04 Apr Will Sydney really tank? – Veronica Morgan
You’d be excused for thinking that the Sydney property market is crashing, tanking, and that other markets around Australia, like Melbourne, might be headed the same way. Veronica Morgan from Good Deeds Property Buyers has a really good handle on what’s happening in the Sydney market and she says look past the hysteria and consider the fundamentals. She tells us what she thinks is ahead.
Kevin: You’d be excused for thinking that the Sydney property market is crashing, tanking, and that other markets around Australia, particularly, say, Melbourne, might be headed the same way. Well, let’s get a bit of an insight. Veronica Morgan is from Good Deeds Property Buyers, and she has a really good handle one what’s happening in the Sydney market, working in that market all that time. Veronica, good day. Veronica, how are you?
Veronica: Hello Kevin, I’m good.
Kevin: Yeah, that’s the question. Actually, a lot of people are asking me, “What’s ahead for Sydney? Is Sydney really worthwhile looking at; is it overpriced?” What do you say to people who ask you those questions?
Veronica: The first question is how long do you want to own a property for? People are always looking for the hotspots; they’re always thinking, “What’s going to go up next?” But it’s like, well yeah, fine, there might be lots of other areas that might go up in the short term more than Sydney, but then what will they do? So the longevity and the period of time that somebody intends to own a property does come into play and has to be thought about. I think to the … I’ve long said, and I will continue to say, that inner Sydney and inner Melbourne are the two areas in the whole country that have the most, the strongest foundations for long-term sustainable capital growth. There’s always going to be peaks and troughs, there’s always going to be ups and downs, but when you project it over 10, 20, 30 years, then those are the two markets that have shown in the past and also have the fundamentals and the foundations to continue in the future, long term to be the best performers.
Kevin: Veronica, what about the people who say, “Well, am I better off holding off for 12 months?” Will the market be better off for a buyer in 12 months?
Veronica: That’s … and I can certainly understand that. There’s two things I want to say around that. The first one is, everybody’s waiting for the bottom, because they want to feel really smart that they bought at the cheapest possible price. But the thing is, when will we know that the bottom has hit? When it’s past tense. And so therefore, smarter people than me try to pick peaks and troughs in markets and can’t do it consistently, so the thing is … That’s the first bit. When will we know it’s the bottom? Who knows?
Kevin: Yeah, when it’s too late.
Veronica: Yeah, exactly right. When it’s in the rear vision mirror. But the other side of things, is if you are wanting to buy, if you’re wanting to buy for your home, then you need to buy a home when you need to buy a home. That’s got nothing to do with what the market’s doing. If you’re buying as an investor, then same deal in a way: you’ve got to buy when you’re ready. But the timing isn’t so important, it’s actually what you buy, the quality of the asset.
Veronica: And I can tell you, I’ve been seeing … I’ve been watching this market like a hawk for years, but particularly in the last, say, 18 months, I’ve still seen certain properties get very, very competitive at auction and before auction, in a suburb where nothing else is selling. Good suburbs where all the substandard property does flounder and takes a lot longer to sell, and the vendor has to accept the reality of pretty harsh price drops at different times. And then there are some properties that are actually A grade properties with multi-faceted buyer appeal: that continue to get competition. And so those properties don’t really fall in value.
Kevin: Well, the reasons you’ll buy an investment property is for more than just the price, and where prices are going to go. It’s all about the returns, the quality, where it is, how easily is it going to be able to rent … All those things. The value of the property only matters when you sell.
Veronica: Look, it does. And I’ve done a lot of case studies, and in any particular suburb … So you’ve got to pick a good location. That’s number one. Everyone knows location does 80% of the heavy lifting. But the asset selection is the fine tuning of this. That is the real difference. Now, just to give you an example: if you had a million dollar property that you bought in day one, in 10 years’ time, the difference between if it went up on an annual basis of seven percent per annum … Now, it’s not going to go up linear in a nice, neat line. We all know that. But it’s the compound annual growth of seven percent, versus five percent or versus three percent over that period of time. The gap between the under-performer and the over-performer gets bigger and bigger, and after 10 years only, a couple of percentage points, we’re talking $300,000 or more.
Veronica: Now you might save yourself $50 grand on the purchase price, but extrapolate that to if you bought a crap asset that’s costing you hundreds of thousands of dollars because they just don’t go up at the same rate as a really good asset that you might pay a little bit more for … So this idea that you make your money when you buy, right, that is all predicated on this idea that you’ve got to get it at the right price. Well, I say it’s true, but only by buying the right asset.
Kevin: Mm-hmm (affirmative). Let me ask you this question, Veronica: if I were to talk to you in 12 months’ time and I hope we’re still talking in 12 months’ time …
Veronica: I’m sure we will be.
Kevin: If I were to ask you in 12 months’ time how the Sydney market has performed, what would you say? What do you think you’ll be saying?
Veronica: I don’t expect it to do much different than what it’s doing at the current time, to be honest. When I look around … And it also … I just have to caveat whatever I say, but there’s not one Sydney market, okay? There are hundreds, probably, of markets. Every suburb is a market, and within every suburb, there are numerous markets.
Veronica: I focus on the inner areas, because I do believe that there is underlying demand for quality property in all market conditions. The outer areas, where there’s a lot of supply and there’s not a lot of scarcity in terms of the variation of that supply, then they are going to … There’s going to be a period of time … There’s going to be a long period of time where it’s going to be very, very difficult until investors basically start re-entering the market. In these inner areas however, what I am observing, and certainly on the ground, and I’m talking to agents all the time, there are a lot less investors out there. And I’m talking anecdotally. Agents wouldn’t be saying … 18, say, two years ago there might have been 60% of the buyers are investors, and now it might be as low as five.
Veronica: When you’ve taken all of that out of the market, and you’re looking at owner occupiers, who are now deciding to say, “You know what? I’m sick of all that sitting on my hands. I’m going to get on with my life.” And that’s what we are starting to see on the ground. Then these markets basically go back to equilibrium. And I just think that they’ll sit fairly stable for a while.
Kevin: Yeah. It’s great to talk to you, because as a buyer’s agent, you would be sensing that the power has shifted to the buyer, the negotiation power? In talking to agents, as I do all the time, particularly in the Sydney market, they’re saying that it’s absolutely dead. They’re finding it so difficult to get sales across the line, so therefore there’s a lot of negotiation power for the buyer right now, Veronica.
Veronica: Yeah. Yeah, there absolutely is much more power. But it still only works if you’ve got a motivated vendor.
Kevin: Yeah, well I suppose, but then anyone who’s on the market right now you’d have to think is pretty motivated, otherwise why would you be on the market?
Veronica: Most of them are, but there’s still the odd one that isn’t prepared … I think also what they fail to understand, is that they’ve got to get the pricing spot on at the outset. And if they don’t, they lose opportunity to get their top dollar. And their top dollar may not be as high as what they really wanted.
Kevin: Do you find generally that a seller who is going to auction is probably more motivated than someone who’s got it on the market at a price, ’cause generally auction properties attract fairly extensive marketing. Does that make them more motivated, do you think?
Veronica: That’s a good question. I think certainly in the inner areas, even if the property is going to be offered at private treaty, so for sale at a price, they tend to invest the same amount of money in marketing it. It doesn’t really make much difference in inner Sydney, so say, in that 10 to 15k radius, I would say that the advertising spend is very similar. I think that typically as you say, when people put their property on the market, they don’t put it on the market on a whim. They do want to sell, but there’s a lot of emotion tied up in it, a lot of their needs in terms of what they need to get, in order to better do what they want to do. And there’s a lot of that’s perception as well. There’s all of that tied in with it, so that makes it difficult. And what I observe is that if they have not been managed well by the agent, they’re the times when you might have a vendor that’s sort of run away a little bit and a bit out of control.
Kevin: Yeah. Because generally, we’re still seeing success rates at auction around the 50, even mid-50s percent. Which is not too bad in what is a pretty slow market. So it seems to me that sellers at auction are still a lot more motivated.
Veronica: Well, yeah. And this is the funny thing about clearance rates, is what is the clearance rate really reflecting? Is it reflecting buyers’ activity, or is it reflecting vendors’ willingness to meet the market?
Kevin: That’s right.
Veronica: Yeah, so it’s a very interesting measure, and it’s hard to determine exactly what that means in these sort of market conditions. But certainly, I think also agents are becoming more skilled, because when you come off a period of five years of massive growth, a doorstop could sell a house. Almost literally. And these agents have had to up-skill very quickly in terms of how to negotiate with buyers whose motivations have changed, and where there’s not competition to actually make the buyer pay more. And when you’ve got an auction with only one registered bidder, for instance. And I remember that myself, back in 2003, when the market changed. And all of a sudden, we had to learn a whole suite of new negotiating skills. So I think as they get better, then they’re going to get better results at auction.
Kevin: One of the other things … because as you know, we do a couple of shows with CoreLogic too, where we look at the auction results, and we look at clearance rates, and we talk about how they’re declining, but it doesn’t take into account sales after auction. It only looks at the sales leading up to and under the hammer. That would be another … ‘Cause agents are telling me that their success rate of going to auction is still around 85 to 90%, so therefore we’re seeing a lot more sales happen after auction. So there’s still a lot of pressure on sellers.
Veronica: Yeah, exactly. This is the interesting thing about auctions as well, and you’ll hear it from quite a few sales agents. They’ll say that the auction isn’t the be all and end all, the auction is just part of the process.
Kevin: That’s right.
Veronica: And so when you’re in an area such as … my office is in Balmain, so obviously areas such as this, there’s a lot of variety in the housing stock. So it’s quite difficult to price an individual property and know exactly where it will sell. And so what the auction process is … one of the benefits of it is to give that agent feedback from buyers, and they gauge the reaction to quoted prices and all the rest of it, so that they can actually feed that back to the vendor and get a much clearer idea on the price. And so therefore if it does pass in, and they’ve been listening to the market, and the vendors been listening to the agent, that asking price after the auction will be spot on, so much so that it doesn’t last on the market very long, ’cause the price is part of the marketing of it. And when you see a property that sells within two weeks of auction, that is very much the auction process working.
Kevin: Wonderful. Always good talking to you, Veronica Morgan. Thank you very much for your time. Veronica is from Good Deeds Buyers Agents, and it’s always a delight having you on the show. Thanks, Veronica.
Veronica: Thank you.