Investors returning to Sydney property market
BIS Shrapnel has just released its Residential Property Prospects, 2012 to 2015 and states that:
“Sydney is forecast to record a 17% increase in median house prices over the next three years, compared to 9% for Adelaide, 5% for Hobart, 3% for Melbourne, and just 1% for Canberra.”
Whether there growth forecasts are correct or not, it is clear that Sydney will be the focal point for price growth (driven by demand) over the near term.
So apart from organic population growth and migration, what will support growth in Sydney property prices? Investors!
Investors are slowly turning their attention back to the property market as they consider their future returns from current investments. For many, property is slowly starting to make its way back onto the radar and into their minds. Investors naturally want to preserve and grow wealth, so what will turn them back to investing in property? Oddly enough, confidence! This is what is drawing their attention back to property - the opposite of course is true - currently for home buyers.
So why is there growing confidence in property? The lack of confidence in the stock market due to volatility supported by uncertainty and the headwinds from Europe, China's slowing economy, falling interest rates locally however, property is showing good and strengthening rent returns (in the numbers not the hyperbole) as well as offering the bonus of some capital growth in the asset class proving to be the least volaitile and therefore is looking interesting again.
We have noticed this interest from investors in our business, and while it is not overwhelming and we don't expect “weight” to return to the market or that investors returning will drive up values greatly, savvy investors are certainly looking at select residential and commercial investment again and getting strong returns with bonus growth. On the western corridor of Sydney’s CBD fringe for example, we recently purchased an off-market property for under $19 million with a net yield of 7.4%, and in the residential sector, a house in Clovelly (at a discount to market) delivering a 5% yield, which will provide growth of between 3-4% minimum, providing total returns of circa 9%.
Investors are starting to look at property (according to our private bank and HNW affiliates) as term deposits for example start to mature and interest rates tail off, income returns for property are looking attractive again – with the bonus of some capital growth, investors are targeting minimum total returns of between 7-9% pa. Even with the heady days or property doubling in value every seven to 10 years (probably behind us for some time), property has always kept pace with CPI historically, so with an average of about 3.2% p.a. over the long term and face yields of circa 5.5% on units for example, the returns, while not sexy, are safe, less volatile and makes gearing look attractive again in the current interest rate environment.
The trick as always will be knowing what to buy and where – factoring in all the variables including on costs, anticipating future ownership/rental demand, finding assets that complement an individual’s investment style and strategy as well as managing the downside risk – or, if you want to sell within three years of ownership, is the asset that has been purchased likely to get you the purchase price + costs back and if it was, how would you know?
It's probably worth getting some independent property advice (from a buyers' agent) in addition to any financial advice you may want to get.
Stuart Jones is business development director of Sydney-based buyers' agency Rose and Jones
