I’m a little worried about the Sydney property market.
Now that’s probably not something you expected to hear from me, especially as I’m still very active in the market, but the truth is….I am a little worried.
Now…I’ve seen this before – the signs of overbuilding – the usual exuberance from property developers.
You just have to open Saturday’s paper to see the huge number of new development projects coming out of the ground – and there are even more on the drawing board.
The case in point: Green Square
Nearly 10,000 apartments will be built in one of Sydney’s newest suburbs in the next four years to satisfy investor demand, which has already sent property prices in the city to the highest ever.
It will also add to the record 213,000 new home starts across the country amid slowing population and economic growth, prompting Goldman Sachs to warn of a supply glut by 2017.
Green Square, about 3.5 kilometres south of the Sydney business district, is on course to be the densest suburb in the country.
Sprawled across 278 hectares, it will see about 10,000 apartments completed in the next four years, according to the City of Sydney website.
They will join almost 59,000 homes across New South Wales state that will begin construction this year, according to the Housing Industry Association.
While new-home starts are forecast to decrease from 2016, they will remain above pre-2013 levels, according to the HIA which estimates there will be almost 720,000 housing starts across the country in the four years to 2019 with more than half of that in Sydney and Melbourne.
This is happening at the same time as our population gorowth slowed down to 1.4% in 2014 – the slowest growth for 9 years.
SO WHY AM I WORRIED?
I’m concerned about the oversupply of properties that is looming in certain locations of Sydney.
The top five suburbs by total value of projects starting construction in this financial year according to PRDnationwide are:
- Parramatta: $1,014,202,000
- Kellyville: $867,028,000
- Sydney (CBD): $771,336,000
- Ryde: $539,349,000
- Botany: $463,770,000
That’s why I’d be very very careful and avoid buying:
- off the plan properties
- new properties in the large developments
- established properties close to those locations where an oversupply new projects is looming.
DOES THIS MEAN WE SHOULD AVOID THE SYDNEY PROPERTY MARKET?
Well, first of all there is not “one” Sydney property market – there are different markets based on geography, price points and type of property.
And as I explained I have not been avoiding investing in the Sydney property market, I’ve been investing in selected segments of the Sydney market personally a and for clients.
We buy established properties with a “twist” and a level of scarcity in affluent, gentrifying, inner and middle ring suburbs.
Suburbs where there is no looming oversupply. Suburbs where the supply /demand ratio is still causing prices to increase.
THIS IS A VERY DIFFERENT MARKET TO THE HIGH-RISE APARTMENT MARKET
And to ensure we buy an investment property that outperforms the market we use… Metropole’s Five-Stranded Strategic Approach
- We buy properties that would appeal to owner occupiers.
Not that we plan to sell the property, but because owner occupiers will buy similar properties pushing up local real estate values.
This will be particularly important in the future as the percentage of investors in the market is likely to diminish
- We buy properties below intrinsic value – that’s why we avoid new and off the plan properties which come at a premium price.
- In an area that has a long history of strong capital growth and that will continue to outperform the averages because of the demographics in the area. This will be an area where more owner occupiers will want to live because of lifestyle choices and one where the locals will be prepared to, and can afford to, pay a premium price to live because they have higher disposable incomes.
In general these are the more affluent inner and middle ring suburbs of our big capital cities
- We look for a property with a twist – something unique, or special, different or scarce about the property, and finally
- We buy a property where we can manufacture capital growth through refurbishment, renovations or redevelopment rather than waiting for the market to deliver capital growth.
By following this 5 Stranded Approach we minimise our risks and maximise our upside, as each strand represents a way of making money from property so that when all five are combined, we end up with a very powerful tool that puts the odds firmly in my favour.
If one strand lets us down, we have two or three others supporting my property’s performance.
SO, HOW DO YOU FIND THESE GREAT PROPERTIES?
If you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.
Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.