Sydney Morning Herald, March 15 2006
By Jimmy Thomson
Buy in gloom, they say, and sell in boom. Of course, it makes perfect sense to buy when no one else is bidding, prices are low and there’s a range of property on the market that you can haggle over to your advantage. The smart investor sells when prices are high and all available stock is oversubscribed.
The only trouble is the experts are divided about exactly where we are on the current cycle, but the sudden movement of investors back into the apartments market seems to signal that many Sydneysiders feel this could indeed be a good time to buy.
“We’re now getting 20 per cent of our inquiries from investors,” says David Milton of Realty Marketing, which is looking after apartments in Victoria Park’s Prominence, Maroubra’s Pacific Square, Crows Nest’s Precision, Motto at Erskineville and Redfern’s Moreton by the Park. “Twelve to 18 months ago there were absolutely no investors.
“But now people living in houses are getting their land-tax valuations and starting to think about apartments being cheaper, and investors are recognising the time is right to buy.”
THE FINANCIAL INDICATORS
Certainly, there are some signs of the investor market picking up.
“The stockmarket is at an all-time high and some people are saying that rather than going further into the stockmarket, they should go back into property again,” says Graeme Hennessy, chief auctioneer with LJHooker.
“The clearance rate seems to be trending upwards, which suggests that, if prices haven’t already stabilised, there will be some positive growth, which will lead to even more people coming back to the market.”
In addition, Sydney rental vacancy rates have fallen sharply from 3.4 per cent two years ago and 2.4 per cent this time last year to 2.1 per cent, according to latest figures from the Real Estate Institute of NSW. Analysts expect rents to start rising in response.
“Rental growth in Sydney has been fairly subdued but now there are signs that it is going to start picking up,” says Jason Anderson of property research company BIS Shrapnel. “We think rental vacancy rates will drop below 2 per cent and maybe hit 1 per cent in 2007 so, from an investor point of view, the situation is going to improve, with 5 to 10 per cent growth per annum for a couple of years.”
Capital growth may also pick up, he says, boosted by the steady interest rate and a looming shortage of new rental apartments.
Developers are reporting a sharp rise in the number of investors coming to view new apartments in the past three to four weeks. The Carrington Group’s managing director, Andrew Finlayson, says he has seen a lot of investors looking at one-bedroom apartments priced at less than $500,000 in the Capella development at Kensington, and at units priced between $600,000 and $650,000 in Meta by Starck in Surry Hills. “We’ve had a number of sales in the last couple of weeks to investors,” he says. “There’s definitely been a return to the market. I think they feel the market has bottomed and it’s now starting to move.”
Mirvac’s sales and marketing director, James Bell, also says there’s been a noticeable increase in interest. “I think there’s a real sense among investors that the market is at the recovery stage,” he says. “It’s been a pretty tough five or six years for investors but they’re now seeing rental growth rise and vacancy rates fall and well-located property renting well.”
At Newington, for instance, he says rents have risen by 20 per cent over the past 18 months, and apartments that previously took up to five weeks to let are now taking less than one week.
“It’s growth like that which is really attracting investors again,” Bell says.
It’s a similar story at Meriton, the developers currently selling apartments at Lumina and Aria at Moore Park, Aero in Mascot, Avanti in Hornsby, and World Tower and Mosaic in the city. Sales manager Jim Keats says that two years ago, only 20 per cent of buyers were investors. That has risen in the past four weeks to 40 per cent – although still well below the 70 per cent of the peak years.
“But we’re seeing a healthy rise in numbers and there’s a real feeling we’re over the worst,” says Keats, whose latest sales campaign, offering a fixed low rate of interest, is also aimed at encouraging investors. “In addition, the real figures of investors may be higher. They’re often camouflaged as owner-occupiers, as they buy to live in them for 12 months to lower their tax and then rent out.”
CAUTION IS STILL THE WORD
Investors are certainly coming out again for inspections, but they’re still behaving cautiously, real estate agents say.
House Search Australia buyers’ agent Jacque Parker says investors often hover in the background, waiting for bargains.
“They’re looking for the right opportunity, but being careful,” she says.
The rise in the number of mortgagee sales encourages some to believe there are plenty of bargains to be snapped up, but it also makes others nervous about overcommitting themselves financially.
“They are a little cautious, still,” says sales agent Debbie Donnelley of GoodyerDonnelley.
“But there are investors out again, looking for well-priced property, in a good position and with a good aspect.”
They’re sensible to be wary, says Louis Christopher, research director of Australian Property Monitors.
He says rental yields will pick up, but only slowly, meaning investor-owners should be in no mad rush to buy.
“In the next three to six months there won’t be much movement,” he warns.
“Yields are only about 3.5 per cent in apartments currently, which is still pretty tight. There will be an increase, but it will be slow.”