You wouldn’t know it by some of the commentary around at the moment, but Sydney remains a solid investment option.
It’s just that the time to invest is not now because of its market cycle as well as lending constraints.
While property prices in Sydney have softened by about nine per cent this year, they are still high, which means it’s not an affordable option for many investors.
Sydney is also not on my investment list because of the high buy-in prices, coupled with relatively low rents, which makes the yields quite unattractive.
At this point in time, the high costs of entry as well as holding costs make it a location that should be avoided – but not forever.
It’s still Sydney
The thing is, Sydney is still Sydney, which means that it will always be in demand.
Its population is forecast to grow by some three million people in the decades ahead, plus it remains our nation’s economic engine room.
In fact, the New South Wales economy remains robust with unemployment falling to 4.4 per cent this year.
The Harbour City is also in the midst of a significant major infrastructure program, partly courtesy of the property taxes paid by investors and homebuyers into State Government coffers during the boom.
So, there is much to be positive about Sydney, but that doesn’t mean the numbers add up right now.
The slowdown in Sydney was driven by the market cycle but it is perhaps more pronounced because of the credit crunch also in play.
All types of buyers have found it more difficult to secure finance this year because of lending restrictions, however, I feel we are closer to the end than the beginning of the tighter conditions.
When that happens, then Sydney’s market is likely to kick back into gear – but it will probably be first gear not overdrive for a period of time!
Watch and wait
There are better investment opportunities in other locations around Australia at present, such as in Brisbane, because of the reduced holding costs and the upswing potential for capital growth over the short- to medium-term.
However, just because we are active in other markets, it doesn’t mean Sydney is not on our radar because it is.
We are simply watching and waiting for the optimal time to re-enter the market, which probably won’t be for a least a year or two.
We stopped buying in Sydney before the peak a few years ago because we knew the numbers were no longer in an investor’s favour.
I even went so far as to warn some people who were keen to get into the market in 2016 that Sydney was heading for a correction and they could end up in negative equity territory.
No one wants to be in that situation, plus it can impact people psychologically to the point that they end up selling in a panic and lose money that they never needed to.
Of course, savvy investors know to ignore the temporary ups and downs of any market because they are always focused on the long-term.
Sydney homeowners and investors who bought a number of years ago are still well ahead because they chose the optimal time to buy and they remain focused on the future.
They also understand that in the years ahead, Sydney real estate will remain some of the most desirable in the country.
So, today, they are simply holding their ground and not buying into some of the more alarmist commentary out there.
Ditto with smart investors, who are active in other locations while keeping an eye on a market that will remain a sound investment option for the foreseeable future – as long as they recognise when is the best time to buy.