Dec 4, 2017
Today, we are going to spend
some time talking about the Sydney property market.
Even if you’re not interested in
investing in Sydney, there are some great lessons to be learned in
Of course, many investors want
to know what is happening in Sydney.
It’s Australia’s largest
property market and price growth has stalled. People are wondering
if now it the time to buy, sell, or hold.
I discuss what’s going on with
the Sydney property market with Ahmad Imam, the Senior
Property Strategist of Metropole in Sydney.
In my mindset moment, I share
with you the secret to living longer
which has been proven by research.
The secret is probably not what you think.
6 Things Property Investors Need to Know Before
Investing in Sydney
some, just hearing the words 'Sydney' and 'Property' in the same
sentence makes them cringe. While others will see dollar signs and
really depends on your personal experience with property in Sydney
and whether or not you are an Amateur investor or an experienced
investor that has seen this all before.
face it, we receive so much conflicting information on a daily
basis from so many different sources that at the end of the day you
don't know if your Arthur or Martha.
reality is, if you don't keep up with the media you are uninformed
and if you do keep up with the media you are misinformed. Seems
like you can't win.
get me wrong some points are valid and some can be completely
dismissed, so let me summarize the points and provide 6 things
property investors need to know before investing in
1 – Entry Level Price for an a Grade
investing in Sydney you must be prepared to pay a higher entry
level price than Melbourne or Queensland.
level for an investment grade property in Sydney is $600K and
climbing. Compared to an entry level of $400K in Melbourne or $350K
in Brisbane. That's a difference of $200K in this current climate
of affordability constraints and tighter lending
in mind you can of course buy properties for less than $600K in
Sydney but they would not be investment grade assets and you would
be compromising on location and as a result the long-term growth
potential of the asset.
not assume that an A grade asset in Sydney must be a house in the
Eastern Suburbs on a big plot of land. An A grade asset is simply
an asset that is both strong and stable.
- Strong in that it has wealth building rates of
growth and stable in that it is in a location that does not
fluctuate in value. As investors, we like to see nice, stable,
linear and predictable growth.
well as detached houses or townhouses we certainly see strong and
stable growth in well located apartments in small to medium density
boutique complexes in Sydney.
- Manage your expectations and do not be afraid
to buy an apartment in Sydney if that’s what your budget allows –
as long as of course it ticks all the boxes.
not also assume that a house is a better investment than an
apartment if the house is 40km away from the CBD and has minimum
growth potential. Yes, land is important but do not forget that not
all land is created equal.
- Sydney is now a global city with a population
of 5 million plus and as a result we are now starting to see it
‘Manhattanising’, and just like in Manhattan you can’t expect to
purchase a big house on a big block, in the right location within
would much rather an average sized 2-bedroom apartment in the inner
middle rings of Sydney with great growth potential as opposed to a
large 5-bedroom house 40km away from the CBD with minimal growth
is an investment after all so take emotion and ego out of your
2 - Don't Just Look at Rental Returns
- In my
experience most amateur investors look at 2 criteria when investing
in Sydney property - the price and the rental return or
they are both important criteria and you certainly need to secure
the asset at the right price but one crucial factor that amateur
investors neglect is the average annual growth of the investment
i.e. Capital Growth.
reality is there are 2 philosophies for investing in property. You
can invest for cash flow, as in your rental return or you can
invest for capital growth. One must be
- Ideally it would be great to have both but
guess what? You can't have your cake and eat it too.
I'm not going to go into a debate about capital growth vs positive
cash flow however it's fair to say the further away you go from the
CBD the more likely you are going to find a property with above
average yield and you will compromise on capital
the opposite applies when you invest within the inner middle rings
of Sydney, you are more likely to find a property that has above
average annual growth but you will likely compromise on the
rental yields we see for the properties we like to buy in Sydney
are approx. 3% - 3.7%, however the growth we receive on these
assets outperforms the averages in growth of 7.5% in the long
advice is to do your research, pull out the calculator and do your
you have a long-term investment strategy then calculate the
projected growth and value of an A grade asset over a 10 -20 year
period and compare that to the growth and value of a secondary
asset with minimal growth over the same period. You can't argue
with the numbers. Capital growth is King.
3 - Do Not Expect the Same Level of Growth We Saw Over
the Past 4-5 Years
- The last 4-5 years in
Sydney has seen unrealistic levels of growth – growth well into the
double digits in most cases, that have given many investors a false
sense of confidence
- Growth has been so strong that
even secondary assets in secondary locations have seen growth over
the past few years – and now that the Sydney market is taking a
well-deserved breather you can no longer expect this growth going
- Sydney is a fragmented market
and as a result we have seen stronger growth in the inner middle
ring suburbs as opposed to outer suburbs of Sydney and this gap
between A grade assets and secondary assets will start to widen
more and more.
- And this will become even more
apparent over the coming months as growth in secondary assets start
to suffer and those who invested in secondary assets start to
struggle due to rises in interest rates, tighter lending conditions
and investors being previously on interest only loans now being
forced into a principal and interest structure.
- Sydney’s outer suburbs are no
doubt experiencing a growing population but do not assume that a
growing population always equates to an increase in capital growth.
You must look at the key drivers of growth including migration,
spend on infrastructure, the high socio economic demographic and
where they are buying as well as areas where people are willing to
pay a premium to live – population growth is only one driver of
growth amongst many.
- It is now absolutely critical
that going forward you are buying A grade assets i.e. the right
assets in the right locations as they will still continue to grow
in the long term at realistic levels.
4 – There Is Only One Main CBD
- There is only one CBD
in Sydney and every other “CBD” is secondary to the main
- Yes, Sydney is decentralising
and there is very clear consensus that Parramatta is being built as
Sydney’s second CBD, followed by other large centres like
Chatswood, Penrith, Hurstville and Liverpool to name a few, but
they will not experience the same levels of long term growth as the
inner middle ring suburbs of our main centre.
you wish to take a calculated risk, than you need to avoid hot
spotting and speculation. Stick to the pockets that not only have
the growth drivers but have shown evidence of long term growth and
5 - Parking Space Is Preferred
- Welcome to Sydney, where we spend most of our
lives behind a steering wheel.
we have higher density living and better public transport than we
did 20 years ago but do not underestimate the impact a parking
space has on the growth of your asset.
do not necessarily need a lock up garage but at the very least you
should seek a property with a parking space.
parking space will not only increase the value and long term growth
potential of your asset but will also increase the chances of
securing a tenant much quicker, reducing the vacancy in your
property and as a result increasing long term cash
6 - Sydney Airport and the Flight Path
- Unlike Melbourne where Tullamarine Airport
is 23km from the CBD of Brisbane where the airport is 15km
from the CBD, the domestic and international airport in Sydney is
only 8km from the CBD and surrounded by residential suburbs. Hence
why we have an airport curfew in Sydney which limits take offs and
landings between 11pm and 6am.
- We of
course want to stick to the same strategy of buying an A grade
asset in the inner middle rings of Sydney metro but nobody wants a
property directly underneath the flight path. So make sure you do
your due diligence, no different from ensuring the property has the
right aspect and that it receives relevant sun, make sure you're
not being impacted by the noise pollution of being directly under
the flight path.
- According to Sydney airport there are approx.
60,000 passenger aircraft movements per year, that works out to be
an average of 164 aircraft movements per day.
there is curfew between 11pm and 6am and flights are only
operating for 17 hours per day that averages out to be 9.6 aircraft
movements per hour or an aircraft movement every 6 minutes. Now I
don't know about you but I don't want my dinner parties, BBQs and
conversations interrupted every 6 minutes.
is nothing wrong however with being under the flight path as long
as you are not impacted by the noise pollution.
Mindset Moment: The Secret to Living Longer
The number one scientifically
proven answer to living longer is relationships. These are three
times as powerful as exercise. Being part of a community and work
Links and resources:
“An International investor
coming back to Sydney after twenty years, just wouldn’t recognize
it.” Michael Yardney
“You get your investment returns
in four ways capital growth, rental yields, manufactured capital
growth or renovations, and tax benefits and depreciation.” Michael
“Stop staring at your phone and
go out and hug somebody.” Michael Yardney
Never miss an episode and keep
up with all the good things going on at the Michael Yardney podcast
by subscribing on
You can also subscribe to
to keep up with the latest
information including bonus material that comes out between the