The future of Australian property prices

[moXJO]

My fear is the direction this government is taking us in regards to the economy. They are either driving us towards a recession on purpose, or are that stupid that they have managed to hit all the checklists by accident to create one. Houses won't be the only things that are down in the future. Are we brewing a perfect storm?

 

[explod]

My fear is the direction this government is taking us in regards to the economy. They are either driving us towards a recession on purpose, or are that stupid that they have managed to hit all the checklists by accident to create one. Houses won't be the only things that are down in the future. Are we brewing a perfect storm?

We cannot blame the guvmint for the falling US dollar which in turn is taking our dollar higher. This translates into our industries losing competitiveness against cheeper overseas production etc. It also decreases tourism, less coming to Aus., and aussies finding overseas travel cheaper and more attractive. And make no mistake it is making money dearer, may not be apparent in interest rates to any great degree yet but it will continue to lean that way as our dollar cointinues to become stronger against the US dollar (which is after all the world reserve currency)

So Governments of any ilk will make not one iota of difference.

But do agree that Swannie is far out of his depth and Jules pandering to the seppos is not doing us any good at all as their advice is one of the things leading the world at this time down the financial gurgler.

In my humble opiniononly, of course.

 

[greebly24]

Been reading about some very clever real estate investors in the US.

The banks were offering LVR of 125%. So this one guy got a loan and bought a home and immediately rented it out. Then he did it again. And again. In a very short period of time he had bought six homes, and rented them all out. The thing is, he never made a single repayment. So he got 150% of a home value in cash (6 x 25%) and two years of rent payments before the banks threatened to foreclose. So he just sent them the keys back. Genius.

Another guy bought a $100k unit. His mate bought the identical one next door. Then they sold them to each other for $200k (no money changed hands, they just swapped them). Instantly they are both owners of $200k units with $100k in equity. They then used this equity to get more loans and repeat. Genius.

Another guy owned a house and followed the house price in gold ounces ratio. At the peak of the bubble it hit 800 ounces so he sold up and got his 800 ounces. Now homes in the US are around 100 ounces. So he can now buy 8 homes. Genius.

There's also the guy who bought his home for $500k. Eventually it appreciated, and he sold for $1m. Then the bubble popped and he bought the same house back for $500k. Genius.

So there is money to be made in real estate!!!

 

[investorpaul]

QLD treasurer on TV now annoucning a new home owner grant.

keep the ponzi scheme rolling for a little longer!

 

[Glen48]

There's your problem buying the house back at K should have waited until the bottom in a few yrs time.
But good to see some one thinking, we can do that here soon

 

[explod]

So there is money to be made in real estate!!!

Only for the financialy literate.

How many who have jumped into the property ponzie over the last 15 years would know about gold for example.

I can assure you there are many out there who have been hoarding other assets and will be ready to pounce on rentals just when the other assets, such as gold, go counter and through the roof.

A few have been trying to get it through on this thread for years but were howled down by those who had bestowed greater knowledge/letters upon themselves.

 

[village idiot]

As few as 8 years ago, from the viewpoint of a lot of countries in the world australian property was comparatively cheap. There were a lot of people having a look from eg the UK thinking "I could sell my UK house and buy a bigger one in Australia for half the price, wouldnt that be nice", and a lot of them did just that. I know cos I was one of them. Thousands of Poms cashed in or at least improved their housing lot by moving here in the early noughties. (I am australian but went on the world tour in 1985 and ended up living in the UK for years). I am assuming that the inflow of cash buyers didnt do any harm to the boom here even if it wasnt a main driver.

Nowadays due to the double whammy of rising Australian house prices and A$, I could go back and buy that same UK house for half what the house I bought here in 2003 is now worth, and bank the rest. That is a fourfold turnaround, and for the record it is nothing to do with the UK house price, which is about the same now in GBP. And I am thinking of doing just that, since the opportunity to do a Kerry Packer only comes round so many times in your life (not the exact same house obv, but one like it).

The Aust:UK house price ratio
2003; 1 Aust house = 0.5 UK house
2011; 1 Aust house = 2 UK house

At current levels of A$ and house prices, i can guarantee there is no-one out there any more looking at australia thinking what a bargain our houses are, let alone could afford one, and actually I know of a few poms who have or are now thinking of making the move back, and they cant be the only ones. result = net outflow

i realise a few poms going back isnt going to break the australian property market, but it leads me to think that at the very least external demand wont be present for a while as things stand.

Something has to give. Assuming the A$ stays where it is, we cant go on having the most expensive stuff in the world.

 

[KurwaJegoMac]

A very interesting post Village Idiot. Thanks for sharing! Interesting point about the house prices being about the same across those two time periods save for the fluctuating $

I have a colleague originally from the UK, he's been renting here whilst renting out his UK residence. He too has been considering going back but seems to like the weather here too much (Melbourne... really?!) Must be really bad over there :

Still, even with an outflow of UK nationals we'll probably have an influx of other nationalities (from poorer economies). For those that can afford to make the trip it's fantastic coming to work in a country such as ours and send back $$s. You would know yourself from the 'invasion' of Poles in the UK in the decade leading up to the GFC - strong GBP vs PLN made it a very attractive proposition for migration. I haven't been following in-depth post GFC so the migration trend may have changed. But I suspect 'wealthier' people may migrate to western countries with a low currency value (get more 'bang for your buck' with 'poorer' people migrating to western countries with high currency value (significantly increased earnings capacity compared to back home).

Will be interesting to see what the next few years bring if the AUD stays where it is - more migrants will mean more renters and therefore better yields. Will it be enough to prop up prices? Guess we'll find out

 

[KurwaJegoMac]

Exciting news!!!

I'm sure you'll all be very pleased to know that I purchased a property today in Melbourne. Settlement towards the end of next month - will be on the hunt for tenants now. Holding costs at current rates are less than $100 per week and the property will be cashflow positive in 2 years if I use just 30% of my disposable income. Considering I have no other debts, this should be a breeze.

All this less than 1.5km from the nearest railway station (40 min by train to the CBD), bus stop across the road, less than 2 km to a shopping centre and less than 5 km to the Monash Freeway, Princess Highway and Eastlink. Got it at just under 10% of the normal price for that suburb (Thank you distressed seller!). Took me 6 months worth of inspections and a bit of patience but given the location and price i'm very happy -

For those that are looking, don't lose heart - as TabJockey says:

I dont like this "all property is a bad investment" attitude.

There are always opportunities, I have seen a few good things recently, good yields, good location and good price.

You can find opportunities in boom and bust, just gotta do the legwork to find them.

 

[trainspotter]

Congratulations KurwaJegoMac !! Every journey starts out with a first step. You have been sensible in your approach and have shown great patience grasshopper. I am sure you will succeed as you have studied your opponent well and understand it's weakness's and stengths. Well done you !

 

[wayneL]

Got it at just under 10% of the normal price for that suburb (Thank you distressed seller!). Took me 6 months worth of inspections and a bit of patience but given the location and price i'm very happy -

Wow! 90% off!

And still cash flow negative?

::

(Sorry couldn't resist, good luck with it )

 

[KurwaJegoMac]

Wow! 90% off!

And still cash flow negative?

Well I did say they were a distressed seller!! but I think I need to work on my investment approach if I can't get positive cash flow after 90% off :

Congratulations KurwaJegoMac !! Every journey starts out with a first step. You have been sensible in your approach and have shown great patience grasshopper. I am sure you will succeed as you have studied your opponent well and understand it's weakness's and stengths. Well done you !

Thanks Trainspotter! I won't begin to try and forecast when/if a market bottom will occur - one could go back through the thousands of posts here to see people have been doing it unsuccessfully for years. I figured I stand to lose more by waiting than by trying to time the market.

With my deposit and the fact that I got the property below market value, I have about 25% of the current property value as 'equity'. So my property would need to experience a fall of at least 25% before I start hitting 'negative equity'. I also have a First Home Saver account set up ($935 Government Contribution for every $5500 across 4 years, with interest earned taxed at only 15%) so with that money I can always buy a PPOR should the market fall anywhere near 10-25% (not to mention I can use the equity in my IP provided the fall is less than 25%).

So I either risk not getting in now and having a harder time in subsequent years, or I risk hitting flat/negative growth if property falls 25% (but still having opportunity to buy using my First Home Saver Account). As i'm holding with no intention of ever selling, even if I hit negative equity i'm not too fussed - worse case I'll just be unable to borrow for a while until I'm neutral again. Either way, with a 25% fall in the Australian property market negative equity would be the least of anybody's worries.

For those looking at getting their first PPOR - speak to a financial planner about a First Home Saver Account. Been around for a while but banks don't like to advertise it for some reason? No account fees maybe that's why

 

[Dowdy]

Been reading about some very clever real estate investors in the US.

The banks were offering LVR of 125%. So this one guy got a loan and bought a home and immediately rented it out. Then he did it again. And again. In a very short period of time he had bought six homes, and rented them all out. The thing is, he never made a single repayment. So he got 150% of a home value in cash (6 x 25%) and two years of rent payments before the banks threatened to foreclose. So he just sent them the keys back. Genius.

Another guy bought a $100k unit. His mate bought the identical one next door. Then they sold them to each other for $200k (no money changed hands, they just swapped them). Instantly they are both owners of $200k units with $100k in equity. They then used this equity to get more loans and repeat. Genius.

Another guy owned a house and followed the house price in gold ounces ratio. At the peak of the bubble it hit 800 ounces so he sold up and got his 800 ounces. Now homes in the US are around 100 ounces. So he can now buy 8 homes. Genius.

There's also the guy who bought his home for $500k. Eventually it appreciated, and he sold for $1m. Then the bubble popped and he bought the same house back for $500k. Genius.

So there is money to be made in real estate!!!

I wouldn't call it a good investment where you have to scam your way to a profit (apart from the last example where he just got the timing right)

 

[medicowallet]

Got it at just under 10% of the normal price for that suburb (Thank you distressed seller!). Took me 6 months worth of inspections and a bit of patience but given the location and price i'm very happy -

Nice to hear!!

It is great to hear, that for such a large investment, you did a decent amount of research, this will no doubt serve you well.

Unfortunately I would probably expect your 10% not to be "profit", just a true reflection of price in the area. However well done, you have insulated yourself for a 10% fall.

Good luck

MW

 

[Starcraftmazter]

The banks were offering LVR of 125%. So this one guy got a loan and bought a home and immediately rented it out. Then he did it again. And again. In a very short period of time he had bought six homes, and rented them all out. The thing is, he never made a single repayment. So he got 150% of a home value in cash (6 x 25%) and two years of rent payments before the banks threatened to foreclose. So he just sent them the keys back. Genius.

Wouldn't he have severely ruined his credit rating?

 

[Uncle Festivus]

I also have a First Home Saver account set up ($935 Government Contribution for every $5500 across 4 years, with interest earned taxed at only 15%) so with that money I can always buy a PPOR should the market fall anywhere near 10-25% (not to mention I can use the equity in my IP provided the fall is less than 25%).

Excuse my ignorance, but isn't that now your 'First Home' or can we all do that ie buy IP's all the while getting a taxpayer subsidy to buy your PPOR?

 

[KurwaJegoMac]

Excuse my ignorance, but isn't that now your 'First Home' or can we all do that ie buy IP's all the while getting a taxpayer subsidy to buy your PPOR?

The First Home Owners Grant (FHOG) and First Home Saver Account apply provided you have not lived in a property you own - so if none of your IPs were a residency at any point then you can claim the government subsidies. Although for the FHOG you cant have purchased Residential Property prior to 1990. You can purchase after 1990 but must not have lived in it.

Also note that this is for Victoria and eligibility may vary in other states.

 

[nukz]

Wouldn't he have severely ruined his credit rating?

I would have thought so, you really need more specific information. I have a few colleagues working in the U.S in New York and Chicago and they tell me its almost impossible to get a housing loan in the U.S right now regardless of how good your credit rating or income is.

 

[KurwaJegoMac]

Nice to hear!!

It is great to hear, that for such a large investment, you did a decent amount of research, this will no doubt serve you well.

Unfortunately I would probably expect your 10% not to be "profit", just a true reflection of price in the area. However well done, you have insulated yourself for a 10% fall.

Good luck

MW

Thanks MedicoWallet. I'd like to also mention that I've spent the last 2 years consulting with accountants who specialise in investments and estate planning, as well as devoured every book i could find on property investment (and of course this thread : ).

Time well spent - i have several friends who've purchased IPs without doing all the required research. Here are some 'facepalm' moments from them:

- one hasnt bothered to have a solicitor/conveyancer review the contract of sale and section 32 (not to mention he just 'googled' his plot of land to make sure it was the right one)
- one has a couple of IPs and has not been to an accountant once (uses eTax) and hasnt had a quantity surveyor evaluate his eligible tax deductions (he only claims interest paid)
- one has 4 properties and claims that "property investing is all about maximising the loss to get the biggest tax refund" he didnt like my investing approach for positive cashflow and eventually positive gearing. Then again this same person has 3 IPs and one PPOR on a combined post tax income of 80k - with $1.6m in debt i shudder to think what no tenants or normal interest rates would do. You should have seen the fear in his eyes when i told him we're at below historic interest rates and 10% is closer to the norm.

Biggest purchase of your life and people spend more time researching their dream car than the property!

 

[greebly24]

Wouldn't he have severely ruined his credit rating?

This guy doesn't need to worry about his credit rating ever again! This guy got 150% of a home price anyway in cash (6 x 125% LVRs), plus two years rent on six properties. Say 7% yield (due to no repayments made), times two years is around 15%, times 6 properties is 90% of a home price. So through this scam he got 150% plus 90%, for a total of 240% of a home price, and then walked away with zero debt.

Then the US house price crash occurred, and prices dropped by 33% on average. So they now cost 67% of what they did. This guy could now buy 3 homes with cash, and put 50% into a fourth. Think a bank might consider him a worse credit risk than a FHB with 97% LVR?

Gotta love the balls on these scam-artists!

Anyway, interesting story KurwaJegoMac. Look forward to seeing how it works out for you over the next couple of years! But positive-gearing is definitely the way to go if capital growth is uncertain. Sounds like you did your research & can sleep easy.

Been looking at the FHSA. Not sure if readers aware of legal "scam". Put in $5500 one day before end of financial year to get $935 govt bonus for that year. Next day, new financial year, stick in another $5500. So in one years time:

$5500 + $5500 + $935 = $11,935
5.5% interest for one year = $656.42
Minus 15% tax = $557.96
Second govt bonus (2012/13) = $935
TOTAL PROFIT = $2427.96

Basically a 22% profit on $11,000 in one year and one day, zero risk. Drops to something like 12% in second year and 9% in third. Great for me cos saving for three more years for home anyway, but check details for yourselves. Combined with a stagnant or dropping RE market, could work out very nice. Hence the confirmation bias