don’t know exactly what the House Price Index measures (or who they gain their stats from) but my Sydney property has not had a decline, merely a reduced growth rate.

Eg. one property was bought at the height of the boom in 2002 – but I got it for a decent bottom-range price of $405,000.

This was a private sale – not through the auctions (looking at auction results will gain skewed info, as a minority of properties sell this way. Additionally, an Auction is only a good idea for vendors when the market *hot*, so declining Auction clearance rates are expected in a slow market like the current one).

We had the property revalued 2 and 1/2 years after purchase – when it was in the middle of renovation. Ie. the house itself had been de-valued since purchase, it was no longer in the habitable state that we bought it in. Despite this physical devaluation, the bank revalued the property *in it’s gutted state* as being $450,000, and to be worth $550,000 once renovations are completed.

This is a *conservative* bank valuation, and the near identical house next door sold just a couple months earlier for $600,000 with the vendor in a must sell asap situation.

We conservatively expect that on the 3 year anniversary of this purchase it will be worth $600k to $630k.
I.e:
Purchase price = $405,000
Renovation cost = $45,000
End price = $600,000+
Equals $150,000+ increase in value over 3 years.

Yes, it would be worth more if the *hot* cg rates had continued – but there has not been a loss here. The market has not collapsed. Even if we didn’t renovate (or devalued the house), there would still be growth in the land it sits on.

The area now has a median house price of over $600k – when it was about $450k when we bought in Sept 2002.

BTW the next door neighbour bought his place in 2000 for $300,000, and sold end of 2004 for $600,000 after renovation and in a must-sell situation. This is after it was declared that the Sydney ‘bubble’ had burst, and he made a healthy profit.

Personally, we don’t intend to sell, and have every expectation that we will have good CG in the mid to long term future.

As always – do your due diligence, and if you buy well you should be right – if you pay too much then you’ve lost money before you’ve even started.

Dmichie – your chart of property prices clearly shows that someone buying in 1980 would have had growth in the ten years following. If they made use of the cycle they could have sold their property anytime from mid 87 to mid 89 and made a profit. (Also, this graph is skewed to only count property growth after inflation. If you similarily graphed the returns on $100,000 in the bank during this time, when inflation was incredibly high, your $100,000 would diminish significantly every year and *never ever* recoop).

You are also ignoring rental yields. In those years where property growth fell, rental rates went up. While property was booming in Sydney, rentals were crap. Now they are begining to go up.
If we are in for a ten year stall on capital growth as your predict, the rental returns will rise to make property cf+. Residex has graphed out the cycles to current day (not available online) and it clearly shows that there are cycles, and that when cg declines, rental yield rises.

Does this mean that “Sydney” is the best place to invest? One thing you need to remember is that about 1/4 of the population of Australian lives in “Sydney”. One council area within Sydney can have a greater population than a whole city outside of Sydney. To expect all areas of Sydney to behave the same is ridiculous – it’s like saying all of WA is the same regardless of whether you are investing in Perth or some backwater.

Due diligence is always the key, and it will depend on a persons personal investing strategy to determine the best place to invest (in and out of Sydney).

At the moment, I think you can still gain good cg in Sydney if you pick the right areas and buy below asking price. Residex predicts that my area will bounce back to 12% growth p.a. over the next 3 years.

However, for many other factors I am choosing to now invest elsewhere. Because I am more interested in cf+ properties now. Because in addition to the various taxes imposed on purchasing property, NSW has a 2.5% vendor’s tax. Because I think other states have better government spending on utilities and infrastructure, which make for more sustainable communites (and population growth).

On a personal level I am incredibly frustrated with the NSW state government that has now been in power for 10 years and achieved… nothing. It is Sydney centric, which means that rural NSW is dying. Population increase is therefore increased in Sydney as young people flee rural life, but Sydney growth is unsustainable because they have not maintained or invested properly in planning (and implementing) roads and public transport (or health, education, the list goes on).

While I believe CG is a definite part of Sydney’s future, I forsee an increase in social problems because of the government’s refusal to deal with these issues. Probably not something the savy investor has to worry about, but I’d rather move away from the concrete jungle and explore other opportunities where gvt and communities are working together for positive means.

dmichie, I don’t particularly appreciate you quoting me out of context. Seems you like an argument more than the exchange of knowledge/ideas.

Never said a house price can’t go down. Do your research, buy well, and be aware of cycles while holding. I clearly outlined in my earlier post as to why saying “Sydney has crashed” is a gross generalisation and misrepresentation of the situation – with personal anecdotal evidence.

And – as mentioned already – if you had chosen to sell at the right time, you would have made a huge profit in real terms.

And if instead you had kept your money in the bank you would have suffered greater losses in real terms. Inflation in that period was high teens!

dmlrichie, what are your views on the qld market.

Given its heavily driven by international (british in the main) and interstate migration there is a massive dependency on new money entering the region.

The UK market is stuffed without a doubt, the govt has all but admited there is a bubble about to go bust with there hairbrained FTB part ownership scheme announced and the incredible low volume of sales going through.
SE QLD will suffer badly in the next few years as uk sellers are forced to takes lower and lower prices. They simply wont have the money to pay for the SE QLD properties. Plus the exrate GBPAUD has declined roughly >20% over the last 5 years.

Interstate is more interesting, as sydney prices drop there is less incentive to move north. Likewise vic.

My view is that a long term global correction has started, its going to be a long road of downtrending prices. There might be pockets of reasonable growth areas about but only the best and experienced investors will benefit from these areas.

Gone are the days of simply ‘buy and hold’ property investing.

If you buy an investment property in main city in Australia and you are looking at a 5-10 year hold you wont lose. Who cares what the market does in the short term. When the markew softens returns increase. So you still win. If we are suggesting that the next boon is say 5 years away, then if you can buy and hold 3 properties you will then double your money. However do what the other lemmings do and wait to the start of the boom. If you are looking at quicker results look to New Zealand not Perth

Nigel Kibel

http://www.propertyknowhow.com.au

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