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The Sydney property market going down....down....down

Written on the 5 March 2016 by James Cagney


Well first of all you can not classify Sydney as one market. With over 4 million people with well over 150 suburbs where property values are over $1 million in value you can not compare this to any other city in Australia (with the possible exception of Melbourne). You almost have suburbs within suburbs in Sydney and prices vary significantly from street to street in many suburbs. So how can you make comparisons and predictions in a city like this?

Is Sydney overpriced?  In the main.....yes it is, but migrants and Australian residents want to go where the jobs are and Sydney is where the better paid jobs are usually found. Sydney is a microcosm that feeds on itself and keeps getting bigger and bigger. It is out of control.

However the city has serious growth inhibitors:

1) Infrastructure is way behind growth.

2) Roads are hopelessly congested.

3) The city is not badly planned... it is simply not planned.

4) Public transport is inadequate.

The best way we can give you any indication of what is happening within the property market in Sydney is to divide the city up into zones i.e. inner city,  outer city, northern beaches, southern beaches, north west, south west and  far west.  I feel overwhelmed just listing these areas never mind covering them all  in detail. Therefore  I am only going to talk in general and we can get into the specifics in the next Property Update which I will email before the 7th March. Consider this the "Introduction" to a very complex city to analyze.  I will also concentrate on investment property potential and not on owner occupier bargains, although they sometimes may overlap.

Lets start with Sydney city (Central Business District referred to as the CBD) - Stay away from this area as it is totally overpriced with foreign investors having paid far too much over the past few years. The problem will be when  the abundance of high -rise  "Off the Plan' apartments are ready to be settled. Many of these apartment take a year plus to complete and prices  will have fallen well below purchase price because of the oversupply. Lenders, particularly the major banks, will be running scared and make borrowing criteria even more difficult.  Investors must insure that they have large deposits because of the shortfall in valuations and the reluctance of the banks to lend investors and owner occupiers over 80% of that reduced value of the property. Investors will also need a sizable buffer to pay the rental for a number of months because there will be a large number of vacancies in the CBD

Likewise, stay away from apartments in the inner suburbs of the city (radius of 10 to 15 kms). These properties will be competing for renters with those in the City (which will have dropped to all time lows because of the  immense oversupply). With the expense and inconvenience of public transport for renters these apartments will be at a distinct disadvantage. Plus parking within CBD of Sydney is very expensive and public transport can not keep up with demand. Houses within the inner city are well over priced and the rental yields are low.

The outer city (16 - 30 km radius from the CBD) is a better investment. However, rental yields will still be low because of the premium price you pay for property in these suburbs. Many of these have low rise apartment which are reasonably priced.  Apartments will generally not grow as fast as house and land so if you can afford the latter go that way.  Many of these properties are older in these established suburbs and unfortunately there is very little depreciation you can claim in older properties especially those build before Sept 1987 so your income tax rebates are considerably reduced.

In most of the new house and land developments in the south west and north west suburbs the land is so small (300 sq. m) you might as well invest in a lower priced town house complex. Even these smaller house and land packages properties are mostly over $650,000 and blocks over those over 400 sq.m are over $700,000. If you do decide to purchase a townhouse or apartment read the strata title and covenants  documents carefully. If the complex is an older townhouse complex demand to see the body corporate minutes because this will give an idea of the upcoming expenses which will increase the strata fees.

As far as the northern beaches  are concerned you are going to pay big money for property  Many of the residents in these areas are third generation and they will pay for the privilege of living in these areas. You will need to do your research before you buy an investment in the area. If it is an older property make sure you do all the inspections because you could be buying into a bottomless pit.

Properties within the Sutherland Shire and southern beaches are expensive. Many of these residents have lived in the area for many years. These residents initially bought there because properties were cheaper than the northern beaches. You also have a large upwardly mobile younger generation (Gen X) buying in these suburbs because of the rustic nature and beautiful beaches in the area.

So that leaves fringe suburbs / towns in the far west i.e. Campbell town, Mariellen,Camden, Windsor, Penrith, Richmond etc.. In my opinion these properties are better value for money and rental yields are reasonable.  if renters want  to live in houses with affordable rentals that is where they will have to live.  You are still paying in high $500,000 for these houses but if you want to buy in Sydney that is what you will have to pay.

As mentioned I have discussed these zones within Sydney very generally and I will get into more specifics in my next Property Update. Please note that the above is not financial advice.and do not purchase a property solely on the information given in this brief Property Update, Do your own research and due diligence and take advice from property professionals who understand the specific area / zone before making an investment decision. I also caution you against taking advice from family, friends and colleagues. It always amazes me how almost everyone I meet is a property expert.  If they are that smart why aren't they rich. I make it a rule that I never take advice from anyone who has less assets than I do. This has served me well because if they have less than i have they have not earned the right to give me advice.

Please email me with any query you may have or if you need advice on where you are considering investing. I will give you advice based on the abundance of research i have at my disposal. To go to the property update "My NO...B.S. predictions for the property market in 2016: click>>> HERE


Please note that the information herein is of a general nature only and is not intended as formal  advice for any particular person or entity. The contents of this Property Update has been prepared without taking into account the objectives, financial situation or needs of any particular individual.   Information herein includes material obtained from third parties considered to be reliable. Whilst this information has been diligently compiled, no warranty or promise as to its correctness is made or intended. Investors should undertake independent research to satisfy themselves that any details herein are true and correct. In addition, no predictions have been made about an individual's potential profit, loss, capital gains or rental returns.

You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government policy and legislation occur frequently and without prior notice and financial markets are unpredictable.

Author: James Cagney
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