it's kinda funny.... like yeh I buy resi IPs for cashflow ha ha.
Sydney - Strong Buy recommendation
- Thread starter MichaelW
- Start date
it's kinda funny.... like yeh I buy resi IPs for cashflow ha ha.
About 3-5 years too early to buy and dont believe reports from companies with a vested interest in their positive reports. Which is just about all of them.
People like confirmation of their own beliefs and predictions and therefore put a lot of credibility in these reports. Unfortunately this leads to mediocre investing performance at best and financial disaster at worse.
People like confirmation of their own beliefs and predictions and therefore put a lot of credibility in these reports. Unfortunately this leads to mediocre investing performance at best and financial disaster at worse.
Hi
Thanks to Michael for sharing the Quartile report.
However I tend to agree with Gerd and others that the consensus of opinion would seem to indicate that Sydney is at least 2-3 years away from any recovery.
In addition to those opinions referred to by Gerd, see also the similar forecasts by Wattyl, Boral and others in the industry.
Also like others, I'm conscious that Quartile are spruiking a product so naturally they see opportunities.
Lastly, never underestimate the ability of the NSW (Labor) Govt to stuff up on these matters, albeit I'm not sure that the State Libs could do any better. I
wouldn't be surprised if they brought back the "vendors tax" in 2010 just in time to snuff out any chance of a housing recovery.
Regards
Tony
PS My preference, as usual, remains Parramatta for IP opportunties.
Thanks to Michael for sharing the Quartile report.
However I tend to agree with Gerd and others that the consensus of opinion would seem to indicate that Sydney is at least 2-3 years away from any recovery.
In addition to those opinions referred to by Gerd, see also the similar forecasts by Wattyl, Boral and others in the industry.
Also like others, I'm conscious that Quartile are spruiking a product so naturally they see opportunities.
Lastly, never underestimate the ability of the NSW (Labor) Govt to stuff up on these matters, albeit I'm not sure that the State Libs could do any better. I
wouldn't be surprised if they brought back the "vendors tax" in 2010 just in time to snuff out any chance of a housing recovery.
Regards
Tony
PS My preference, as usual, remains Parramatta for IP opportunties.
..not likely.....I am going to go far as saying that they may even look at lowering the land tax to encourage more investors back to the Sydney rental market!
It is now in cardiac arrest.....try getting a rental property anywhere Sydney. It is like queueing in a soviet breadline...you may not get anything at the end.
Remember 2003 - Carr and Egan wanted to take the "heat" out of the Sydney property market by discouraging investors so they introduced the "vendors tax" - absolutely brilliant concept and it was extremely successful.
It encouraged property investors to look outwith NSW, and they did, and they liked it so much that they haven't been back to NSW since.
If I was a renter looking to rent in Sydney, I know who I would be cursing for the lack of properties to rent.
It has been mentioned by many commentators that rents will come when more property comes on to the market, so maybe the NSW Gov't will need to make it more attractive (eg by reducing Land tax) to invest in NSW - except they wouldn't have the brains for that.
Regards
Tony
It encouraged property investors to look outwith NSW, and they did, and they liked it so much that they haven't been back to NSW since.
If I was a renter looking to rent in Sydney, I know who I would be cursing for the lack of properties to rent.
It has been mentioned by many commentators that rents will come when more property comes on to the market, so maybe the NSW Gov't will need to make it more attractive (eg by reducing Land tax) to invest in NSW - except they wouldn't have the brains for that.
Regards
Tony
hi all
couple of things
1 I would hold investing insydney at this stage and would only invest in new that is being hit and you are getting a very big discount.
2 as for more product to come on the market 525 illawarra rd marrickvile is a prime example.
a 115 unit development been in and out of court more times then half the girls in kings cross bought and sold and now in receivership.
in the time its been on my radar for about 12 months the site has gone from a 13 mil site to 9 mil and is now at 5.2mil on my numbers not sure wht it will sell for but above 5.2 and there is no margin in it.
not as resi anyway so that another 115 units that are it that list of units that will come on line but sorry not soon and that just a sample site.
just been to one developer that is 100% complete 1 site 70% another and has settled on the land of the third and on the first he is behind by 3.5mil on his projection so no profit and will end up owing the bank.
the second the bank has stopped his draw downs and the amount he has borrowed to date at 50% complete is over current selling value and he is not finished.
and the third not a cat in hells chance of funding as the margin isn't there.
and yes get ready for a bath.
these guys are smart operators but the margin is not there so what do you do.
there are alot of developers taking 25 and 30% hits
so would you buy now yes if you are buying from the guys getting the hit if normal house nope for me.
if you by well and hold and you getting a 7 and 8% return on resi and they are there
then thats fine.
some areas are still going to correct and some lenders are going to stop lending so its a bit of a careful careful at this stage.
just a different view
couple of things
1 I would hold investing insydney at this stage and would only invest in new that is being hit and you are getting a very big discount.
2 as for more product to come on the market 525 illawarra rd marrickvile is a prime example.
a 115 unit development been in and out of court more times then half the girls in kings cross bought and sold and now in receivership.
in the time its been on my radar for about 12 months the site has gone from a 13 mil site to 9 mil and is now at 5.2mil on my numbers not sure wht it will sell for but above 5.2 and there is no margin in it.
not as resi anyway so that another 115 units that are it that list of units that will come on line but sorry not soon and that just a sample site.
just been to one developer that is 100% complete 1 site 70% another and has settled on the land of the third and on the first he is behind by 3.5mil on his projection so no profit and will end up owing the bank.
the second the bank has stopped his draw downs and the amount he has borrowed to date at 50% complete is over current selling value and he is not finished.
and the third not a cat in hells chance of funding as the margin isn't there.
and yes get ready for a bath.
these guys are smart operators but the margin is not there so what do you do.
there are alot of developers taking 25 and 30% hits
so would you buy now yes if you are buying from the guys getting the hit if normal house nope for me.
if you by well and hold and you getting a 7 and 8% return on resi and they are there
then thats fine.
some areas are still going to correct and some lenders are going to stop lending so its a bit of a careful careful at this stage.
just a different view
Here is Quartile key recommendation:
Recommendation: Strong buy (middle to outer distance)
Why middle to outer distance?
History has shown that inner suburbs have the highest capital growth.
They also seem to be pushing units, which is what they have for sale.
It seems to me that this research is too biased to be relied on.
I agree that Sydney market is more likely to be going up than, say Melbourne or Perth. But I don't see it booming this year, certainly not providing enough capital growth to compensate for the negative cash flow of holding property.
Cheers,
Recommendation: Strong buy (middle to outer distance)
Why middle to outer distance?
History has shown that inner suburbs have the highest capital growth.
They also seem to be pushing units, which is what they have for sale.
It seems to me that this research is too biased to be relied on.
I agree that Sydney market is more likely to be going up than, say Melbourne or Perth. But I don't see it booming this year, certainly not providing enough capital growth to compensate for the negative cash flow of holding property.
Cheers,
HK
unsure whether the statement about inner suburbs having the higher growth hold up to the data. The long tem CG's for boondocks suburbs like Penrith 9.7% (10 yrs to Dec '07), Blacktown 8.8%, Campbelltown 7.6% etc isn't too shabby. API mag had a decent article regarding this recently- from memory a statement similar to yours was "mythbusted"
I speak as a (partly) reformed inner suburbs investor
HK
unsure whether the statement about inner suburbs having the higher growth hold up to the data. The long tem CG's for boondocks suburbs like Penrith 9.7% (10 yrs to Dec '07), Blacktown 8.8%, Campbelltown 7.6% etc isn't too shabby. API mag had a decent article regarding this recently- from memory a statement similar to yours was "mythbusted"
I speak as a (partly) reformed inner suburbs investor
Agree with Wally here in that past cg rates for outer and middle ring suburbs equal that of some inner ring suburbs, and I'm sure I'm not the only one who can provide stats to back this up.
Naturally, when you have waterfront properties that have buyers with deep pockets (and even bigger budgets for extravagant improvements and renovations!!) and sales are lower in these pockets (thus causing discrepancies in the statistics) the figures can be easily skewed. Something to consider when you're basing growth merely on stats.
hi hk
true if the properties are negative but if posi in sydney then changes the view a bit.
as for growth in blacktown, campbelltown not sure if those are true
rental growth yes
value growth not sure I think that if you did it on value growth
its going backwards and when it does that,thats the time to look at buying in those areas.
not saying outer areas are not the place to buy.
I think they are but it depends what and where and whats its underlying value and whats the rental movement.
you can have growth not on rental but on value and thats what you have to look for similar to looking for a vain of gold you don't see it ever where but when you see it you try to tap into it.
oh and just like finding gold you try to keep it to yourself until its mined out
selffish arn't we.
and sorry no stats from me as I don't keep them so I'm off the stats supply chain
true if the properties are negative but if posi in sydney then changes the view a bit.
as for growth in blacktown, campbelltown not sure if those are true
rental growth yes
value growth not sure I think that if you did it on value growth
its going backwards and when it does that,thats the time to look at buying in those areas.
not saying outer areas are not the place to buy.
I think they are but it depends what and where and whats its underlying value and whats the rental movement.
you can have growth not on rental but on value and thats what you have to look for similar to looking for a vain of gold you don't see it ever where but when you see it you try to tap into it.
oh and just like finding gold you try to keep it to yourself until its mined out
selffish arn't we.
and sorry no stats from me as I don't keep them so I'm off the stats supply chain
It seems fairly obvious to me...as soon as interest rates start to fall (even by a small %) Sydney prices will move up strongly. There is a lot of pent up buyer demand with renters holding off in the current interest rate environment but worried about rising rents.
This is the pre Olympics slump for Sydney all over again. Confused media, alarmist talk of falling house prices...then all is forgotten in about 6 months time.
My property holdings (number and value) are deliberately skewed towards Sydney as I see the strongest capital gains coming from here at this time. I was cautious for my last purchase and looked for higher yielding rental property (an apartment in Auburn). Low outlay (under $175k) and good rental return (less than 1 year since purchase and its yielding over 7.5% gross)
Ajax
This is the pre Olympics slump for Sydney all over again. Confused media, alarmist talk of falling house prices...then all is forgotten in about 6 months time.
My property holdings (number and value) are deliberately skewed towards Sydney as I see the strongest capital gains coming from here at this time. I was cautious for my last purchase and looked for higher yielding rental property (an apartment in Auburn). Low outlay (under $175k) and good rental return (less than 1 year since purchase and its yielding over 7.5% gross)
Ajax
I agree, as soon as interest rates start to come down prices will start going up again.
It seems likely that interest rates will come down later in 2008 but I am thinking that the banks will probably choose not to follow the RBA when they next drop int. rates.
It will be interesting to see how Glenn Stevens & W.Swan will deal with that interesting situation...
Cheers
What evidence or history is there to back up that idea? What lag time would you be talking about?I agree, as soon as interest rates start to come down prices will start going up again.
It seems likely that interest rates will come down later in 2008 but I am thinking that the banks will probably choose not to follow the RBA when they next drop int. rates.
It will be interesting to see how Glenn Stevens & W.Swan will deal with that interesting situation...
Cheers
Interested if there is any data to back up this or it's common wisdom.
Andrew,
It's called supply and demand.
Currently there is nowhere for people to live.
You apply for 1 rental and you will have to compete with 20 other applicants.
Rents have gone up and will continue to increase in 2008.
If interest rates start to drop it will be a sign for many renters to get into property.
I am not saying there will be a massive boom, I am simply saying that prices will go up.
Even if interest rates don't drop and remain where they are today, there will be property price increases because some tenants will be forced to buy as they have no other option.
Look at it this way, Prices in some Sydney suburbs have come down to 2003 levels.
Meanwhile people's wages in the past 5 years have been increasing.
The only thing that stops many of us from buying now is the fear of interest rates.
Take that fear away and combine it with the shortage in rentals and we have an interesting situation...
IMHO.
Cheers
Interesting idea BV, you might be right.
As I see it the only way the RBA appear likely to lower rates is if we experience a serious slowing of our economy a la the 1990's, that scenario is not good for rising prices anywhere; though perhaps the lack of oversupply will be a solid floor under things!?
On a mathematical bent I was thinking perhaps someone has done some work between change of rates direction and CG in our capital cities, what's the correlation between the cash rate direction and future value, a project I've noted for myself to do when I have the time.
As I see it the only way the RBA appear likely to lower rates is if we experience a serious slowing of our economy a la the 1990's, that scenario is not good for rising prices anywhere; though perhaps the lack of oversupply will be a solid floor under things!?
On a mathematical bent I was thinking perhaps someone has done some work between change of rates direction and CG in our capital cities, what's the correlation between the cash rate direction and future value, a project I've noted for myself to do when I have the time.
Hi Andrew,
Interesting question. I looked at a similar question in another thread. Will property rises really rise if IR go lower? Why will IR go lower, esp with RBA expecting inflation to reach 4% in short term?
Is it because there is a slowdown /recession that reduces demand and lowers inflation as a whole?
The last recession caused immigration to drop from 150k in 88/89 to 30k in 92 !! It also caused vacancy rates to go up, especially in melbourne (check abs data), and possiby the presumed undersupply quickly turned into an oversupply... Alongside unemployment grew.. Rates were dropped from around 92 aggresively however house prices were stagnant until at least 95/96, and in real term dropped.
My conclusion is if you’re expecting a significant slowdown, or a mild recession.. expect a rise in unemployment and significant drop migration into australia.. DON’T expect current low vacancy rates, double digit rent rises and current undersupply situation to continue .. hypothetically if recession like 92 does occur, the current migration of 180k wont sustain.. likely drop to 50k … 130k less people a year makes a huge dent in demand… 130k less people will wipe out the 35k national housing shortage ... added to the loss of demand due to credit problems..
Whereas if you’re expecting RBA to lower rates and economic strength to continue at same time then the scenario described by various people on this forum makes sense .. double digit rent rises to continue, very low vacancy rates, and house prices to boom.
P.S also don’t expect the previous low spread between RBA rate and your mortgage rate to come back… speaking with insiders who work on securitisation and colaterisation , the money lines are frozen .. the model is completely shattered and will have to be re-worked.
Interesting question. I looked at a similar question in another thread. Will property rises really rise if IR go lower? Why will IR go lower, esp with RBA expecting inflation to reach 4% in short term?
Is it because there is a slowdown /recession that reduces demand and lowers inflation as a whole?
The last recession caused immigration to drop from 150k in 88/89 to 30k in 92 !! It also caused vacancy rates to go up, especially in melbourne (check abs data), and possiby the presumed undersupply quickly turned into an oversupply... Alongside unemployment grew.. Rates were dropped from around 92 aggresively however house prices were stagnant until at least 95/96, and in real term dropped.
My conclusion is if you’re expecting a significant slowdown, or a mild recession.. expect a rise in unemployment and significant drop migration into australia.. DON’T expect current low vacancy rates, double digit rent rises and current undersupply situation to continue .. hypothetically if recession like 92 does occur, the current migration of 180k wont sustain.. likely drop to 50k … 130k less people a year makes a huge dent in demand… 130k less people will wipe out the 35k national housing shortage ... added to the loss of demand due to credit problems..
Whereas if you’re expecting RBA to lower rates and economic strength to continue at same time then the scenario described by various people on this forum makes sense .. double digit rent rises to continue, very low vacancy rates, and house prices to boom.
P.S also don’t expect the previous low spread between RBA rate and your mortgage rate to come back… speaking with insiders who work on securitisation and colaterisation , the money lines are frozen .. the model is completely shattered and will have to be re-worked.
I agree that the turn around of interest rates could well signal a change in prices in western Sydney, the longer they stay where they are and with the price of petrol now a lot of people are feeling the pinch. Over the next while there could be some real bargains. This isn't the same story in all suburbs, where I live in the east, prices of units seem to have gone up a fair bit of late, didn't see it happening but some of the prices I have been hearing about would suggest it. Has anyone else noticed this and is this the start of a price jump that will fitter out to the outer suburbs?
OK,
Another gratuitous plug for Sydney. But you all know I'm a died-in-the-blood Sydney fan and that I hold investment properties in the Premier State, so this should be of no surprise.
But it seems I'm not the only one who rates Sydney amongst the world's best cities:
http://www.smh.com.au/news/national/sydney-the-place-to-be/2008/04/22/1208742940218.html
Michael.
Another gratuitous plug for Sydney.
But you all know I'm a died-in-the-blood Sydney fan and that I hold investment properties in the Premier State, so this should be of no surprise.But it seems I'm not the only one who rates Sydney amongst the world's best cities:
http://www.smh.com.au/news/national/sydney-the-place-to-be/2008/04/22/1208742940218.html
God I love this city!SMH said:
Michael.
God I love this city!
Michael.
Mike
Many of us do, and many more will join us in the near future so get on with that development of yours...
http://www.metrostrategy.nsw.gov.au/dev/uploads/paper/introduction/index.html
From the above website
1.1 MILLION MORE PEOPLE
Sydney's population is anticipated to grow by 1.1 million people between 2004 and 2031, from a current population of 4.2 million to 5.3 million by 2031. To cater for this growth, the Government has predicted we will require the following:
640,000 new homes;
500,000 more jobs are being planned for over the next 25 to 30 years
7,500 hectares of extra industrial land if current trends continue
6.8 million square metres of additional commercial floor space; and
3.7 million square metres of additional retail space.
Even if we have zero population growth over that time, i.e. our births and migration equal deaths, we would still require 190,000 new homes in Sydney to respond to demographic changes where fewer people are living in each home.
The greater Syd has heaps of new homes and areas ear marked for future estates. You could easily get a brand spanking new 4 bed 2 bath double or even triple garage, standard sized 650m2 block for well under the median price. Even a nicely finished 3 bed duplex or townhouse will only cost $350k ish but the main problem with Sydney is that no one wants to live out there. Everyone wants to be within 10km of the CBD and will be quite happy to bid over $1M+ for an old run down crappy cottage that needs another $250k worth of work to just make it liveable.
As an investor, would you buy 3 new homes with a large back yard out at Kellyville, Liverpool..etc.. or just one with any backyard in Bronte or Mosman? And would you rather tenants with families struggling on the median wage or even rent assistance or an executive paying $1500-$2000 a week? Syd - truly the tale of 2 cities.
As an investor, would you buy 3 new homes with a large back yard out at Kellyville, Liverpool..etc.. or just one with any backyard in Bronte or Mosman? And would you rather tenants with families struggling on the median wage or even rent assistance or an executive paying $1500-$2000 a week? Syd - truly the tale of 2 cities.
