The PROPERTY DOCTORS, Sydney Australia Novak Properties

EP. 1408 - Dee Why Units: The Perfect Storm

• Mark Novak, Billy Drury • Season 30 • Episode 1408

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The winds of change are sweeping through Sydney's property scene, creating what seasoned agents are calling "the perfect storm" for apartment investments. This eye-opening discussion reveals why now might be the most opportune moment in three decades to invest in units, particularly in established suburbs like Dee Why.

Drawing from real client experiences, we explore how the apartment market has weathered recent challenges and why current indicators point to extraordinary growth potential. While many investors have seen modest returns over the past three years, the underlying market fundamentals are shifting dramatically in favor of unit owners.

What's truly remarkable is the severe supply constraint now gripping Sydney. Across the Northern Beaches' 100,000 dwellings, only 434 rental properties are available – a historically low figure. Dee Why itself has just 36 rentals among its 11,000 homes. This scarcity exists because we're experiencing what experts describe as "a building freeze, not a building frenzy." Rising construction costs and increasingly complex compliance requirements mean developers simply can't make projects stack up financially.

Meanwhile, the Big Four banks forecast interest rates dropping from 4.1% to potentially as low as 2.6% through multiple cuts. Combine this with steadily increasing rents, particularly for properties with modern amenities, and you have a textbook environment for capital growth. As one expert succinctly puts it, "Supply is the enemy of capital growth" – and supply isn't coming anytime soon.

Perhaps most telling is that property values remained relatively stable even as interest rates tripled in recent years. Now imagine what happens when those same rates begin falling while rents continue climbing. For first-home buyers and investors alike, this rare alignment of market forces represents an opportunity that, according to agents with 30+ years of experience, simply hasn't existed in decades. Ready to navigate this perfect storm? Reach out for a personalized strategy session to position yourself for what's coming.

Speaker 1:

Ladies and gentlemen, units, sydney agent of 30 years, I can see the perfect storm arising coming, and I'll tell you all about it right now. Stay tuned. I'm the ringleader. So what's up? Young man's body.

Speaker 2:

How are you good morning, property doctor?

Speaker 1:

we're, um, yeah, delving into a bit of a uh, a bit of a heated topic this morning look, I think you're going to expect the real estate agents to be all positive, but we don't want to do that. But we want to arm you with the information, the facts on a typical unit suburb like DY that you can apply to you know, any area of Sydney with has units and then make an informed decision.

Speaker 2:

Well, you cut off for a sec and then make an informed decision Absolutely, and look, we're witnessing a bit of a storm brewing behind the scenes and I don't think people the average mum and dad and consumer will see it until it smack bang, hit you in the face and often by that time it's too late. Yeah, it's too late.

Speaker 1:

You've got a real-life working example with a client of yours. You had a discussion last night. Can you tell me how that went?

Speaker 2:

Yeah. So we were sitting around the coffee table last night just settled his property. So that's the day you get your money exchanged and keys are handed over and it's then like what's next? You don't want to leave yourself out of the market for too long. I think selling a property and repositioning is genius, but it's also then having that plan lined up for what comes next. Whether it be a homeowner selling and trying to get back into the market to live in, that often happens simultaneously and the same for an investor. Quite often they're taking funds out of a property a bit of equity and then moving it into something else. This sale was a one-bedroom apartment in DY sold for $750,000 in an older 1970s-style block where it was positioned on the top floor. It rented really well because it was on the beach side of DY. They were probably getting around $650,000 a week for their rent.

Speaker 2:

But it was a hard conversation because it was like I've owned the property for three years and by the time I take out my stridewater council, by the time I take out my interest repayments, there's not been much profit in it for me. Like he bought it for 680 and he sold it for 750, or sickness where he bought it for 630 I think, and sold it for 750. So there was a bit of money in there. But by the time you apply, you know, stab juicy capital gains tax, because it wasn't a principal place of residence either. There just wasn't much in it. And so I think that experience put a a little bit of a dampener on his property investing experience because he heard stories, the stories of, of, of buying in queensland, buying in western sydney and big profit. So his question to me was why would I buy another strata title apartment? I just don't see the value so long-term horizon for.

Speaker 2:

So long-term horizon for units. Dys property northern beaches, sydney. What do you think I said? You know, the funny thing is I've sold three properties in the last three weeks, or I've had three offers accepted in the last three weeks, sorry. And every property seems to have followed the same trend. It's been a hard three years. Property seems to have followed the same trend. It's been a hard three years. People bought in 2021 and 2022 where they either had cheap lending 2% interest rates which made it quite affordable to extend themselves that little bit further, or they bought in a market where it was artificially sort of propped up by that, and then it and then it started to slow down a little bit. So the last three years people have made money to cover costs, but certainly not big profits. And we took his example, multiplied that three times over a purchase price to another property we had offer accepted and, funny enough, the numbers were identical exactly the same.

Speaker 1:

So I think that speaks volumes so people, people say to us don't want to buy a unit, don't want to buy a big block, don't want to buy a dui. What do you say about that?

Speaker 2:

I say here's the perfect storm that's brewing and we're starting to really feel it. Now the clouds are on us. So what I'm finding is is Properties that are renting well. For an investor are properties that are often a little bit more modern internally, or oh, sorry, yeah, buildings that are often that little bit more modern internally, or a little bit more modern generally, where they've got lift access, things like that, secure parking, premium rents are being felt. But to take a step back, the other question I had yesterday was why would I buy in DY where there's going to be so many more apartments introduced? And I said well, you've got to look at the vacancy rates. To begin with, there's over 100,000 private dwellings on the Northern beaches and right now on realestatecom, the largest online portal, there's 434 properties for rent interesting, very interesting.

Speaker 2:

So it's what's that like?

Speaker 1:

is that, what's that like historically? Is that like uh, is that a lot of property or not a lot of property?

Speaker 2:

that's a scary low number, it, it. It often sits anywhere from double to maybe triple that. Yeah, wow, yes. I then put it back on a day. What say that again? We then pulled it back to dy, where there's over 11,000 private dwellings in dy. A lot of them are apartments and there's 36 properties for rent in dy at all prices. So the introduction of new stock is inevitable. It it has to be done. But you're always going to have that point of difference because the majority of properties in DIY particularly, were built in the 1970s through to 1990s. That's when the mass development was done for the classic standard block of 12, block of 24, three stories with stairs and maybe a lock up garage.

Speaker 1:

If you're lucky, none of them had the other benefits of a new building because I think what people don't realize is is it's literally a building freeze, not a building frenzy, at the moment. And what does that mean the moment? And what does that mean to property values? You've got interest rates on the way down. You've got rent fact. You've got rents on the way up in a big way, um, and I think at the moment you know you've got this all-time low um of uh, of of property stock.

Speaker 1:

You know, when you look at dy fundamentally the glut of dy that people would think it is you've got 9 600 units, of which, all you know, 95 of those units were delivered in the 70s and the 60s um, and only we've changed. We've gone from 8 800 units to 9 600 units over maybe 15 years. It's not changing much at all. So and and we do we're fortunate we're one of the only agents out of 180 real estate agents on the northern beaches that does a lot of developments with developers, da sites, and one thing that we're really seeing is nothing stacks up, even with the low to medium density stuff that's coming. I haven't seen any sales in the last three months off the back of it, where people are utilizing it, so it's like okay, well, we're still going to be a low in stock building. Building costs are not going down, they're going up. Compliance is not getting less, it's getting harder. Um, so it's the perfect storm to actually buy in a suburb like dy and bill.

Speaker 1:

You've got a saying of the in terms of capital growth. How does that?

Speaker 2:

go yeah. Supply is the enemy of capital growth.

Speaker 1:

Right. So if supply is going to be so, so tight, so hard, that is just the perfect storm. Rents are going up, interest rates are going down, we weathered rates tripling and it didn't erode property values, think about it, you know, if the market should have shit itself and it did not. So it's like man, well, if the rates just tripled and we, we didn't go down, imagine when rates go down and they're really talking about rates going down, not a little bit, not a quarter, a lot this was hand-picked from lisa novak social media.

Speaker 2:

Um, we, we've got a? Um a snapshot of the interest rate forecast from the big four banks. Three to five cuts is what they're estimating and that will change cash rate from 4.1 percent to anything as low as 2.6% and somewhere in the middle there. So it's really interesting. That's what the money markets are saying. That's the sense of direction Interest rates are going. We know where rents are going. We're seeing it more and more. But that's in a really fortunate position where we manage 2,000 properties To the average person. It's impossible.

Speaker 2:

Realestatecom does not report the trends of what tenants want in their next home. But it is shifting towards something that's a little bit newer. It's got a second bathroom. It's got extra car space storage cages the older buildings just weren't built like that. Your car space storage cages. The older buildings just weren't built like that. So that's where the premium yields are being held. That's as close to cash flow even I can find on Northern Beaches property People are always looking for that cash flow positive and quite often negative gearing's been so heavily relied on for the investor. That's the closest I can find and I reckon we're going to see a perfect shift towards newer apartments in the next 12, 24 months and if you can buy in a project that's being delivered in the next 12 to 24 months, you've got exposure to that full amount in the market. But you only put your 10 10 deposit down. Um, and the other thing that's um pretty impressive here. Where was I going?

Speaker 1:

lost my train of thought I'm sure we'll come back to you, but there's some questions there. Zach constantinu has asked is there an uptick in approvals for redevelopment of aging stock?

Speaker 2:

um, not really. I haven't seen it. That's what I was going to say, though, where I lost my train of thought. You've got to look at the replacement cost. Look at what it costs to buy brand new, then look at what it costs to buy established and renovate the whole thing to the same standards. Compare apples for apples, just buying the same location, and it's, it's getting harder and harder to do. It really is. You look at kitchens and bathrooms. There's, if you're doing one of each, there's at least 50 grand there. Add an extra bathroom, put another 20, 30 on top, and then you start doing flooring, lighting, appliances. For a two-bedroom apartment, you're blowing out over a hundred grand easy, and that's the 10% deposit to buy brand new there you go.

Speaker 1:

So bottom line is I think it is an exceptionally good time to be buying for first home buyers, for investors, for apartments in DY. I haven't seen a better time in 30 years. It is the perfect storm, and so you know, go for it. Lisa novak says more and more people want air conditioning too and are happy to pay. I think the point is they want quality with the, with this stuff. So you know they want a night. That you know. Even if they're in a 70s apartment they'll want to have it with all the specs on it.

Speaker 1:

But, billy, it's the time to go, go, go for anyone that's out there. And if you need help from us, call us, sit down with us. I've help from us, call us, sit down with us. I've got a family of five coming to sit down with me on Thursday. The kids are all first home buyers and mum and dad just want me to give the kids a masterclass in 101 of buying property. We're more than ready, willing and able to have these chats with people. We're advocates of property. That's what we do. We're advocates of property. That's what we do.

Speaker 2:

Yeah, I back that. And you've only got to look at what houses have done in growth for the last 10 years. It's well outperformed the strata class. So going back to my client's conversation yesterday, the last three years has been hard. It's been hard across the board. It's not just been his property, it's been, I think, the market in general. But watch what happens when these rates come down.

Speaker 1:

It's the perfect story have a great day, run, billy. I'm a bit conscious now about what you told me the other day when I've been going like this, while I've been talking to you yes, we had a um we lost the listing what do you?

Speaker 2:

what would you call it? We had a um body language lesson constructive feedback.

Speaker 1:

Client said they're not going to use us because mark was touching his face, and when you touch your face, that means that you um you're trying to hide something. It wasn't quite.

Speaker 2:

It wasn't quite framed up like that, but it was an interesting body language lesson. Don't let it bother you, don't change a thing. They're lost, mate. They're lost. Take care, have a good day. All right, see you around.