I was interested in the forum views of the Sydney suburban market (for those who have taken an active interest in the Sydney Market).
Is Syndey Overpriced
- Thread starter always_learning
- Start date
Hi AL
I think its interesting that lots of investors I have spoken to recently have stopped buying for investment in Sydney, and are sitting back to "watch, wait and see" if bargains appear.
With returns as low as 2-4%, anecdotal statements that I have heard are along the lines of, "you can get much better value for money in other states" or "the returns aren't there at the moment, but things may change and I will be ready when/if they do".
Also, recent changes with the NSW Govt budget announcements, have had a negative impact, whether its just in terms of perception, or actuality, is yet to be seen.
I was originally looking in Sydney, near where I live, in Bondi. One bedroom units have been anywhere from $300-$600k and people began suggesting I look elsewhere for better value for money, hence my research phase and my presence on the Somersoft forum.
This process still continues, as I seem to have entered the looking phase, just as the market began to change radically, from a sellers to a buyers (?) market, with real estate agents ringing me up every five minutes, seeing lots of properties being passed in at auction, and hearing some interesting stories, such as terrace house in a friend's street in Bondi Junction being sold for $1.25 million when the year before, the equivalent in the same street went for $2 million.
But I am noting, lots of people here are simply not buying either... believing things are way overpriced, and waiting to see if things return to some kind of "normality" whatever that might be...
The most common kinds of statement one hears in relation to property in conversation in Sydney, are along the lines of "prices? just ridiculous, where will it ever end?" and "can you believe it, that place just went for $x? Unbelievable!"
My take on it is - that prices rose beyond many people's perceptions of what is good value, however, the market was willing to pay at the time, how long that continues is anyones guess.
Whilst the market was hot, up until about the last 2/3rds of last year, "anything goes" seemed to be the philosophy, and perceptions were, that it would never end.
However, the cooling of the market, I think has taken many by surprise as well. I now see it as market forces at work, and we are in a particular phase of the cycle, only no-one knows exactly what that might be, hence the wait and see approach.
I am also interested AL in what happened in the Japanese market, how it went from boom to bust, what accounted for that, and my question to seasoned investors and economists/economic historians on the forum is "What are the differences between what happened there and what could happen here?"
Also, Hong Kong had a similar property frenzy for a while, and then it sagged severely, and other countries as well.
It would be interesting to hear ideas on what forces people think might quarantine Australia, (and Sydney obviously), from similar effects?
Meanwhile, I continue the learning process, with many thanks to the wiser and more experienced ones on this forum.
Cheers
Oceangirl
I think its interesting that lots of investors I have spoken to recently have stopped buying for investment in Sydney, and are sitting back to "watch, wait and see" if bargains appear.
With returns as low as 2-4%, anecdotal statements that I have heard are along the lines of, "you can get much better value for money in other states" or "the returns aren't there at the moment, but things may change and I will be ready when/if they do".
Also, recent changes with the NSW Govt budget announcements, have had a negative impact, whether its just in terms of perception, or actuality, is yet to be seen.
I was originally looking in Sydney, near where I live, in Bondi. One bedroom units have been anywhere from $300-$600k and people began suggesting I look elsewhere for better value for money, hence my research phase and my presence on the Somersoft forum.
This process still continues, as I seem to have entered the looking phase, just as the market began to change radically, from a sellers to a buyers (?) market, with real estate agents ringing me up every five minutes, seeing lots of properties being passed in at auction, and hearing some interesting stories, such as terrace house in a friend's street in Bondi Junction being sold for $1.25 million when the year before, the equivalent in the same street went for $2 million.
But I am noting, lots of people here are simply not buying either... believing things are way overpriced, and waiting to see if things return to some kind of "normality" whatever that might be...
The most common kinds of statement one hears in relation to property in conversation in Sydney, are along the lines of "prices? just ridiculous, where will it ever end?" and "can you believe it, that place just went for $x? Unbelievable!"
My take on it is - that prices rose beyond many people's perceptions of what is good value, however, the market was willing to pay at the time, how long that continues is anyones guess.
Whilst the market was hot, up until about the last 2/3rds of last year, "anything goes" seemed to be the philosophy, and perceptions were, that it would never end.
However, the cooling of the market, I think has taken many by surprise as well. I now see it as market forces at work, and we are in a particular phase of the cycle, only no-one knows exactly what that might be, hence the wait and see approach.
I am also interested AL in what happened in the Japanese market, how it went from boom to bust, what accounted for that, and my question to seasoned investors and economists/economic historians on the forum is "What are the differences between what happened there and what could happen here?"
Also, Hong Kong had a similar property frenzy for a while, and then it sagged severely, and other countries as well.
It would be interesting to hear ideas on what forces people think might quarantine Australia, (and Sydney obviously), from similar effects?
Meanwhile, I continue the learning process, with many thanks to the wiser and more experienced ones on this forum.
Cheers
Oceangirl
Eventually either property goes down or the unit of measurement (dollar) goes down.
http://www.gold-eagle.com/editorials_04/riley041504.html
Their currency was linked to the US$ which was strong at the time.
Another example was 1929 to 1932 where property lost most of its value. People sometimes walked away because of property taxes. Gold was money then.
The opposite of asset classes is not property vs shares. Its bonds vs commodities and tangibles. Property can benefit from inflation with higher interest rates because its tangible. But property can benefit from lower interest rates like bonds. At the moment rental property is being priced mostly like bonds. And bonds go down in value when interest rates go up. But interest rates would go up if inflation was expected. Consider how much inflation would be required to justify current property prices. Especially since interest rates have been low because "inflation is still low".
Here is the real estate investment trust index in the US
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=rms&sid=0&o_symb=rms&freq=2&time=12
Here is the US 10yr bond rate
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tnx&sid=0&o_symb=tnx
So the answer lies somewhere in the inflation/deflation debate which has been going on for some time. I believe the next bull market will be in gold and commodities as the US$ goes down and the A$ goes down vs commodities. Things people need not things people want. Things people pay cash for not things people borrow for.
Mr Turkey
oceangirl said:
http://www.gold-eagle.com/editorials_04/riley041504.html
oceangirl said:
Their currency was linked to the US$ which was strong at the time.
Another example was 1929 to 1932 where property lost most of its value. People sometimes walked away because of property taxes. Gold was money then.
The opposite of asset classes is not property vs shares. Its bonds vs commodities and tangibles. Property can benefit from inflation with higher interest rates because its tangible. But property can benefit from lower interest rates like bonds. At the moment rental property is being priced mostly like bonds. And bonds go down in value when interest rates go up. But interest rates would go up if inflation was expected. Consider how much inflation would be required to justify current property prices. Especially since interest rates have been low because "inflation is still low".
Here is the real estate investment trust index in the US
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=rms&sid=0&o_symb=rms&freq=2&time=12
Here is the US 10yr bond rate
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tnx&sid=0&o_symb=tnx
So the answer lies somewhere in the inflation/deflation debate which has been going on for some time. I believe the next bull market will be in gold and commodities as the US$ goes down and the A$ goes down vs commodities. Things people need not things people want. Things people pay cash for not things people borrow for.
Mr Turkey
Hi AL,
Personal opinion / view is stagnation or under performance in the next couple of years or until the recent NSW goverment changes will be reversed. It was a flag saying property investors are not welcome in NSW!!
Once investors will not be going so heavily to the market, only the emotional homebuyers (the first home buyers still can not afford the current prices, irrespective of Stamp Duty savings) who primarily will contribute to price rises, which will limit the potential growth.
I am a Sydneysider, but would not invest in NSW in the current environment. There are much better places to go than here. I'm also sure that I am not the only one thinks on this way.
Of course just the usual 2c.
Personal opinion / view is stagnation or under performance in the next couple of years or until the recent NSW goverment changes will be reversed. It was a flag saying property investors are not welcome in NSW!!
Once investors will not be going so heavily to the market, only the emotional homebuyers (the first home buyers still can not afford the current prices, irrespective of Stamp Duty savings) who primarily will contribute to price rises, which will limit the potential growth.
I am a Sydneysider, but would not invest in NSW in the current environment. There are much better places to go than here. I'm also sure that I am not the only one thinks on this way.
Of course just the usual 2c.
Turkey,Mr Turkey said:
You like making wild claims
If this was the case it would be the logical conclusion that it is impossible to make money from property.
Well sorry, many of us have.
Look at supply & demand, increasing living standards & personal wealth and other economic factors.
You might hold back from such frivolous statements - or at least qualify them through stating that you are operating in geological timeframes rather than human ones.
Cheers,
Aceyducey
Oceangirl,oceangirl said:
I recall a discussion on this topic mod last year on the forum.
You may consider referring back to it (http://www.somersoft.com/forums/showthread.php?t=10613)
Note that comparing Sydney (a city) with Japan or Hong Kong (both countries at the time of their crashes) is a bad starting point in any case.
Compare Australia with another nation, or Sydney with Toyko if you want a better approximation.
And even then you'll find that the political, legislative & economic pictures are so different between the comparison points that the Asian crisis cannot in any way be compared to Australia's situation in the present or the likely situation in the next 5 years.
Cheers,
Aceyducey
I don't know about Japan but in Hong Kong
prices dropped because people were leaving after the Chineese took over.
HISTORY
If we look at the last boom in Sydney, property prices dropped a little at
the high end and we saw a plateau before prices took off again.
Remember that this happened in an environment where the interest
rates had skyrocketed and the banks were auctioning people's homes.
CURRENT MARKET
The fundamentals are not the same now.
The interest rates are low and are predicted to stay low.
Having said that, the recent state government changes
can mean trouble for some investors, they will also stop others from
investing and lack of investors will affect the number of future developments
and possibly rents.
In view of the new legislation I am suspecting that the very expensive
properties (over 1 Mil) will drop a little and that the properties below
500K will increase in value due to increased/continuous demand.
If that happens, then the prices of properties above 500K will be pushed up
and we will probably see a more levelled property market right across Sydney.
prices dropped because people were leaving after the Chineese took over.
HISTORY
If we look at the last boom in Sydney, property prices dropped a little at
the high end and we saw a plateau before prices took off again.
Remember that this happened in an environment where the interest
rates had skyrocketed and the banks were auctioning people's homes.
CURRENT MARKET
The fundamentals are not the same now.
The interest rates are low and are predicted to stay low.
Having said that, the recent state government changes
can mean trouble for some investors, they will also stop others from
investing and lack of investors will affect the number of future developments
and possibly rents.
In view of the new legislation I am suspecting that the very expensive
properties (over 1 Mil) will drop a little and that the properties below
500K will increase in value due to increased/continuous demand.
If that happens, then the prices of properties above 500K will be pushed up
and we will probably see a more levelled property market right across Sydney.
Aceyducey said:
http://www.fallacyfiles.org/strawman.html
"Straw man" is one of the best-named fallacies, because it is memorable and vividly illustrates the nature of the fallacy. Imagine a fight in which one of the combatants sets up a man of straw, attacks it, then proclaims victory. All the while, the real opponent stands by untouched."
You have created the position "that it is impossible to make money from property" and assigned it to me. Then proceeded to knock it down. Usually people respond by trying to defend the straw man that was not their position in the first place. Instead I shall point out that you have resorted to intellectual dishonesty.
Please don't straw man me.
Mr Turkey
Turkey,
Look back at your post - you stated unequivocably that either property prices go down or the unit of measurement goes down. That was YOUR statement.
No straw manning going on here!
Maybe a misunderstanding though - what do you mean by that statement?
Go LB - keep that bust flag flying - even in the face of all the evidence to the contrary! (BTW with LB being in Brissie, having only ever owned one IP in Melbourne and his avowed interest being shares, I do wonder about the amount of time he's spent studying the Sydney market)
Cheers,
Aceyducey
Look back at your post - you stated unequivocably that either property prices go down or the unit of measurement goes down. That was YOUR statement.
No straw manning going on here!
Maybe a misunderstanding though - what do you mean by that statement?
Go LB - keep that bust flag flying - even in the face of all the evidence to the contrary! (BTW with LB being in Brissie, having only ever owned one IP in Melbourne and his avowed interest being shares, I do wonder about the amount of time he's spent studying the Sydney market)
Cheers,
Aceyducey
From which you derived (using invalid reasoning) your straw man statement:Aceyducey said:
And that's the one you set up to knock down this this statement:Aceyducey said:
Aceyducey said:
That is clearly a straw man. You have been caught out.
Aceyducey said:
Many times someone says something like "Property prices tend to shoot up and plateau. Then inflation catches up."? I have seen it on this forum. The statement that "Eventually either property goes down or the unit of measurement (dollar) goes down." is another way of saying it. "the unit of measurement (dollar) goes down" is linked to inflation. However my statement also allows for the possibility of the currency not going down. Instead asset prices can deflate.
Consider if people expect property prices to plateau how much currency devaluation (inflation) is being priced into the market and over what time frame is it expected to occur.
Mr Turkey
Mr Turkey said:
Never having seen this term before I went googling and found this fascinating site:
http://www.nizkor.org/features/fallacies/
From the site:
"A fallacy is, very generally, an error in reasoning. This differs from a factual error, which is simply being wrong about the facts. To be more specific, a fallacy is an "argument" in which the premises given for the conclusion do not provide the needed degree of support. A deductive fallacy is a deductive argument that is invalid (it is such that it could have all true premises and still have a false conclusion). An inductive fallacy is less formal than a deductive fallacy. They are simply "arguments" which appear to be inductive arguments, but the premises do not provided enough support for the conclusion. In such cases, even if the premises were true, the conclusion would not be more likely to be true."
The site presents 42 fallacies, of which Straw Man is one:
http://www.nizkor.org/features/fallacies/straw-man.html
Turkey,Mr Turkey said:
I still have no understanding of what you meant by your statement if not my interpretation.
Can you explain it in a different way?
Here's my understanding again:
The relationship between property prices & inflation has been discussed several times on this forum. The end conclusion has always been that property prices tend to increase at a rate greater than inflation.
As inflation is based on a (ever changing) basket of asset and service prices - including housing, and is adjusted by the party in power to best reflect the figures they wish to announce, there is little relationship, other than direction & rate of change, between the inflationary figures quoted by the government and the increase in what it costs someone to live each week.
Very few people I know of have on this forum stated that property prices will plateau and let inflation catch up. Many have commented that they believe that property prices will plateau in terms of CPI increases - in effect plateauing in REAL terms (taking inflation into effect).
This means that the value of the property in not subject to devaluation, but holds it value according to the measurements that economists use as REAL - ie versus inflation (or as you correctly put it the devaluation of the dollar).
Thus your comment that property prices either 'eventually go down' or the 'dollar devaluates' is, to my understanding, stating that you believe that property is not an asset where you can make real capital gains.
Your subsequent comments have done nothing to disabuse me of this impression from your comment, but have confused me both as to what you are trying to communicate AND what your purpose is in communicating what-ever-the-hell you're trying to say.
Please clarify further.
Cheers,
Aceyducey
Afternoon all,
IMHO what incentive is there?
You have a High Debt, Low Yield. A softening Market that is stretching people to their limit.
Oh ok There is the benefit of the under 500K value for first homebuyers getting up to 18K free stamp duty. Possible Cap growth in Lower valued properties - Maybe, Maybe Not.
Lets face it though, If you are just starting in Sydney Average income is around the 45K mark.
Lets say you want to buy in under the 500K value, How many 1st home owners are going to be able to comfortable afford a 400K plus debt with no tax breaks, Just I.O. on 400K based at 7% = $28,000 a year in interest.
Doesn't leave a great deal over unless you are in a DINK Situation.
I work for a Bank (One of the Big Four) and I would hate to see what will happen to this Probable roadkill if the interest rates move up.
This obviously has a flow on effect With Pricing bargains for those who have the capablities of supporting the highly negative gearing ratio that is prevalent in Sydney.
This is why we have not bought an IP in local Sydney and will not look towards doing so in the near future.
I am still annoyed (Putting it nicely) with the addition 2 1/4 % hike in exiting costs if you decide to sell your IP aswell.
Regards,
NAS
IMHO what incentive is there?
You have a High Debt, Low Yield. A softening Market that is stretching people to their limit.
Oh ok There is the benefit of the under 500K value for first homebuyers getting up to 18K free stamp duty. Possible Cap growth in Lower valued properties - Maybe, Maybe Not.
Lets face it though, If you are just starting in Sydney Average income is around the 45K mark.
Lets say you want to buy in under the 500K value, How many 1st home owners are going to be able to comfortable afford a 400K plus debt with no tax breaks, Just I.O. on 400K based at 7% = $28,000 a year in interest.
Doesn't leave a great deal over unless you are in a DINK Situation.
I work for a Bank (One of the Big Four) and I would hate to see what will happen to this Probable roadkill if the interest rates move up.
This obviously has a flow on effect With Pricing bargains for those who have the capablities of supporting the highly negative gearing ratio that is prevalent in Sydney.
This is why we have not bought an IP in local Sydney and will not look towards doing so in the near future.
I am still annoyed (Putting it nicely) with the addition 2 1/4 % hike in exiting costs if you decide to sell your IP aswell.
Regards,
NAS
Lots of incentives!!!not a sheep said:
Due to starting salary levels many people won't be able to buy for years - therefore a strong rental market well into the future.
Sydney is still growing (population-wise) and trend looks to continue long-term - therefore little risk of long-term downward price movements & guaranteed long-term property shortages (particularly for people who want a house not a unit).
Many investors are being scared off right now due to exit costs & new investors disinclined to enter due to high entry costs & land tax alterations, therefore a buyers' market (even more so than for the last few months).
If you want long-term CG with stable rental returns & are in a position where you can balance your portfolio with cashflow positive properties (maybe in NZ) or wear negative gearing for a minimum of 5 years, the outlook for Sydney is excellent!
I don't believe you can go wrong provided you follow a stringent due diligence process, don't buy units or too far out (I don't go by km but by travelling time....no more than 1hr to a major job centre - CBD/Parramatta/North Sydney by public transport or road).
CAVEAT: personally we're at the stage where CG is less important to us than chasing cashflow & diversifying our asset base well beyond property, so we're simply holding our Sydney portfolio for the time being & not looking for new opportunities there.
Cheers,
Aceyducey
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You go Girl!!
Hi OceanGirl
BV speak the truth re prices. I was looking for the "overpriced but going up anyhow" button.
It seems
If people are emplyed, they have money, and will spend what they have left after living lifestyle of their choice (the variable) to buy any home in most australian mindsets.
I always believe as a PPOR you should consider as well
1..the CGT free status?
2..the recent SD free status?
3..can you save quicker than the market moves?
4. is where YOU want to buy (Bondi) going to go down?
and this is the real bit....
5. are you REALLY saving any money renting or does that new pair of black boots in the shoe cupboard represent part of the dreamed PPOR?
If you talking Bondi the only way for it to go down is:
1 if investors sell out to chase higher return (say fixed interest so rate have gone up, could happen)
2. demand for Bondi drops , very unlikely unless global warming moves the beach inland!
3. supply is greatly increased due to change in council FSR density for unit ( very, very unlikely, in fact, global warming is more likely)
So my advice, get bank finance OKED, find the smallest , well kept walk unit you can afford and buy it. In 3 years 2007 you will be laughing.
Subject to the global warming bit.
Regards, Peter 147
BV said:
Hi OceanGirl
BV speak the truth re prices. I was looking for the "overpriced but going up anyhow" button.
It seems
If people are emplyed, they have money, and will spend what they have left after living lifestyle of their choice (the variable) to buy any home in most australian mindsets.
I always believe as a PPOR you should consider as well
1..the CGT free status?
2..the recent SD free status?
3..can you save quicker than the market moves?
4. is where YOU want to buy (Bondi) going to go down?
and this is the real bit....
5. are you REALLY saving any money renting or does that new pair of black boots in the shoe cupboard represent part of the dreamed PPOR?
If you talking Bondi the only way for it to go down is:
1 if investors sell out to chase higher return (say fixed interest so rate have gone up, could happen)
2. demand for Bondi drops , very unlikely unless global warming moves the beach inland!
3. supply is greatly increased due to change in council FSR density for unit ( very, very unlikely, in fact, global warming is more likely)
So my advice, get bank finance OKED, find the smallest , well kept walk unit you can afford and buy it. In 3 years 2007 you will be laughing.
Subject to the global warming bit.
Regards, Peter 147
Interesting how the mood has changed in just six months.
Also interesting is how people are now able to make bearish comments on this forum without getting jumped on by everyone (except by one person of coarse who continually makes personal attacks on those who simply wish to contribute - and no, I didnt name him so don't pull this post like you did the last GeoffW- let the comments speak for themselves)
I personally have positioned my portfollio to be cash flow neutral (sold off a few growth properties for astronomical gain) and will wait it out till the good deals come along. After all- you make your money when you buy AND when you sell. This process started 10 months ago when others were jumping in at the top of the market, so eager to buy that they didnt even do property inspections, let alone study the numbers or try to haggle. I hope these eagerbeavers weren't encouraged to do so by comments made by one or two overly bullish "fanatics" on this forum.
L.B. I miss your contributions. Please come back.
Also interesting is how people are now able to make bearish comments on this forum without getting jumped on by everyone (except by one person of coarse who continually makes personal attacks on those who simply wish to contribute - and no, I didnt name him so don't pull this post like you did the last GeoffW- let the comments speak for themselves)
I personally have positioned my portfollio to be cash flow neutral (sold off a few growth properties for astronomical gain) and will wait it out till the good deals come along. After all- you make your money when you buy AND when you sell. This process started 10 months ago when others were jumping in at the top of the market, so eager to buy that they didnt even do property inspections, let alone study the numbers or try to haggle. I hope these eagerbeavers weren't encouraged to do so by comments made by one or two overly bullish "fanatics" on this forum.
L.B. I miss your contributions. Please come back.
John,JFEWSTER said:
Please don't keep singling me out on this.
If a post is pulled, it may be pulled by any of the mods. If I pull something, it's discussed by all the mods. Many pulled posts have been reinstated after discussion.
I gave you the courtesy of letting you know why your post was pulled. That was obviously not a good thing to do.
My appologies Geoffw
Yes I was appreciative that you made the effort to contact me and explain why you pulled the post.
I agreed with you at the time that I was out of line, even though I was simply jumping on the bandwagon.
Who ever pulled the second post didn't own up to it so I wrongly pressumed it was you again. Sorry mate! Maybe that is a forum shortcoming that sim could fix?
As I have stated previously, my only intention is to stick up for the forum because I have gained so much from it (at least 1/2 a mill in the Adelaide market ) and I dont think it is good to have one or two people scaring others away simply because they choose to express a "different" opinion.
I have no doubt that I'm not the only person to feel this way, but unlike some who have recently been forced to "defend" themselves, due to the fact that they find it easier to be "polite" (or have too much to lose to get into a bitch fight), I have nothing to lose and will speak my mind if I so choose.
Cheers!
Yes I was appreciative that you made the effort to contact me and explain why you pulled the post.
I agreed with you at the time that I was out of line, even though I was simply jumping on the bandwagon.
Who ever pulled the second post didn't own up to it so I wrongly pressumed it was you again. Sorry mate! Maybe that is a forum shortcoming that sim could fix?
As I have stated previously, my only intention is to stick up for the forum because I have gained so much from it (at least 1/2 a mill in the Adelaide market
) and I dont think it is good to have one or two people scaring others away simply because they choose to express a "different" opinion.I have no doubt that I'm not the only person to feel this way, but unlike some who have recently been forced to "defend" themselves, due to the fact that they find it easier to be "polite" (or have too much to lose to get into a bitch fight), I have nothing to lose and will speak my mind if I so choose.
Cheers!
