Why investors are turning back to property, particularly in Sydney!

BIS Shrapnel have just released their Residential Property Prospects, 2012 to 2015 and stated that...

“Sydney is forecast to record 17 per cent increase in median house prices over the next three years, compared to nine per cent for Adelaide, five per cent for Hobart, three per cent for Melbourne, and just one per cent 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 mind share. 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 volatile and therefore is looking interesting again. 

We have noticed this interest from investors in our business,  and whilst 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 dollars with a net yield of 7.4 percent,  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 percent minimum providing total returns of circa 9 percent.

Investors are starting to look at property (according to our private bank and HNW affiliates) as TD's 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 7-10 years (probably behind us for sometime), property has always kept pace with CPI historically, so with an average of about 3.2 percent pa over the long-term and face yields of circa 5.5% on units for example, the returns whilst 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 have or want to sell within 3 years of ownership, has the asset that has been purchased likely to get you the purchase price + costs back and if it was, how would you know?

Its probably worth getting some independent property advice (from a Buyers agent) in addition to any financial advice you may want to get.

17% growth for Sydney property over the next 3 years?

BIS Shrapnel have just released their Residential Property Prospects, 2012 to 2015 and stated that...

“Sydney is forecast to record 17 per cent increase in median house prices over the next three years, compared to nine per cent for Adelaide, five per cent for Hobart, three per cent for Melbourne, and just one per cent 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 mind share. 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 volatile and therefore is looking interesting again. 

We have noticed this interest from investors in our business,  and whilst 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 dollars with a net yield of 7.4 percent,  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 percent minimum providing total returns of circa 9 percent.

Investors are starting to look at property (according to our private bank and HNW affiliates) as TD's 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 7-10 years (probably behind us for sometime), property has always kept pace with CPI historically, so with an average of about 3.2 percent pa over the long-term and face yields of circa 5.5% on units for example, the returns whilst 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 have or want to sell within 3 years of ownership, has the asset that has been purchased likely to get you the purchase price + costs back and if it was, how would you know?

Its probably worth getting some independent property advice (from a Buyers agent) in addition to any financial advice you may want to get.

Banks relaxing LVRs and serviceability criteria but valuations still conservative: Sam White

"Banks lend based on the independent valuation they receive of the property – not the agreed purchase price – meaning borrowers must make up the shortfall themselves."

Interesting that this comment featured in the article, is this true I wonder?
 
As  buyers agents, we have argued the inconsistencies in valuation
approach between private treaty vs auction for years. Consider this, there is no law that says a valuation determined via the auction system is "market value" although 99.999% of auctions will be viewed this way and valuers are not even in attendance to scrutinize the price achieved and importantly how it was achieved, the valuation becomes an historical record for both the mortgager and mortgagee, where is the independence in all this if a private treaty transaction is treated differently to an auction transaction, particularly if
the valuation come in less than the contract price?  When purchased at auction - historically, valuers agree the market has been determined, even if the only other bid is a vendor bid, but now valuations need to be independent, so they haven't been then? Valuers have argued they always have been, now we
are being told they aren't/weren't (that's the inference in the article)...under the microscope of the faltering global markets and a patchy local property market - underpinned by a clear lack of confidence, the floors in the valuation system (we as an industry group have been talking about for years) are finally frothing to the surface!  The valuation system is long overdue for an overhaul but will anything be done?  If we are to have a fair independent system, there needs be a review! 

The valuer didn’t go to the auction, but they have no problem agreeing to the price paid, but they also didn’t witness the private treaty negotiations but here they do have a problem – most of the time and this can cost the buyer a lot of money and even incur them an irrecoverable loss, why?

The improving LVR's are one thing and a an appetite for lending will be well received by the market I'm sure however, unless the valuers "agree" that this is a good thing for buyers and this is supported wholeheartedly by the banks (the funders), the valuers will perform the way they think their Master's want them to, rather than independently!

Why is private treaty scrutinized differently to an auction transaction?

This is one of the reasons buyers benefit from getting independent property advice from a buyers agent as well as engaging them to transact and manage the process!


read the article here...Banks relaxing LVRs and serviceability criteria but valuations still conservative: Sam White