Advice please

Prices on the LNS are very high at present and may cool slightly once the FHBG disappears (but no guarantees). Likewise rental yields are still very strong (around 4.5% gross) which is generally a sign of an overheated market (this generally travels around the 3-3.5% mark). The correction could be either way with either property prices increasing (but unlikely due to affordability factors), rents dropping (can't see any signs of major new supply hitting the market, so unlikely) or interest rates increasing (causing ownership affordability issues/greater supply of property for resale/mortgagee sales etc – possible).

It is an each-way bet, is this a bubble or is this sustainable?

As for the pricerange – realistic depending upon the area, however you won't find much in the way more than an entry level 2 bedder (older style unit) or good quality one bedder (supply is pretty thin on the ground esp for 1 beds).  Factor in up to a 2% increase in interest rates (I generally work on affordability at 8%)

Hi Darren,

It is always difficult to predict which way interest rates will move but generally speaking I think we can safely predict them to rise in the next 6-12 months. How high they go will be anyones guess. Speaking from limited experience (3 years home ownership) we never really gave enough consideration to not having a 20% deposit to avoid mortgage insurance (which was over $7,500!). The smaller deposit also results in higher interest payments meaning less money coming off the principal and more going to interest payments. We are now looking to invest in dwellings in regional NSW that we can rent out but won't touch it if we cannot stump up the initial 20% deposit.

Personally I think the pricerange you are buying into is currently inflated due to the 1st home buyers grant. I think prices will correct when this scales back. Hard decision to make but remember that you are buying into a market – things (prices and interest rates) go up and things also go down!!

Hope this helps.

Andyfev

You cannot attain great wealth and be a free man if you refuse to take risk.

Unless of course you win lotto.

Good luck.

p.s. ~7% is more like the NORMAL rate. Current ~5% is an emergency rate.

Darren

If it is going to be your PPOR, I agree with J900 and Ynotnow that you should buy now because it is always difficult to pick the bottom market. You are going to live in it and your intention would be to hold it for a very long time, so what little difference is it going to make? My only advice is BARGAIN BARGAIN and low ball the vendor. Make sure you research average prices beforehand and do lots of comparison to make sure your offer is very competitive and you are not being unreasonable. I did this recently for an off the plan unit in the city and got a big discount as well as savings in stamp duty. It’s is still a buyers market so dont be pressured to pay what you think is unreasonable just because you want to get into the market. You are the boss, not the vendor.

I have a few IPs in Artarmon and Chatswood which was originally my PPOR for many years. In hindsight, it makes little difference now that they are rented out.

Artarmon has a lower yield simple because there are a lot of older units there which is holding rents down and mine is one of the newer ones. The average yield for my 2 units there is just above 4.3% gross which is poor, to me anyway. The average yield for my Chatswood units is 5.3% which is a little more respectable but still relatively poor compared to overseas.

Plenty of people rent in japan – but I agree it is a totally different market over there. The attitudes are very different. Properties haven't increased in value for more than 20 years. When you buy a property it actually goes down in value – so not much incentive to invest in property,

Yes it is pretty amazing – property dropping for 20 years. Now there is a rapid decline in the birth rate leading to a shrinking population  (actually has been for a while), economy is bad, general feeling is pessimistic, spending down etc. Doesn't look good for a recovery.