The old adage “misery loves company” seems top of mind for anyone commenting on the Sydney property market at present. Everyone looks to be climbing onto the same train – claiming the local market has “had its day” and that the smart money is heading out of town. And hasn’t it all turned on a dime?
It feels like not too far back (just 12 months ago) Sydney real estate could do no wrong and the good times were going to last forever. I realise dramatic headlines get clicks, but I think observers need to cool their heels and take a practical look at why there are still opportunities for skilled property buyers in Sydney right now – in one sector in particular.
Here are the reasons why I’m still buying harbour city property.
Philosopher and novelist, George Santayana, once said, “Those who cannot remember the past are condemned to repeat it.” In real estate circles, things are a little different because those who can remember the past are begging to repeat it so they can take advantage. Most people might talk about cycles, but I think the market in Sydney is more like waves. There are peaks and troughs and the trick is knowing when to paddle on. Sydney property has been an outstanding investment option for decades.
It’s continued to perform and compound. As a comparison, did you know the ASX is currently around 10 per cent below its peak in 2017? That’s what I’d call a volatile vehicle. In my view, the present property market softening was due – perhaps even a little overdue – but that doesn’t mean Sydney is dead in the water to investors.
The new NEW normal
Here is another element inexperienced investors are failing to take on board: since 2012, Sydney real estate has performed like no other in the country, achieving around 75 per cent growth in house prices. For anyone who bought their first-ever investment between 2010 and 2013, they have never known the market to move in any direction but up. It’s a fortunate thing to have jagged your timing so perfectly, but it does nothing for getting some experience under your belt.
Analysis of ABS House Price Index data by Property Investment Professionals of Australia showed across a 15-year period from 2002 to 2017, Sydney was actually one of our least successful real estate markets. While recent first-time investors have been getting comfortable with the ongoing and inevitable rise of Sydney property values year-on-year, they’ve failed to recognise this seemingly “normal market” was actually abnormal.
But there’s upside… right?
Now I’m not being a pessimist. In fact, long-term annual price growth of between five and eight per cent is more likely than the double digits we’ve been seeing. In fact, many other statistics look good for Sydney. Employment numbers are strong and there’s plenty of new infrastructures underway too.
We are one of the world’s great cities – up there with London, New York, Paris and Tokyo so our cache among travellers and transient international professionals is pretty high. Sydney will remain the most populous capital in the nation and while plenty emigrate beyond the NSW borders to seek other opportunities, demand for Sydney housing will remain.
What am I buying?
As you can see, I think that while Sydney’s property market is softer, there are still opportunities. For me though, I believe one sector stands out among all others as the best chance to profit. You will not do well purchasing any random listing for your portfolio in the hope of building equity and generating cash flow. You must be surgical in your approach to property selection right now and, in my opinion, the smart money is looking for development prospects.
I believe the best way to ensure you buy right is to seek sites with immediate potential for a subdivision or build project that can yield an increase in equity or a net profit. These sorts of ventures aren’t for everyone though – they suit more sophisticated investors who have the financial means and experience to tackle them head-on. Best of all, many vendors looking to offload development sites are well aware of the current market conditions. That means they are becoming more negotiable on price, particularly if they need to sell.
The toughest part is finding a property that suits your needs – and this is where the assistance of an experienced buyers’ agent come in. With comprehensive analysis, enviable networks and well-honed negotiation skills, a buyers’ agent is more likely to locate and secure a site for their client in the current market.