Sydney Well-poised To Beat Many More Bust Predictions

Pete Wargent for the Property Update produces yet another profound article focusing on the property market cycles and the way Sydney has handled them so far. Auction clearance figures in excess of 80% for four weeks running, cannot be a flash in the pan performance.

With interest rates prophesied to stick to 2.5% till at least 2015, Sydney should keep adding to its laurels from here.

What is worth noticing is that the auction clearance rate has been so high despite the exorbitant median sale price ($835,000).

Sydney benefiting from weakness elsewhere

I feel Wargent has been spot on in predicting that the Sydney property market stands to be the prime gainer in the wake of continued weakness of other property markets around Australia. For some time now, Adelaide, Brisbane and Hobart is languishing, with no signs of a turnaround.

Sydney outsmarts property prophets

On other side of the fence is Sydney, beating many bust predictions blue. It has reported very high median dwelling prices and a smart growth rate. With its middle-priced market benefiting from frenzied investor activity, things can hardly go wrong for Sydney from here.

Cycles of property market

The property market, in Wargent’s opinion, can move through cycles for a wide repertoire of reasons. For instance, even a small whiff of boom can set up rampant construction activity thus leading to oversupply. Naturally, this may bring down demand resulting in a market downturn.

Factoring in human psychology

However, the most important signals of property market boom or bust are derived from human psychology. We often follow the herd mentality, fearing to tread all alone (Remember: Warren Buffet created his wealth by anticipating and going against the market on numerous occasions)

Sydney’s resilience has always surprised pundits. The times at which it has rallied and also the times when it has chosen to quickly correct itself have remained a riddle- only available to hindsight.

Sydney real estate should keep flourishing

Presently, Sydney dwelling prices have shot up by 10% (lesser, when adjusted for inflation, but still offering great leverage to equity-holders). Investors will continue to believe in the buy-and-hold idea (all across their portfolio), thereby creating a paucity of available properties.

Piggybacking on this paucity and abundance of strategic locations, Sydney’s property market will continue to prosper.

You can read the original article here.

I also think that persistent power-packed performances of the auction market cannot be a flash in the pan. In Sydney’s case, the performance deserves more accolades because the number of “sold before auction” and “sold after auction” sales are pretty low.

High rental yields

Investor activity should rally further from here in the middle-segment market and lot of it is attributable to the high rental yields in Sydney. However, investors should be wary of the double-edged sword that positive cash flow (a direct result of high rental yields) can be.

Need to shy away from herd mentality

The lesser talked about human psychology the better. In a market ripe for speculation, what with bottoming out interest rates, investors would do well to shed their herd mentality and take a personal leap of faith at times.

How much in your opinion are property cycles guided by human psychology?