Residex Sydney report, now I'm confused

[8fold]

Hi all,
Purchased the Residex Sydney report yesterday and now I am completely bamboozled . I was considering both the inner North of Brisbane Albion, Lutwyche etc or Sydney. With Sydney being so flat for so long and the GFC problems fading, I have decided there would be a good place to invest and like the inner west Marrickville sort of area. My budget is around 350k and I am a sparky by trade and a renovator at heart so I am looking at 2 bed units in the older red brick small 8 or 10 packs that are around. I open the report and Residex are predicting 5years Sydney unit growth at around 1%+ and 8 years at 3%+ . Although I note the "band" that prices "could" fall between is +25% and -8% in 2010. The only unit suburb predicted that remotely gels with my thinking was Cronulla with predicted growth rates of 3% for 5 years and 4% for the next 8 years. Geez that will make an awefully long flat spell. I am in danger of "analysis paralysis" here anyone have any thoughts on Sydneys long term growth forecast? One of the top Residex housing suburbs is Bligh Park with 10% gorwth forecast.... No idea what would drive that, maybe Richmond RAAF base?

 

[MichaelW]

G'Day mate,

Can't really help you but agree that's very surprising. I know Sydney's inner West has been on a really good run for the last 6 months or so and already done 10% odd in that period. So projecting 1% pa or whatever just sounds uber-conservative.

I'd look at yields and proximity to Sydney Uni or the new Metro stations. Redfern has been touted for urban renewal for a while now too. I personally like the Glebe sort of area.

More than that, can't help, but good luck with it and keep us posted!

Cheers,
Michael

 

[Ajax]

I had a quick look at prices of 2 bedroom units in Summer Hill (Sydney inner west) and was surprised.

http://www.realestate.com.au/cgi-bi...nbed=2&maxbed=&parking=&minlandsize=&o=p&p=30

They are quite expensive imo (though a good suburb).

 

[8fold]

I must say I have had my eye on Summer Hill for some time and the price gains seem to have already exceeded the Residex forecast, a lot of great older stock there though. Michael thanks for the comments, my wife picked Refern about 15 years ago but of course I knew much better . Will let you know how I go just getting some finance sorted out now (go Rolf! )

Scott

 

[euro73]

Investors like us will always want to see a boom of some sort on the horizon. We all want to see Sydney do well after several years of neutral or "flat" growth. There seem to be a number of contrasting views on how Sydney will perform over the coming 2-3 years.

The FOR argument is the supply v demand argument. We all know there's an acute shortage of stock. That's fact. As each year passes, and migration numbers increase, Sydney is failing to keep up with demand. People have to live somewhere. For house and land packages, there's a lack of affordable land available in well serviced areas. Theres not alot of homes being built in Sydney. Different problems exist for new units/medium density developments. There is a lack of new developments either underway or in planning, simply because developers cant get funding at the moment to start new projects. That wont change until banks start lending for commercial projects again. That means it could be several years before any worthwhile volume of new units or townhouses hit the market. All of this should point to increased prices. After all, the supply v demand argument is fairly fundamental. Add to this the psychological/emotional arguments- Australians, and particularly Sydneysiders, love real estate. So these two factors make a very strong argument for some kind of sustained capital growth in coming years

Then there's the argument AGAINST. This relates to affordability. As rates nudge their way back to more normal levels through this year and next year, as seems inevitable, borrowing capacity will start to fall. Anyone who understands how lenders assess borrowing capacity will understand this immediately. Someone on 100K can borrow more today than they will be able to if rates are 1% higher. So mathematically, "buying power" is likely to fall. If thats the case, where is the money going to come from to fuel a 5, 10 or 15% growth in prices? Keep in mind that we have just witnessed 2-3 years worth of first home buyers bring forward their plans and jump into their first purchases to access the FHOG stimulus available. Sure, they have caused a mini boom in the sub 600K market in Sydney, but as they taper off quite dramtically throughout Nov and Dec, will we actually see a fall off in prices? Has all the recent activity simply created a shortage of buyers for 2010, 2011?

In a nutshell, I don't think anyone can predict whats going to happen in the next 2-3 years, but normality will return at some point so if you are into this for the longer term, property investment is still a sound strategy. It just may take longer than you think to see a good return. The upside is that the shortage of stock will mean rental yields will continue to be strong, so your holding costs ( if any) will be minimal. Good, well located property in Sydney will reward you at some point.

 

[MichaelW]

Great post euro73, kudos!

Cheers,
Michael

 

[Propertunity]

8fold,

I've come to realise over the years that you should become your own guru. I'm not into predictions (apart from my own now) - ALL the so-called experts at one time or another have gotten it completely wrong - and that includes Residex, BIS, etc. It is useful to read there stuff but then you must form your own opinion and then act on it.

We've been buying 2brm units in Leichhardt, Enmore, Summer Hill, Newtown etc. Demand is HUGE, supply is tight. The place is full of highly paid well-dressed yuppies who will pay. 2brm units normally go for $420+K if they are half decent and would rent for $400-420pw.

You might get something cheaper in the $350K range in a poor location (busy road) or in poor condition in need of a reno without a car space and with a shared laundry.

All the best with the search.

 

[8fold]

In a nutshell, I don't think anyone can predict whats going to happen in the next 2-3 years, but normality will return at some point so if you are into this for the longer term, property investment is still a sound strategy. It just may take longer than you think to see a good return. The upside is that the shortage of stock will mean rental yields will continue to be strong, so your holding costs ( if any) will be minimal. Good, well located property in Sydney will reward you at some point.

Very well said, and in the end is the thinking I have come round to: no crystal ball so do my best and if it isnt costing a fortune to hold then strap in for the long haul.

 

[8fold]

8fold,

I've come to realise over the years that you should become your own guru. I'm not into predictions (apart from my own now) - ALL the so-called experts at one time or another have gotten it completely wrong - and that includes Residex, BIS, etc. It is useful to read there stuff but then you must form your own opinion and then act on it.

We've been buying 2brm units in Leichhardt, Enmore, Summer Hill, Newtown etc. Demand is HUGE, supply is tight. The place is full of highly paid well-dressed yuppies who will pay. 2brm units normally go for $420+K if they are half decent and would rent for $400-420pw.

You might get something cheaper in the $350K range in a poor location (busy road) or in poor condition in need of a reno without a car space and with a shared laundry.

All the best with the search.

Thanks propertunity, always good to hear from someone on the path in front of me, valuable info.

 

[Finrod]

Bligh Park does have a couple of things going for it, aside from the RAAF base.

Windsor and Richmond are just up the road - which I understand to be benefiting from industrials companies setting up shop in Mulgrave and related areas due to rising prices pushing them out of Castle and Baulkham hills. More work means more people. Rouse Hill and Parramatta are also about 25-30 mins away - which is a bit of a mission, but not too bad.

The rental demand is also very strong. I believe the Hawkesbury region has a vacancy rate well under the Sydney average (0.6% comes to mind, but that may not be correct).

Finally, should they actually build the long-proposed second airport in Richmond - they'll need to seriously improve the infrastructure in the area.

Negatives though: it is prone to once in a century floods. Most houses are built at around 15.5-16.5m; but the council has recently re-zoned it to about 17.5. It is also quite a mission to get into the Sydney CBD (but the same goes for Campbelltown).

Residex is certainly good for ideas and a starting point, but of course is no crystal ball. It is also potentially a self fulfilling prophecy with all readers going out and buying in the top 5 suburbs which then results in prices rising, which then again sticks it back into the 'high historical growth' list. Not necessarily a bad thing I suppose - so long as you're not left holding the bag when the music stops.

 

[House_Keeper]

Hi all,
Purchased the Residex Sydney report yesterday and now I am completely bamboozled . I was considering both the inner North of Brisbane Albion, Lutwyche etc or Sydney. With Sydney being so flat for so long and the GFC problems fading, I have decided there would be a good place to invest and like the inner west Marrickville sort of area. My budget is around 350k and I am a sparky by trade and a renovator at heart so I am looking at 2 bed units in the older red brick small 8 or 10 packs that are around. I open the report and Residex are predicting 5years Sydney unit growth at around 1%+ and 8 years at 3%+ .

You are taking Residex predictions far too seriously. They are not nostradamus. They are statisticians who attempt to predict the future based on past trends. They get it wrong sometimes.

I don't believe that capital growth in the inner west will be only 1% in next 5 years, especially as there is little supply coming into the market. There is strong demand from people wanting to live reasonably close to the city. That is not going to go away.

If you already know well some parts in the inner west, start looking there. Do the numbers to make sure you can hold on to the unit when interest rates are back above 7%. Selecting the right property is at least as important as the right suburbs. An older property that you can renovate should be a good choice.

Cheers,

 

[markpatric]

One aspect I have learned with real estate is to never take anything for granted and be prepared for the long haul.
Perceptions can change quickly and cities are becoming polluted and traffic is becoming a big issue.
Many also work from home and have no need for inner city living.
There is a lot of open space in aussie, demand can be taken for granted/overstated at times.
Residex are a switched on lot generally, the momentum from fhb and the low AU$ has waned and interest rates are only going one way.

 

[BV]

8fold

Residex have got it wrong before.
$400K for 2 young professionals is affordable even with 8% interest rates
so IMO prices innerwest will move along with inflation.

Sydney property prices will increase again, with so little stock available it's inevitable.
However, for me the key to property investing in the current climate are the low holding costs. Rents in many areas have probably maxed out for now so if we buy something with low yields we could be paying out of our pocket for years.

With this logic there is not a lot of prime real estate we can put our money on.
However, there are some that have potential to improve value and increase yields but there are not many of those available and we also have the first home buyers to compete with so if you want something you'll have to sign the lease quickly (to get it off the market) and pay the full asking price.

cheers

 

[8fold]

Thanks for the comments guys, I guess this is my first investment property after being sent back to square one by a business venture with my father-in-law. I have all the "life experiences" I can handle for a while, now I want the money . At this build stage all I am chasing is easy to hold boring old average 5 - 10% growth property, just sh#tloads of em. If it was consensus that these predictions were correct I guess the inner west would not even fit my modest growth aspirations. I would think something like this would fit the bill very nicely:

http://www.domain.com.au/Public/PropertyDetails.aspx?adid=2008030320

Thanks again
Scott

 

[MichaelW]

Can't really help you but agree that's very surprising. I know Sydney's inner West has been on a really good run for the last 6 months or so and already done 10% odd in that period. So projecting 1% pa or whatever just sounds uber-conservative.

I'd look at yields and proximity to Sydney Uni or the new Metro stations. Redfern has been touted for urban renewal for a while now too. I personally like the Glebe sort of area.

Mate,

What can I say, except I told you so...

Balmain hotcakes push house prices higher

SOLID residential price rises in Sydney's inner west provided the springboard for a 3.6 per cent rise in Sydney house prices over the September quarter.

The median price for a house in the inner west rose 5.6 per cent to a record $760,000, Australian Property Monitors said.

The inner west first achieved a $600,000 median in 2002. This rose to $700,000 in late 2003, but dipped back to $620,000 by 2005.

Balmain was among the strongest suburbs to rebound in the area, its median price rising 23 per cent to breach $1 million in the quarter.

Concord West and Croydon also registered rises in the recent quarter of more than 20 per cent.

The growth in the area rippled to such nearby suburbs as Erskineville, where prices rose by 8.7 per cent, from $611,000 to $665,000.

5.6% per quarter does not 1.0% per annum make...

Cheers,
Michael

 

[8fold]

Well theres timely proof

5.6% hmmm thats almost 6 years pridicted growth for the quarter. Now hows that finance app going......

Thanks mate

Scott