Sweet Music to My Ears

[Robert]

I went out into the Inner City Sydney market for the first time in months today and received Music To My Ears from a selling agent who was taking a property to auction today.

I was just window shopping and asking the questions one asks when looking at properties. And what do I hear back from the Agent

Quote
"The Market has already fallen, Vendors have no choice but to start listening to the Buyers as they are not going to achieve the prices that have been realised over the last few months."
Unquote

The selling agent also said that the property she was taking to auction was more then likely going to pass in at auction due to no interest after a 6 week selling campaign.

What is more, I did a bit more travelling around and found a great reno job with vendors who are willing to talk very beneficial terms for me aka: 6-8 months settlement, access to the property to renovate within this time frame etc etc....

In otherwords, Sydney is starting to really burst it's bubble. Other news I read today is that the mid-week clearence rates for the Sydney market dropped from 60% last week to 54.9% and further decreases to come. This weekends data will more then likely show the same results, plus there are numerous properties being withdrawn from the market before the auction date. My thoughts are if these properties still went to the auction day the clearance rate would be more like 40%.

Wonder what the next few months have got in stall for us.

For me, I'm cashing out of the trading properties to be ready for some real bargins in Sydney.

Anyway, thought I'd just tell everyone about my day.

Cheers
Robert

 

[Sunstone]

Dear Robert,

Good stuff. I hope the Sydney/Melbourne situation helps to take some of the heat out of the Brisbane market.

I hope the lag isn't too long to catch on.

Cheers,

Sunstone.

 

[Lotana]

Another Sydney observation. I attended an auction in Maroubra yesterday.

http://www.ngfarah.com.au/cgi-bin/ngfarah.cgi?target=auction&view=2.txt

The auction was on-site; it was a beautiful newly built architecturally designed house, rendered double brick 5 b/r, marble & wood interior, etc. There were about 150 people attending, but most of them were onlookers (including myself). There were 2 bidders starting at 1.8m and finishing at 1.95m. The agent's indication prior to auction was 1.8-2.0m, which usually translates to 2.2m+. The property was passed in with the highest bidder willing to negotiate. We'll see how it goes in the next week or so. At the auction I happen to talk to the previous owner who told me he sold this block to a developer less than 2 years ago for $660K.

The market is definitely softer than 2 months ago.

Say cheese

Lotana

 

[brains]

great news

Great news for people like me who have been waiting for ages to get in the Sydney market, i still feel that its got a long way to go, maybe mid next year might be a good time to see some bargains.

(Any further opinions on the Sydney market would be great?)

The rental returns and vacancy rates are still terrible for investors
right now, so i'll wait some more. I overheard a Sydney property manager saying she had never found it so hard to get tennants.


Where in Sydney are you talking about, Robert?

 

[Miss_Terious]

Hi Rob!

Hmm, interesting.

We are preparing to buy an IP in Melbourne shortly, and have been aware of what the media here have been purporting as "bubble will burst, market will crash" type sentiments.

However the general feeling I get out there is that rather than crashing, prices will "even out". Some people are even saying mid-next year will be the time to buy.

Given Rob's indication of the current state of the market in Sydney, I wonder how long it will take for the effects to be seen in Melbourne?

Any thoughts on this?

MT

 

[geoffw]

Just a thought.

Rob's post was based on the Inner City Sydney market.

To extend a view of a subset of the Sydney market to Sydney in general might be dangerous.

I did hear one report that banks are requiring a higher deposit in inner Sydney city.

It may well be also the fact that this reflects prices elsewhere in Sydney. But I would not take it as read until it happens.

 

[Jacque]

I've been following the northern beaches market in Sydney for some time now, keeping copies of the Manly Daily real estate sections and recording auction prices etc. A couple of things that I've noticed as of late:

1. Auction clearance rate is down
2. Advertised price guides are still below the actual sellling price or "Passed In" price by $30-$100K. (Doesn't that peeve you?!)
3. There's a hell of lot of stock coming onto the market.
4. The rental market still sucks!!
5. More properties are being passed in or withdrawn prior to auction compared to a year ago.

I agree that the market is softening in parts, however it would be premature to say that the whole Sydney outlook is gloomy. Good properties near the always desirable parts of the city (anything near water, good schools or prestigious neighbourhoods) will hold their own and though they may not experience the amazing growth that has been prevalent in the last two years in Sydney, they will not fall in price.
I am on the lookout for more choice and better prices early to middle of next year. Let's hope we're right and can end up with some bargains!!

 

[Michael Croft]

Licence to print money

OK, since you didn't ask for it I'll give you my opinion FWIW.

The market is 'softening' and sections of the market will experience a fall in prices but mostly a flattening out will occur which will last several years. These things are still cyclical after all even if the cycles appear ( to me at least) to be getting shorter.

Let's say a property falls in value by 10% from what it could have reached at the peak and the market stays flat for say 4 years. What is the effective discount from the peak price that you would be buying that property at in 4 to 5 years? Some 25 -35%. That's assuming the average capital growth forgone in those years.

Now what happens when I buy that property in year 5 after the peak? In year 6/7 I will receive a cap gain hit of some 30% plus the gains of the next run on property. So the likely cap gain is 50% plus for holding it for 1 or 2 years. If I put a conservative 20% into the project (as deposit) my return on investment is in the several hundreds of percent. Of course if it 100% OPM financed then I am legally printing money. If the market runs on longer (because a new war on counter terrorism keeps interest rates low) I print more money.

I've only played in 3 complete cycles but this has held true EVERY time.

regards, Michael Croft

 

[beech]

Very interesting post Michael.
Would it be fair to say that during years 123 of that flat period youre not buying at all?
Just doing some other build developments maybe?
Or are you snapping up bargains ready for the next run?


Darren

 

[Michael Croft]

Hi Darren,

I'll buy when ever the numbers stack up but it will be a hell of a lot easier for me to buy when I know the market is about to or is turning up. Right now it is turning off, whether that is to flat or down depends.

Why would any sensible investor (not an innovator) buy a class of assett knowing that that particular assett class has just peaked? And since the collective wisdom of the press (a shadow/reflection of mass culture) is telling us that the boom has just ended it is reasonably safe to assume that the peak has been reached and perhaps passed in Sydney and Melbourne.

As I know that property is a slow moving target (7 to ten year cycles) I have plenty of time to gear up for the next run/boom. I have recently had property revalued/refinanced (near or at the peak) so that I am in a position to act again in a few years time.

In the meantime I concentrate on the deals where I can see an opportunity to add value and this will always be numbers driven.

It's not rocket science at the end of the day. So unless I am able to add value now, or buy so well that it is worth the opportunity cost of the purchase (holding for maybe 5 years or more), or making a lifestyle choice - I ain't buying.

regards, Michael Croft

 

[Mike]

Originally posted by Michael Croft
I have recently had property revalued/refinanced (near or at the peak) so that I am in a position to act again in a few years time.

Hi Michael,

Are you saying that a bank will do a valuation on my portfolio now even though I'm not intending to borrow for a couple of years? Are you saying the same valuation can be used years into the future?

Regards, Mike

 

[Michael Croft]

Hi Mike,

What I have done is put LOC's in place secured against various properties accessing the last 12 months of cap gain. The vals cost me nothing, the facilities cost me nothing until I draw on them and I did tell them that it maybe years before I do.

Perhaps I'll get a letter in 12 months time asking if I ever intend to use the facilities - but I doubt it (Perhaps Rolf could comment?). I did have a letter like that a few years back so I took $10,000 out and paid it off another mortgage. Interest rates were the same so it made no difference to me and kept the bank happy.

I assume the same could be done via a mortgage with redraw facility and there are probably others as well. I've found the LOC suits my MO at this point in time.

33 degrees C regards, Michael Croft

 

[beech]

Why didnt the valuations cost you anything Michael?


Darren

 

[Michael Croft]

Hi,

Everything in life is negotiable - except death.

If you qualify for a professional package they are often free or the first vals are free.

If you qualify for a personal banker they are free.

If you hold valuation qualifications your mates do them for you

regards, Michael Croft

p.s. May I suggest you spend some time reading the archives as they will answer many questions.

 

[brains]

Michael, wouldnt you have paid mortgage stamp duty on the LOC loan?

I am refinancing right now and have to pay mortgage stamp duty on the component of the loan above my existing loan, ie: the LOC component.

 

[Michael Croft]

Hi,

The bank wants my business so I pay no fees. All that means is that they are making enough money out me via interest charges to absorb/hide the fees. At the end of the day banks give nothing away.

regards, Micahel Croft

 

[Macca]

It would seem that rentals in Sydney are getting very negotiable. This link is to another forum but it is very relevant
http://groups.msn.com/PropertyInves...Message=6217&LastModified=4675397149381238929

Get your parachute ready

Macca

 

[Robert]

Re: great news

Originally posted by brains
Great news for people like me who have been waiting for ages to get in the Sydney market, i still feel that its got a long way to go, maybe mid next year might be a good time to see some bargains.

(Any further opinions on the Sydney market would be great?)

The rental returns and vacancy rates are still terrible for investors
right now, so i'll wait some more. I overheard a Sydney property manager saying she had never found it so hard to get tennants.


Where in Sydney are you talking about, Robert?

Hi Brains

Sorry for the delay in answering, I somehow missed your question.

As for where I was looking on the last weekend, I searched Darlinghurst, Chippendale, Alexandria, Surry Hills and East Sydney.

The area of which the RE Agent mentioned that has dropped in price was Alexandria. As an indication on what is occuring in the area the agent ran this story by me.

The property I was looking through was a 2 bedroom 1 bathroom with no off street parking and opposite the entrance/exit to a shopping centre car park (so rather busy), but a rather nicely set out property. The hopeful reserve was mid $400k's of which the agent said that they were not likely to reach on the day. She mentioned a property the street behind which again was only a 2 bed 1 bathroom with no off street parking which sold 3 months ago at auction for $502k.

So my personal thoughts, on this area anyway, is that property prices have receeded. I have however put an offer in on a property I inspected. Asking price $550k-$580k, my inital offer $435k and first comeback from vendors was $535k. If it get it under the $500k mark then I will buy, in the mean time I will let it sit on the market with all the other stock that is appearing at the moment. In otherwords all those others who are trying to cash in on the property boom who are now causing it to go down due to so much stock out there. Plus the drops in clearance rates at auctions.

Actually, these figures for auction rate clearances are a touch distorted from newspaper accounts as they do not take into account properties that are removed from auction and which are either taken off the market or have a price structure placed on them.

Anyway, another $0.02c of thought from me.

Cheers
Robert


None of the above is advise on looking and buying in these areas for perseived cheap deals. Always do your own due diligence.

 

[brains]

Rob

Thanks for the detailed reply.

Ive had my eye on the Balmain /Rozelle area for a while and think the possible early/mid next year is the go.


What do you mean by "have a price structure placed on them" ?

Do you mean pulled from auction and put on sale by private treaty?

 

[brains]

Oh, and by the way Michael, id love to know which bank you deal with cause i have a LOT of business with my bank, ie: company account with a substantial balance, 5 x IPs, multiple home/personal accounts...etc...and they still wont do me favors like that. (pay my mortgage stamp duty)

Could you contact me offline if you dont want to state which bank youre with online.

Thanks