Photo by Teddy Kelley on Unsplash
Hello once again to the housePro Property Report. December 2018 edition
Before I explain where I have been and what I have been up to, I would like to congratulate those who have bothered to read my narrative of the Sydney property market over the last few years.
Where the market is today will come to you as no surprise. For all my clients who I have helped buy, don’t worry because you have listened to me and bought quality real estate or at the best price available at the time of sale. In the long run, quality real estate rewards its owners – so you will reap the benefits. If you have any concerns, please do not hesitate to call me.
There is one definite I have learnt over my 30 years’ experience, everyone knows everything about the Sydney Property Market. They buy a house once every 10 years, or even get confident after buying an investment property and bingo, they are a full-fledged property professional. This is the same as saying “property does not go down”! For years I have been telling people we are experiencing an anomaly with the market being so strong and it is not normal, that we are about to commence a down cycle. They have all looked at me as If I just arrived from Tasmania.
I have also learnt it is very hard to gain trust and easy to lose. Hopefully by now, I have started to gain your trust in what I see and know, when it comes to Property.
As I have always said, it is impossible to predict the future. All we can do is try to understand what is happening now, and what the consequences of this will be moving forward.
In our last blog back in 2017 I wrote about some key trends of the property market at that time:
2017 is the fifth year in the property cycle and traditionally should be the final year.
We are approaching high valuations and lower yields, which indicated danger in the property market.
Watching the Singaporean Market in 2017, I looked at them as an indication to where our market is heading and what may lay ahead. Government implemented regulation to halt the property market.
So where have I been,
I was taught when things come to an end or things go crazy stay away and have patience.
I went and built my house.
Now……, I am back at housePro working with my new business partners and a team of genius graduates to build a web application to assist property buyers. Through fundamental analysis, we present organised information to all property participants, providing them with knowledge to make an educated decision when purchasing their property. The outcome gives you a better chance of long-term capital growth than without using our platform. It is very special and exciting. Currently no one is doing what we are coming to market with.
I have surrounded myself with some very clever people and I love it.
Where are we now in the market
For all of whom are not quite familiar with what is happened to our Sydney market, the market has fallen about 9% YOY to date.
Firstly, I don’t think there is anything to worry about yet.
Some things to consider:
The market has enjoyed a particularly strong boost to supply, particularly the supply of apartments. The potential for profit demonstrated by the market has attracted new developers leading to a flood of new dwellings into the market.
Bank lending standards have progressively tightened over the past few years. Several regulatory bodies have weighed influence into halting the ever-expanding property market, this is a well-orchestrated slow down.
The pull back of foreign buyers has also had a considerable effect on the market. Regulation of domestic loans to foreign buyers alongside increased stamp duties has slowed the capital inflows into Australia.
Think of what is going on now as the big squeeze.
Any further moves from here should be slower. Normally when we have a slow down in the property market as we are currently experiencing, something big has happened.
This is not the case, interest rates are low and not forecast to run away anytime soon. A few sector related companies have gone into receivership, but not many. This tells me sellers will be very stubborn and think tomorrow will be better. I think those people will have to wait longer than they think.
We have had one of the biggest asset booms ever experienced because of the GFC, which initiated Quantitive Easing.
What is the future?
If it makes you feel better, what is happening in Sydney is happening globally.
If we stick to the normal script this is year 1 of at least a 3-5-year cycle of a down or sideways property market.
My feelings are the initial damage has been done so I would call the current pullback a welcomed correction. The market should stabilise at around this 10-13% down from the peak.
Remember the Singaporean market, at worst it was down 14% before it flattened out and started trending back upwards. Before that, the down-sideways cycle lasted for almost 5 years.
The reason this market is not going to recover anytime soon, revolves around that banking enquiry, we have recently been hearing about, the one Malcom Turnbull tried to avoid for so long. My thoughts are, Malcom was a banker and he understood once you open the door to bank bashing especially focusing on lending practices, the Property Market and perhaps the economy could well fall into a recession.
Its simple SUPPLY AND DEMAND.
The world needs money to make money, it you turn the taps off, its more than likely you will see a down turn.
You cannot stop lending to the people who have made the property market without dire consequences. The government believes this approach is effective in trying to protect 1% of the buyers in the property market, but inadvertently they are now affecting 99% by stopping lending to the people who drive the market. By adopting these policies, the government is removing the engine from the property market.
Until the government steps in and relaxes the lending laws promoting lending, this downturn will not end. We have just begun, and we may have a long way to go.
Similar regulation was introduced in the USA after the GFC. Property took a bath. When the then current Fed Reserve Governor, Ben Bernanke left office, he came out and told the world not even he can get a loan. Australia must be very careful what they wish for.
Worst case scenario….If a global event unfolds or lending regulation goes too far and it somehow makes the banks start asking for their money back in some form or shape, you may see prices fall by as much as 20 – 30% over the next 5 years.
WE have a long road ahead. That recession we have not had for 27 years, is just that little bit closer.