Buy in Sydney Australia?

User Forum Topic
Submitted by 4826monongahela on February 6, 2009 - 7:01pm

I’ve been reading this site for a long time & would appreciate your opinion/thoughts. Wife & I are considering putting an offer on an apartment. We’ve been in Manly, suburb of Sydney (Australia) and love it. We have lived in many places - Korea, Europe, US, SA - and for our (unusual requirements), the location is perfect – short bus or ferry to major city, walk to surf (me), walk to shops/grocery/public transport/pool/beach/pre-school/school, etc (wife doesn’t drive) and enjoy the “small town” atmosphere, yet next to major city. Sydney is good for our line of work. We’ve always rented and have been diligently saving for own place for a long time. A really long time, and we’ve really scrimped over the years to “save our pennies”.

The AUD has fallen precipitously in Q4 2008 against the USD & Euro and stayed down, making a purchase realistic (most of our savings in USD & Euro) – we’d buy outright. For 2 yrs we’ve been snooping around to get handle on streets, prices, rents, etc and we’ve found, for us, a great apartment that fits all of our needs in our price range (1mil AUD), leaving healthy 2 yr cushion in the bank for when/if I lose job.

Rental returns seem paltry to me, 2%-4% is the norm, but it appears that is the case going back decades. The Sydney market is different from other parts of Australia, has been flat since 2003, and there isn’t really any more land or ability to develop in our area, which has traditionally been a sought after place. Rents have been steadily increasing YOY and vacancy rates for the Sydney area and locally have been under 1% for many years. No significant new developments in the pipeline for the greater Sydney area and the population is supposed to continue increasing. There wasn’t really a glut of no down or non-recourse loans made in the last decade here (they don’t really do that very much here) so I don’t see a wave of defaults coming, like in CA. All of this seems to reinforce our idea that we’d like to buy.

On the other hand 650k USD / 1mil AUD is a heck of a lot of money and I’d hate to see the market significantly drop in the next year or so and/or the AUD slide further. Then again if we keep our $ invested, it really just covers what we pay in rent, after taxes so we’d be more or less “breaking even” if we used it to buy. I’m also concerned about the USD taking a big hit against other currencies and also about inflation locally & in the USA. It seems like if we owned our apartment that would help shield us from potential inflation losses. I understand all pressures now are in the deflationary camp, but I worry sometime in the near future this will change & we will have very strong inflation for a period.

Does anyone have a line into realestate market data (other than www.residex.com.au …ugh) for Sydney area? Does anyone think buying now is a really bad idea?

Submitted by SD Realtor on February 6, 2009 - 7:36pm.

I am sorry but I do not.

The only thing I know is that the way things are going here in the USA, Australia would be my first choice to run away to.

Submitted by Lostozzy2 on February 6, 2009 - 7:40pm.

Australia has very strict laws about foreign investors.

I think you are only allowed to purchase new construction, not resales.

You will have to check in with the foreign investment review board.

http://www.firb.gov.au/content/default.asp

Submitted by 4826monongahela on February 6, 2009 - 8:29pm.

We're cool on the FIRB thing - just got Permanent Residency visa status.

employment & general economic outlook is very poor with sentiment that worst is yet to come. I guess I just worry that with it will come cheeeeper house prices, and might be better to wait. On other hand, we really like the aptmt we are considering and have seen lots that aren't as good (for us.)

Submitted by patientrenter on February 6, 2009 - 10:16pm.

4826, I don't know any details about Aussie RE, but I have kept vaguely aware of its movements for the last 20-30 years.

My definite impression is that Australia went into a bubble every bit as inflated as So Cal, and maybe even more in some places.

If I were you, I'd look for a good long-term house price series for Australia, like our own Case-Shiller. After looking at it, and comparing to something like per-capita GDP, you'll have a better idea where current Australian prices are in the up-and-down cycle, relative to the last 20-40 years.

Patience and logic!

Submitted by barnaby33 on February 7, 2009 - 12:48am.

Just got back from two months in Sydney mid December. For all you folks who aren't aware, Sydney's RE bubble is even WORSE than ours, far worse. Especially in the eastern suburbs and northern shores communities. If you think Manly is expensive Mosman will make you cry. I gotta preface my comments with, I lived in Bondi and only took the ferry to Manly twice.

As to your technical question, Sydney doesn't have anything like redfin that I know of. Realestate.com.au is one source of MLS like info but I never found much better.

Australia's economy is in decline same as ours, despite their protestations to the contrary. Their dollar strength and the strength of their entire economy is based on commodity exports. Think gold, copper, chardonnay etc. If you think those are going to come back in price then maybe Sydney RE can hold something near where its currently priced. I don't believe there is a snowballs chance in hell thats going to happen.

Second don't believe all the crap you hear about their lending being more strict. Every mortgage is a 5 year ARM in Oz (at most), there are no 30 year fixed mortgages.

Finally you should look for an article by the chief economist of ANZ put out in late november about the Sydney housing market. He uses traditional debate techniques to argue that Australia's in general and Sydney in particular aren't going to fall much. Ultimately he is wrong but his opening paragraphs are very important. In them he talks about how Australia has the same economic and debt issues that we do.

Sydney is a great place. One of the few in the world I could live outside SD, but it was a great place 10 years ago too. Don't believe the hype.

One last thing, Oz seems about 18 months behind us in terms of RE pricing, denial and job loss, but its catching up quickly.

Josh

Submitted by EconProf on February 7, 2009 - 9:39am.

I spent a month in Australia and New Zealand last year and decided it was the one area I would chose to live in outside the U.S. The people are great, property laws and courts decent, and the economy capitalist, so they will do fine in the long run.
Barnaby33 may be right about their stage in the bubble-popping cycle, and certainly knows their market from living there. I'd be more focused on the long run and have faith that their people and government will make for a bright future.
The Aussie's dollar fall of about 30% makes their prices even more attractive now than one year ago. And yes, if you believe the US$ will fall in the years ahead, then Australian real estate should do well as a currency play.

Submitted by patientrenter on February 7, 2009 - 9:59am.

I think barnaby gave some good advice here. Give yourself an 18-month timeout from your movement to buy in Oz, or at least 12 months if you're impatient.

I realize it's hard to resist a lower price than you're used to, but think also about the absolute price you'd be paying. If you can't see it being likely that you would be able and happy to pay that much cash for the same home at some time in the next 10 years or so, then the price is probably still too high. Otherwise you're relying on the "greater fool" theory or you're planning to never retire or do many other things with your future earnings.

Submitted by fredo4 on February 7, 2009 - 12:20pm.

I wouldn't buy anywhere where I haven't rented in the same town for at least 6 months first. I know the temptation is great to buy and settle quickly in a new city, but it's a big mistake IMO.

We moved to S.D. from L.A. a couple of years ago and were planning on buying a house right away. I am so glad we waited. Not only will we be able to buy a way better house than we originally could have because of declining prices, but we now know that we'll never buy in the area that we were originally looking to buy. Now that we live here we've seen much better places that we'd like to live.

Submitted by barnaby33 on February 7, 2009 - 3:27pm.

Still after my comments last night at least I can sympathize with the OP desires to buy. Manly is nice. (Shameless plug) I liked Bondi better!

If I remember correctly and this is something I'm not real sure of, and exchange rate of 1.5 AUD : 1 USD is pretty average historically. Nominal prices in OZ are much higher. Its only since the US went on its latest leverage binge that the AUD strengthened significantly. If it gets closer to 2:1 then I would consider jumping in for currency arbitrage investment reasons as much as real pricing in AUD terms. Of course it would still have to be at least a reasonable deal (of which there aren't any yet) in AUD terms.

Josh

Submitted by real estate on February 7, 2009 - 4:45pm.

Apart from residex there is also rpdata.

And if you are searching for homes for sale in Australia, check out the site PropertyNow which caters for private sellers.

The PropertyNow address is www.propertynow.com.au

Since the sellers on their aren't paying anything to an agent you may find some real bargains, especially given the exchange rate right now.

Submitted by 4826monongahela on February 8, 2009 - 2:04am.

Real Estate - thx for the link. Am checking it now.

PatientRenter - < patience & logic >. Thx for the reminder. I need to hear these things. Often!

Josh/Barnaby - I have followed many topics on this blog site & respect your opinion. But a couple of points you raise, not sure I concur. We've been here just over 2 yrs. The Sydney area is very locale specific e.g. you mention Mosman being crazy, NSW Housing put out a report in 2007 looking at North Sydney and as whole it grew 3% from 2001 to 2007, however Hunters Point (near Mosman) and in North Sydney grew a whopping 67% over same time period. So you seem right there.

I'm looking for data, but it's hard to find. However, Manly has been flat since at least 2003 maybe a little down on the high end. That's 6 years of CPI to catch up with 2003 highs. I've polled friends who own & live in the area and gotton some admittedly small samples sizes, but that's the consensus. No swings since the high of 2003, just flat.

I honestly think the lending criteria is tougher here. Yes, fixed rates are unusual - most folks go with ARMS, but they are used to it and they remember the 80's with double digit interest rates. Also banks hang on to the mortgages themselves and do verify. I've had 3 banks come to me to verify my employees salaries over the yrs. They want 2 yrs worth of payslips to verify and peel out any commission or bonus (they don't count bonus/commission - base salary only.) Most folks put 20% down. No non-recourse loans.

How come you reckon Sydney trails USA on realestate by 1.5yrs? And/or that it's a huge bubble here (in Sydney, Perth, Brisbane different story.)

I'd like to chase up that article you mention (ANZ CEO or something talking real estate) - can you give me something to go on?

I still can't get away from the calculation that if I keep my 1mil AUD invested, it still just pays my rent after taxes. Same amount gets me apartment I'm happy in for 5-10+ yrs.

I suspect AU will weather the upcoming storm *relatively* well. Yes commodities are way down, but Au has a shitload of them, lock on iron ore, lots of uraneum, lots of other minerals, more cows/sheep/wheat than people and abundant gas & coal and at some point, the World will start building again. Banks down here didn't engage in the shaningens to the same extent as US & EMEA. However, I still do see a very, very tough year or 3 and the unemployment train ain't stopping. I'm just wondering if this will be enough to force the Manly area market down significantly.

I worry about inflation screwing me on my conservative investments, mostly term deposits in USD/EURO/AUD.

Manly is a great place. The sunglassed keen eye finds topless beauties on the beach every day, nice warm but not hot climate by the sea, good surf, clean & safe area, great wine (if you like big flavors) & food, sport, nice people, strong rule of capitalist law, efficient government & easy ferry shot to downtown Sydney.

Submitted by barnaby33 on February 8, 2009 - 3:48pm.

4826monongahela, by no means am I an expert on Oz. I lived there for two months. I will say that given the metrics I know of Sydney in particular is 18 months behind us (or was when I left in December) in terms of denial, volume of sales and prices.

When I left volume of real estate sales had declined significantly for residential and had started in commercial. I talked to several commercial and residential agents at parties.

Second, Aussies do not have fixed rate mortgages, they are almost unheard of. Everyone gets what Americans know as an ARM, though I have no idea if they have lock in periods like ours do. These are basically pre-payment penalties.

Third volume preceeds price. When you see the drop off in volume which mimics our RE market of 12-18 months ago, and you start to see prices coming down in the outer suburbs as we saw 12-18 months ago, you start to see the pattern. What makes it all the more obvious is the fact that its a different country with a supposedly different economy.

Fourth, denial is not a river in Egypt. Aussies were so quick to jump on the "its different" here bandwagon it made my head spin with deja vu. They would do anything to claim that their economy was diversified. Its not and I can prove it. Its banks are getting crushed based on alot of foreign shenanigan investments. Aussie banks bankrolled quite a bit of downtown condos here in San Diego. Furthermore the strength of the AUD is directly dependent on people buying lots of commodities. At least in the near term that bubble has popped. "But but but, we sell to China, not the US!" Well who the hell do you think that China is selling to?

Finally its all about salaries. Sydney is WAY to expensive for most people who live there and has gotten measurably so over the last few years. I know, because I'm a software dev and the people I hung out with were either in IT, finance or recruiting. Ok one is professional photographer. None of these people could by any stretch of the imagination afford the places they lived. Most rented and scraped by. One I do know owns two condo's and he is already deeply underwater and trapped. When people start losing their jobs, they'll return to the places they are from, Brisbane, Adelaide etc.

As to that paper Link.

Josh

Submitted by 34f3f3f on February 8, 2009 - 4:01pm.

The English speaking world is pretty much synonymous with over-priced real estate. I agree the US is probably a few months ahead in terms of when it started (and will possibly end). There was a recent post here, which listed "unaffordable" cities and Australia has several competitive entrants. If the California experience is anything to go by, it's hard to imagine parts of cities or urban areas remaining immune anywhere where there has been a bubble.

It is a problem when there is a dearth of data, but as a general rule if it seems expensive then it probably is, and unless there is an independent source I'd be wary of any reports put out there by realtors, lenders, etc which are inevitably self-serving.

I can understand the appeal of Australia for southern Californians, but the world is much bigger than the Anglo-sphere, which is a relative new-comer to the 'life-style' culture, often misrepresenting 'life quality' by material trappings, and now of course the the harbinger of debt. If you want to know living at its best, then somewhere like France probably has no equal. The French, Italians, Spanish, Greeks etc have been nurturing the essence of 'how to live?', and are a lot better at it. Moreover, property prices have also been traditionally lower. This paradox would make an interesting subject for a book.

Submitted by urbanrealtor on February 8, 2009 - 11:05pm.

OT:

WAIT WAIT WAIT

TO the op:
Do you actually live at your handle?

Does harold akers still own that shack?

I and 10 of my friends used to live there.

Please reply or just email
urbanrealtor@gmail.com

Submitted by patb on February 8, 2011 - 9:38am.

"The Sydney market is different"

Thats the usual line to a bubble.

every thing i've seen isthat Sydney is a hyper bubble.

don't regret renting

look aussies are in phoenix trying to buy property because they can't find deals in australia

Submitted by barnaby33 on February 24, 2011 - 5:35pm.

Brian linked back to this thread so I thought I'd revive it. I was just in Sydney again for 5 weeks Oct-Nov. I'll say this, the general economy there was worse. The mining and export sectors were doing well but it was spotty. For instance The large miners were doing pretty well, but employment was harder to come by in general. IT seems to be holding up pretty well there, again based on the small sample size of friends of mine. The food court at the QVB is just as crowded as I remember!

All in all I was too premature. Sydney has remained surprisingly frothy. My close friends who I counseled not to buy, jumped in and bought a rental in Adelaide. Even if its fully rented they'll be losing 400 a month, yikes!

Real estate bubbles die hard. Ours certainly is, and I was surprised at how resilient the Aussie bubble has been. I still feel that the points I made two years ago are valid, just as much so now. My timing however was wrong.
Josh

Submitted by Dougie944 on February 25, 2011 - 2:43pm.

Australia is in the final stages of a massive housing bubble. Lending qualifications have already been reduced. Inventory is building and price drops are imminent. The following link gives some facts and insight into the problems.

http://globaleconomicanalysis.blogspot.c...

I would enjoy renting.

Submitted by barnaby33 on January 11, 2019 - 8:53am.

Ok so we were all early, which is to say wrong! If only Chris Scoreboard were here to tell me/us how wrong we were. However I'd like if possible to get an update on what's going on in Sydney. Not out in Paramatta or who cares what western suburb, the good parts!
Josh

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