Good news for Sydney’s first home buyers .. . and not much to worry about for property investors
So Sydney has a median price below $1million again. The latest data published by Domain shows that a median priced Sydney property will only cost $995,804! This is an almost 4.7% drop from the peak prices of six months ago.
Interestingly, this percentage drop is slightly more than the house price drop of 2008 to 2009 at the height of the global financial crisis. It is the largest drop since the end of the last Sydney house price growth cycle of 1996 to 2003. For those with longer memories of the end of the last growth cycle in Sydney, it’s not a lot to be concerned about and in fact, is pretty much the expected outcome after such a long and large period of price growth.
We should try and cast our mind back to 2004-2006 after the end of the last Sydney ‘boom’ in 2003. The next headlines which we will be seeing pretty soon will concern the number of investment properties sold off plan to property investors in 2014/15. As prices drop and we approach an oversupply of units, bank valuations will not nearly match the prices paid by investors in these ‘late purchase’ off plan investments. A bank valuation of say 15% less than the purchase price may mean that the potential buyer can only borrow 15% less than was originally intended. Investors will not be able to borrow enough to settle and/or will walk away losing their deposits on units that are now not worth as much as they are paying for them. The result will be that more inexperienced developers will be forced into liquidation and there we have a whole new set of headlines coming our way.
Maybe I’ll refer you back to this blog in a few month’s time when the first headlines appear. The moral of this story? It’s all cyclical.
