A colleague pointed out this beautiful spot for sale in a beachside community outside Wollongong. We often see the argument that apartments in dodgy spots might fall in price, but presitgious lifestyle locations will be protected, but it is exactly those locations that are even more overpriced than dodgyville.

For those who don't know the area, you can ride your bike along a seaside path into Wollongong from here, catch the train to Wollongong or Sydney very easily.

Surely a house over the road from the beach, bike track and cafe must be safe from price falls?

Well, no:

From onthehouse.com.au:
8 TRINITY ROW $1,000,000 19-07-2005 493 RESIDENCE

This house was advertised for 1.1million a few months ago and here it is now advertised for 750 000.

This represents far more than just the 250k loss on the principal. There were transactions costs and opportunity costs. I have no idea if the place is rented out or owner occupied, but it is unlikely it would rent for more than $500 per week, so whoever owns it has lost or foregone the difference between the interest on $1000k and the rent over three years; about $130k. Including transaction costs assuming it does find a buyer at the ludicrously high price it is advertised for, the owner is looking at losses of nearly 500k in just three years.

If it sells at the advertised price, it would still be trading on a rent yield of less than 3.5%. A repeat sale at that price would prove by example what a bad idea it was to buy property in that location on a poor yield. Will anyone be crazy enough to prove how dumb it is by doing it? Probably, we'll have to wait and see.

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