“Sydney house prices fall
By Bonnie Malkin
August 22, 2005 – 2:49PMHouse prices in Sydney are down, land prices are up – and there are more sales, according to housing industry figures released today.”
When an increased volume of transactions coincides with a fall in price, this can only mean one thing surely? Have we now passed the tipping point?
Bubble Stage: Irrational Exhuberance
– Price rises encourage speculators pour in, buying not for yield (which is reasonably stable but at this stage not high enough to make the asset attractive), but on the expectation on further future rises in price.Bubble Stage: Wobbly Stand-Off
– The market balances at the peak of it’s bubble. Prices are no longer rising. Early investors and those who base buy/sell/value decisions on yield have sold up or consolidated. The flow of new money that had been created by earlier price rises (mortgage equity withdrawal) dries up. Sellers refuse to sell for less than the value they have now accepted their house is worth. “House prices never fall” they say, “I’m in this for the long term!” But eventually some must be sold and as these forced sellers begrudgingly accept a lower price, the new price is set.Bubble Stage: (Ir?)Rational Depression
– Price falls encourage speculators to sell now (even at a loss) on expectation of further future falls in price.Are we seeing the first signs that Sydney & NSW have moved on to the (Ir?)Rational Depression stage of the house price cycle?
F.[cowboy2]
Interesting topic Foundation.
I have been out of the Sydney market for about three years (perfect timing more by luck than design!).
I am curious if the investors that are cashed up are using this current period as a prime opportunity to grab some bargains? From what I read, there is also a glut of rentals on the market as well so IP purchases can be real money pits, at least until the pendulum swings.
So if this is a “rational depression”, how long is the cycle likely to be and what are the smart investors doing and predicting? Panic selling is never a smart tactic!
Just curious being an ex-Sydneysider!!
hi foundation
I don’t want to pop your bubble put I look at the rental index not the price index.
Property is a supply and demand driven market and if you want to look at an area you look at demand first before price ( or in some case projected demand.
Find me an area with a demand of 35% even if the price was $1,500,000 and I will find you an investor.
reason
If the demand is so high,
The supply must be very low.
If the supply is low.
The rents must go up.
When the rent meets the repayments of the $1,500,000 loan you have a sale,
The people doing the article are not looking at the market from a investor view point.
You would only sell as a developer if the demand was not there for your area and if the demand wasn’t there working back on the above why would you invest.
All and any market that you are looking at you must do in depth market research.
And the writer for a news paper even thou I like the pictures are not what I class as market research.
If you are going to understand a market.
First thing you must do is understand the market and why markets move in different directions.
Your article with to regard this market.
Would be similar to me reading that greek food is popular in balmain and me paying 150,000 setting up a suvilaki bar on bondi beach and woundering why nobody like my food.
The sydney morning hearld is in the business of selling news papers not investing.
And while im on the point if you read the opinion section of last weeks hearld they were of the opinion that the da developments site sales are at high for this month and that syndication was there suggestion for leveraging.here to help
I am curious if the investors that are cashed up are using this current period as a prime opportunity to grab some bargains?What possible motivation would such an investor have at this point? Certainly not rental yield at ~3.3(?)%, and while prices are falling at nominal rate approaching $60,000 per annum, would they not wait until prices stopped falling or yields reached profitable levels?
F.[cowboy2]
Originally posted by grossrealisation:If the demand is so high,
The supply must be very low.
If the supply is low.
The rents must go up.So I have 2 questions:
1) Why is the current increased demand driving down the price? Refer original article for detail.
2) Why did the demand that lead to 100+% capital gains in a few short years not lead to a similar rise in rents? Vacancy rates in Sydney appear to have passed their low point in the cycle, so it would be unreasonable to expect this to be simply a ‘lag factor’.F.[cowboy2]
hi all
builders and developer have a 35% margin(developers) (45% builder developers margin) theoretically if you do it correct you should be able to rent out at close if not very close to the development cost.
The sales that you are looking at are the people that have purchased off the plan and the banks are re adjusting there lvr on these lends to allow for market movements.
As they have not completed the sale as yet they have to get it thru a lender and the lenders are very careful at the moment I fell very sorry for these people and think that some are going to get very badly burn’t.
This is the same reason alot of development sites are on the market currently and they are alot more valuable then the unit or house, some are carrying a 25% return and people like me like that.
As I posted today to a 17 year old investor this is a market that is very good to make very good returns but you must take reasonable risk for return and is not for the faint hearted.
I swim against the current as I have found it very success full.here to help
Foundation,
It would seem very little motivation at the moment however at some point the market will flatten and then rise again. All I am simply saying is that the market will rebound with the critical element being when. Is it 12 months, two years, 5 years, who knows!
What are people’s strategies for the NSW market or it just bury your head in the sand and wait for the peak of the next cycle?
Originally posted by jhopper:at some point the market will flatten and then rise again.
Yup!
All I am simply saying is that the market will rebound with the critical element being when.I think the critical element will be why rather than when. Two factors come to mind – Yield (think Rental Reality/ CF+ etc) and sentiment. The return to positive sentiment is likely to lag yield, so there may be some opportunities to get in early for brave investors. A gross yield approaching 6% looks like a historically good buy signal.
What are people’s strategies for the NSW market or it just bury your head in the sand and wait for the peak of the next cycle?Nope, I’ll be looking for the trough… no wait, I’ll wait through that until there are clear bullish signs. Once the rising trend has been established, I’ll leverage into the market again, reducing(![blink]) my leverage as values rise, although it is not beyond the realms of my imagination to doubt whether I will ever see another real estate boom on this scale. I expect to live another 40 years at least.
F.[cowboy2]
Hi Hopper
not sure for everyone.
We are currently purchasing sites and are constructing.
I don’t look at rebounds ,I look at returns, lends, sales or holds.
This market is very good for what we do and has to date been very successful.
Each site is a case by case purchase and is evaluated on a multipull of basises and once evaluated is organised.
I don’t invest outside of sydney because I don’t have to.
There is more then enough good investment here if you know what you are looking for and you can fund it.
sorry I’m being vague but I have to and I don’t want to sound like an advertisement.
I would say that the smart investors are picking off the buyers off the plans and we are picking off the cream of the sites but thats business.here to help
GR, thats more what I was talking about! Be it vague but there are strategies that work in property even when times are tough. Can’t remember which book it was but the line was something like, in good markets the rich get richer but its the bad markets where the rich stand to make the most. You get the idea!
In terms of typical residential investing I understand the sentiment of rental yields and CF+, however are these strategies valid in todays Sydney market, probably not. Is this now a market designed more for CG over the longer term with the expectation of a rebound. Obviously the contraints will be cash flow and an understanding of the cycle to rebound and not for everyone but then again, is waiting the correct strategy?
I am only asking because I like to look outside the square but my outside the square could be smack bang in the middle of someone elses!!
I tend to agree as well Foundation that the boom we experienced may well have been a once in a lifetime, all possible!
cheers
hi jhopper
Always look outside the square you can by all means look inside my square just don’t fiddle with anything or steal anything (if you get my drift).
There are any number of stratagies that are beening used some are more successful then others and they are being used for different reasons everything must be (a) have a purpose and (b) designed for that purpose.
Just like creating a race car, it must be suited to that track but it must be able to adjust to wet or dry tarmac so must your vehicle when investing for the long haul.
If it is not able to abjust and is to ridged then it wont be able to adjust to market change if and when needed.
Don’t agree with the cg over a long period with rebound I have cg from the start.As for the rich getting rich in the bad markets.
People who do get rich (unless daddy gave you the money) do so because they don’t lose money or if they do lose they do it to gain tax loses for more then they lost in the first place.
I deal with a lot of very expensive suits and there study of any proposal is basically anal to be polite and we all sit around with laptops, calculators and pens and these guys don’t lose. They lend.
Last thing I read a lot of people on this forum who read about this and read about that.
I don’t read about any of them.
My stratagies are market driven and self taught with a group of advisors to setup the systems I require.here to help
GR do you build and hold or do you build sell and move on?
just as Foundation wishes for a fall in property prices I wish for a fall in share prices. I totally missed the boat on this boom and would love a collapse so I could put my portfolio together. Of course markets don’t work in isolation and for the share market to halve would either be a dramatic symptom of a serious problem or catalyst for economic collapse. It all depends on your strategy and where you are at in your life. Making calls on property for 40 years into the future I think is even beyond the imagination of BIS Shrapnel.
http://www.megapropertygroup.comINVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
hi AUSPROP
It relatively simple and I won’t use the word syndicate.
we divide the hurt money by 9 and the then the ??? by 10.
If the project is viable to the extent that the cost to construct when divided by the number of units and a loan can be put on the end prodoct and the repayments for that loan are the same as the rental( which is current ???)then construct and hold is the way to go.
If not then construct sell to the value of construct and separate profit or separate the units that are left.
All the people that I know that do this are what we call sophisticated investors and due to the 2/20 rule I can only tell you what I am involved in and can’t recommend, or advertise this type of investment so I don’t.
hence you will see on all my post I say exactly that this is not financial advice nor is it recommending anything.
As for making calls on property in 40 years I’ll make IT.
1. I’ll be dead
2. my kids will have investments to a very large amount.
3. my grandkids will also be taken care of by my trusts.
4. non can be touch by divorce or separation as nobody appart from a management team has access to it.
5. up to that 40 years I will watch the world revolve and I will have my future secured.
As I posted to a 17 year starting out in investing this is done by risk taking and knowing your market.here to help
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