Don't Get Burnt by The Property Market

Don't get burnt by the property market

How seriously should property investors take recent warnings that Australian property prices are 20 per cent to 30 per cent higher than they should be and that there is an impending apartment glut in 2017? 

Whatever the fundamental basis for these and similar warnings, existing and new property investors need to be aware of the potential downside.

The basic issue is to understand the risks involved with  investments already owned or being purchased. While less popular for purchases of listed assets including shares and property trusts as well as managed funds, large levels of borrowing are widely used to help acquire direct property holdings.

This high level of gearing helps to drive up property prices in good times such as the present and down when markets turn down, for example due to increased levels of vacancies and/or falling rents. Currently, strong foreign buying interest, low interest rates and a shortage of available stock is forcing and encouraging new investors to bid up prices.

While it may be some time off, a similar downward ratchet in prices will start when interest rates rise again and when new housing developments result in an oversupply in the major locations. Compared with share market falls which can be brutal and swift, downward property price movements are generally protracted as sellers holding out for higher prices ultimately are forced to lower their expectations.

A special feature of the apartment market can, however, result in distressed forced sales. This is when a large number of off-the-plan sales negotiated before or during construction fall through. A recent example of this occurring is the setback in the Canberra apartment market due to over-supply and reduced public sector employment opportunities.

In this situation, a significant percentage of off-the-plan  buyers were either unable or unwilling to complete their purchases. The resulting forced sales depressed asset valuations and made it more difficult for heavily geared purchasers to obtain credit to meet their commitments.

The key message for individual investors is to be aware of these and other risks before entering into off-the-plan contracts. While one benefit of off-the-plan purchases is what can often be a lengthy time lag before money is required to complete the purchase, this can be a negative if personal circumstances change or property valuations fall before the settlement date..

The chances of both of these changes increase with the amount of time before completion. The risks are also greater in situations such as the present time when contracts are entered into in a buoyant market. So even if the warnings of problems ahead don't prove accurate, they are a timely reminder to avoid becoming over-committed to a future large heavily geared property purchase.

Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

Sydney Inner-City Apartment Market Glut Predicted to Push Prices Down

A leading economic forecaster is warning that oversupply will cut Sydney apartment prices by up to 10 per cent.

The report by BIS Shrapnel estimates that 5,800 apartments are being built in inner-Sydney right now, with almost as many again planned to be completed over the next few years.

The report says the peak annual output of 4,500 units in 2016-17 is comparable to the last boom in 1999-2000, but the average of 3,800 new inner-city apartments per year over three years will be a record.

BIS Shrapnel's senior manager of residential property Angie Zigomanis, who wrote the report, says developers have been playing catch-up after a decade of undersupply in Sydney, but they look like soon getting ahead of themselves.

"The population growth in Sydney still stays pretty strong, rental demand will still be fairly strong, but it's just that the level of apartment construction now is moving up to a level that's probably approaching a level that's too high and that's unsustainable in the long-term," he told ABC News Online.

Mr Zigomanis does not expect this to occur in the short-term, but warns that the wave of new developments over the next few years is likely to result in supply exceeding demand.

"Once the market starts getting into oversupply then rents either flatten out or start falling," he said.

"This has the potential to also coincide with the Reserve Bank looking to start tightening interest rate policy as well and that combination will see the investment equation change and investors start becoming less confident about the market and prepared to pay lower prices for dwellings.

"So any new apartments that come back onto the market are likely to experience some sort of loss two or three years out from now."

Mr Zigomanis says the losses are unlikely to be large, but may prove a serious setback for those buying off-the-plan now expecting capital gains.

"Depends on location, etc, but I wouldn't be surprised if from their current purchase price they don't experience losses of perhaps 5 per cent, and perhaps selected developments up to 10 per cent."

In results released last week, property developer Mirvac said it planned to focus heavily on increasing apartment developments in the Sydney market, expecting that segment to remain strong for the next five years.

Mr Zigomanis says a lack of pre-sales a couple of years hence may force a rethink of such optimistic strategies.

"They require a certain level of pre-sales before they go ahead with construction," he said.

"Over the next couple of years we expect pre-sales will be pretty strong so it should be able to sustain the number Mirvac are talking about, but if they were assuming that demand would stay at current levels over the next say five years we suspect that won't be the case.

Chinese Investor Frenzy Adds Fuel to Inner-City Sydney Apartment Boom

THOUSANDS of Chinese investors piled into a property expo in Sydney’s Town Hall on the weekend as analysts tip overseas buyers will keep the city’s inner city apartment market booming for the next two years.

Close to 50 companies jockeyed for the attention of the cashed up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia

About 50 companies jockeyed for the attention of the cashed-up Chinese buyers, with apartment projects being spruiked by development giants Greenland Holding Group, MAB Corporation and Frasers Property Australia.

The property frenzy came as Sydney and Melbourne kicked off the spring auction season with strong results, posting clearance rates of 83.4 per cent and 75.3 per cent respectively on total sales of $545.7 million, according to preliminary figures released by Australian Property Monitors.

“The (auction) results were extraordinarily strong,” said APM senior economist Andrew Wilson. “The Sydney market just keeps rising. Certainly there is no sign of a waning of activity.”

He said a lot of the buyer ­action was driven by investors rather than owner-occupiers.

At the Sydney property expo Maggie Wang bought a house in Bellevue Hill, in Sydney’s east, for about $6m.

Ms Wang, who migrated three years ago, ran an IT and property development company in China and had recently started a wedding planner business in Australia. She said Chinese interest in Australian property was about more than just making money.

“People like the lifestyle, the country and the environment, it’s not just about investment,” Ms Wang said.

Another buyer, 26-year-old Crystal, bought a home in one of Sydney’s wealthiest suburbs, Vaucluse, for more than $5m, with plans to buy more Australian investment properties.

The expo also featured agencies, such as ABC World, which give Chinese investors advice on migrating to Australia through avenues such as the Significant Investor Visa. The visa, implemented by the former federal Labor government, allows foreigners who invest more than $5m in Australia the potential for permanent residency.

Black Diamondz director Monika Tu, who represents wealthy Chinese looking to buy Australian homes, said the visa’s introduction had led to a surge in interest for local trophy homes worth more than $5m.

Ms Tu said inquires to her agency from Chinese property hunters had increased by about 50 per cent this year.

Also at the expo, one of China’s largest developers, Greenland Holding Group, held expressions of interest for its second local project, the $200m ­Lucent apartment tower in North Sydney, while Singaporean-backed Frasers Property Australia marketed apartments at its $2 billion Central Park project at Sydney’s inner-city Chippendale.

The high investor demand for off-the-plan apartments is ­expected to keep Sydney’s inner-city market in boom mode for the next two years, according to forecaster BIS Shrapnel.

BIS Shrapnel said about 5800 apartments were under construction in Sydney while about 11,500 new apartments would be completed over the next three years — the biggest number in the city’s history. CBRE managing director of residential projects David Milton said the uplift in interest from Chinese investors allowed local apartment developments to stack up financially.

Sydney's Housing Market to Continue to Grow

Sydney is Australia's most populous city and its housing sector offers investors unique opportunities with the security that comes with investing in a large and rapidly expanding market.

Property prices in Sydney have increased 25 per cent in the last four years, during which many other housing markets around the world have stagnated or even gone backwards.

The reason that Sydney's housing prices have continued to rise is simple - more people want to live there. Famous for its landmark Harbour Bridge and Opera House, Sydney is the business and financial capital of Australia, with an ideal climate and a relaxed yet cosmopolitan lifestyle.

Sydney has nearly five million residents and its annual population growth rate of 1.6 per cent is higher than the Australian average. It is also higher than that of any major western city outside Australia, yet less than half of this increase comes from births.

Most new Sydneysiders are overseas arrivals who come to Australia to start a new or better life, seeking employment or education opportunities for themselves or their children. They have created a steady demand for around 30,000 more dwellings each year, pushing up prices and making Sydney the most expensive city in Australia to buy a house.

The median price of a Sydney house is now around A$620,000 (S$786,740) and it is rising. Landed properties can be purchased on the outskirts of Sydney for around half this amount, but they are located far from the city centre. Sydney's idyllic harbour side location brings problems, as much of the land is locked away in parks or reserves and there is less available for housing. The urban footprint has spread as far south, north and west as there is land available.

It is almost impossible for overseas arrivals to buy a home until they settle and establish themselves, which can take many years. This has led to a rise in Sydney's rents, which are higher than any other major city in Australia.

High rents and prices have changed Sydney's landscape. They have led to the abandonment of the dream of a landed home for many young Sydneysiders and led to a boom in apartment living. Over half of Sydney's dwellings are apartments or "home units" as the locals call them.

The new medium and high-rise apartment blocks contain gymnasiums, swimming pools and garden barbecue areas. The units are fitted out to attract renters, while their design lowers maintenance costs for investors. Many of the suburbs where this transformation is occurring - such as Pyrmont, Ultimo, Camperdown, Double Bay and Broadway - are located close to the central business district and in the urban centre itself.

What makes these dwellings ideal for investors is that prices for home units are still less than 70 per cent of those of similar sized houses.

The Sydney inner urban market is unique because there are fewer development projects in the pipeline than there are in other cities such as Melbourne even as the rental demand is far higher. Rents in these areas are escalating as a result and housing investors from Singapore can buy off-the-plan units with confidence, knowing that both the rental yield and the value of their investment are likely to rise in the coming years.

A travellers Guide to Where to Stay In Sydney, Australia

Where To Stay in Sydney:

Blue Sydney:

The Wharf at Woolloomooloo, 6 Cowper Street, Sydney (00 61 2 9331 9000)

Hip, urban and theatrically lit, the Blue Sydney is well-positioned between the Botanic Gardens, the Art Gallery of New South Wales and the nightlife of Kings Cross. There are 100 rooms, including 36 loft rooms and the young staff deliver a friendly, upbeat service. The hotel's Blue café offers large breakfasts, great coffees and modern Australian cuisine. The cocktails from the delicious Martini menu in the Water Bar and the adjoining lounge are also a must-try. Staff are very snobby but great location

Central Park:

185 Castlereagh Street, Sydney(00 61 2 9283 5000)

In the heart of the business district, this hotel caters to both private and corporate clients. With only 36 rooms, it feels like a plush private residence.

Dive Hotel:

234 Arden Street, Coogee(00 61 2 9665 5538)

The Dive Hotel, a groovy family-run guesthouse in Coogee, about 8km southeast of central Sydney, is a good-value option during the warmer months, even if it is a bit of a hike from the city. A cursory glance at the crisp cotton sheets, polished floorboards and blue-tiled bathrooms reveals that this hotel doesn't live up (or down) to its name. All 14 rooms have a small kitchen, fridge and microwave. The ocean views out to Wedding Cake Island are superb. Price rating: 2/5

Establishment Hotel:

5 Bridge Lane, Sydney(00 61 2 9240 3100)

This fashionable hotel in a former warehouse has 31 sleek and contemporary rooms, all with high ceilings and marble or bluestone baths. Interiors are a mix of colonial heritage and modern with two design schemes: one Japanese-influenced with dramatic black-stained wooden floors, the other decorated in bleached oak and muted fabrics. It is part of a small entertainment complex that's a hub for cool Sydney-siders; the Hemmesphere Lounge, Tank club and Gin Garden are always busy. Chef Peter Doyle has won plaudits for his innovative take on Modern Australian cuisine at Est restaurant. Featured in the Gold List 2011. Price rating: 3/5

Four Seasons Hotel Sydney:

199 George Street, Sydney(00 61 2 9250 3100)

An established favourite with grand marble lobby and dramatic staircase sweeping up to the restaurants and spa. The hotel is in The Rocks, within walking distance of the Museum of Contemporary Art, Sydney Opera House and the business district. There are 531 rooms, including 121 suites. Service is thoughtful and attentive; many of the staff seem to know guests' names. There is elegant, relaxing Kable's for contemporary Australian fare, The Cabana for poolside salads and The Bar for wines and cocktails. The spa, regarded as one of the city's best, includes a well-equipped fitness centre and the largest outdoor hotel pool in Sydney. The hotel's position near the tip of the city peninsula ensures that virtually all rooms have harbour views.

Intercontinental Sydney:

117 Macquarie Street(00 61 2 9253 9000)

Landmark hotel in the 19th-century Treasury Building, only a short stroll from the Sydney Opera House. The decor is best described as 'modern-classic' and the service is warm and attentive. The hotel offers jaw-dropping views of the city and the full shimmer of the harbour. There are 509 recently refurbished bedrooms, including 28 sleek corner suites, with sublime beds, feather-and-down pillows and plush under-window seating. Etch By Becasse for elegant yet affordable modern European cuisine. The Cortile Lounge is great for cocktails and Café Opera for seafood lunch and post-opera suppers.

Medina Grand Harbourside:

55 Shelley Street, King Street Wharf, Sydney(00 61 2 9249 7000)

The well-appointed apartments of Medina Grand Harbourside are ideal for longer-term visitors. Located in the new entertainment precinct of King Street Wharf, within easy walking distance of the City area and Circular Quay, Medina Grand Harbourside offers an on-site restaurant, a pool, sauna and fitness centre. The Medina chain sets the benchmark for this type of accommodation in Australia, and it has other local properties too

Metro Hotel On Pitt

300 Pitt Street, Sydney(00 61 2 9283 8088)

The Metro Hotel is located in Sydney's theatre district. A small and well-run hotel, the Metro offers great value for money. It may be short on amenities (eg there is no parking), but the recently refurbished rooms are well above average with pure cotton sheets, silk bed-throws, cable TV and internet ports. It's also just a quick hop to Chinatown, Darling Harbour and the Central Railway Station.

Mooghotel

413 Bourke Street, Surry Hills, Sydney(00 61 2 8353 8201)

Ultra-cool Mooghotel is one of Sydney's most luxurious designer dens. Located in bohemian Surry Hills, it is a 'one-suite music hotel' with a plunge pool, his-and-her bathrooms and a gym. It helps with bookings if you are a rock star or a DJ. Mooghotel was featured in

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