Reading Time: 5 Minutes
Howdy guys!
Good to be back in front of y’all on this sunny Sunday!
I was getting a bit carried away with Netflix in bed there for a sec (will Mowgli ever re-join the pack? SO intense).
But as much as I’m enthralled with the latest adaption of the Jungle Book and wolves with British accents, I think it’s time to get back to the second part of the Sydney Property Outlook (read part 1 here).
My opinion was and still is that 2019 will be a tough year for real estate in Sydney, here’s further reasons why that’ll be the case:
Brexit and the Trade War
What a difference a day or two makes eh, Theresa May hung on to the prime minister-ship (just), thus avoiding short term uncertainty regarding Brexit… until 29th March 2019 when the UK’s deadline to leave is due.
The smart money is on the uncertainty of Brexit to continue until the very last moment… and then a time extension is requested.

Coupled this with the ongoing Trade War negotiations between the US and China (incidentally also with a March deadline), makes the political risks enormous in terms of the global economy.
How does this impact Sydney?
Well Sydney (and to a lesser extent, Melbourne) is a predominantly service-based economy, with jobs and wages growth heavily tied to the Banking and Financial Services, Professional Services, IT and Healthcare sectors.
This means that these white-collar jobs are very much tied into how the Australian and Global economies are performing.
The headwinds at the macro level should see subdued wages growth and job expansion in the short-term at least.
RBA Rate Cut
The prevailing negativity should mean the RBA (Reserve Bank of Australia) actually cuts the cash rate, which is a positive right?
Well, kinda.
I mean, these days the banks are doing their own thang with interest rates anyway.
As in they are operating out of cycle with rate hikes and rate cuts.

I reckon that IF the RBA does cut rates, the banks won’t be passing on the full cut, no way – maybe 10, 15 basis points max (a basis point is 0.01%).
After all, every basis point up or down equates to MILLIONS in revenue for their bottom line, in terms of loans and deposits.
Sigh, here I go all nostalgic with the good old days not so long ago – when if the RBA hiked rates, the banks hiked it the NEXT day with the full 0.25% rise.
And if the RBA cut rates, the banks cut their headlines rates also, maybe not the next day, maybe not even the day after that… but at least you had confidence the full 0.25% cut would be passed along.
Not anymore!
We live in interesting times.
The Media
Don’t forget there is one element in all of this which make Mowgli and his pack of wolves seem like a bunch of animated cartoon drawings, I am referring of course – to the ferocious beast that is the Australia media.

Not since a talking bear and a melancholy panther has a wild creature appeared so devastating in their ability to sway public sentiment.
Just have a glance of the Google News headlines when you type in “Sydney+Property“, my word you would think the sky is about to fall on our heads.
Unfortunately as 70% of all housing is from owner-occupiers, i.e. mum and dads – we can’t help but be affected by all the doom and gloom!
If this does pan out, expect liquidity and turnover (less people buying and selling) to dry up and further increasing price pressures.
Interest-Only Cliff
Back in the halcyon days of 2012 – 2016, many investors and owner-occupiers stumbled onto a simple trick of taking out interest-only loans to minimize their loan repayments.
The rationale is that as the underlying property value rises, we can always sell the property at a later date for a higher value, thereby preserving our cash-flow.
Interest-only periods are taken out from anywhere between 1 – 5 years (on rare occasions up to 15 years) of the loan term.
Traditionally, the banks would tick and flick your application for a loan renewal, given the likelihood of the real estate value increasing.

But in this environment, more and more lenders are asking for a FULL application during the loan renewal process.
What’s more frightening is that at the end of the interest-only term, the lender has the right to convert the loan on a principal and interest repayment basis for the remaining term.
Let’s say on a standard 30 year mortgage of $500,000 at 5%, you take out an interest-only period of 5 years.
The only payment for the first 5 years is this interest portion or $2,083 per month.
At the end of the interest-only period, unfortunately the banks won’t let you extend further and force you to paydown the debt on a 25 year term.
The remaining 25 years is on a principal + interest repayment structure or $2,923 per month.
The difference of $840 may or may not break you – but it would hurt.
Here’s the scale of the interest only loans coming off in the next few years:

~~~
There ya go folks, more pain than gain to come methinks.
But you know, not all negative Nelly – in fact if you are buying, now is an AMAZING opportunity to wait and pick your battles or build up that war chest.
And if you’re purchasing a forever home, a place where you’ll be staying 20 years or more to raise a family – remember that it’s a long term decision, a few years here and there won’t be making a drastic difference.
Housing purchased in our major capital cities can be VERY forgiving, just look at history!
The final thing I will say about this is to re-iterate the best analogy I have heard to describe the housing market; that it’s like a giant oil tanker, it takes ages to get going and takes ages to slow down.
Of course the question is… just how long?
What do you think? Did you enjoy this post? Please help me out if you enjoyed this and put your email in and click on the little “subscribe” button on the right hand side. This way, you’ll never miss my words of awesomeness! So do the right thing, be a subscriber and get it straight to your inbox fresh out of the oven!
30 Comments
Sarah Bailey
Good luck to those who are looking to buy a home. It is such a crazy market isn’t it. Hard to know if things will get better or worse at times.
The Frugal Samurai
I totally agree – these days can’t make heads or tails of anything in the markets! Might just go to Bali for some R&R instead! Thanks for reading.
Cristina Petrini
I would like to go there to live in Australia mica I knew all these things you know? Very interesting as an article!
The Frugal Samurai
Thanks for saying so, yes come to Oz – it’s a great place and welcome to all!
jessamawby
This was so informative! Hopefully the market gets better sooner rather than later.
The Frugal Samurai
Yeah I agree with you, hopefully it recovers… for everyone’s sake!
Tina A
This should be an interesting ride! I’m curious to see how things turn out. I was living in UK when Brexit was voted in, it was something to see, I arrived home shortly after Trump was voted in… This past year has been interesting and I wonder how the outcome will effect our economy over 2019..
The Frugal Samurai
Oh wow, YOU are the one who lives in interesting times indeed, I’m curious to see how everything pans out as well… 2019… gonna be one helluva ride methinks.
Summer Mitch Ryan
Looking at the figures made me dizzy. Sidney is one great place to live for sure, but I think it’s something that has to remain in my wish list.
The Frugal Samurai
It sure is – but yeah it’s a very EXPENSIVE city to live and start a family in, top 10 most expensive in the world in fact! Sigh, but what can you do? Great people, great food, great weather, AMAZING lifestyle – price you pay right?
With Love Moni
TBH I don’t like place where ever media puts up it’s points. But this is good.
The Frugal Samurai
That’s true aye, the media provide half-truths at best most of the time is my thought! But they are oh so tempting to pay attention to right! Thanks for reading.
Flyingkids
This is such an interesting and informative post. Purchasing properties has always been timeless. But, their prices always increase. This will help buyers decide.
The Frugal Samurai
I certainly hope so! It is timeless… great description there! Thanks for reading 🙂
A Nation of Moms
It’s always interesting to me to see how the housing markets are evolving. I’ve never been to Australia, so it’s hard for me to visualize, and I had no idea this was a more expensive place to live.
The Frugal Samurai
Yeah it is a darn pricey place to be in, especially our capital cities – Aussies LOVE real estate though, in our blood!
StephJ
Wow! What is happening in the world right now? The housing market is totally insane here in Newfoundland, Canada too. Maybe it is a global thing in some way?
The Frugal Samurai
It might be! I think asset values in general are pretty much at peak or coming off peaks in the developed world, just look at the Eurozone and the US – they say recession is a-coming!
Prerna Garg Agarwal
This is a very comprehensive article for anyone looking to invest in property in Sydney. I feel all popular, capital cities around the world or up and coming towns have really expensive property!
The Frugal Samurai
They do but that’s the cost of living in a beautiful lifestyle city! Thanks for reading, come visit us one day 🙂
Kiwi
im a typical Millennial i dont have a home yet. I cant wait to look into my own home one day!
The Frugal Samurai
I hope you do sooner rather than later, nothing better than a forever home to raise the family in! Thanks for reading 🙂
Rose A (@mail4rosey)
Media can be tough. I’d love to visit Australia. The bloggers I read from there seem so down to earth.
The Frugal Samurai
We welcome you – yeah we try to be pretty carefree here, I mean life’s hard enough as it is to stress too much over right! Thanks for reading, hope to see you soon!
Fly Away Godddess
Thank you for sharing I hope really the market goes in your favor and you are able to get what you want. I feel like more and more the “dream” as time goes by is harder but at times it makes it worth it!
The Frugal Samurai
I know, but the market is coming down a fair bit which is great news for everyone looking to get in! Thanks for reading, and your thoughts!
Samantha
Buying a home right now is a scary prospect!
The Frugal Samurai
Haha yes it is! Extremely daunting at the moment.
Echo aka The Mad Mommy
The way you think things through is quite amazing! Thank you for breaking it all down on here.
The Frugal Samurai
No worries, thank you for reading!