There has been a lot of recent interest and media coverage around the Australian property boom and in particular within Sydney. In this blog post we are going back to basics and looking at what is really going on in the property market in Sydney and what things you should be keeping in mind if you are in the market.
Sydney's property prices have outperformed the other states during 2013, says RP Data, Sydney posting a 7.5% growth (27% more that the nearest rival Perth) at 5.9% growth.
So what is driving Sydney's property prices growth?
Let's have look at some of the possible factors:
- Sydney may be playing catch up from pent up demand
- Increased building activity from new dwelling starts - mostly units
- Investors driving out first home buyers
- SMSF investors adding to the buyers
- Lowest interest rates on record
- Renters becoming owners
Demand continues to be high with supply coming on stream slowly keeping prices high. That said, building activity is gathering strength in Sydney and NSW with new dwellings attracting buyers and increasing market activity. During 2013, NSW's growth for new dwelling approvals has jumped by 40.7%, compared to WA that is in decline, Victoria sill negative and QLD with very modest growth.
Housing supply challenge pushing up prices
There is a housing shortfall in NSW, with 140,000 additional homes needed by 2016, the Fair Trading Minister, Anthony Roberts, said. This too is keeping prices in Sydney high.
We have the lowest ever interest rates on record
Affordability is also a key factor as to why more people are buying property high with interest rates at all time lows, making investment property very attractive. Renters are also taking advantage of becoming owner occupiers as rent can often be equal to less than a mortgage repayment especially on interest only loans.
Lowest level of first home buyers
According to Bureau of Statistic ABS first home buyers now make up the smallest proportion of the market on record, over the last 22 years.
There is Pent up demand in Sydney
Anecdotally many potential property sellers and buyers have been waiting for consumer sentiment and conditions to become more positive since 2008. Record Sydney property sales indicate pent up demand for both buyers and sellers is being satisfied. Off the plan unit sales are hot property and often clear after only a few days, with reports some projects are sold entirely on the day.
Is Sydney in a bubble?
In short Sydney is playing catch up to many of the other capital cities and positive sentiment about the future may be playing a part in Sydney's record auction clearance rates many of which over the last few months have been close to or over 80%. So is Sydney entering a bubble that will burst or will property prices keep on going up?
Go back to basics and don't be caught up in the rush to buy
Have a defined check list that the property must meet-particularly for investment properties
- Location, past growth compared to future growth
- Depreciation allowance for new properties
- Rental growth history
- Demographics and infrastructure such as transport routes, trains
Don't over commit
- Have sensible in the Loan to Value ratio
- Aim for at least a 20% deposit for home buyers
- For investment properties keep overall gearing to a manageable level assuming 50% increase in interest rates over time
Take emotion out
- Particularly at auctions-set a budget limit and do not exceed this
- Take an experienced person with you to auctions if you are a first timer
Assume interest rates will rise
- Sub 5% interest rates will not last
- Normal long run trends of around 6%-7% and do your numbers on this, not the current sub 5% rates
- From 5% to 7% means a 40% increase in repayment-factor this in
Lastly, do your homework
- Don't rely on local knowledge-get reliable research, not opinions
- RP data and others have extensive research
- An investment property may not be one you would like in but others will
- Buy for price and return or buy a home, but still justify you are not paying too much
For more information please email ourteam@azuregroup.com.au.
DISCLAIMER/WARNING – GENERAL ADVICE ONLY
The information provided in this article is General Information only, so does NOT take into account your objectives, financial situation and needs. Before acting on any information contained in this website you should consider the appropriate.
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