Is anyone seeing a change in the real estate market lately, particularly Sydney? There doesn't seem to be any positive talk about anything economic of late, except that people bought a lot of christmas presents

Never is at this time of year

gold coast real estate was humming along right through Christmas the last two years, but not this year, so it appears so far -has slowed down a lot since september

was wondering if it's the same in other areas

Not on Sydneys northern beaches.

Can't go up for ever. Sydney had massive rises in 2015 - especially the early part. Time for a correction.

Or maybe it's just the start of the mother of all recessions.

Australia is on a knife edge right now . Many people have never experienced a recession and weirdly borrowing nearly i million bucks to buy a 2 br dunger when you are on a teachers or chefs wage is AOK and having both people working full time and overtime to pay for it is fine . The idea that you might lose your job does not occur to many
people either .
If they go and see" get Short " the movie they will have nightly nightmares . US situation slightly different though but same core issues of greed .

One would think "median" house prices would be affordable for the "median" wage earner.

I know a young electrician, a year out of his apprenticeship who has just been approved for a home loan up to $850,000.

It is an enticement into "The Debt Trap".

en.wikipedia.org/wiki/Capital_and_the_Debt_Trap

Not sustainable, will not end well. My advise is at the first hiccup, sell. Wait it out and buy again when everything seems completely hopeless, this will be the bottom.

To the original OP, Sydney real estate began to cool from October onwards, and has now slowed a bit more. But I don't expect prices to suddenly drop dramatically, rather just sell a little more slowly.

Are the ridiculous prices sustainable? I'd say "Yes", and here's my reasoning. Plenty of people still want to live in Sydney, so it's just a matter of how much can they afford. Plenty of couples are having only 1 or 2 children, so the inheritance doesn't need to be diluted. The overall family wealth is therefore simply building up with each generation. Also, they are having kids later, so by the time the kids are buying their house, the parents are in the wealth accumulation phase of their life and are more able to assist their kids buying a house. Also because the kids are being born later, they will receive their inheritance earlier in life.

The result is going to be those who continue to have a 4 child family will have to watch their kids move to the far South West of Sydney, while the inner metropolitan area becomes a sea of 1 or 2 child families.

That is before we have even considered the overseas investors. In my street, house prices were about 300k 20 years ago. Now they start at $1.5M for a knock down. About 80% of houses sold in the last 5 years have gone to Chinese nationals or recently immigrated Chinese. (And I don't live in a 'Chinese hub' like Chatswood, etc.) With the Aussie dollar dropping around 1/3 compared to the Yuan over the last couple of years, (is it a coincidence that house prices have gone up by about the same amount on average?), houses in Sydney are a good investment for them.

Here's an interesting little anecdote. A friend of ours was trying to buy into the area I live in. For the last 2 years they have been outbid at every auction by Asian investors. Last month they finally manage to win the auction of quite a nice house. How did they manage it??? The house street number was 44, (double death in Chinese culture), so there were no Asian bidders. The only way you buy a house where I live now is to find one that has some irrevocable fault in it's feng shui. I've even heard of people going to open houses and saying things regarding death or illness in the current family so that the Asians will overhear them talking and not want to come back to the house.

I have nothing against Asians, half my friends are Asian, and they have as much right to be here as I do. I'm just outlining the realities of the supply and demand, and why I think the prices are sustainable. Actually a funny thing, you should hear my Asian friends bag out Asian investors and complain about what it is doing to housing prices.

Current Sydney prices are not sustainable. Its just that everyone keeps telling each other 'you can never lose on houses, it always goes up'. When reality bites and people start to think if they will get any capital growth in the short term to offset the huge mortgage and the holding costs, they get nervous.

All it takes is enough people to get nervous to start selling off, and prices fall.

Prices fall, and more people get more nervous, and they too sell before 'the end'.

Prices sometimes surge a bit more as new investors see what they think are bargains...

but then they realise the cost of holding is not cheap and that the rental returns are poor.

So they sell, and then things become quiet.

I am really skeptical of house prices in Sydney. They are just an illusion where people are expecting to get rich quick. Unfortunately, when you do the sums, add in land tax, rates, and all the other costs, its not such a great investment, unless some other turkey is going to buy it without understanding these same costs. At some point it is unaffordable, except for the Chinese that are bringing in money from overseas. For a short time this stimulates a buying frenzy, but for all other "investors" its a dangerous game to play.

Sotired, I acknowledge a lot of your points regarding the investment values in Sydney, and have had similar thoughts. If it was pure investment that was supporting the prices, then a collapse may be on the cards. However, I figure that people's desire to live and own in Sydney gives a lot more solid support to the prices.

I hope I'm wrong on this, because I've got more than two kids, and if things stay the way they are, then the only way I'll be able to see my grandkids without an hour drive on the M5 is to abandon my retire at 50 plan, and stay at work to contribute to their mortgage.

"It will never go down" is a sure sign that we are past the peak and about to go down. October 15 peak feels about right - from what I hear and read.

In terms of staying high - Perth property >$1.2M has been hammered in Perth. 2008 to 2012(ish) it flat-lined. 2012 to present has seen a decline in values in the order of 20% for property >$1.2M. Sure, Perth is not Sydney and $1.2M could buy a lot in Perth and hardly anything in Sydney, but I think the fundamentals are the same - supply and demand... Perth rocketed up during the resources boom... Highly paid people flooded to the city. I'm hearing thoughts that there is a broader correction coming for Sydney and the whole Aussie economy, as the realities of all the recent downwards market movement filter through the economy...

It's still better to have your money tied up in property as opposed to getting 3% in the bank. Shares might be better, but that's more risky, and they are a bit shabby at the moment. If land prices drop significantly you can assume that everything else around you is pretty much stuffed also.

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A property on Gilchrist Terrace in Moranbah was bought for $290,000 in 2005, sold by BHP who bought the home for $20,331 in 1999. It was then sold for $329,000 in 2007, before the mining boom took off. In 2011, it was bought for $645,000. In August 2015, the same home sold for $152,500.

I thought this article is a pretty good rule of thumb for buying property.

www.domain.com.au/news/five-real-estate-cliches-that-are-true-20160107-gl6lgz/

I got 3 houses 2 in W A & 1 in S A found W A to highly priced in 2015 so bought one in S A heaps cheaper . much better than haveing money in the bank getting 3% best to put it in bricks and motar and they are making me money slowly Took advise from a old friend many years ago also have shares in big companys

I tell you when the gfc hit out kellyville one St I went to with the brand new mc mansions only had 3 houses that weren't for sale . These were all occupied &being sold at a loss from what was paid new 6 mths ago.
So I think There's always someone who will get wiped out &someone to make a profit on that.
exactly like the share market.
But from what I have have seen the western suburbs have the fastest growth as its entry level housing that's more in demand than say the third home market
St Clair is Hitting the million dollar mark now.
Which I find astounding. But i did call in shops there &the tiny little hot pants on some chick's was astounding. &I think that goes to prove my theory the fitter the chicks the more affluent the suburbs.
So my advice for first home buyers is to go to the local shops &if they are all got fat asses .
It's probably an affordable area.

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actiomax said..
But i did call in shops there &the tiny little hot pants on some chick's was astounding. &I think that goes to prove my theory

but maybe it's just that they now can't afford food?

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Harrow said..
T

Here's an interesting little anecdote. A friend of ours was trying to buy into the area I live in. For the last 2 years they have been outbid at every auction by Asian investors. Last month they finally manage to win the auction of quite a nice house. How did they manage it??? The house street number was 44, (double death in Chinese culture), so there were no Asian bidders. The only way you buy a house where I live now is to find one that has some irrevocable fault in it's feng shui. I've even heard of people going to open houses and saying things regarding death or illness in the current family so that the Asians will overhear them talking and not want to come back to the house.

I have nothing against Asians, half my friends are Asian, and they have as much right to be here as I do. I'm just outlining the realities of the supply and demand, and why I think the prices are sustainable. Actually a funny thing, you should hear my Asian friends bag out Asian investors and complain about what it is doing to housing prices.

Had the opposite happen when we sold our place a couple years ago. Our house number was 38 (888) and we had a bidding war of asian buyers.

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actiomax said..
I tell you when the gfc hit out kellyville one St I went to with the brand new mc mansions only had 3 houses that weren't for sale . These were all occupied &being sold at a loss from what was paid new 6 mths ago.
So I think There's always someone who will get wiped out &someone to make a profit on that.
exactly like the share market.
But from what I have have seen the western suburbs have the fastest growth as its entry level housing that's more in demand than say the third home market
St Clair is Hitting the million dollar mark now.
Which I find astounding. But i did call in shops there &the tiny little hot pants on some chick's was astounding. &I think that goes to prove my theory the fitter the chicks the more affluent the suburbs.
So my advice for first home buyers is to go to the local shops &if they are all got fat asses .
It's probably an affordable area.

From what I have read is if suddenly a large number of coffee shops spring up an area, that is the place to buy. I am just glad we bought property shortly after we moved to Sydney. There is no way we could afford to buy today where we live unless we had a big boost in income.

You can buy a half decent new 4 cylinder car for 20K.

So that's around 30 new cars for the price of a average Sydney house!

Now tell me house prices are not over valued.

If interest rates climb alarmingly as so many financial experts are predicting.....

House prices will collapse at an unprecedented rate.

Paying a mortgage off before when interest rates were high was possible--- as you were not paying interest on such a huge loan.

Now---it's a way,way different ball game!

^^^ I'm not sure that is the best example pm33. I think a house would be a much better investment than 30 new cheap cars seeing that they halve in value as soon as you drive them off the lot!

Forget Sydney and Melbourne for any decent investments with good yields. Look further North at Cairns and Townsville.
Townsville airport is getting a multimillion dollar expansion, new developments along the Ross Creek, new shopping precincts, has the busiest Bunnings in Australia, and Cairns is also going through a mini boom at the moment.

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Loftywinds said..
Forget Sydney and Melbourne for any decent investments with good yields. Look further North at Cairns and Townsville.
Townsville airport is getting a multimillion dollar expansion, new developments along the Ross Creek, new shopping precincts, has the busiest Bunnings in Australia, and Cairns is also going through a mini boom at the moment.

You moving to the WA section?
Isn't it just a bit too hot up there really??

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Harrow said..

That is before we have even considered the overseas investors. In my street, house prices were about 300k 20 years ago. Now they start at $1.5M for a knock down. About 80% of houses sold in the last 5 years have gone to Chinese nationals or recently immigrated Chinese. (And I don't live in a 'Chinese hub' like Chatswood, etc.) With the Aussie dollar dropping around 1/3 compared to the Yuan over the last couple of years, (is it a coincidence that house prices have gone up by about the same amount on average?), houses in Sydney are a good investment for them.

If I had asked anyone in 2014 if Sydney house prices, already stratospheric, were about to boom another 50% they'd say "of course not."

Except for my Chinese colleague who saw it coming.

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My Chinese Colleague said...
Sydney is a very desirable city which is cheap, internationally.

The world is global (i know i know) where money can flow internationally in milliseconds. Chinese nationals aren't supposed to be able to buy investment property in Sydney, especially not old houses, and yet they clearly and openly and undeniably do. A lot.

Other cities where this is common are London, Vancouver and Auckland. All have "unaffordable" house prices.

No state government is going to clamp down on the practise practice because $tamp duty.

@ OP: Brisbane and Gold Coast are (probably) next. They usually follow a boom in Sydney. See Chinese construction on Gold Coast as an example. I've also heard they are snapping up entire high-rises, as they succumb to concrete cancer (Iluka had to be pulled down) and prices are cheap as a result, to knock them down and rebuild new high rises in their place.

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petermac33 said..
You can buy a half decent new 4 cylinder car for 20K.
So that's around 30 new cars for the price of a average Sydney house!

It's 50 of those cars. $1m.

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Now tell me house prices are not over valued.

Obviously not because they've gone up 60% since you got your information.

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If interest rates climb alarmingly as so many financial experts are predicting.....

The economy post mining boom is not going see interest rates go up. Not for a long time.

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House prices will collapse at an unprecedented rate.
Paying a mortgage off before when interest rates were high was possible--- as you were not paying interest on such a huge loan.
Now---it's a way,way different ball game!

Totally, completely different ball game. The landscape is completely different to how it was even 20 years ago.
Was cricket, now ping pong.

Some people are saying prices will slow their increases and perhaps level off, this is what you what to happen and it sounds optimistic and reasonable but the reality is this usually does not happen, usually it goes down significantly.

well the year has started off in a bit of an unusual state. Might be a very interesting year of events :/

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evlPanda said..

Harrow said..

That is before we have even considered the overseas investors. In my street, house prices were about 300k 20 years ago. Now they start at $1.5M for a knock down. About 80% of houses sold in the last 5 years have gone to Chinese nationals or recently immigrated Chinese. (And I don't live in a 'Chinese hub' like Chatswood, etc.) With the Aussie dollar dropping around 1/3 compared to the Yuan over the last couple of years, (is it a coincidence that house prices have gone up by about the same amount on average?), houses in Sydney are a good investment for them.

If I had asked anyone in 2014 if Sydney house prices, already stratospheric, were about to boom another 50% they'd say "of course not."

Except for my Chinese colleague who saw it coming.

Where did it boom another 50%? Not in my street. Maybe in Eastwood.

The only thing I see from these crazy house prices is that I now pay a lot more in rates to the local council, who seem to have admitted they already have enough money.

The flaw in the system that is meant to prevent foreigners from buying existing housing stock, is that they buy older houses that are 'beyond economic life' and build a new house on the block. The nett increase in housing stock is zero.

I own a house that is 'beyond economic life' but not surprisingly it still returns a good rental return.

I guess all this goes to show that no one in government really cares about your kids being able to buy a house without a gigantic mortgage. They would prefer it that the rich people are okay, and the strugglers can't buy a house to live in.

Here's a bit of a hint at to what is really happening. Signs that its not necessarily a great time to buy an investment property:

www.domain.com.au/news/sydney-apartment-rents-fall-as-building-boom-takes-toll-domain-group-20160113-gm3umw/


The area around where I work seems to have a huge number of apartments coming online soon, and many more to follow. My friend was telling me that the apartments are selling for a fortune but the rents are low. The older apartments in the same area are asking the same rents, so you will see people rent out the newer apartments, and the rents for the older places will fall as people need to 'meet the market'.

There's always something about to crash the market. The end is always nigh.

Since 2001 we've seen the $AUD go between 50c and 110c and back to somewhere in the middle again. We've seen a war, a mining boom, the end of the mining boom, a global financial crisis (!), and interest rates have doubled and halved again. All of these spelled the end of the boom and the start of the crash.

Cities where there are a large number of foreign investors, London, Vancouver, Auckland and Sydney for example, have been solid throughout all of this, and their own local disasters. This makes them stay even more solid because of their solid history; they've even more attractive to investors.

Although they're not really investors, they're parking money offshore.

As a property investor, I know a little bit about property investment. The current property prices in Sydney and Melbourne tells me that I will be struggling to make a good case to invest in one.

Rental income for an investment property is a very big component in one's decision to invest. A rough guide is this...

If your property costs $500,000 to buy, you will need at least $550 to $600 weekly rent to even consider laying down a deposit. So by the same rule, if you paid $1,000,000, your rent needs to be at least $1,100/week or more. That is a big ask unless you have a good cash reserve.

Property market in Sydney and Melbourne are definitely going loco ! I suppose it is a bit like a bidding war. When someone raised the stake, you want to get one leap ahead of him. So the real estate agencies are only too happy to keep the bidding war hot.

FEAR...The fear of missing out is very real. So to make that preemptive strike to get the prize also feed right into the frenzy.

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Harrow said..

Here's an interesting little anecdote. A friend of ours was trying to buy into the area I live in. For the last 2 years they have been outbid at every auction by Asian investors. Last month they finally manage to win the auction of quite a nice house. How did they manage it??? The house street number was 44, (double death in Chinese culture), so there were no Asian bidders.




lets go to china and buy the 44th floor of all the highrises for peanuts