Sydney property

[MaroubraAndy]

So I’m shifting back to sydney with the fam shortly, and need to look at buying something. Prices have obvs been insane for sometime but lately they appear to have gone parabolic. 

Im literally starting to question the value proposition of moving back to sydney if the cost of doing so is soo ridiculously high. The whole quality of life argument starts to erode if you’re taking on such a mountain of debt that you can’t actually enjoy what the city had to offer. 

There’s obviously always been a disparity between the U.K. and Sydney in terms of pricing but right now my lovely 4 bed house in Herts is about half the price of a 4 bed single story cr@p hole in the Shire! Feeling very frustrated!

 

 

[Marisawright]

Join the club.   I lived in Sydney for 30 years.   If you ask me "Where do you think of as home?", I wouldn't say Scotland (where I was born and spent the first 20-odd years of my life), or anywhere in the UK for that matter.  I'd say Sydney. I loved the place. Couldn't hack the heat in summer, mind you, but otherwise it was great.

Then for various reasons that are too long to go into, we sold our house planning to move overseas, were forced to delay for a few years, then eventually went to the UK, and didn't settle.

By the time we got back, the townhouse we sold would have cost us almost DOUBLE to buy back - and we're retired now.   We could have afforded the outer burbs - but for me, Sydney is the coast and the city (I lived mainly in the Eastern Suburbs and the Shire).   Move too far out, and it might as well not be Sydney any more.  It's a different city, which some people may love, but it's not the city I want to live in.  As you say, I looked at it and felt the quality of life simply wouldn't be there.

That's how we ended up in Melbourne.  Two-thirds the price of Sydney for an equivalent suburb.  Luckily I"m not into beaches and otherwise, Melbourne offers me the same arts community and the same cosmopolitan vibe.  It's not gorgeous to look at like Sydney but I feel settled.  

I know Maroubra well and I know the lifestyle.  I would be thinking twice in your shoes.  

Edited June 10, 2021 by Marisawright

[MaroubraAndy]

Yep, I can certainly relate to all that you’ve said there! Maroubra is crazy horses these days. The economics simply don’t make any sense, but hey, I’ve been saying that for years and things have just continued to march upwards.

[purplealster]

We bought our property in the Northern Beaches for $960,000 in 2011, knocked down and rebuilt in 2018 for $700,000. We had a crazy stupid offer for our place yesterday which we are going to grab and run run run without a glance back. We will invest the money because there is no way we would even consider buying again with prices being the way they are. When interest rates start rising, there will be many people in trouble and that's when we *may* consider buying again. Have you considered investing your money and renting instead? 

[Marisawright]

1 hour ago, purplealster said:

We bought our property in the Northern Beaches for $960,000 in 2011, knocked down and rebuilt in 2018 for $700,000. We had a crazy stupid offer for our place yesterday which we are going to grab and run run run without a glance back. We will invest the money because there is no way we would even consider buying again with prices being the way they are. When interest rates start rising, there will be many people in trouble and that's when we *may* consider buying again. Have you considered investing your money and renting instead? 

But you have to consider the level of rent they'd have to pay, to live in the kind of home they'd want.  

[Parley]

Interest rates will stay low for years. Quite risky to sell out of property and rent in the hope of buying back later for less money.

[FirstWorldProblems]

2 hours ago, purplealster said:

We bought our property in the Northern Beaches for $960,000 in 2011, knocked down and rebuilt in 2018 for $700,000. We had a crazy stupid offer for our place yesterday which we are going to grab and run run run without a glance back. We will invest the money because there is no way we would even consider buying again with prices being the way they are. When interest rates start rising, there will be many people in trouble and that's when we *may* consider buying again. Have you considered investing your money and renting instead? 

Very interesting indeed.  We know this is a common approach in a lot of countries around the world, but it's not something I am familiar with.   Am I understanding correctly that:

- you are speculating on the prices dropping once interest rates rise?  I agree that will likely happen, it's just when.

- that even if this doesn't occur and prices won't drop, you'll have sufficient investment returns to be able to pay rent forever?

Sounds pretty good.

Are there any pitfalls to this approach?  I suppose the investment returns need to be high enough that after tax you can re-invest for inflation (otherwise your capital is going down in real terms) and still have enough profit each year to cover the rent.   Can't really think of anything else.

[CaptainR]

3 minutes ago, FirstWorldProblems said:

Very interesting indeed.  We know this is a common approach in a lot of countries around the world, but it's not something I am familiar with.   Am I understanding correctly that:

- you are speculating on the prices dropping once interest rates rise?  I agree that will likely happen, it's just when.

- that even if this doesn't occur and prices won't drop, you'll have sufficient investment returns to be able to pay rent forever?

Sounds pretty good.

Are there any pitfalls to this approach?  I suppose the investment returns need to be high enough that after tax you can re-invest for inflation (otherwise your capital is going down in real terms) and still have enough profit each year to cover the rent.   Can't really think of anything else.

If the housing market crashed I would imagine that the stock market would also be drop like in the 2008 financial crisis? Or am I adding 1+1 and making 3? 

[FirstWorldProblems]

3 minutes ago, CaptainR said:

If the housing market crashed I would imagine that the stock market would also be drop like in the 2008 financial crisis? Or am I adding 1+1 and making 3? 

Depends.

If it's a localised Sydney, or even Australia wide housing price crash (or a less dramatic price reduction) due to rising interest rates, then I don't see that having a global effect.  So if ther investment portfolio is diversified geographically as well as by sector, I'd think the returns would still be good.

If there was another GFC, that's a different story and it affects almost everything.  But it's probably not an issue for these guys strategy, since if their investments drop 10% and property also drops 10%, the baseline changes.

I'd say the real risk is if the house prices (and thus rent) continues to rise and the  post-tax, post-inflation returns aren't adequate to cover that rise.

It's a gamble.  Could pay off big.  Could go the other way.

[Parley]

9 hours ago, FirstWorldProblems said:

It's a gamble.  Could pay off big.  Could go the other way.

Yes. I agree. And not a good idea to gamble with the family home.

[purplealster]

Thank you for your input - you are right there is lots to consider, especially as it is the family home. I do not like to big note so I wasn't very clear in my original post about the numbers we are talking about - after all selling expenses are paid, we will be sitting on close to $2 million in cash. This allows us a myriad of investment opportunities - not only on the share market but in property other than our place of residence. To be honest, our mortgage is rather large and my husband is heading towards 60 so his earnings will eventually reduce as he winds down his career. We feel it is time to move on so he feels less stressed about maintaining  the house and the costs associated with raising a family of 3 teenagers. 

We know of several families in our area that cannot afford to buy here however happily own many investment properties around the country - hence my suggestion to the OP that perhaps renting in his desired area and investing elsewhere may be a good option. 

[FirstWorldProblems]

6 hours ago, purplealster said:

Thank you for your input - you are right there is lots to consider, especially as it is the family home. I do not like to big note so I wasn't very clear in my original post

Absolutely understand.  Everyone’s circumstances are different and such things  are incredibly nuanced.  I think we all understand it’s about many, many factors beyond the offer you’ve received. Lifestyle, health, age, stress, income, future ambitions etc.  None of us are in exactly your position so we can only really overlay our own circumstances and experiences and attitudes to risk when we think about yours.    

You sound happy and maybe even a little relieved, so I say good for you and good luck to you. 
 

[MaroubraAndy]

Interesting conversation and it’s certainly an approach I’ve considered especially as I’m a very active equities investor.  Problem for me in Australia is the tax treatment of share investment sucks as all profits are added to your gross salary and taxed at your highest rate. There’s no tax efficient investment vehicles in Oz such as ISAs as there are in the U.K. baring super. Rent vesting is certainly an option or another thing I’ve considered is just saying balls to sydney, buying a place in Brissy and just travelling down for a couple of times a month.
 

 

[Marisawright]

47 minutes ago, MaroubraAndy said:

 Rent vesting is certainly an option or another thing I’ve considered is just saying balls to sydney, buying a place in Brissy and just travelling down for a couple of times a month.

The big downside of rentvesting, if you want to live in an Australian city, is the short-termism of the rental system.  Lease terms are either six months or one year, and try getting a landlord to agree to a two-year or five-year lease, even where it's permitted.  Also if you rent a new build, many active property investors sell after the first five years for tax reasons. So although you may strike it lucky and stay in the same rental property for years, you can't plan beyond one year at a time.  

We've accidentally got ourselves into a situation where rentvesting is our best option. With just the two of us and a lot of flexibility about where we want to live, the prospect of having to move around isn't too daunting.  But it is surprising how annoying it gets, having a home which would work so much better with French doors on the balcony or an island in the kitchen, and not being able to make any of those changes.

 

[Marisawright]

1 hour ago, MaroubraAndy said:

g I’ve considered is just saying balls to sydney, buying a place in Brissy and just travelling down for a couple of times a month.
 

 

Why go all the way to Brissy when the Maroubra lifestyle is waiting for you in Newcastle?

[Wanderer Returns]

On 11/06/2021 at 22:29, Parley said:

Interest rates will stay low for years. Quite risky to sell out of property and rent in the hope of buying back later for less money.

I agree. Given the astronomical level of debt many people have now exposed themselves to (including myself!), even a moderate increase in interest rates would result in thousands of repossessions. Interest rates are likely to be controlled artificially, for many years to come. As the old saying goes, if you can't repay $1,000 you have a problem. If you can't repay $1 million then the bank has a problem!

[Wanderer Returns]

7 hours ago, Marisawright said:

Why go all the way to Brissy when the Maroubra lifestyle is waiting for you in Newcastle?

Or the many delightful places in between which have yet to be discovered (and ruined) by the masses.

[Wanderer Returns]

8 hours ago, MaroubraAndy said:

Interesting conversation and it’s certainly an approach I’ve considered especially as I’m a very active equities investor.  Problem for me in Australia is the tax treatment of share investment sucks as all profits are added to your gross salary and taxed at your highest rate. There’s no tax efficient investment vehicles in Oz such as ISAs as there are in the U.K. baring super. Rent vesting is certainly an option or another thing I’ve considered is just saying balls to sydney, buying a place in Brissy and just travelling down for a couple of times a month.
 

 

That's the first sensible thing I've seen you write  

[MaroubraAndy]

Lol @Wanderer Returns why thankyou, I think  

[Wanderer Returns]

1 hour ago, MaroubraAndy said:

Lol @Wanderer Returns why thankyou, I think  

@MaroubraAndy I said balls to Sydney 17 years ago - a year after I arrived in Oz - and I've never looked back. Don't get me wrong, I really loved Sydney - and I could've probably just about hacked it back then, when I was more ambitious - but I would always have been a small cog in a big wheel. Now I live on the Sunshine Coast and now I am a small cog in a small wheel, but I can handle that because I'm 5 minutes away from paradise (much closer than if I'd ever lived in Sydney), and I no longer suffer from FOMO. I'm sure I could've stayed in Sydney, worked my butt off, and be worth a $million more by now, but at what price to my physical and mental health?

[Marisawright]

@MaroubraAndy, I'm very serious about Newcastle.   Most Sydneysiders think it's working class and dull, and so did I once - but that's a very outdated attitude.  It's true the city centre isn't crash hot but it's like anywhere, you have to know where the good spots are.  There are parts of Newcastle full of cool cafés and nice restaurants, and the beaches are the equal of anything in the Eastern Suburbs.  Plus there are top class schools and the property is much cheaper.

At one company where I worked, we closed down the Newcastle office and two guys got transferred to Sydney.  They got good jobs in the Sydney office but they immediately started job-hunting back in Newcastle, because neither of them wanted to leave the place.   They felt Newcastle was a much better place for a young family.  By the time I left the company about a year later, both of them were doggedly still commuting from Newcastle every day rather than give in!

That was a while ago too, before remote working became more common, and Newcastle has only got better since then.  It's only two hours from Sydney by train so very practical for a once or twice a week commute for the long term.

 

Edited June 13, 2021 by Marisawright

[Blue Flu]

16 hours ago, Wanderer Returns said:

I agree. Given the astronomical level of debt many people have now exposed themselves to (including myself!), even a moderate increase in interest rates would result in thousands of repossessions. Interest rates are likely to be controlled artificially, for many years to come. As the old saying goes, if you can't repay $1,000 you have a problem. If you can't repay $1 million then the bank has a problem!

Once interest rates go up in The States and money becomes more expensive to borrow at the international level, Australia will have little choice. ANZ has already made the call that rates will rise before The Reserve Bank of Australia's 2024 has forecasted. One thing for certain they will rise. The government has placed far too much emphasis on housing, even to the point of relaxing Royal Commission recommendations into curtailing certain risky behaviour by brokers for example. Nobody knows how it will end. We have some examples like Ireland. But again little wes learnt there either, after some heavy losses experienced. I guess the banks feel they are too big to fail. Most likely scenario is those that borrowed with reckless abandon will be left to own devices and some sort of intervention will be necessary to stop a market crash.

[Wanderer Returns]

9 minutes ago, Blue Flu said:

Once interest rates go up in The States and money becomes more expensive to borrow at the international level, Australia will have little choice. ANZ has already made the call that rates will rise before The Reserve Bank of Australia's 2024 has forecasted. One thing for certain they will rise. The government has placed far too much emphasis on housing, even to the point of relaxing Royal Commission recommendations into curtailing certain risky behaviour by brokers for example. Nobody knows how it will end. We have some examples like Ireland. But again little wes learnt there either, after some heavy losses experienced. I guess the banks feel they are too big to fail. Most likely scenario is those that borrowed with reckless abandon will be left to own devices and some sort of intervention will be necessary to stop a market crash.

Where else can they go? If interest rates fell any lower the banks would be paying us to take their money away! Don't underestimate the importance of housing. It's a big issue at the moment, and will continue to be so due to a lack of affordable housing in Australia's most populated regions, a lack of investment in social housing, and a policy of paying people to have babies 20 years ago (I've never been able to get my head around that one, tbqh). The doom-mongers have predicted a property crash in Australia for decades but it's never happened due to ongoing demand, and a buoyant economy. Maybe this time around it will be different, but this is Australia not America and the government would step in in a crisis - just as they did during covid. The worst that is likely to happen is the usual price stagnation, and those in the cities who've paid silly money being stuck in negative equity for a few years. My half a million is fixed at 1.75% for 3 years, and although I never like to tempt fate, I think I could handle a modest increase in interest rates.

[Blue Flu]

Well more likely we'd be paying the banks  for the service of holding our money. It was the intervention by government into the market that created the problem we now face. (prices were falling, especially in WA, but believe in other places as well.) All government intervention does is to raise the prices accordingly. I don't think social housing has been a great success in Australia. What would be better is a change in attitude. Make Australia a feasible country to rent in  as in Europe. We need far better tenancy laws. People need to have the security of tenue. Not as present , six or twelve month leases with no idea if they will have continued tenancy at the end of that period. We need stable rents. Not dependent on the economy at any particular time in the cycle. 

Banks have far too much tied up in the housing market , together with the real estate industry enabling far too much influence over policy. Mortgage loans are easy bread and butter for the financial industry. Far too much invested in that. Sheer laziness and likely knowledge that tax payers will support bad policy in time of crisis. 

Not a question of doom mongers. The housing industry did decline rapidly in countries like Ireland and Spain. Some areas of USA as well, I believe. As mentioned WA saw considerable price deflation come the decline in resource demand. That has been turned around starting with state government intervention around extensions and later first home buyers yet again. 

If the market is not allowed to find its true worth, due to political intervention, just how will prices adjust?  It should be remembered the historical rate of interest rates is 7%. That used to be the figure suggested to make allowance for in times of lower rates. Usual economic policy has been ditched due to present policy to keep it afloat. 

The truth is property on an international scale is well over priced. It is a drain on the economy, being unproductive and limiting potential, due to high costs of recruiting staff to unaffordable cities.

I can see why stagnation would be the preferred option of many. Never a good feel paying of a mortgage on a property worth twenty per cent less than purchased. But of course once interest rates do head upwards, many will find themselves in a very difficult position. 

But a return to housing for their traditional reason as a place to live in rather than a vehicle to make obscene unearned money from should be welcomed imo. 

[Paul1Perth]

On 11/06/2021 at 18:17, purplealster said:

We bought our property in the Northern Beaches for $960,000 in 2011, knocked down and rebuilt in 2018 for $700,000. We had a crazy stupid offer for our place yesterday which we are going to grab and run run run without a glance back. We will invest the money because there is no way we would even consider buying again with prices being the way they are. When interest rates start rising, there will be many people in trouble and that's when we *may* consider buying again. Have you considered investing your money and renting instead? 

If you love the place though why move just for money. You may never get back what you had.