Outer inner west of Sydney

[belvoir]

When interests rates rise the outer inner west of Sydney will be hit hardest.

The outer inner west of Sydney for me is:

Croydon park
Burwood Heights
Homebush
Strathfield
Haberfield
Belfield
Ashbury
Campsie

Properties in these areas are selling at similar prices to suburbs such as Sans Souci, Caringbah or Five Dock. Yet the above listed suburbs are only 5 minutes away from suburbs such as Wiley Park, Belmore and yet they sell at a discount of 30%-40%.

Take for example the below properties:

23 Michell Street, Croydon park
Sold April 2014 - $1,225,000
Rented out August 2014 - $400
That?s a net yield of 1.16% costing $457 a week to hold with interest only loan

178 Brighton Avenue Campsie
Sold April 2014 - $1,000,000
Rented out June 2014 - $600
That?s a net yield of 2.37% costing $213 a week to hold with interest only loan

21 Seymour Parade, Belfield
Sold April 2014 - $965,000
Rented out June 2014 - $570
That?s a net yield of 2.31% costing $214 a week to hold with interest only loan

29 Fairhold Street, Strathfield
Sold May 2014 - $1,696,000
Rented out June 2014 - $875
That?s a net yield of 2.18% costing $435 a week to hold with interest only loan


These areas are all selling with circa 3% net yields at best. When interest rates rise it will be costing these owners anywhere between $20k - $40k out of pocket after tax!!. With interest rates rise there is a double hit firstly to rising prices and secondly to repayments. If these owners do not see growth then they lose the incentive to keep the property and will try to sell. This will bring an over supply of properties onto the market exacerbating price falls and in turn increasing the numbers of properties hitting the market.

When interest rates rise I think it will be a blood bath in these areas with a lot of mum and dad investors being hit hard.

 

[Redom]

Interesting numbers and suggestions. I know quite a few sophisticated investors who have the same thought process as you and have sold off recently or are in the process of doing so.

I'm not so sure what the trigger for a price correction will be - not sure if the beggining of a the tightening cycle will do it, but can definitely have that effect. Really depends on the leverage profile of the people who've bought into those areas.

I think you may be able to find similar stories about a number of areas that have experienced incredible growth over the last 18 months.

 

[nhg]

I'm doing a short contract for a council in one of those areas and am focusing on works in a few select streets.

I was surprised to find it was not uncommon for 3-4 houses in close proximity being owned by one family. I found a lot of the rentals were just people holding onto them until they wished to move in as their kids were married or family expanded.

This was common amongst some other similar demographic areas such as Eastwood/Epping.

As far as an investment strategy went, they weren't so much waiting for house prices to go up but for the land to be rezoned to a higher density.

eg. my friends parents place went from $1M to $3M since July due to a new rezoning in the area. They have another house a couple of minutes walk away and are waiting for a rezoning there too.

 

[Propertunity]

When interests rates rise the outer inner west of Sydney will be hit hardest.

Why

....These areas are all selling with circa 3% net yields at best.

Your examples are of houses well over the $1M price point. I'd venture to say that most investors do not buy IPs for $1M and of those that do, I'm pretty certain they can cope with 3% rental yields.

When interest rates rise it will be costing these owners anywhere between $20k - $40k out of pocket after tax!!.

That's petty cash for some investors, really. The are not buying for rental yield but for capital growth.

With interest rates rise there is a double hit firstly to rising prices and secondly to repayments. If these owners do not see growth then they lose the incentive to keep the property and will try to sell. This will bring an over supply of properties onto the market exacerbating price falls and in turn increasing the numbers of properties hitting the market.

What you are describing is the natural boom-bust cyclical nature of investment markets, including the property market. It is nothing new, same ole. same ole.

When interest rates rise I think it will be a blood bath in these areas with a lot of mum and dad investors being hit hard.

Very emotive words but like any investment strategy, the participants in the market need to have an exit strategy, or a strategy to hold for the long term to ride out the cycle.

 

[see_change]

Why

Your examples are of houses well over the $1M price point. I'd venture to say that most investors do not buy IPs for $1M and of those that do, I'm pretty certain they can cope with 3% rental yields.

That's petty cash for some investors, really. The are not buying for rental yield but for capital growth.

What you are describing is the natural boom-bust cyclical nature of investment markets, including the property market. It is nothing new, same ole. same ole.

Very emotive words but like any investment strategy, the participants in the market need to have an exit strategy, or a strategy to hold for the long term to ride out the cycle.

Well put propertunity . Nice logical summary .

Cliff

 

[Scott No Mates]

The outer inner west of Sydney for me is:

Croydon park
Burwood Heights
Homebush
Strathfield
Haberfield
Belfield
Ashbury
Campsie

Properties in these areas are selling at similar prices to suburbs such as Sans Souci, Caringbah or Five Dock. Yet the above listed suburbs are only 5 minutes away from suburbs such as Wiley Park, Belmore and yet they sell at a discount of 30%-40%.

Big difference in the demographic of Haberfield to Strathfield, let alone Campsie/Belmore/Wiley Park. Most from what I would class inner west (includes Haberfield, Burwood Heights, Strathfield, Homebush & Five Dock) wouldn't venture into Belfield, Campsie or Wiley Park.

Haberfield/Burwood Heights are heritage protected suburbs with regular 50 x 150' blocks with very few units (all pre 1970's), whereas Five Dock is much denser.

Haberfield has also benefitted from the light rail project and will always be only 7 km from the city (even if the bus takes 45 minutes).

Ashfield, Burwood, Strathfield, Homebush are on the main western rail line whereas Belfield, Campsie, Wiley Park are on the less regular Bankstown line.

Strathfield, Five Dock, Croydon all have major private schools (and the ACU at Strathfield).

It would have to be a pretty dark day in the Economy for areas like 'my' inner west, to come under pressure and suffer major price corrections.

Plenty points of difference.

 

[belvoir]

Understood Propertunity

However, not everyone is as forward planning as you are.

The alarm bells go off when interest rates go up and the market stagnates or even falls.

With interest rates going up as well as the high maintenance cost on these older houses will make it hard to hold. Its all fine and dandy when the market is rising but when it is flat the incentive to continue pulling money out of your pocket to just hold the property falls off quickly.

With such poor yields and better alternatives elsewhere I can see investor demand drying up quiet quickly as soon as there is a sniff of an interest rate rise.

Also, $1,000,000 in Sydney for an investment property is quiet normal to the average boomer who purchased their house in yesteryear for $200k and now has it valued at $1,000,000+

 

[Redom]

Part of this will depend on the ability to absorb interest rate increases. Whether the recent price gains are fuelled by credit expansion, or more a reflection of fundamentals.

The regulators have their finger on the pulse on this - to date, they are concerned but not hitting hte panic button.

Not sure its those areas that would be first hit with a shock interest rate change either...likely to be areas even further west (despite yeilds, etc). More investor activitiy there too.

Cheers,
Red

 

[see_change]

Belvoir

Do you know hobo jo ? If not , you should introduce your self . You have things in common .

Do you have any IP's ?

Cliff

 

[belvoir]

Belvoir

Do you know hobo jo ? If not , you should introduce your self . You have things in common .

Do you have any IP's ?

Cliff

I do child care centres, long reliable 30 year leases, 10% Net minimum yields. Banks love them as collateral, i think they secretly wish I go bust so they can take them off me.

Centres in inner Sydney are now almost trading at 5% yields, I saw one in Haberfield go for 3%.

 

[neK]

belvoir, how well do you actually know these areas?
Have you caught a train at night to these areas?

Something tells me you've never lived in these areas and are simply look at statistics. There are lot of things stats do not show.

Catch a train at 6:30pm on a weeknight (on different nights of course) from Town hall station and head to Burwood, Strathfield, Campsie, Wiley Park then report back

 

[Scott No Mates]

Centres in inner Sydney are now almost trading at 5% yields, I saw one in Haberfield go for 3%.

I followed that one as well (and picked the sale price within a few $000's). Whether it was highest and best use is debatable however it would be preferable to dealing with Ashfield council for a DA for a subdivision and second dwelling (for an abysmal residential return).

Also, $1,000,000 in Sydney for an investment property is quiet normal to the average boomer who purchased their house in yesteryear for $200k and now has it valued at $1,000,000+

You'd be hard pressed to find anything (including a semi) for less than $1.2m in Haberfield, Five Dock, Ashfield etc. Not just baby boomers who have properties in these areas but DINKs and DINCKs as well - rents definitely aren't spectacular (but nor is the quality of the stock compared to many other areas).

Catch a train at 6:30pm on a weeknight (on different nights of course) from Town hall station and head to Burwood, Strathfield, Campsie, Wiley Park then report back

if you survive.

 

[neK]

Whats DINCKs?

I googled the answer and got this. LOL
dinck is a cross between a gink and a n00b. Often used t insult people with X300 SE's.

 

[Scott No Mates]

Whats DINCKs?

I googled the answer and got this. LOL
dinck is a cross between a gink and a n00b. Often used t insult people with X300 SE's.

Dual income, no chance of kids (alternative lifestylers).

 

[Paul@PFI]

When interests rates rise the outer inner west of Sydney will be hit hardest.

The outer inner west of Sydney for me is:

Croydon park
Burwood Heights
Homebush
Strathfield
Haberfield
Belfield
Ashbury
Campsie

Properties in these areas are selling at similar prices to suburbs such as Sans Souci, Caringbah or Five Dock. Yet the above listed suburbs are only 5 minutes away from suburbs such as Wiley Park, Belmore and yet they sell at a discount of 30%-40%.

Take for example the below properties:

23 Michell Street, Croydon park
Sold April 2014 - $1,225,000
Rented out August 2014 - $400
That?s a net yield of 1.16% costing $457 a week to hold with interest only loan

178 Brighton Avenue Campsie
Sold April 2014 - $1,000,000
Rented out June 2014 - $600
That?s a net yield of 2.37% costing $213 a week to hold with interest only loan

21 Seymour Parade, Belfield
Sold April 2014 - $965,000
Rented out June 2014 - $570
That?s a net yield of 2.31% costing $214 a week to hold with interest only loan

29 Fairhold Street, Strathfield
Sold May 2014 - $1,696,000
Rented out June 2014 - $875
That?s a net yield of 2.18% costing $435 a week to hold with interest only loan


These areas are all selling with circa 3% net yields at best. When interest rates rise it will be costing these owners anywhere between $20k - $40k out of pocket after tax!!. With interest rates rise there is a double hit firstly to rising prices and secondly to repayments. If these owners do not see growth then they lose the incentive to keep the property and will try to sell. This will bring an over supply of properties onto the market exacerbating price falls and in turn increasing the numbers of properties hitting the market.

When interest rates rise I think it will be a blood bath in these areas with a lot of mum and dad investors being hit hard.

Yield is being driven down to match the cash rate. Its a struggle to get 3%. There are buyers who have plenty to spend and yield isn't what they look at. Most property sales are owner occupied and I don't believe there are two markets - Owner and investor and there is a different yield.

Be careful of making observations...You might not be seeing the same thing. Some of these rentals may be intended residences. One day soon. Or later.
You don't know how much (if any) is borrowed.

 

[brisbanebud]

I bought in Mintaro Avenue, Strathfield at the beginning of last year for 980K and rented for 675per week. Last month my property was valuated for 1.3M by bank. I live in Homebush, more to North Strathfield, whose price is also doubled in last 4 years.

 

[devank]

I walk 20 mins to Strathfield station from Hombush.
TBH I don't remember seeing a house with a 'For Rent' sign. High-end properties are predominantly owner occupied.
This area is kinda of 'doctors den'. They can easily travel to most major hospitals. Their kids have access to good private schools.
Interest rate raises are unlikely to cause much trouble here.

 

[belvoir]

I bought in Mintaro Avenue, Strathfield at the beginning of last year for 980K and rented for 675per week. Last month my property was valuated for 1.3M by bank. I live in Homebush, more to North Strathfield, whose price is also doubled in last 4 years.

Good timing, my point is what happens when interest rates rise. Your costs to hold will increase.

Lets say its worth $1,300,000 now but interest rates go up 1% over the next year. Unless you are fixed your costs increase and prices fall a little to $1,100,000. No biggie, you paid $980,000, but others begin to liquidate as the cost becomes too hard and they are close to negative equity and prices drop a further $100k to $1,000,000 and your now under water after accounting for stamp duty/vacancies/repairs etc...

Just as the few good sales increase prices for the suburbs the exact opposite happens when prices fall, the few sales decrease values for all properties.

The party will continue until interest rates begin to rise.

 

[neK]

All good, sounds like you want the price of strathfield/croydon park/ burwood etc to fall so you can buy in.

These people buying houses in strathfield for $1m+, say interest rates increase by 5%, that's an extra $50,000. People here still aren't worried because they have that much disposal income.

There's a reason why when Today Tonight / A Crappy Affair run stories about "mortgage stress" suburbs you listed don't make it into the show.

Keep waiting

Here are some more stats seeing you love quant

Blacktown

• 62% of the people living in Blacktown are employed full time, 24.3% are working on a part time basis. Blacktown has an unemployment rate of 7.8%.
• The main occupations of people from Blacktown are Clerical and Administrative Workers 17.7%, Professionals 15.8%, Technicians and Trades Workers 14%, Labourers 11.9%, Machinery Operators And Drivers 11.7%, Sales Workers 9.3%, Community and Personal Service Workers 9.3%, Managers 7.6%.
• The median individual income is $507.00 per week and the median household income is $1174.00 per week.
• 26.6% of homes are fully owned, and 35.3% are in the process of being purchased by home loan mortgage. 34.5% of homes are rented.
• The median rent in Blacktown is $320 per week and the median mortgage repayment is $1907 per month.

Strathfield

• 56.9% of the people living in Strathfield are employed full time, 32.1% are working on a part time basis. Strathfield has an unemployment rate of 6.1%.
• The main occupations of people from Strathfield are Professionals 33%, Clerical and Administrative Workers 14.8%, Managers 12.3%, Technicians and Trades Workers 10%, Sales Workers 9.6%, Community and Personal Service Workers 7.8%, Labourers 7.3%, Machinery Operators And Drivers 2.5%.
• The median individual income is $548.00 per week and the median household income is $1470.00 per week.
• 33% of homes are fully owned, and 26.1% are in the process of being purchased by home loan mortgage. 36.7% of homes are rented.
• The median rent in Strathfield is $420 per week and the median mortgage repayment is $2500 per month.

 

[Scott No Mates]

Those who own in the better areas are less likely to become forced sellers - if it were the case, we would have seen Steven Keen's predictions of 20-40% drops in prices come true over the GFC. Most tend to have a reasonable control over their finances, don't live from pay packet to pay packet and a lower % of properties owned by DOH.

These areas have reluctant sellers, not forced sales.

Quick comparison of demographics:
Strathfield
56.9% of the people living in Strathfield are employed full time, 32.1% are working on a part time basis. Strathfield has an unemployment rate of 6.1%.
The main occupations of people from Strathfield are Professionals 33%, Clerical and Administrative Workers 14.8%, Managers 12.3%, Technicians and Trades Workers 10%, Sales Workers 9.6%, Community and Personal Service Workers 7.8%, Labourers 7.3%, Machinery Operators And Drivers 2.5%.
The median individual income is $548.00 per week and the median household income is $1470.00 per week.
33% of homes are fully owned, and 26.1% are in the process of being purchased by home loan mortgage. 36.7% of homes are rented.
The median rent in Strathfield is $420 per week and the median mortgage repayment is $2500 per month.

Belfield
59.9% of the people living in Belfield are employed full time, 27.1% are working on a part time basis. Belfield has an unemployment rate of 6%.
The main occupations of people from Belfield are Professionals 18.7%, Clerical and Administrative Workers 18.3%, Technicians and Trades Workers 16.2%, Managers 11.3%, Sales Workers 9.7%, Community and Personal Service Workers 8.8%, Labourers 8.6%, Machinery Operators And Drivers 6.1%.
The median individual income is $474.00 per week and the median household income is $1135.00 per week.
35.4% of homes are fully owned, and 33.9% are in the process of being purchased by home loan mortgage. 26.7% of homes are rented.
The median rent in Belfield is $320 per week and the median mortgage repayment is $2275 per month.

Wiley Park
52.5% of the people living in Wiley Park are employed full time, 29.5% are working on a part time basis. Wiley Park has an unemployment rate of 11.3%.
The main occupations of people from Wiley Park are Labourers 15.9%, Professionals 14.5%, Technicians and Trades Workers 13.4%, Machinery Operators And Drivers 12.4%, Clerical and Administrative Workers 11.8%, Sales Workers 11.5%, Community and Personal Service Workers 11.4%, Managers 6.2%.
The median individual income is $370.00 per week and the median household income is $876.00 per week.
21% of homes are fully owned, and 26.2% are in the process of being purchased by home loan mortgage. 48.3% of homes are rented.
The median rent in Wiley Park is $295 per week and the median mortgage repayment is $1600 per month.
Haberfield
60.4% of the people living in Haberfield are employed full time, 30.2% are working on a part time basis. Haberfield has an unemployment rate of 4.1%.
The main occupations of people from Haberfield are Professionals 33.6%, Managers 17.1%, Clerical and Administrative Workers 15.1%, Technicians and Trades Workers 9.6%, Sales Workers 8.9%, Community and Personal Service Workers 7.8%, Labourers 4.4%, Machinery Operators And Drivers 2.2%.
The median individual income is $656.00 per week and the median household income is $1730.00 per week.
49.9% of homes are fully owned, and 28% are in the process of being purchased by home loan mortgage. 19.4% of homes are rented.
The median rent in Haberfield is $390 per week and the median mortgage repayment is $2600 per month.

(Source - onthehouse.com.au)