Hold or Sell Property

cisco on 25/09/2015 - 08:28
Last edited 25/09/2015 - 21:27

With Sydney and Victoria housing market slowing down, I'm not sure if I should wait, hold or sell my property?
Someone sold an older unit in my building for 854K two months ago. I got evaluation done a week later by couple of different real estate agents on my unit where they suggested that my unit should fetch 860K+ in current market. Now that I'm ready to sell mine my real estate agent is suggesting due to the slow market the best I can get is around 790K.

Question is shall I wait and see how market plays in next few months or shall I cash in and move on?

Update——
The agent is telling me it's a good time to sell. He is suggesting in next few months I won't be able to even get 750k.
He has couple of his own properties on market for auction within next 4 weeks. According to him market has cooled down specially Sydney market.
My cousin who is has been in the market trying to buy his first property for last 1yr is saying he has been getting calls from various agents almost begging him to attend to this weeks auctions.
Seems market is turning in favor of buyers. Is it true. Anyone else experiencing the same? Getting calls from agents to attend auction on Saturday?

Note:
Property is in Sydney.
Its a 3 bed apartment
bought it for 680K + Stamp duty 2yrs ago, did spent 8K on reno.
Its my primary place of residence.
figures used above are just for example.

Poll Options

  • 24
    Hold - Market will recover in next few months
  • 28
    Sell - Cash up as market is slowing down
Financial

Comments

  • tomleonhart on 25/09/2015 - 08:37
    +2

    "Its my primary place of residence" and "investment property" ? sorry how can it be your investment property if you're living in it ?

    • ykwon10 on 25/09/2015 - 08:44

      I believe what OP meant was "primary residence when bought" and lived there for more than 6 months, then converted to "investment property".

      • cisco on 25/09/2015 - 08:50

        Thanks ykwon.

      • [Deactivated] on 25/09/2015 - 10:30
        +8

        Often this scenario reads "I wanted to dodge the stamp duty, so I used a mail forwarding service and pretended that I was living there for the term required, then listed the situation as an investment property after I had successfully defrauded the tax office" ;)

        • modsec802 on 25/09/2015 - 19:00
          +1

          OP changed title to get rid of 'investment' lol

        • cisco on 25/09/2015 - 19:36

          Stamp duty or capital gains tax? Am I missing something here?

        • SlickMick on 26/09/2015 - 16:54

          I don't think that makes any sense. If OP didn't claim deductions as an investment property for 6 months, it's legit.
          Otherwise, the ATO knows the period it was an investment property, so 0% chance of getting away with claimimg it was primary residence in same period.

  • tomleonhart on 25/09/2015 - 08:59
    +1

    ok so here is my calculation:

    Your cost:

    $680,000 + $26,411 (stamp duty) + $8,000 (reno) * 1.04% (assume 2% inflation per year for the last two year) = $742,987

    If you sell for $800k and assuming agent fee of 2%, you will end up with $800k * 0.98 = $784k.

    $784,000 - $742987 = $41k profit without factoring in interest payment assuming you rent covers your payment.

    Are you happy with $41k profit over 2 years? That's for selling now. :)

    This calculation negates the cost of solicitor which is around 1.5k per transaction.

    • cisco on 25/09/2015 - 09:20

      Thanks Tomleonhart, I was thinking around the same but the question is let say I sell with a 40K profit and move on will I be able to by another property for the same price? or the market will go up.. even though everyone Ive been talking to is telling me it will not any more… Also if I buy another property most likely this $40K will end up in Stamp duty charges.

      • ykwon10 on 25/09/2015 - 09:31

        IMO the property market is having a "knee-jerk" response to APRA tightening investment loans recently hence the slow down. Give it a few more months and observe the market closely.. I wouldn't be jumping off the ship straight away if your ROI covers your interest repayments.

        Not to mention, property investment should be long term investment.. Hold on for longer if you can.

        • cisco on 25/09/2015 - 21:16

          The agent is telling me it's a good time to sell. He is suggesting in next few months I won't be able to even get 750k.
          He has couple of his own properties on market for auction within next 4 weeks. According to him market has cooled down specially Sydney market.
          My cousin who is has been in the market trying to buy his first property for last 1yr is saying he has been getting calls from various agents almost begging him to attend to this weeks auctions.
          Seems market is turning in favor of buyers.

        • Steptoe on 26/09/2015 - 00:00
          +3

          @cisco:

          The agent is telling me it's a good time to sell.

          Good time for the agent.

        • cisco on 26/09/2015 - 10:35

          @Steptoe: agents have been having great time over last 5yrs anyways.

        • GameChanger on 14/10/2015 - 22:55

          @cisco: Sydney will always have demand, from the Chinese. Any other capital city and I would consider selling.

        • SlickMick on 15/10/2015 - 10:22
          +1

          @gamechanger:
          Unless rents plummet, house prices aren't going to fall significantly.
          My wife needs to go to Sydney to work, but probably won't take the contract because there's no affordable accommodation.
          She reckons the only thing nearly affordable is to share a bedroom with a stranger. Seriously? They arrange accommodation like that in Sydney? It seems 3rd-worldish to me??

      • SlickMick on 26/09/2015 - 17:05

        I wouldn't be playing arbitrage games. You need a property. You have one. You just saved yourself 10s of $1000s right there.
        Valuations shouldn't matter much until you no longer want a property in Sydney.

  • inherentchoice on 25/09/2015 - 09:02

    Maybe think of it like this: If you had $790k to invest, you could probably get higher dividend yields in the stock market (which are fully franked) than you would get in net rental yields (which are pre-tax) for buying this apartment at $790k. Therefore if you can get $790k or more then I think the current market conditions are quite favourable to you. But I am making an assumption here because I don't know how much your apartment would rent for.

    • cisco on 25/09/2015 - 09:22

      I have had bad experience with Share market. I find property market safer but whats happening over all 3 weeks at Auctions makes me think again. which share you talking about "you could probably get higher dividend yields in the stock market". Can you share?

      • inherentchoice on 25/09/2015 - 09:36
        +1

        I'm not saying that you should buy shares. I'm just comparing probable dividend yields (maybe 5-6% after tax?) with rental yields (maybe 2-3% in Sydney before tax?). So if your apartment was on the stock market it would not be worth $790k. Therefore you are doing pretty well if you can get $790k for it.

        CBA shares price to earnings ratio is currently 13.5 = 7.39% returns with fully franked dividends.

        If your property rents at $600/week it's PE ratio is about 28.13 = 3.55% returns before paying tax.

        If your property had the same PE ratio as CBA shares it would be worth about $380k if we assume a rent of about $600/week, or else it would need to rent for about $1250/week to be worth $790k. And I'm making generous assumptions here about rates, maintenance, body corporate and letting fees.

        From a price to earnings ratio perspective your apartment is quite expensive (then again, so is most of the Sydney market).

        However this does not take into account potential for capital gains, or capital loss.

        • Oofy Doofy on 17/10/2015 - 00:47

          Very true, may as well put it in a term deposit with those RE returns.

  • t_c on 25/09/2015 - 09:39
    +1

    800k wow, what are all the high paying jobs that are enabling ppl to service these massive loans. What about all the service jobs like checkout chick, petrol attendant, cleaners, or is Sydney going to end up FIFO for these ppl?

    • ykwon10 on 25/09/2015 - 09:55

      With $600-700k mortgage, it probably takes 2 average income earners to service the loan for 30yrs. Out of curiosity, what is your definition of "high paying" jobs? >$100k, >$150k, >$200k?

      I am most definitely agree with you that normal service jobs like checkout chick, petrol attendant, cleaners will not be able to buy property in Sydney unlike 30 years ago. Prices are so high that it requires 2 income earners to service a mortgage these days.

      • abc on 25/09/2015 - 12:54

        And yet given the median price of Syd is $1mill now when interest rates go back to their "average" rate of 8% it will cost you up to $80k p.a. just to service the interest on the loan. We'll really see forced sales then…

        • ykwon10 on 25/09/2015 - 13:12

          Interest rates do not jump from 4% to 8% overnight. It will slowly decrease/increase over time. If interest rates were to reach 8%, median house prices will not be $1M by then.

    • Ughhh on 25/09/2015 - 09:57

      I've seen ads on TV by CreditUnion, encouraging low income earners eg. a Maccas server and a waitress from a luxury car auction to get a car loan for a luxury car, just to show off infront of boys in older Toyota celicas and actual rich people from the lux car auction.

      I have a feeling that loan will be like herpes.

    • [Deactivated] on 25/09/2015 - 10:37
      +2

      It's called speculative demand, ie. a property bubble. Australia is the last bastion on the planet to deny ever having a bubble. It's held up well, but due to the govt meddling in every conceivable way to keep it propped up. This meddling has come in the form of buyers (rather, vendors) grants, stamp duty concessions for investors, negative gearing, Rudd's loosening of foreign purchases (which in my mind is borderline treason).

      Having seen the govt do this for decades now, it's certainly a plausible assumption that they will continue to throw the kitchen sink at the market to keep it inflated at any sign of correction. How long that will last is more a function of global macro economics then anything that Australia does, however. Australia's ability to pump the bubble up has been nothing more than blind luck, but the Chinese miracle has just about run out now and where does that leave this country which has allowed almost every productive industry to go to waste with preference to mining, property and tourism industries. I recently had my house valued and it was about 300k-400k higher than I bought it for 2 years ago. I think that's pretty absurd levels of inflation, and it cannot persist, but guessing how much longer it can go on for is impossible.

      Back to investment properties though, assume something at 800k is rented out for 500-600pw (sydney money). That's an absurdly low yield, but finding returns in the market have become damn near impossible with the central banks all going for Zero Interest Rate (= free phoney money) Policy… soon to be Negative Interest Rate Policy - watch this space.

      • abc on 25/09/2015 - 11:06

        I recently had my house valued and it was about 300k-400k higher than I bought it for 2 years ago.

        You mean you had your house appraised and it was this much higher.

        You can only sell something at the price people will pay for it. There is no such thing as "value" in a free market. It's all in the eye of the beholder.

        • [Deactivated] on 25/09/2015 - 12:19

          Agreed, but the appraisal was based on sales like for like on my street, yada yada. I'll be the first to say my place isn't worth what these people claim nor are 99.9% of Australian properties, but we're in a bubble and stupidity prevails.

  • Marioedd on 25/09/2015 - 11:51
    -1

    Hold it, wait out, will get better cash soon. We have held onto our house for 10 years, and we can now sell it for almost 6 times as much!

    • tomleonhart on 25/09/2015 - 12:10

      How ? Sydney market stagnated from 2003 until 2010 with virtually no gain. Unless you gained 6 folds within the last 3 years alone ?

    • inherentchoice on 25/09/2015 - 12:51
      +1

      Past performance is not a reliable indicator of future performance.

    • ykwon10 on 25/09/2015 - 13:16

      I am curious to know where, when and how much did you buy your house for. 6 fold gain sounds ridiculous.

    • bobwokeup on 26/09/2015 - 17:57

      Totally agree that's how the housing market works (assuming you buy the right house in a good location). Might take a bit longer to get those returns but in the long you will make a profit (of you can afford to repayments).

  • cupcake on 25/09/2015 - 15:14
    +2

    Hold onto your house. It will still increase in value like it has done in the past.

    • cisco on 27/09/2015 - 19:47

      wait another 10 yrs?

      • cupcake on 09/10/2015 - 15:26

        Yes.

    • cannedhams on 02/11/2015 - 13:23

      Its a unit.

  • JimB on 25/09/2015 - 16:15

    Depends on what you plan to do with it.

    If you are selling to buy something else, then yes.

    If you are selling to get out of property and plan to rent, then no.

    FYI, you can rent out this place for up to 6 years, move back in and then sell it without paying any capital gains tax. I'd be doing this if you wanted to rent somewhere else.

    Personally, I've never been a fan of apartments. When you buy a property, the only thing that really goes up is the land.

  • DeafMutePretender on 25/09/2015 - 20:12

    At this rate and at the current poll results, you might as well flip a coin. Just as good results, without the unnecessary thinking.

  • Doggiie on 26/09/2015 - 15:39
    +4

    Agent will always suggest to sell, they get commission + base fees, so they will want you to use their services.

    • bobwokeup on 26/09/2015 - 18:00

      Too right, there's never a bad time to sell in their opinion (unless it's a friend in the industry).

  • cisco on 27/09/2015 - 19:47

    Auction clearance rate for this week in drops to 70%
    Shall I still hold? its getting concerning

  • [Deactivated] on 27/09/2015 - 19:54

    How has the Melbourne market slowed down? I know Sydney did for one weekend, but Melbourne had record clearance rates.

    • cisco on 09/10/2015 - 17:34

      Not so sure about melbourne market byt sydney market has changed.
      http://www.domain.com.au/news/sydney-auction-floodgates-are-…

      • [Deactivated] on 09/10/2015 - 17:52

        So why did you mention Melbourne?

        • cisco on 14/10/2015 - 23:39

          According to domain Melbourne house auction clearance rate has dropped

        • [Deactivated] on 15/10/2015 - 07:16

          @cisco: bullshit. Didn't happen, wasn't reported.

  • edw0000000 on 10/10/2015 - 07:56

    Do not sell. Evaluation is good!
    So u can do the refinance take out the extra money switch it to investment interest only and lease it out.
    Even rent yield is low u still can afford it, negotiate gearing.
    As the market is going slow, u can take the advantage to buy a better house at a better location.

  • easternculture on 14/10/2015 - 20:50

    Westpac increased Home Loan Rates by 0.20% which may or may not indicate a potential slowing down in real estate market

    Other banks most likely to follow.

    Even though RBA is predicted not to increase interest rates, the banks most likely will go ahead.

  • Davros on 15/10/2015 - 07:26

    For those claiming a bubble I suggest they try doing the numbers.

    Go out and buy virgin land in a sought after area, IF YOU CAN and then pay all the fees,get all the services, streets, guttering, sewerage etc etc done to make it useable.
    Build a house on it to Australian standards and area guidelines paying Australian wages for all trades.
    Add on your 20% to 30% profit margin for time, effort and risk.
    Report back

    • SlickMick on 15/10/2015 - 10:27

      While you're at it, you might want to compare 2 options: a) putting a 4 bedroom house with double garage on that 1/4 acre block, or b) Putting say 8 townhouses on same block.
      If prices are more than we want to pay, it's because we want huge rather than modest.

    • cannedhams on 02/11/2015 - 13:26

      Dead right. The problem is once we are in recession and governments across the country are forced to lower the ridiculous amount of infrastructure charges to keep people in a job.

      $60,000 of infrastructure charges per lot PLUS the developer has to pay GST on the tax-inclusive amount.

      Then the buyer has to pay stamp duty on the GST inclusive amount, effectively meaning that they pay tax on a tax on a tax.

      It will take a long time to unwind, but it will happen.

  • Oofy Doofy on 17/10/2015 - 00:48

    Neither, do what you can afford to do. Oh and btw, don't defraud the ATO, we're having enough trouble finding the money for things in this country as it is.

  • cisco on 28/10/2015 - 19:29

    Prices are heading south ; (

    • cannedhams on 02/11/2015 - 13:28

      along with the clearance rates. Clearance rates now 45% in the west. Heaps of people attending auctions but its basically all rubberneckers, like people stopping to watch a car crash.

      Put it this way: did you buy it to have a place to live or did you buy it to make a quid? Can you continue to service the mortgage?

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