Should investors sell their properties now?

A recent report has listed the Sydney property market as the 16th most overvalued in the world, bringing it higher than the likes of New York and Singapore. But while UBS’ Global Real Estate Bubble Index for 2020 suggests investors should sell now before a potential price correction, Australian brokers tell a different story. MPA spoke with PFS Financial Services director Daniel O’Brien, Finance Made Easy director Tony Bice and CEO of Shore Financial Theo Chambers for their take on the report’s findings.

Daniel O’Brien – PFS Financial Services

According to O’Brien, Sydney ranking the 16th most overvalued market in the world is “nonsense.”

The property investor and Top 100 broker says there are plenty of good reasons why properties in the harbour city come at a premium price.

“Just because Sydney’s more expensive than most other places in the world doesn’t mean that it’s overpriced.”

“We have more to offer than a lot of places.”

He likens it to a Mercedes costing more than a Datsun.

“We have the beauty of the beaches and the Harbour, we’ve got amazing culinary and dining. Everything you could possibly want is here – and we don’t live on top of each other.”

“You can be 25 minutes from the Harbour Bridge like I am and have plenty of room, green grass and trees.”

While he is not a property expert, O’Brien says the market is likely to go up again once the pandemic passes.

“I’m an investor myself. Whether it’s shares or property, you only ever lose money by selling at the wrong time.”

Theo Chambers – Shore Financial

Chambers says a price correction is unlikely given a range of different factors.

“There still is a fundamental supply and demand problem in Sydney whereby we have growing demand for housing and the supply cannot keep up.”

He says recent measures outlined in the Federal Budget make a plunge in property prices even less likely, adding that property is becoming a more attractive investment category for investors to park wealth.

“Wealthy conservative investors aren’t as attracted to investing in shares right now and instead are looking at either upgrading their home or buying another property – some even a second home out of the city.”

“Interest costs are so low that even with a weaker rental market, you could borrow 100% plus costs and still have positively geared property paying itself off from day one.”

For a price correction to occur, he says, people need to be in a position where they are forced to sell their property. Sydney prices dropped 7-8% during the GFC when the cash rate was at 7.25% and the lending environment was dramatically different.

“In the GFC, the major banks were so risk adverse that they would be on the front foot with any borrowers going into mortgage arrears and repose their homes to auction, whilst also revaluing assets on commercial borrowers and dictating new lower LVR thresholds, forcing them to pay down debt during times of low cashflow.”

“In 2020, the attitude couldn’t be more different with banks offering a pause on mortgage repayments quite easily and even extending these paused periods without much reviewing of affordability.”

Despite this, he says borrowers should be cautious and factor in rate rises when looking at long term affordability

Tony Bice – Finance Made easy

Bice says he takes the notion espoused by the report, that investors should consider selling now before a price correction, with a “grain of salt.”

“We’re in very tough times, but if you followed the notion in the article that it’s better to sell now, while you can, before all the doom and gloom then there would be a stampede of sellers and that would only drive the prices down anyway.”

Despite COVID-19 resulting in a 6% drop in GDP worldwide compared to the 0.1% drop during the GFC, buying and holding an investment property is not a short-term game regardless of the economy.

“Rather, it’s a long-term strategy, so I always say, if you don’t have to sell, then don’t.”

“Consumers need to get on the front foot and speak to their broker to see if there is an option to pause repayments or revert to interest only repayments.”

“We’re still the best country in the world to live in and Sydney is the best city – how we have handled the pandemic is proof of that.”

“Most economists are saying that if you were in good shape prior to the pandemic and you are managing as best you can then the flow on of available credit is there for ‘opportunities’ and that again, is where your broker can guide you.”