2019 Sydney Property Outlook Part 1

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Hi guys! How’s everyone coming along, we all having a good week?

Bit of a mad rush for meself to be honest.

Lets out a BIG gulp of air – wheeeew.

I think it’s got something to do with Xmas just around the corner, damnit if I ain’t looking forward to some quality R&R.

Despite all this, it’s hard to not feel a bit of Christmas Cheer, you can see it in the faces of strangers everywhere you go. 

Tell you what ain’t so cheery though, something which is hammered again and again with increasing frequency by the media…

…The Sydney housing market of course! 

We’ve got some darn scary headlines lately, here’s just a few:

“Sydney House Prices Drop Most In 30 Years” 

“Sydney and Melbourne House Price Falls Are Speeding Up“

“Australian House Prices Dragged Down By Sydney and Melbourne“

Why this fixation on Sydney you ask?

Because it makes up a significant slice of the value of total housing in Australia – in fact, Sydney and Melbourne account for about 60% of the combined value.

That’s why when people refer to Australian housing, most of the time they are referring to our two largest cities, Sydney and Melbourne.

Which is also why the recent falls of 10% from the 2017 peaks has us all a bit spooked.

How will the Sydney property market go in 2019?

Well, my 2 cents is that it’s not gonna go very well based on the following factors:

Watch the Labor!

The first big consideration is the impending Labor Party political victory in next year’s federal election. Pollsters and political commentators alike have Labor as a shoo-in for victory – which doesn’t spell good news for our housing market.

Primarily because their major housing platform is to put a sword to the existing negative gearing (tax deduction against investment properties) tax policy. 

From what I’ve read, this affects only established properties i.e. it does not affect new properties nor properties currently held, nor does it affect commercial properties.

However even at 2018 prices, you would be hard-pressed to find a property for investment in Sydney which is not negatively geared after purchase.

This means that effectively Labor is pulling the rug out of the secondary market, that is, when a property is sold to the second and subsequent buyers.

Only the first owner would enjoy the benefits of negative gearing.

So why not just buy new then? Because when you buy new, you often pay a premium for doing so – which is why depreciation on new builds is enormous in the first few years.

My personal opinion is that the changes to negative gearing will effectively lower the prospective buyer pool.

As demand falls, price should fall with it.

Credit crunched

But TheFrugalSamurai, I hear you say – don’t you know that 70% of the housing market is from owner-occupiers, and the remaining 30% from investors? Surely the owner-occupiers would be able to pick up the slack?

For sure they will, IF they can get the loans in this current lending environment.

You see, there’s a major overhaul being conducted of our banking culture and behaviour from the Banking Royal Commission.

We had this overhaul because bankers were naughty boys and girls in the decades leading up this, fattening their own wallets at the expense of us poor suckers – and now their moment of reckoning has come! 

The findings will come out in early 2019 and gosh, by the looks of things – it ain’t gonna be pretty.  

Some pundits have even suggested potential criminal and civil proceedings.

Can you just feel the senior banking executives squealing in fear?

But beneath the fatty layers of deceit, this has huge ramifications for lending policy.

You see, whilst their bosses are being grilled in front of the public, the banks are extremely unwilling to consider any transaction which doesn’t fit an ever-tightening policy, ever-tightening because every banker is a “responsible lender” now.

Gone are the days of low-doc and same day approvals, the lenders will continue to restrict their appetite to ALL borrowers, in the short to medium term. 

Excuse the language but it sucks balls if you’re trying to borrow more money to be honest – I’ve been affected as well, my borrowing capacity has gone down from around $400,000 to a measly $250,000 or so.

Brexit and the Trade War

As I write this, the British PM Theresa May is facing a leadership challenge which could have HUGE repercussions for the ongoing Brexit saga. If defeated… if defeated, it will mean… mean…

~~~

Sigh, just TOO much to write about for the one post, I mean not for you reading it per se, but for me typing this up. Really need some of that Christmas cheer again, all this talk of Brexit, and Royal Commissions and Negative Gearing… bah HUMBUG it all, let’s come back again next time and finish off this gloomy forecast shall we?

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