State of the market end of spring 2017

The buying frenzy party in Sydney is over. All good things must come to an end. If you owned some property in Sydney before this last boom, chances are that due to the capital growth in the past 5 years, you became a property millionaire (if you weren’t one already). Figures we saw this week say that there are now 1.1 million millionaires in Australia. This would be due no doubt, at least in part, to the property market.

We believe that whilst there is still growth left in the market, it may be single digit growth only, as the market takes a breather. So where are the buying opportunities? In many respects the answer to that question does not change. Here’s what we see:

  1. Selling agents are calling us, where they did not need to before, to see if:
    1. We have any buyers (presumably because they don’t have)
    2. Trying to extract pre-auction offers from us (because they don’t have enough buyer interest to run an auction to the price they told their vendors they could get)

We are buying very well at auction where other bidders are more cautious, and in most cases for less money than we would have had to pay with a pre-auction offer.

  1. People still have to sell due to the 4 D’s
    1. Death
    2. Divorce
    3. Debt
    4. Downsizing

Distressed sellers always present an opportunity to buy property for under market value.

  1. Out of area agents that mis-price property

We recently purchased a property for at least $15-20K under what we believe the true value of the property was worth, simply due to the inexperience of an out-of-area selling agent.

  1. The time of the year. Most years we are running around exchanging contracts on Christmas Eve!

There are some good deals to be had by taking advantage of the fact that some sellers want a sale locked in before the Christmas holiday period so they have some certainty about their plans to move in the New Year. Watch out for properties advertised as “Upcoming Auction”. These sellers have missed the auction campaign for this year and won’t be going to auction before February next year. The selling agent has signed them up and is ‘babysitting’ them through this period but they may be open to selling now!

  1. Off market (or pre-market) properties can be purchased with little to no competition from other buyers due to our long term relationships with selling agents.

If you’d like to leverage off our contacts and experience to source good property, feel free to contact us.

Australian Property Floppers

No it’s not a typo. I meant to say floppers and not flippers.

Our TV screens are full of renovation shows at the moment as you’d probably be aware. They seem to pop up in the final stages of a property boom (like the one we’ve been experiencing in Sydney, Central Coast, Newcastle and surrounds for the last couple of years). Maybe that’s because of the time lag from production to airing or maybe they’re late to the party because it takes a while for TV execs to catch on? But either way many people think they can quit their day job and do property flipping full time. However, just like any business start-ups – some work and some don’t.

Don’t get me wrong, I am a firm believer that you can make money from property but if your strategy is to flip, then you need to go into the deal with your eyes wide open so you don’t flop instead. There are some obvious rules to follow (not a comprehensive list):

  1. Buy at or below the median price for the suburb.
  2. Buy a property that has good bones and in need of a cosmetic reno.
  3. No major structural issues (unless you know what you are doing). Unseen things like re-wiring and plumbing are not a value-add.
  4. Always get a pest & building report before you commit to the purchase. Termites can eat your profits not just your house.
  5. Renovate to the taste of the market (not your own personal taste).
  6. Kitchens & bathrooms sell a property.
  7. Make sure there is money in the deal.

Let’s take that last point and expand on it a bit more: Make sure there is money in the deal. Not just “I can buy for $X, spend $Y on a reno and sell it for a profit of $Z”, BUT –

  1. Be aware that American flipping shows operate in a different taxation environment than Australia. In NSW for example, on a $650K purchase there is Stamp Duty of $25K to pay and this comes out of your bottom line profit. Not so in the USA.
  2. Put a value your time. If you spend 3 months of your own personal labour working on the property, how much would you have to pay someone else to do that?
  3. Allow for holding costs. If the reno takes 12 weeks and a sales campaign takes 4 weeks, it is still another 6 weeks until settlement when you get your money (that’s 5 or 6 mortgage payments you have to make during the process).
  4. You need to pay tax on any profits you make (which, depending on the structure you use to flip and your personal tax rate, could see up to 50% of your profits paid to the taxman). Get advice.
  5. There are ALWAYS cost overruns in renovation projects. Allow a sum of money labelled “contingencies” in your costing spreadsheet for the unexpected.
  6. Don’t fall into the trap of thinking you are a great renovator and flipper because you made a handsome sum of money on your last flip. Most of the profits we see flippers make is due to the organic capital growth of the real estate market during the 3 – 6 months the flipper is holding onto the property, with very little of the profit due to the actual renovation.
  7. Finally, flipping works best in a flat or rising market not a falling one. Have a fall-back position if the market moves against your position – this may be hold & rent to tenants until the market picks back up.

An experienced Buyer’s Agent can help with the property & suburb selection and advise on what renos to do to maximise your potential profits.  Give Propertunity a call (obligation free).

State of the market Autumn 2017

State of the market Autumn 2017

The Sydney boom continues as auction clearance rates exceed 80% on most weekends. The major factor we see playing out is the Supply V Demand equation. Last year in 2016, sales volumes were down by around 50% in most of the suburbs we buy in. This was not due to lack of buyers but by a lack of stock on the market to buy. The situation has not changed much this year in 2017. The main problem seems to be two-fold:

  1. Owner Occupiers are not prepared to sell before they buy for fear of being locked out of the market because of extremely low stock levels and ever increasing prices.
  2. Investors are over-represented at almost 60% of the market (a factor of almost double their normal 30%) and when an investor buys, unlike an Owner Occupier, they have no property to sell – so there is no additional property being put back on the market for sale.

The one good thing about these stock levels being so low, is that it is forcing up the prices for sellers, and holders of real estate are sitting on large equity gains.

This is affecting all of the Northern Beaches, Upper and Lower North Shore, and Inner West. The Eastern Suburbs has seen more listings come through but not enough to satisfy demand. Price growth in Western Sydney appears to have stalled recording growth of only 1-2% in 2016. Stock in the $400-600K price range on the NSW Central Coast is being snapped up by buyers (in some cases sight-unseen) as the “ripple effect” moves out from Sydney (perceived by some to be ‘unaffordable’).

Do we see any change to this situation in the short term? Unfortunately, no.

The people that represent the bulk of the properties coming onto the market are known in the industry as the “4D clients” i.e. those affected negatively by debt, the downsizers, the divorced and the deceased.

The only things we foresee that are going to make a shift in this market is a sharp rise in the cost of money (interest rates), a sharp rise in unemployment, or a huge global unsettlement and we all hope & pray that does not happen.  All things being equal, with limited supply and huge demand, we will be looking at more price increases in 2017 as we saw in 2016.

The good news is that currently up to 50% of the properties we are buying for clients at present are what we call off-market or pre-market properties, silent sale properties not advertised to the general public but instead marketed to the agent’s private database of investors and Buyers Agents.  The great advantage to this is that in most cases you have no competition if you can act fast.

If you’d like to get an unfair advantage or are finding it difficult with your own efforts to buy property, then hit us up for a chat to discuss what we at Propertunity can do for you.

When is the Sydney property market going to crash?

I don’t see Sydney property crashing anytime soon, for the following reasons:
1. Cheap credit – we have the lowest interest rates ever and don’t look like going up in the foreseeable future.
2. Limited supply – investors are over-represented in the market from their usual 30% (Owner Occupiers being the other 70%) means they buy a property but do not have one to sell like an upgrading Owner Occupier would.
3. Volatile share market – conservative investors retreat to the perceived safety of bricks & mortar.
4. Demand still exceeding supply – so prices continue to rise (9.8% in SYD for 2016 since last year’s predictions by many that the boom was over). According to those that know, we are under-building approx. 50,000 residences in NSW per year.
5. Aussies’ dream of owning their own home is still embedded in their culture.
6. Increasing migrant intake (Prime Minister announced this week).
7. Government intervention in the unlikely event that things do start to look bad. Governments have a long history of putting stimulus into the property market when they think it necessary – Stamp Duty relief, First Home Buyer grants etc.
….just to name a few.

End of winter 2016 update

Winter 2016, just passed has seen:
• A softening rental market
• A severe shortage of quality stock
• Rising sales prices

In relation to a softening rental market, some of the reason can be explained by the number of investors in the market buying properties to rent out.

Normally investors are 30% of the market with owner occupiers the other 70%. Towards the end of last year, in NSW, investors were 60% of the market (double the normal) and this has moved back to approx 50% now (still over-represented). This has 2 x effects:
1. More available rental properties on the market (so rents soften in response to greater choice and availability). It takes some time for this additional rental stock to be tenanted – but it does wash through the system and normality returns.
2. Shortage of stock on the market. When an owner occupier buys a house to live in, they normally also sell their current house, so there are 2 transactions. When an investor buys a house, he/she just buys a house, there is no corresponding sale. This goes some way to explain why stock on the market in Sydney is at the lowest levels it has ever been in some areas. Add to that the fact that many owner occupiers are afraid to sell first, in case they cannot find something to buy and you have a recipe for low supply coupled with high demand – and we know what that leads to – rising prices.

This time last year in 2015, many reports in the media were calling the end of the Sydney boom. I said at the time that this was premature and did not reflect what we were seeing at the coal-face every day. Median prices did retract slightly in the last quarter of 2015 but 2016 has seem ever increasing auction clearance rates – back over 75-80% and price growth of 6.8% to date….hardly a bursting bubble!! The recent cut in interest rates by the RBA will see even cheaper credit available to purchasers and will have the effect of putting a floor under prices at the very least.

Don’t Rush

We come across many frustrated buyers who have been searching for the perfect home for long periods of time. (sometimes 12 months or more).
We also hear stories of how the frustration has got the better of the home buyer and they have settled for something that wasn’t even close to what they were searching for.
It is wise to take a deep breath and stick to your brief or criteria when house hunting. It’s a selling agents job to sell the property so they may use techniques that make you feel it is ok to buy in a bad street, on a main road or in an area that you weren’t looking in to begin with. As the emotions of missing out come into play, it is easy to be misguided and make a decision that you can’t back out of. Once the emotion has gone and you are all settled in your new home where you didn’t want to be, the feeling of remorse or guilt might set in and you could be stuck with a home that isn’t really what you wanted. By the time you pay the price and costs such as stamp duty, legal fees, inspections and moving costs etc, you could be behind the 8 ball and selling straight away might not be an option.

I have had property searches take up to 7 months myself, but, I waited for the right seller and home for the right price and got my clients their dream home.
I have heard reports from competitors that they found a home for a client that took only 2 weeks. Pity it was in a suburb they weren’t wanting and on an undesirable street with 1 less bedroom.
It goes to show that the promise of a quick turnaround, isn’t always the best option, especially when the property brief can be distorted.

Give yourself the advantage and invest in a REBAA certified Buyers Agency to assist in helping you find the perfect property, not second best.