Is Now The Right Time To Invest in Sydney?
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Is now the right time to invest in Sydney or Melbourne given that Sydney is now the same price is was 2.5 years ago? What are our thoughts around the Sydney (and Melbourne) markets at the moment?
0:00 – Introduction
0:44 – What’s happening with sentiment, is it growing?
1:44 – Sydney’s long term potential and it’s place in the global cycle
3:43 – What makes you feel Sydney is still on the decline in 2019?
5:01 – What makes you more confident on SE Queensland over Sydney at the moment?
8:30 – Is now a better time to buy Sydney than 2 years ago?
9:01 – Which market are we more confident about over the next 5 years?
12:43 – You need to have a clear strategy on how you are going to invest
14:35 – Why isn’t Ben personally investing in Sydney at the moment?
15:41 – Don’t blindly follow us, do your own research
18:35 – Why we want capital growth, but don’t NEED it
19:34 – Learnings from 46 years of property data
Phil Anderson’s Book – https://onproperty.com.au/thesecretlifeofrealestateandbanking
Core Logic’s March National Property Update – https://www.youtube.com/watch?v=x6wwljGS6Us
What is the mid-cycle slowdown and how does it affect property – https://www.youtube.com/watch?v=Ncqw2dhqw3U
Predicting Capital Growth by Looking at the Past 46 Years – https://www.youtube.com/watch?v=d4h-kz125vs
Ben recently ran a live event and a lot of people were asking, is now the right time to invest in Sydney or to invest in Melbourne? Given that according to corelogic, Sydney is now the same price that it was two and a half years ago. So today I want to pick Ben’s brain on whether or not it’s the right time to buy in Sydney and what are his thoughts around it? Hey, I’m Ryan from on-property dot com dot. EU helping you achieve financial freedom. And this has been Everingham buys agent from pumped on property who you guys probably already know, but if you haven’t, he’s bought over how much? Half a three engine, 50 million I think now $350 million of property for himself and his clients through the buyer’s agency. So you ran this live event. People are asking you is now the right time to buy in?
Sydney does a bit of a shock for you, right? Yeah. Like I was walking into an expecting sentiment to be a lot worse than it currently is because being in Queensland, I’m not, I’ve made talking on the ground to heaps of people in Sydney outside of our clients and there’s still people that are moving forward. So I was expecting to come into Sydney Bang, like there’s blood on the streets, this is dooms day. And the questions that I was getting is, you know, we Sydney declining for the last year and a half now. Is it actually time to start looking again? Which threw me completely off and shocked me. Yeah. So for those of you who don’t know, Sydney peaked in July of 2017 this will come out in March of 2019 so Sydney has been on the decline for effectively nearly two years at the moment. And so what are your thoughts on the current Sydney market on the future of the Sydney market?
Whether or not now is a good time to invest in Sydney are not. The one thing I did want to say is that we’ve got to isolate what’s happening right now as part of a cycle that naturally occurs. Things go up and they go down from what Sydney is going to be long term because I think it’s easy to just go, Sydney is written off right now that the reality is Sydney’s going to grow by another 80,000 people this year. Over the next, you know, x amount of years. It’s going to be a city of 10 million people. It is still the number one business center in Australia. It has got so much long term capacity that it can’t even really be associated and the Australian city anymore. What do you mean? It’s more like if you read the International Monetary Funds Policy on how the global cycle moving forward in terms of business, government economics is going to affect property prices around the world.
They’re saying that the cycle is less dependent on countries now and more dependent on groupings of massive cities like New Yorks Londons, et cetera. Big companies like price Waterhouse coopers have been putting out reports on this where there’s effectively 200 cities around the world, which over the next 20 years will create 80% of the world’s gross revenue. So it’s really 200 cities. Sydney, Melbourne and Brisbane are the only three Australian cities, the 200 that are going to come closer in terms of their alignment Aramic global cycle. And that’s kind of crazy. Like so these cities independently act outside of what’s going on in the broader Australian lock and if you know what I mean. So what I’m saying is that things look excellent for Sydney over the long term. But you know we’re in, we’re not in the sweet spot of the cycle for Sydney right now and I don’t want anyone to buy it this year unless you’re going to be owning it for the next 20 years and it’s owner occupied or you’re cashing out of something in Sydney to read by selling better, closer to the city.
Cause it’s cheaper now because I just don’t want you to lose another three to 10% this year when you could wait 12 months. Be patient and kick some ass next year closer to the real bottom. So what makes you feel like Sydney is still on the decline this year? It’s taken, you know, as you mentioned before, top of market was July, 2017 but it wasn’t really until about July, August last year after that current affair story where prices are expected to drop by 50% by now. Um, ran that, just the sentiments. See the citywide went crazy and even in our businesses, I watched after that, literally the week after that report went online, our leads went from something like 80 a month every single month for the last three years to literally 20 and then every single month his confidence has come back. They’ve started to jump again. We’ve had a huge effect on property related businesses and investment sentiment. But the reason I, you know, answer the question that way is that was a year, almost a year and a half of lag behind what was actually going on fundamentally with numbers, which means it’s probably gonna take another year and a half past the point where things are stable again for the average person to get back on the horse and thinking about it properly. So don’t we want to invest though before the average person gets into the market? Shit. Yeah, that’s why. That’s why I’m buying so much property at the moment. But you’re buying up in southeast Queensland, correct? That’s right.
So what makes you more competent on southeast Queensland then on Sydney
at the moment? Look, if we look at the 50 year history according to call logic, Sydney has grown by an average of 9.65% per annum. Brisbane has performed by an average of 9.7% so like the like over 50 years, they’re on par as longterm performance. I think Sydney going to hammer Brisbane longterm moving forward just because Sydney’s catching itself. What was the question again?
The question was, why are you more confident and why? Why are you investing your own money as well as helping clients invest in southeast Queensland now as opposed to Sydney at this point in time? Sorry.
Um, so that’s one of the reasons why I have longterm competence in the Brisbane market. The second is according to that core logic, you know, February indices report, um, you know, Brisbane is now in a position when you factor in inflation where it is cheaper to buy a today than was in 2007 or eight. Yeah. That to me is a buyer knowing that the longterm performance of Brisbane has been comparable to Sydney and even in the horrible 20 years in Brisbane, we’ve had, it’s still gone up by an average of 6% a year, which I can, except as a longterm outcome for myself. Yeah. Just gets me excited.
So just to clarify, the Brisbane has gone up over the last 10 years, but what’s happened is it’s going up in value. I think they said by 1.9 or 2% on average per year, and inflation has actually been higher that higher than that. So inflation has outpaced the growth of the Brisbane market as an average, which makes Brisbane effectively cheaper to buy than it was 10 years ago when you factor in the lowering value of money. So whereas in he had a run up of about 70 or 80% I think over that same time period. Yeah,
didn’t do, you didn’t do anything. And there’s a whole lot of reasons for that, but you know, outside of that big picture thinking there that it’s affordable or that it performs well long time. There’s just so many people moving out of Sydney and Melbourne into southeast Queensland Right now and that’s why it’s the fastest growing population market in Australia for Australians moving to places in Australia. You know, incomes are increasing mining’s coming back. So many jobs are being created up, their unemployment rates are among the lowest in the country. They can see rates are the lowest in the country. It just, you know, 11 years of pulling the bow has an effect on a marketplace and that if that continues for another few years, at some point it’s got to release itself
and grow. So you mean there’s indicators out there that the average household income in Brisbane is actually higher than that in Melbourne, but the average value of a property in Melbourne is obviously significantly higher than Brisbane. And so at some point in time that disparity people will start to notice that difference. And that’s why I guess a lot of Australians are migrating up to Brisbane.
Yeah. If you can earn more money and it costs less to live up there and the weather is amazing, you know, properties in Brisbane right now or 102% cheaper than they are in Sydney. What do you mean 102%? So properties in Sydney or 102% more expensive on sort of double and effectively double the income difference between Brisbane and Sydney now is about eight to 9%. So you know, like the like you can sell your million dollar unit here and go buy a million dollar waterfront home up there or whatever you want to live in like two k’s from the CBD for that price. It’s just that’s what’s enticing people over the border. So do you think
now is a better time to buy a Sydney then? Maybe two years ago?
Oh, we’ve got a dad like that. Too much of a loaded question. The worst thing about buying at the bottom, like closer to the bottom of a declining market is at least it’s on the decline. And you’re aware of that when you’re buying at the top expecting it to grow like it has for the last six years before that and not realizing that it’s to correct by 10 or 20% you know, that’s deadly. That really hurts.
I think something that might be worth talking about is the fact that, let’s say that we are incorrect in the fact that we still think Sydney has a bit of a ways to go in terms of decline this year. Maybe not as much as 2018 but let’s say we’re wrong and that’s a knee it bottoms out at the moment in February or March of 2019 let’s talk about the fact that
over the next cycle we’re going into the mid cycle, slow down and how Brisbane tends to perform better in after the mid cycle slowdown down versus Sydney. Like where do we see the prospects for Sydney over the next longer term, 10 years versus somewhere like Brisbane or Adelaide or something like that.
It’s such an interesting question man. Cause I looked at core logic produced an incredible article recently where they looked at the last 40 years in five year chunks and then the gate that I am overlayed the Phil Anderson, Fred Harrison stuff on top. And what I found is that this five year period that we’re going into now, based on the last two 20 cycles, this same period of time, the average increase in Sydney and Melbourne was a rounded out to 14% over this next five years. And then the five years after that, the price is in both of those markets because that’s the GFC style event decline. So the average in Sydney over the 10 year period that we’re going into now, our last cycle was about 0.9 of 1% per annum. So less than 1% over 10 years was what happened last time around.
So you were saying last time there was a smaller style recession and Sydney didn’t tend to grow for the fiber 10 years
post that recession, whereas Sydney does tend to grow post a major recession. Yeah. So what happens is Sydney and Melbourne do very, very well in the first half of the longer term, 18 years cycle. Historically, it doesn’t mean that history is going to repeat. And then in the second half the soccer, which we’re moving into now, you Brisbane’s perfs Adelaide’s cameras have historically performed better to the point where if you look at the last 40 years, this next five year period we’re going into for Brisbane on average has grown by 85% over the next five years. Now I’m not using that data to accurately forecast that because what was happening in the past was wages were increasing and properties were much cheaper. Um, so what might have been a 10% increase in prices over that five year period of time or 15 20% might look a lot more conservative today. It just cause the wages can’t support that topic. Growth again.
Okay. So I do suggest if you are out there to checkout Phil Anderson’s book, which has w why Ben is talking about that 18 year cycle. So I’ll link that up in the description down below. It’s about 50 or $60. It is quite an expensive books. Fancy. But it talks about, yeah, these different cycles in time and that’s kind of why
I guess we’re talking about this. What’s so interesting to me about this life without getting too detailed in the data is you can’t accurately predict the future, but you can remember what has happened time and time again. Because while the reason for economic disaster changes and the timing of it, you know, this year or that year changes, what doesn’t change is the way that governments around the world and banks respond to the cycle at different stages, which is either pumping in hates to cheap money at the start to get things going again, which drives asset values in the major markets up to the, to the point where they’re overpriced and they decline and then they pumped cheap money and again to get the ball rolling again and then they get over valued, then decline. So we can learn from that history that dates and years might be off by one, two, three years. But the overarching cycle has been repeating itself for hundreds of years in Europe and America. And we can learn from that.
And I think something that we do need to talk about before we finish off this video is just the fact that when you’re going to invest in property, you need to have a clear strategy of how you’re going to invest and what your goals are. We talk a lot about the two property to financial freedom strategy. And the goal of that strategy is to invest in basically properties that you create a positive cashflow by building a granny flat and you then pay them off over time. So when it comes to capital growth for that particular strategy, it’s less important. So looking at whether or not to invest in Sydney now, it’s kind of less vital as to, or what’s the capital growth going to be like in the next three years in Sydney. It’s more like, can I implement this strategy in Sydney at the moment? And so it’s going to depend on you and where you’re at and what your strategy is and what your ultimate goals are. I think the problem most people have is not that they picked the wrong market, it’s that they don’t have a strategy to begin with.
Yeah. Like they’re the best thing about having a clear strategy as to I’m chasing growth or cashflow or both is I’m a Sydney guy. Like I want to be only investing in Sydney. If I had my choice, that’s the market that I’d be in. The reality is it’s just the wrong time. The cashflow position is wrong right now and the ability to make medium term gains is no longer there for me. So I’ve had to become borderless investor and I’ve been forced into that. And now I’m looking at southeast Queensland, which is my next best option. But as soon as Sydney has been flat for a period of time and represents great value or in the next year say when no one else is buying it, I’m going to be hardcore back down here again. Like I can’t wait. I just need to wait for yields to increase to an acceptable level or prices to sit flat for long enough and wages to increase so that it becomes a market that is relatively affordable again, long term.
So why would you say for you personally, you’re not investing in Sydney at the moment?
Cause I don’t like to lose 1000 bucks away from a cashflow perspective on $1 million asset when I’m paying principal and interest. That’s a reality in Sydney right now. I’d buy $1 million home and I can only get 500 bucks a week. Secondly, Sydney’s oversupplied right now and um, units and people are saying that everywhere, like 5,000 hundred and $50 a week day traces in the returns they’re getting. Another thing I don’t like about Sydney right now is obviously the timing of the cycle. It just doesn’t support my ability to own it. And I can’t get the cashflow result that I need setting up for the next global financial crises. The carry me through so that when I can’t generate income in my business, I’ve got income coming through my properties. The banks will lend me money so when I can get it four to 5% yield in Sydney again and then add a granny flat on top of it, which I will be able to get in the future again and it’s the right time to buy.
I’ll be here. But until then you just gotta wait it out. Yeah, so hopefully this has been helpful. Obviously you may disagree with our stance on the current state of the market, your strategy you may support buying in Sydney at the moment. I think for us as very low risk investors who also want to invest for cashflow, it just doesn’t seem like the right time for Sydney. The potential payoff does not really way up against the potential risk of the market continuing die either go down or to continuing to stay flat for an extended period of time and obviously you may be in a different situation, you may have different investment strategies, you may have different beliefs on what’s going to happen in the Sydney market. So I definitely don’t want you to blindly follow what we say. Go out there and do your own research.
Look at corelogic, look at all the other Herron, Todd white. Look at the other resources out there that are available where you can see the data for yourself and make a decision for yourself. This is a, it’s al beliefs based on the analysis that we’ve done as well as the experts that we listened to in the industry and what we think’s going to happen, but obviously things may go differently. Look, I mean when Macquarie Bank, Kpmg Bis shrapnel, cold logic, HTW, maturity, sick, every big bank in Australia, the Reserve Bank are all saying the same thing. You know what I mean? Like just be aware that I’m not the smartest person in that room by far and I don’t have an opinion. I really don’t know what’s going to happen short term. I’m just constantly aggregating data to try and make the best decision I can as someone with young children and a family that doesn’t want to work till I’m 70 doing a job that I don’t lie.
I need to make smarter decisions. I can’t have my money during my entire 30 sitting there flat, you know, not going backwards. Isn’t the problem having your money not working for you in that compound effect for 10 years. Main set. Instead of getting there at 40 I’ll be there at 50 or 60 and that’s my deepest fear to lose that amount of life because I just didn’t learn enough about really simple things like 20 minutes a month called logic and HCW is enough to get slowly educated until the confidence comes back in yourself or the market and like Brian said, like it’s only once every seven to 10 years. We get a time when no one wants to buyer. Yes, like if you use it man, like Oh, exciting. It’s so exciting. If you truly believe that longterm Australia’s population growth and income growth and resources under the ground and government structure is going to be strong enough to support the prices being higher than they are today, which I 100% believe in Australia long term. From that perspective, it might not be the good old days of 10 years it doubles. But even if it doubles every 20 years, that’s an exceptional result.
And the strategy that you’re implementing that I’ll be implementing that we help clients implement, you don’t actually need the property to double and doing it for cash flow or they didn’t care about the growth, the great films or not when everything is we want the growth because that indicates long term stability of asset and low is al risk. It means I’ll probably, he’s going to be rented. It means we’ll likely get rental growth as well. So it means we can leverage into other properties. So there’s definitely advantages in growth, but we don’t need growth and that’s not our core thing that we look for in property.
Hmm. No. So it’s a really cool time and what I love is that you guys are starting to wrap your heads around it. It’s been two bad years in Sydney. We will only get one mall and then things will start to turn. So now’s the right time to start getting educated. A year and a half before app starts, you know, making money turn around the economy again. The government gets in a position where it wants to start racing, you letting things and everyone else realizes that the three years that they’ve had their head in the sand was probably the best buying opportunity since the GFC in Australia.
And I do think there was a video that we did maybe about a year ago where we looked at 46 years of property data across a major metro markets. And one thing that we did notice from that data was when when a market does drop in value, so when a market peaks and then declines in value on average, I think it was, it took about two to three years for that market to then catch up to the prices that it was previously at at its peak. It was very rare that it extended beyond that time period. So if a peaks and then goes backwards, generally it was a two to three year catch up time before it will be be back where it was. And so be really interesting to see how Sydney and Melbourne play out in this cycle and this time around and how long it takes them to catch up. But yeah, as I think we feel is that Sydney still has a bit of a ways to go, but probably not as much as it did. And we’re kind of feeling at this point in time and things may change in the future that we’ve got maybe another year ahead of us of decline till we bought them out in Sydney and then it’ll probably stop that.
Who knows? Yeah. Nice. That’s a good guess. Right? Yeah. Like that’s a, I guess based on some pretty smart people, um, you know, we could, we could say declines through to 2021, you know, that would be the traditional cycle working the way that it’s supposed to. But generally what happens is the first year and a half, two years are the worst of it. Um, and then, you know, the future losses have already been priced into the market earlier, so that, you know, things start to sit flat well before the market. Sentiment changes.
Yeah. So I’m going to link up now to two videos in particular. One is from core logic where they talk about they have a monthly update where you get actual statistics on what the Sydney market is doing, what the Melbourne markets doing, Brisbane, etc. I think that’s a really vital thing for people to start following, so I’m going to link that up in the description down below as well as the video me and Ben did recently on what exactly is the mid cycle down and how does that traditionally affect the markets in Australia and how does that affect how we’re investing in property. So only up to those two videos. Go ahead and watch some of them. We hope this has been useful. We wish you the best in your property investment journey. Ultimately you make the decision that is best for you, best for your strategy and what you believe to be true. We just hope that this is one data point or one person’s opinion that you can take into account moving forward as you move towards financial freedom. So we’re not the be all and end all. We just try and help as we can.
Yeah, just ideas to take into account with everything else that you’re reading as well.
So go ahead and check out that mid cycle slows down video or if you want to jump on the phone and talk to someone in person. Then Ben Simon and the team over at pumped on property, a offering free strategy sessions. So we’ve got on property.com.eu. You can read more about those sessions over there and book a time that suits you. Otherwise, until next time, stay positive.