Should I sell my property in Sydney and lock in my capital gains?
Lately a few clients have asked us if (assuming Sydney has peaked) they should sell and lock in their capital gains and buy somewhere else that is about to “take-off”.
Here’s our view:
1. So you have purchased a good property in Sydney, that has proven to be good by virtue of the fact that it has had great capital growth over the last few years. If you sell, what guarantee do you have that what you buy next will do as well?
2. When you sell a good property you lock yourself out of any future CG (capital growth) on that property forever.
3. What if you are wrong and Sydney continues to grow and the next property you purchase to replace it, does not do as well?
4. When you sell, you waste a lot of your equity (created by capital growth) in transaction costs – stamp duty on the new purchase, real estate agent sales commissions, buyer’s agent fees on the next purchase, and the big kicker CGT (capital gains tax) to the ATO. Very often when you sit down and work out these numbers, you are better off keeping the property and refinancing some of the equity out in cash to be used as a deposit on the next property purchase.
5. You’ll never tend to get wealthy by selling real estate. History tells us that you accumulate more wealth when you hold onto it.
6. Most people, are very bad at trying to “time” the market (look at all the people that got caught holding property in 1 x industry mining towns). If you buy & hold for at least a whole cycle, then you don’t have to be concerned with timing the market trying to buy at a low and sell at the peak.
7. Sydney and surrounding areas should continue to do well over the years ahead. Sydney is under-supplied and also considered the engine-room for capital growth in this country,
8. In any full real estate cycle of say 10 years, there is typically (historically) 2 x spurts of growth for 2 years (about 4 yrs in total) and 6 years of fairly flat (or slightly falling / slightly rising prices). We’ve just experienced 2-3 years of growth spurt. It is likely that the market will level off a little now before another growth spurt. We’d suggest you be VERY wary of any media or real estate guru reports predicting “no growth for Sydney for the next 3-5 years”.
In summary, if it was us (and it isn’t – it’s you), we’d be keeping the Sydney property and perhaps refinancing it to get cash to use for another deposit, to then buy again.