Recipe for Sydney BOOM

[Sunder]

Can you say where in Sydney? As most know, Sydney is a tale of many markets. Some rising, some staying flat some falling through the floor...all at the same time.

Suburb, postcode, state, type, yield, median, 1year, 2year, 3year

Guildford 2161 NSW Unit 5.9% $226,000 -14% -29% -32%

Woolooware 2230 NSW Unit 4.8% $310,000 -42% -8% -20%

Taren Point 2229 NSW House 3.5% $575,000 -37% -22% -16%

Kingsgrove 2208 NSW Unit 4.7% $258,000 -29% -37% -3%

Sylvania 2224 NSW Unit 4.2% $395,000 -25% -28% -23%

St Leonards 2065 NSW House 2.9% $855,000 -16% -16% n/a

Tried to pick some suburbs from each region of sydney, and a mix of houses and units.

I was spoilt for choice for examples...

 

[Jacque]

Suburb, postcode, state, type, yield, median, 1year, 2year, 3year

Guildford 2161 NSW Unit 5.9% $226,000 -14% -29% -32%

Woolooware 2230 NSW Unit 4.8% $310,000 -42% -8% -20%

Taren Point 2229 NSW House 3.5% $575,000 -37% -22% -16%

Kingsgrove 2208 NSW Unit 4.7% $258,000 -29% -37% -3%

Sylvania 2224 NSW Unit 4.2% $395,000 -25% -28% -23%

St Leonards 2065 NSW House 2.9% $855,000 -16% -16% n/a

Tried to pick some suburbs from each region of sydney, and a mix of houses and units.

I was spoilt for choice for examples...

Hi Sunder

Just clarifying your stats here. Are the last 3 columns all cap growth rates for the last 3yrs? (all negative?) What's your source?

I can't comment on the southern suburbs but can tell you that such stats can be wildly inaccurate due to the small no. of sales within a particular category. Eg St Leonards houses sample is too small to even consider, as the area is largely units and there's less than 20 freestanding house sales p/a (Residex last yr 17 sales in total for this suburb)
Stats don't always tell the full story, as you already know.

 

[Sunder]

Hi Sunder

Just clarifying your stats here. Are the last 3 columns all cap growth rates for the last 3yrs? (all negative?) What's your source?

I can't comment on the southern suburbs but can tell you that such stats can be wildly inaccurate due to the small no. of sales within a particular category. Eg St Leonards houses sample is too small to even consider, as the area is largely units and there's less than 20 freestanding house sales p/a (Residex last yr 17 sales in total for this suburb)
Stats don't always tell the full story, as you already know.

1. Yes it is. Source is Australian Property Monitors, as filtered through this database:

http://www.investsmart.com.au/property/search.asp#SharesTable

2. St Leonards might be a bad choice. I worked there for a few years, and there are a reasonable amount of houses, but you're right... Not enough to have statistical reliability.

 

[Peter 14.7]

I disagree. Only isolated parts of Sydney have dropped constantly from 2003, being outer and South West. Northen Suburbs, Eastern Suburbs and Inner West have held up until recently where they have began levelling out in the last 6 months.

I think low interest rates, the booming stock market/economy and to a lesser extent the resource boom were responsible for the demand holding up in the inner/medium areas.

When the music stopped on 3 out of the above 4 it dampened demand there as well. I don't agree that the major boom that stopped in November 03 was the peak of the market.

Inner City was not immune

In July 2003, I sold an IP, thin but longish 2 bed Terrace with study ( room you walk though to get to beds) , no robes, only 3.2 wide, open plan living dining with kitchen, bathroom, cosmetic reno, old apliances, bath, etc, east west, low part of street, shaded and dark, for $570k to investor looking to flip. At the time rent to great tenant at $400 a week and that was above market.

Investor ( she) put back on the market in mid 2004 asking over $630k. Not a drop of interest. My good tenant had left, after she raised rent to $420 and he walked, she persisted and had three months with no tenant. Eventually re-reanted for $360. I know this as I lived around the corner and called agent after seeing sign and once he found out I was previous owner he was upfront that she was dreaming!

In April 2005 I sold, literally around the corner, 75m away, my PPOR , this time larger 2 bed, Terrace but no study, 3m robes both rooms, 3.6m wide, open plan living and dining, ultra modern kitchen and bathroom small rear deck. North aspect to deck so very light and bright. Immaculate condition in for $521k and struggled to get that. A drop of 15%.

Also

Same agent, same auctioneer and same marketing campaign.

Difference:

• First sold to investor against other investors.
• Second sold to Owner occupiers against OO.
• First auction 10 bidders going up in $10k bids sold in 7 minutes.
• Second 4 bidders, final bids in $500 (got to $100 at one stage) stalled 4 times, took 30 minutes.

I still say Nov. 2003 was the top and only just but I respect your opinon.

Regards, Peter 14.7

 

[Jacque]

Actually if you look at the stats (even on that filter from investsmart, which is a collation of APM and Domain results so perhaps not all that reliable!) there's quite a no. of suburbs that have held up with positive growth in the last 36mths. Some of these (far too many to list) include:

Houses
Croydon Cherrybrook Balmain Gladesville Ryde Crows Nest Lane Cove Roseville Chase Pennant Hills Beecroft Epping Thornleigh Castle Hill

Units
Artarmon Lane Cove North Sydney Cremorne Waverton Wollstonecraft

So much for the theory of the entire Sydney market falling/dropping in price- it's simply a myth and people fall for the rhetoric all the time as they listen to sensationlist media beat ups (all designed to sell news). Sydney is a diverse city, made up of many sub markets and even within separate suburbs. As Scott's pointed out, even across the road can make a difference in price and perceived "value".

 

[Jacque]

I still say Nov. 2003 was the top and only just but I respect your opinon.

Regards, Peter 14.7

It may well have been in the inner ring, Peter, and I agree with you here.
Inner West, Lower and parts of Upper North Shore, Eastern suburbs- the usual suspects.

However, like a typical ripple the middle and outer ring suburbs were still peaking in mid-late 2004 with some incredibly stupid prices paid for properties. I have a classic example of a Hills house (no improvements made during this time to the property) with a sales history:

March 03 sold for $344K
May 04 sold for $475K (yes they overpaid but the market was a feeding frenzy at the time and anything under $500K was being snapped up)
June 06 sold for $376K (at auction to a largely disinterested crowd when mood was low)

Today I would estimate this house to be worth somewhere in the vicinity of $460-480K. The market took a real nosedive in this particular suburb during 05-06, when perhaps the over enthusiastic 03-04 purchasers were cooling their heels and mulling over their hasty choices.
Today the mood is a little different and though 08 still has some real bargains in this suburb it's interesting to look back on the past and see if the bottom hasn't already passed us by....

As I said, Sydney's a big place. In the end, if you can afford it, the cashflow looks good and you want to start building a portfolio for the longterm, then just do it. However, NOT buying in a boom but instead during a low period (which is the case right now), if you can do it, is definitely the smarter option.

 

[Sunder]

Actually if you look at the stats (even on that filter from investsmart, which is a collation of APM and Domain results so perhaps not all that reliable!) there's quite a no. of suburbs that have held up with positive growth in the last 36mths. Some of these (far too many to list) include:

...

So much for the theory of the entire Sydney market falling/dropping in price- it's simply a myth and people fall for the rhetoric all the time as they listen to sensationlist media beat ups (all designed to sell news).

I agree - to date. But Evand was looking for specific examples of falls. Wasn't claiming state wide drops.

However, if interest rates stay up, or even rise, I expect to see falls in those areas as well. Perhaps last, but eventually. Those areas you listed are all premium suburbs. Except maybe Croydon. You'd have to pay me to live there... Then give be a gun and a flak jacket... And maybe a bodyguard... I wonder what the heck happened there? Drug dealers making a killing (figuratively and literally??) and pushing up house prices there?

 

[JamesGG]

No, cash is the best investment at the moment. Or, if you choose to short, you can get paid interest as well, on top of capital gain.

Hiya,

IMHO, the 'best investment' is never cash. Cash investments pay a set rate and there's sweet FA that I can do to influence it.

At least with property investment (in Sydney or elsewhere!), share trading, and business investments, the level of income and capital gain is at least somewhat under my control.

And damned if I'm going to settle for 8% pa.

Cheers

James.

 

[touchingcloth]

Hiya,

IMHO, the 'best investment' is never cash. Cash investments pay a set rate and there's sweet FA that I can do to influence it.

At least with property investment (in Sydney or elsewhere!), share trading, and business investments, the level of income and capital gain is at least somewhat under my control.

And damned if I'm going to settle for 8% pa.

Cheers

James.

What you are saying sounds so familiar to what my brother was saying in the UK.

He had his appartment up for sale for £205K. He had an offer for £195 but turned it down. Now, 12 months later, an appartment in the same block has sold for £160K. Wih hindsight, cash looks to appealing to him.

His capital gains have gone down the toilet. So have his mortgage payments.

So much for control. The thing is that once the market starts moving against you, it is usually way too late to do anything about it.

 

[asdf]

He had his appartment up for sale for £205K. He had an offer for £195 but turned it down. Now, 12 months later, an appartment in the same block has sold for £160K. Wih hindsight, cash looks to appealing to him.

The UK economy is in the toilet and theres only one way water can go in a dunny and fast. If he gets out now, he may still walk away with a small profit.

 

[evand]

You might change your mind when you've seen some rough times and we might be heading into some now.

Its a very safe, defensive position when things are looking a bit stormy, like now.

Its all upside and no downside. Now, admittedly the upside isn't huge but there is NO downside. Which is why smart people put their money there in uncertain times. There is an old saying rich people use and its "never, ever run out of money"

Which means if you run out of money you are out of the game. And sometimes you need to take a defensive position until the storm clouds pass to protect your capital.

I used to think the same way about 8% cash until i realised that some investors and even business owners do a lot of work, have a lot of stress for not much more than 8% as a net return.

I just put a fair whack of cash in at 8% and its great seeing it compound every month and i don't have to do a single thing or even think about it.

Hiya,

IMHO, the 'best investment' is never cash.

And damned if I'm going to settle for 8% pa.

Cheers

James.

 

[FelixL]

If I have a lot of cash I would probably buy out a property with rental yield above 6%. The after tax return isn't that far off the cash return anyway, with that you have a shot at capital gain as well.

Sure cash is more liquid than property, but with 100% equity it won't be hard to get a loan if needed no matter how bad the credit market is.

You might change your mind when you've seen some rough times and we might be heading into some now.

Its a very safe, defensive position when things are looking a bit stormy, like now.

Its all upside and no downside. Now, admittedly the upside isn't huge but there is NO downside. Which is why smart people put their money there in uncertain times. There is an old saying rich people use and its "never, ever run out of money"

Which means if you run out of money you are out of the game. And sometimes you need to take a defensive position until the storm clouds pass to protect your capital.

I used to think the same way about 8% cash until i realised that some investors and even business owners do a lot of work, have a lot of stress for not much more than 8% as a net return.

I just put a fair whack of cash in at 8% and its great seeing it compound every month and i don't have to do a single thing or even think about it.

 

[JamesGG]

His capital gains have gone down the toilet. So have his mortgage payments.

So much for control. The thing is that once the market starts moving against you, it is usually way too late to do anything about it.

Hiya,

I think you, and possibly a few others, may have missed my point...

It looks like your brother had a passive investment. One that requires the market to work in his favour in order to make money.

Given the economic climate, perhaps cash is a better investment than ordinary buy-and-hold investment.

However, I have seen god-knows-how-many UK property shows on tv where someone has made an active investment and made money. More than 8%, in many cases.

That's a better investment than cash.

Through share trading, I have made about 27% this last financial year, in a downtrending market. My businesses made a return higher than I am smart enough to work out, since little cash was invested in those to begin with. And my properties return a net (capital plus yield) of about 12% for the year.

That's a better investment than cash.

One of those properties, though, is a passive buy-and-hold unit. Cash was a better investment than that one.

Lesson learned. And, I won't be doing that again

Cheers

James.

 

[Land]

Isn't one of the main ideas behind investing to buy in times of D & G/low and then enjoy the ride up, and the problem is that novice investors only buy towards the top and get their fingers burnt because they end up with little or no CG?

What's the point of parking your cash when there are bargains everywhere?

Are those people who are parking their cash doing so because they are so confident that they can pick the bottom and then buy in at the 'right time'?

I was a novice who bought my first IP in 2004 and then realised soon after that the market had topped. I also made the novice mistake of trying to sell quickly to limit my loss. But I couldn't sell and as I watched prices all around me dropping, I realised that rather than selling, I should be buying up all the bargains beginning to appears around me, in anticipation of the next upswing.

This way, my portfolio wont miss the first year or so of upswing that I reckon all those parking in cash will. Of course, my cash flow is well under control, so I'm fine to hold on.

 

[touchingcloth]

Hiya,

I think you, and possibly a few others, may have missed my point...

It looks like your brother had a passive investment. One that requires the market to work in his favour in order to make money.

Given the economic climate, perhaps cash is a better investment than ordinary buy-and-hold investment.

However, I have seen god-knows-how-many UK property shows on tv where someone has made an active investment and made money. More than 8%, in many cases.

That's a better investment than cash.

Through share trading, I have made about 27% this last financial year, in a downtrending market. My businesses made a return higher than I am smart enough to work out, since little cash was invested in those to begin with. And my properties return a net (capital plus yield) of about 12% for the year.

That's a better investment than cash.

One of those properties, though, is a passive buy-and-hold unit. Cash was a better investment than that one.

Lesson learned. And, I won't be doing that again

Cheers

James.

Those UK property programs which are being shown on Australian TV are around 3-4 years old!!!!!

Shares can be quick in and out. Property is a long term game. After you've paid all associated purchasing and selling costs: Stamp Duty, RE commission etc, you would do well to be infront in the short term during a stagnant market.

Don't get me wrong, I'm all for investing in property, but why do it now while the trend is not clear?

 

[Ausprop]

Isn't one of the main ideas behind investing to buy in times of D & G/low and then enjoy the ride up, and the problem is that novice investors only buy towards the top and get their fingers burnt because they end up with little or no CG?

What's the point of parking your cash when there are bargains everywhere?

Are those people who are parking their cash doing so because they are so confident that they can pick the bottom and then buy in at the 'right time'?

I was a novice who bought my first IP in 2004 and then realised soon after that the market had topped. I also made the novice mistake of trying to sell quickly to limit my loss. But I couldn't sell and as I watched prices all around me dropping, I realised that rather than selling, I should be buying up all the bargains beginning to appears around me, in anticipation of the next upswing.

This way, my portfolio wont miss the first year or so of upswing that I reckon all those parking in cash will. Of course, my cash flow is well under control, so I'm fine to hold on.

i think it needs to be cash or very low leverage tho. It's being forced to sell into a declining market that is the problem

 

[Sunder]

Its all upside and no downside. Now, admittedly the upside isn't huge but there is NO downside.

Tel that to the Zimbabweans.

What's the point of parking your cash when there are bargains everywhere?

Because 4 months ago, bank shares looked like a bargain.

You think we've seen bottom? All I think we've felt is the tiny drop in the elevator before the emergency brake fails.

 

[perky29]

It may well have been in the inner ring, Peter, and I agree with you here.
Inner West, Lower and parts of Upper North Shore, Eastern suburbs- the usual suspects.

However, like a typical ripple the middle and outer ring suburbs were still peaking in mid-late 2004 with some incredibly stupid prices paid for properties. I have a classic example of a Hills house (no improvements made during this time to the property) with a sales history:

March 03 sold for $344K
May 04 sold for $475K (yes they overpaid but the market was a feeding frenzy at the time and anything under $500K was being snapped up)
June 06 sold for $376K (at auction to a largely disinterested crowd when mood was low)

Today I would estimate this house to be worth somewhere in the vicinity of $460-480K. The market took a real nosedive in this particular suburb during 05-06, when perhaps the over enthusiastic 03-04 purchasers were cooling their heels and mulling over their hasty choices.
Today the mood is a little different and though 08 still has some real bargains in this suburb it's interesting to look back on the past and see if the bottom hasn't already passed us by....

As I said, Sydney's a big place. In the end, if you can afford it, the cashflow looks good and you want to start building a portfolio for the longterm, then just do it. However, NOT buying in a boom but instead during a low period (which is the case right now), if you can do it, is definitely the smarter option.

Hi Jacque,
I think I know the house your are talking about - now they actually mowed the grass it does look better

It would be difficult to get a house that cheap in that suburb now - one sold up the road from there for 385k around a year ago and would have to be worth 50k more now.
Although Victor Kumar told me the other day one of his clients almost picked up a fire sale for around 300k , so there may be the odd bargain out there still.

Personally I am looking yields around 7% in my choice suburbs now - I got the Residex best rent reporte on Wednesday and for the first time in a while a number of suburbs now have Houses (not just units) listed at better that 5% Rent and 5% cap growth - so it looks like the time is very near now for us investors....finally.


David

 

[Land]

I'm not entirely sure when we hit, or even if we have already hit, the bottom - I don't presume I can predict the market quite that accurately, that's why I'm buying now because there's good value around and conditions are starting to move into place for the next upswing in the not too distant future (ie. 18-24 months is not that far away).

Why do you think prices are going to drop like an elevator? That's a very dramatic image.

Our economy is in quite good shape, and I really just can't see property dropping below the floor which is provided by rental yeilds. If they do, I, and a hell of a lot of others, will buy up all the positively geared property that I can get my hands on. When this happens en masse (all the current renters wont bother renting anymore either when it's cheaper to buy your own place), properties wont drop any further.

With rapidly increasing yields, that 'floor' is increasing all the time.

 

[Sunder]

Why do you think prices are going to drop like an elevator? That's a very dramatic image.

Our economy is in quite good shape,

Historically, the greatest number of defaults is 12-18 months after the last rate rise. The last rate rise was in March, and there's still the possibility of one more. So I don't think we've seen much of the carnage yet.

Our economy has been in good shape - how much longer will it continue? Business confidence is down, with only a couple rebounds here and there, consumer sentiment is down, only with a tiny rebound in spending every now and again.

The point is, what we call "good" economy, the RBA says "Is going too fast". And so even if the RBA doesn't overshoot like it usually does, things are definitely going to pull back at least some.

There is definitely going to be a yield crossover point that will put a floor under the price of housing, but let's do some maths.

Say yields get to 6%. Interest rates are 9%. So assume neither of them change for the short term future. Prices will have to fall 1/3rd for yield=IR. Of course, interest rates will not likely stay this high, and so property probably will not fall 33.3%.

However, factor in a few more things:

1. As a OO, not only do you have to pay interest, but principal as well. That will factor in large, in terms of repayments. For many of the poor, the future matters not so much as what's left in their pay packet after all non-discretionaries are paid for.

2. As a renter, you don't have to worry about rates, strata, etc, etc. For the poor, day to day expenses can count a lot more than future gains.

3. Factor in the other side, are capital gains. See renter psychology above again...

The funny thing is though, the places I've looked at, that are nearly positively geared - have all fallen 30%+ in the last 3 years. What does that say for the rest of Sydney, that has gained slightly, or fallen well less than 30%?