Tower&London_PropertyReview_Preview 2016 Winter

John Tower
M.D. Tower & London
Licensed Real Estate Agent
Registered Property Valuer
Challenging Times
In my previous
articles in past issues
of The Property
Review, I have often
stated that property
value fluctuations are
a function of the
cyclical nature of
property market;
in fact, of almost all types of
investments. One of the great drivers of
property cycles, is the fine balance, of
the supply and demand equation at any
given market segment.
Buying a house is largely associated
with fulfilling the great Australian dream of
owning your own home; yet buying an
apartment is often considered as an
investment in property; but not all as many
buyers make apartments their homes; a large
proportion are rental properties; some for
retirement, often for tax offsets, many should
not be doing it at all.
Investors buying apartments, in newer
buildings, not only benefit from negative
gearing but with larger depreciation of fixtures
and fittings and of the buildings’ mechanical
infrastructure such as lifts and air-conditioning
plants.
When deciding to purchase or sell
property, the obvious question must be asked:
is it a good market to do so?
Well, this is when one has take into consideration
the cyclical nature of the property market; with a
skeptical mind, relying on the trusted advice from
someone with empirical experience. Only
This article is largely written for the benefit
of property investors in the Lower North Shore;
some of the figures and statements made herewith
are obtained from sources we trust and rely on for
accuracy; we always attribute the source.
with a skeptical mind, relying on the
trusted advice from someone with
empirical experience
The two graphs shown in this article have been
collated by Tower & London: every quarter we scan
all the sales of apartments for the Lower North
Shore: arriving at median values and the number of
sale transactions; showing the preceding three
years. Note that all new apartment sales are
discarded as the time of exchange of contracts is
well before the time of settlement; and when
recorded: hundreds can come in in one month
skewing the median price and number of sales; for
this: we rely on sales between a willing buyer and a
willing seller in an open market, unhinged from the
volume sales that are promoted by Developers’
agents through mass marketing tactics.
Moreover, over the past few years many cashed up
foreign buyers purchased multiple apartments,
sometimes whole floors in one line with little regard
to their intrinsic value.
Sydney Unit Market
Everyone knows there are currently
many more residential apartment buildings
under construction than usual: Saturday’s SMH
Domain is dominated by advertisements of new
developments, from Liverpool to Penrith,
Hornsby down to Hurstville and of course the
prime areas of the North Shore and Eastern
Suburbs.
Most, in my view, are asking higher prices than
intrinsic values; too much for the internal size of
the apartments offered. A two bedroom unit
used to be about 100 square meters, now some
are just 65 square meters, with a price tag of
about $15,000 per square meter, and more in
prime areas.
They may be able keep them there
of a couple of years, but eventually
costs will catch up and Owners’
Corporations will be forced to
drastically increase levies
The other intriguing development is the
advertised “estimated Strata Levies” often well
below realistic levels, they may be able keep
them there of a couple of years, but eventually
costs will catch up and Owners’ Corporations
will be forced to drastically increase levies,
particularly when these buildings are frequently
marketed as resort-like with swimming pools,
gyms, rooftop lounges; and the most expensive
of all: 24 hour concierge.
4 5
According to the property website,
onthehoue.com.au/market analysis: median
value for apartments in Sydney has increased
by 1.8% in the June quarter 2016; and 6.4%
for the past 12 months to $704,000.
Rents are a good signal of
change in the swing of supply and
demand
Median rents have remained the same for the
past year at $550 per week. Rents are a good
signal of change in the swing of supply and
demand: it is interesting that for many years
rents have been increasing, yet, they are now
static. This is because of the massive supply of
apartments bought by investors overwhelming
the rental market, diminishing returns.