Sydney investors: Why settle for one unit when you can have the whole block?
2015-05-28
In yet another sign of the continuing exuberance of the Sydney property investor market, a block of nine apartments in the eastern suburbs has sold under the hammer for $7.3 million.
The "sophisticated local investors" snapped up 23 Court Road, Double Bay through Bradfield Cleary director and auctioneer Bob Guth, who says they're among the growing number of people choosing bricks and mortar over other asset classes, and shrugging off any talk of bursting property bubbles.
Many are using their self-managed super funds to do it - but they're buying for the long term rather than any short-term gain.
"The rate of [price] increase that we have experienced in the last two years is not sustainable," said the highly respected Mr Guth, who has had more than 30 years experience in the property industry.
He said that if the growth levels were to continue at that rate for the next year or 18 months, Sydney property prices would be in line for a correction.
"When interest rates do turn - and they will, whether it be 2016 or 2017 - we will have overshot the runway."
But he said even if there was a further 20 per cent gain in the Sydney market - on top of the 30 per cent in the past two years - and then a drop of 10 per cent, today's buyers would still be ahead.
"Picking the top of the market is a very difficult thing to do so people are buying with a medium to long-term view."
There were 10 registered bidders at the April 1 auction for the nine Double Bay two-bedroom flats with an average size of 75.5 square metres. Two had garages. The sale price equated to $811,111 for each apartment.
"The rents were all between $500 and $600 a week or a total of $264,000 per annum," Mr Guth said.
"But as we advertised, there was potential to increase those rents by up to $200 a week if the units were refurbished."
Mr Guth said the advent of people using their self-managed super funds to buy property had seen an acceleration in whole-block sales.
"It's less than a decade ago that it was not so easy to sell a block of apartments, except to developers who naturally try to purchase at 'wholesale price' as they need to refurbish and on-sell at a 'retail price'," Mr Guth said.
Mr Guth said the Double Bay sale was the latest in a string of sales of whole blocks of apartments in the eastern suburbs in the past year, ranging in price from $3.25 million for a block of four at 22 Ravenswood Avenue, Randwick (average price per apartment $812,500) on February 15 to $6.95 million for a block of 12 apartments at 13 Botany Street, Bondi Junction(average price $579,166) on March 20.
That was the highest price in the past year before the Court Road sale. "These blocks have been purchased by self-managed superannuation funds, investors seeking the safe haven of residential property, and developers," Mr Guth said.
A director of Ray White Double Bay, Craig Pontey, has also sold several blocks recently including one in Bondi and another in Vaucluse. "They were sold to strata traders who renovated the buildings and resold the units," he says.
"There is a good margin in it provided you can manage the refurbishment costs."
Despite sharing Mr Guth's views on the current rate of price growth being unsustainable, Mr Pontey said he couldn't see any sign of the property market slowing down.
"We've got low interest rates, record investment coming in from China, it's so easy to borrow money and there's talk of rates dropping again," he said.
"What's going to stop it?"
Mr Pontey said the lack of property for sale in April - as a result of sellers avoiding interrupted auction campaigns because of Easter and Anzac Day - would push prices even higher.
"The punters panic - there's no stock - that's going to push prices even more," he said.
"I'm not suggesting there's not going to be a shuffling of deck chairs on the Titanic at some point.
"But I can't see it slowing down...if we get through May and June and the market is still improving, I think we're going to have a great run for the year."
Some property experts expect the Sydney investor market to keep rising, not only offering capital growth prospects but attractive yields.
In contrast to claims by Tim Lawless, the head of research at CoreLogic RP Data, last weekthat Sydney rental yields were "approaching historically low levels", the Domain Group senior economist, Dr Andrew Wilson, produced evidence to the contrary. His data shows house yields bottomed out at 3.2 per cent in 2004, had peaked at 4.7 per cent in 2012 and were now at 4 per cent.
"Sydney house yields are at average levels rather than historically low as reported and well above those levels of a decade ago," Dr Wilson said.
Property still offered a far better return for investors than putting their money in a term deposit in the bank. "Latest RBA data now has average term deposits at 2.4 per cent," he said.
The "sophisticated local investors" snapped up 23 Court Road, Double Bay through Bradfield Cleary director and auctioneer Bob Guth, who says they're among the growing number of people choosing bricks and mortar over other asset classes, and shrugging off any talk of bursting property bubbles.
Many are using their self-managed super funds to do it - but they're buying for the long term rather than any short-term gain.
"The rate of [price] increase that we have experienced in the last two years is not sustainable," said the highly respected Mr Guth, who has had more than 30 years experience in the property industry.
He said that if the growth levels were to continue at that rate for the next year or 18 months, Sydney property prices would be in line for a correction.
"When interest rates do turn - and they will, whether it be 2016 or 2017 - we will have overshot the runway."
But he said even if there was a further 20 per cent gain in the Sydney market - on top of the 30 per cent in the past two years - and then a drop of 10 per cent, today's buyers would still be ahead.
"Picking the top of the market is a very difficult thing to do so people are buying with a medium to long-term view."
There were 10 registered bidders at the April 1 auction for the nine Double Bay two-bedroom flats with an average size of 75.5 square metres. Two had garages. The sale price equated to $811,111 for each apartment.
"The rents were all between $500 and $600 a week or a total of $264,000 per annum," Mr Guth said.
"But as we advertised, there was potential to increase those rents by up to $200 a week if the units were refurbished."
Mr Guth said the advent of people using their self-managed super funds to buy property had seen an acceleration in whole-block sales.
"It's less than a decade ago that it was not so easy to sell a block of apartments, except to developers who naturally try to purchase at 'wholesale price' as they need to refurbish and on-sell at a 'retail price'," Mr Guth said.
Mr Guth said the Double Bay sale was the latest in a string of sales of whole blocks of apartments in the eastern suburbs in the past year, ranging in price from $3.25 million for a block of four at 22 Ravenswood Avenue, Randwick (average price per apartment $812,500) on February 15 to $6.95 million for a block of 12 apartments at 13 Botany Street, Bondi Junction(average price $579,166) on March 20.
That was the highest price in the past year before the Court Road sale. "These blocks have been purchased by self-managed superannuation funds, investors seeking the safe haven of residential property, and developers," Mr Guth said.
A director of Ray White Double Bay, Craig Pontey, has also sold several blocks recently including one in Bondi and another in Vaucluse. "They were sold to strata traders who renovated the buildings and resold the units," he says.
"There is a good margin in it provided you can manage the refurbishment costs."
Despite sharing Mr Guth's views on the current rate of price growth being unsustainable, Mr Pontey said he couldn't see any sign of the property market slowing down.
"We've got low interest rates, record investment coming in from China, it's so easy to borrow money and there's talk of rates dropping again," he said.
"What's going to stop it?"
Mr Pontey said the lack of property for sale in April - as a result of sellers avoiding interrupted auction campaigns because of Easter and Anzac Day - would push prices even higher.
"The punters panic - there's no stock - that's going to push prices even more," he said.
"I'm not suggesting there's not going to be a shuffling of deck chairs on the Titanic at some point.
"But I can't see it slowing down...if we get through May and June and the market is still improving, I think we're going to have a great run for the year."
Some property experts expect the Sydney investor market to keep rising, not only offering capital growth prospects but attractive yields.
In contrast to claims by Tim Lawless, the head of research at CoreLogic RP Data, last weekthat Sydney rental yields were "approaching historically low levels", the Domain Group senior economist, Dr Andrew Wilson, produced evidence to the contrary. His data shows house yields bottomed out at 3.2 per cent in 2004, had peaked at 4.7 per cent in 2012 and were now at 4 per cent.
"Sydney house yields are at average levels rather than historically low as reported and well above those levels of a decade ago," Dr Wilson said.
Property still offered a far better return for investors than putting their money in a term deposit in the bank. "Latest RBA data now has average term deposits at 2.4 per cent," he said.
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