Questions Raised on Sydney apartment supply

Pete Wargent writes an interesting column for the website Property Update wherein he focuses on the noise created by the correction in property prices. There are many who are blaming it on the Sydney apartment supply response. This is where Wargent chooses to differ.

Reason for price dip

Prices falling for the off-the-plan properties in the inner south can be put down to the downturn stage of the growth cycle and not the supply response. There are areas, say Pyrmont, for example, which may be hit only by the borrowers’ constraints. Put another way, only if the interest rates or the rate of unemployment become really high in such an area will property prices be affected.

Positive cash flow

The way the market is trending, investor-owned properties are easily generating positive cash flow (high) and this is not hard to decode, given the low vacancy rates and very low interest rates.

Increasing population caters to demand automatically

With the population in areas like Greater Sydney rising in excess of 80,000 per year, the demand side of the equation will ensure that prices are not affected at all. To reiterate, the price dip may not be for any reason other than being the natural result of the downturn phase of the cycle.

Tip for investors/buyers

It may be a wise idea, says Wargent, to build where there is limited supply, and people are really giving it their all to buy properties.

You can read the original article here.

Let me explain why investor-owned properties can witness high positive cash flow. Positive cash flow is attained when the rent received exceeds mortgage payment. It is easy to make out that with low vacancy rates, the total rent received over a period of time remains high and with low interest rates, mortgage liability softens up a great deal. Overall, the recipe is perfect for generating high cash flow, as Wargent points out.