Is now the time for investors to consider the Sydney market again?

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Reproduced with permission.

As part of our regular ‘state of the market’ series, today we have reviewed the Sydney property market.

Property values in the capital cities of Australia are reported to be falling further, with Melbourne 2.7% being the weakest, followed closely by Darwin 2.4%, Perth 1.7%, Canberra 1.4% and Sydney 1.2%.

This is at a time that interest rates are being offered at or close to record lows, and this would normally see markets surge, however along with retail spending, it is reported that demand is dissipating, seemingly month by month.

Although the ABS reported an increase in spending on leisure activities like restaurants and entertainment last quarter, the numerous small business owners that we know in theses industries are screaming that the clientele is falling away week after week. One just needs to drive down Oxford Street in Paddington to see the amount of vacant shop fronts and “For Lease” signs erected on awnings, to quickly evaluate the condition of that sector.

So if Aussie dollars are not being spent on homes, dinners or at shopping centers, where is the money going? The answer at this stage is savings. Australian savings are at historically high levels currently. This is good in many ways, as it is essentially de-leveraging some of our risk and this has been the source of troubles for the West largely around the world.

However this is likely to change. We are still at 5% unemployment, which is incredibly low when compared to countries around the world (eg Greece 20%). Our Term deposit interest rates that the banks are offering are continuing to fall and the share market is extremely volatile, albeit off a very low base.

So in the face of this doom and gloom, investors are likely to seek out a more attractive yield on their funds that also has growth potential. We are seeing average yields on properties we will consider purchasing averaging between 4.5% over 5% in Sydney. This will likely see peoples risk appetite increase to consider property in Sydney and overtime equities in Australia, which are offering comparatively attractive rates of income to cash based options, with upside potential.

In recent times, the top end of the market has definitely experienced a correction in Sydney and in some cases we have seen 30% discounts on quality property in sought after suburbs. One example is 47 Birraga road, a freestanding 5br home, that sold for 1.35m recently after being passed in at auction for $1.7 million only 7 months earlier.

Properties in the$400,000 -$800,000 bracket however have remained fairly strong, with most properties selling with vendors discounting between 0-7%.

At the lower end of the market there have even been increases, achieving results that we are told, even the agents were surprised to achieve. Additionally rents have been increasing consistently. Some properties are even getting a demand for rental that sees them being snapped up prior to the end of the first viewing at rental prices higher than those advertised. One example of this was at 5 Napper Street, South Coogee, which was advertised at $1500p/w and leased for $1550 per week within 15 mins of being opened!

All these signs along with the government starting to entertain the idea of accepting people for citizenship from around the world who have a lazy $5,000,000 to invest into our economy give confidence that our property market is not far from turning the corner.

While it would be foolish to be bullish at this time, it is certainly a time for investors to start considering the Sydney market again. Taking a long term view and investing in the short term for the immediate income yield benefits of the Sydney property market on offer, investors will almost certainly overtime be a positive support for further price growth in the Sydney market.

Property Planning Australia assists our clients with buyers advocacy and property planning advice in Sydney, Melbourne and Adelaide.

Written by James McFall, Director – Property Planning Australia & Cain Kennedy, Senior Property Advisor – Property Planning Australia.

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