The recent run of tough economic news has impacted upon buyer sentiment in the Sydney property market. Buyer enthusiasm waned from the time of the Federal election campaign during which, the first interest rate rise in 11 years was announced on 3 May, 2022. The RBA has since hiked the cash rate in each of the 2 following months – that’s 3 interest rate rises in 3 consecutive months. Piling on top is the rising cost of living and exploding building costs.
This whole conglomerate of bad news has quickly put a halt to buyer FOMO. But as any savvy property professional will tell you – this is an opportunity. Counter-intuitive buying often delivers the best deals.
And there is one particular property type I believe will deliver its owners extraordinary gains in the years to come – but you must act now to maximise the outcome!
When the Market Turns
The latest CoreLogic data makes for dour reading – but I do believe it is just a moment in time and not a forever situation. The Sydney statistics show that while house values have risen 10.3 per cent over the past 12 months, they are down 1.4 per cent for the March Quarter, 2022. This reflects what we are seeing at ground level.
However, there are a few other truths worth tracking. Firstly, history shows the majority of market downturns from peak to trough last only a matter of months, not years. While we are unlikely to see a return to the heady ‘boom’ days of 2021 anytime soon, you can expect buyers to become accustomed to the new interest rate environment.
Secondly, rental demand remains incredibly high with far too little supply to meet tenant needs. This will play a huge role in the Sydney investment market, particularly as international borders reopen.
The Prime Property Opportunities
While real estate generally will return to form, there is one particular type of property that I think delivers excellent value at present.
Increasing building costs coupled with a lack of available contractors have seen owners delay planned renovations and extensive builds. The feasibility of carrying out any construction has been seriously hampered by the escalating expense. As a result, buyers are ignoring any homes that need renovations.
Consequently, property with excellent value growth potential in terrific Sydney blue chip suburbs are selling for what I believe is bottom dollar.
Consider liveable homes needing some TLC which may be shunned by other buyers due to escalating renovation costs. The key is selecting a property with the right fundamentals.
For starters look in blue-chip locations. Near-city suburbs, those close to water or within great school catchments are all worthy of attention. Next, seek a property with a decent land content, a good aspect and a desirable frontage (if possible). This will help deliver the best long term capital gains.
Also, choose a home that has a functional layout and features that will appeal to a wide range of buyers. Covered car accommodation, adequate bedroom and living spaces, good ventilation and light are some of elements worthy of your attention. Assets with these features will have the right ingredients for capital growth over the course of the next property cycle.
Best of all, because they will benefit from renovation or construction, buyers with a short-sighted approach to property are avoiding them. We are seeing very little competition from other purchasers at present and this means we can drive hard bargains on price and contract conditions.
While you may need to live in the home or rent it out in its unrenovated condition for a while, building costs will eventually return to more reasonable levels as global supply chains are restored. Once you do your upgrades, expect your equity gains to be substantial.
A great recent example is 46 Johnston St, Annandale: https://www.realestate.com.au/sold/property-house-nsw-annandale-139260687 . This is a six-bed, two-bath, two-car heritage mansion on 1100 square metres of land. The home has great features and an expansive floor area, but it needs a spruce up both inside and out. In its time it would have been one of the most prestigious homes in the area.
The owners listed the property with hopes close to $10m in October last year and couldn’t get a bite over the course of the marketing campaign as buyers were turned off by the extent of upgrades required. The home was then offered for sale at $8.95m in November, 2021.
This property was just sold for $6.61 million on 4 June, 2022. That is a massive drop from its original expectations and even the $8.95m asking price.
This is exactly the sort of property that will see a huge bounce in value as the market settles and construction costs return to normal. Of course, you do not need tens of million to profit in this market. By drawing on the expertise of an experienced buyers’ agent, it is possible to buy an exceptional home with incredible potential at a reasonable price during the current downturn. The result will be a long-term win where patience pays huge dividends.
