The future of Australian property prices

[Peak Debt]

as i said people that have been lulled into thinking property is such a brilliant idea in the past few years, and are leveraged to the hilt, after all it what does it matter if you're a mill in debt when RE will only ever go up(majority of the time)?

Spot on! The Aussie media and the blogosphere are dominated by real estate industry spruikers and shills who are paid to post positive spin on forums and blogs (yes even forums like this one) to talk up the market etc. They feed lies and propaganda to the masses. Read the blog below and watch the included video for evidence:

On the Internet, nobody knows you're a dog, or a paid property spruiker

http://www.differenthere.com/2011/08/on-internet-nobody-knows-youre-dog-or.html

The public needs to open their eyes. To stop believing what they read about real estate in the mainstream press. Almost every media article about property is from a vested interest trying to pump up the market!

 

[Julia]

It's something I'd rather keep to myself, but here is the town I'm focused on (and nearby Palmerston North) http://www.realestate.co.nz/residential/search/suburbs/2604

Shannon has been depressed for some time and at last has a dynamic core of individuals (plus moi hopefully) who will propel the town to better things. Wellingtonians have thus recently "discovered" Shannon as a cool fashion/daytrip destination.

Looking at an acreage space for PPOR and business opportunities as well.

But I want a bargain.

Shannon??? I lived most of my life in NZ and have never heard of it.
The properties featured on your link are hardly a bargain in a decent sized city, let alone in a small town.

What is it that you see in this place, Wayne?
Some hidden future prosperity?

 

[Beej]

The figure works out the same for all of Sydney as you well know...i pay approximately 4.8% PA rent on the Approximate value of the property i live in.

4.5 to 5% gross yield less agents fees, insurance, water, rates, upkeep, repairs, and vacant periods etc. = 2.5 > 3% gross.... that's standard from Penrith to Potts point.

I see your problem, possibly due to lack of experience, you are grossly over-estimating the costs of property ownership. Try somewhere between 0.5% and 1% and you would be much closer to the true mark.

 

[Knobby22]

I see your problem, possibly due to lack of experience, you are grossly over-estimating the costs of property ownership. Try somewhere between 0.5% and 1% and you would be much closer to the true mark.

Beej, that seems low to me.
My parents have a property (a flat) and when you include rates, real estate agents, repairs, time when the flat is empty, the money you pay to manage the block, insurances etc. It is a lot more than 1%.

 

[awg]

I see your problem, possibly due to lack of experience, you are grossly over-estimating the costs of property ownership. Try somewhere between 0.5% and 1% and you would be much closer to the true mark.

hmmm..if you do/ dont include long-term depreciation/maintenance that makes a big difference.

You cant claim as much on older houses.

 

[young-gun]

Spot on! The Aussie media and the blogosphere are dominated by real estate industry spruikers and shills who are paid to post positive spin on forums and blogs (yes even forums like this one) to talk up the market etc. They feed lies and propaganda to the masses. Read the blog below and watch the included video for evidence:

On the Internet, nobody knows you're a dog, or a paid property spruiker

http://www.differenthere.com/2011/08/on-internet-nobody-knows-youre-dog-or.html

The public needs to open their eyes. To stop believing what they read about real estate in the mainstream press. Almost every media article about property is from a vested interest trying to pump up the market!

is there something you would like to admit...kincella?

all jokes aside, peak, the amount of people that come to me with the argument of:

You dont know what you're talking about! there is a massive under supply of housing, 200,000 in fact, dont you read?! for over 12 months now....


"What happened to the housing shortage? You know the one I’m talking about. The ‘chronic’ housing
shortage. The one where Australia is short by 135,000... sorry, 200,000 homes.
The housing shortage which will reach – what is it – 400,000 homes by 2020?
According to a report by Stuart Fagg on ninemsn... ‘Australia must build an additional 500,000 houses by
2020 or face a crippling rise in house prices that will make home ownership out of reach for many.’
But suddenly no one is talking about it. I’ll tell you why. It’s gone up in a puff of smoke.
We’ve final proof that it never existed. And as far as we can tell, barring a man-made or natural catastrophe, there won’t ever be a housing shortage.
I don’t think I’ve laughed so much in a long time as when I read this headline in The Age recently: ‘Flood of property listings to hit Melbourne market.’

‘Flood’. That implies a lot. It’s the opposite of a ‘drought’. According to the Microsoft Word dictionary, flood is a synonym to deluge, torrent and overflow. On the other hand, a ‘drought’ is nothing. Hope you’ve got 12 that.
According to the story, ‘The Real Estate Institute of Victoria is predicting 1210 auction listings over the next
two weeks...’
But here’s the bit that had us rolling on the floor in laughter, ‘A 50 per cent increase of new home listings
expected over the next three weekends comes as auction clearance rates begin to falter on pricier home loans and weaker buyer confidence.’

In other words, despite the so-called housing shortage of 200,000 homes, the property spruikers and mainstream press have had the crap frightened out of them by an extra 400 houses hitting the market over the next two weeks.
Or to put it even more simply, if we average those numbers out, an extra 200 houses hitting the market in one weekend is considered a ‘flood’. And it’s causing panic because it’s seen as a ‘flood’ of supply.
Are these people insane?
One week they’re saying with a straight pen that there’s a 200,000 housing shortage and the next week
they’re worried the whole market could topple over due to an extra 400 homes being offered for sale.
Does that make sense to you?
By our calculations, 400 homes equals around 0.2% of the number of homes needed to address the socalled housing shortage.
We’d have thought the spruikers would be cheering that the supply has increased. After all, with a shortage of 200,000 homes, surely an increase of just 400 properties isn’t going to burst the bubble.
This is the capacity increase they’ve been waiting for. Isn’t it?"

Courtesy of:
http://www.moneymorning.com.au/reports/mm-aussiehouseprices-2010.pdf

its backdated a bit, but as true today as it was then.

 

[wayneL]

Shannon??? I lived most of my life in NZ and have never heard of it.
The properties featured on your link are hardly a bargain in a decent sized city, let alone in a small town.

What is it that you see in this place, Wayne?
Some hidden future prosperity?

Julia, Shannon is between Palmerston North and Levin... about 90 minutes out from Wellington.

Mostly what I see is somewhere I'd like to live... if I stay here , but here is a little of what's starting to happen http://www.stuff.co.nz/manawatu-standard/news/4434840/Shannon-alive-with-sound-of-cash-registers

BTW NZ is no longer cheap... you wouldn't see prices like that in Welly.

 

[Julia]

Julia, Shannon is between Palmerston North and Levin... about 90 minutes out from Wellington.

Mostly what I see is somewhere I'd like to live... if I stay here :

OK, each to his own. But if you're going to opt for some small town, why not one where you have a chance of remotely OK weather???

BTW NZ is no longer cheap... you wouldn't see prices like that in Welly.

Welly?? Oh, my goodness.

 

[wayneL]

OK, each to his own. But if you're going to opt for some small town, why not one where you have a chance of remotely OK weather???

What is good weather?

To me good weather is plenty of rainfall and not at all hot in summer. Where I live now supposedly has good weather and everyone is whingeing about the heat (including moi).

Qld might as well be Hell for me. Like you say, each to their own.

Welly?? Oh, my goodness.

It was nearly Wellywood.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10767569

 

[satanoperca]

Are we that different here?

Over this thread and the previous property thread there was discussion that in Oz we are different. The US property market crashed due to the notion of "jingle mail" or non recourse loans and that Oz only has full recourse loans.

Some facts :

The US has 11 states that have non recourse loans and even those loans can be recourse, it just depends on what the judge determines if the lender takes the mortgagee to court.

Secondly, the states that had the greatest falls in property prices had full recourse loans , Nivada and Florida. Funny that anything that got smashed ended in a "a" just like Australi"a".

So that sort of squashes the myth on the American environment.

So Oz has full recourse loans so our property prices cannot crash, hmmmm, the funny thing is Ireland had full recourse loans and what happened to their property prices, they were in a bubble and crashed.

So we move on, Australia has a shortage of properties. This one has been much debated on this thread and many others, all sorts of stats have been thrown around. For me there will always be a shortage of affordable houses, but that does not mean there is a shortage of houses. I for one have been watching with baited breath the build up of unsold properties across Australia. Why arn't they selling, especially if they are a rare commodity. Interest rates are at historical lows and unemployment is still low.

And we move, Australian banks have been prudent in lending, bull---h. Many have offered 95% LVRs or greater and Australians mortgage debt to GDP is over 90%, this seems very dangeous to me with Australias ratio greater than the US. But we are different here we have Kangaroos and Echinas.

It would be great if some of the property bulls on this forum, they to are in shortage can counter argue the above with exception that I already know are fauna and flora is unique to Australia.

Cheers

 

[Wysiwyg]

But we are different here we have Kangaroos and Echinas.

And coal, iron ore, gas, uranium etc. otherwise we would be in similar and probably worse state than the other nations experiencing lower quality of life.

 

[greebly24]

Chinese prop up property market AFR Dec 17-18 2011

Very interesting article. The RE apartment market struggled after the GFC but Chinese buyers kept it going. A lot of developments wouldn't have happened if it wasn't for these pre-sales. So in a roundabout way, Chinese buyers help create more properties here for rent or purchase by Australians too.

But it seems the vast majority of Chinese buyers are students who studied here (paying top dollar to do so), and are moving here to live, not overseas Chinese investors. Although it does sound like some new Chinese-Australians don't mind paying "well above market levels" either, which could cause problems for Australians looking to buy. Couple of more years of price drops should curtail that too though.

In the article a Chinese-Australian developer states he doesn't like dealing with overseas Chinese investors either because settlement on the properties isn't certain. I guess if they buy off-the-plan and prices drop (which they seem to be doing at present) and they pull out of the deal then its pretty hard to sue them for settlement in a Chinese court. The high Aussie dollar, and recent changes by the Foreign Investment Review Board, have also made it harder for overseas Chinese to invest here (as opposed to those emigrating here).

The local Chinese-Australians seem to be investing in property correctly though. They buy the most expensive apartment they can afford, then rent it out. Meanwhile they live in the cheapest rental they can, often share-housing. Financially, that's the smart way to invest in property if you can put up with less-than-ideal temporary living conditions. But from my experience, Chinese enjoy being surrounded by others, and dislike the solitude and wide open spaces of Australia. Bizarre to a country Aussie boy like me.

It sounds like apartment investments, particulary inner-city and near the Chinatowns will be good cash-flow (not capital-growth) investments going forward, until China's growth slows, as it inevitably will. Remember Japan's dominance of QLD RE in the 80s? Same thing. Nothing grows forever. Might be India's turn next though. Money should keep pouring, or at least trickling, into OZ.

However, locally in Adelaide, I've noticed prices on uni student pads dropping over the last few months. Offered off the plan five years ago at $170k, they rose to almost $200k. Now some are on the market for $135k with "all offers considered". So they're definitely "softening" (in bizarro-world RE speak). Yields and vacancy rates might mean they aren't good investments now either.

Personally I think RE in OZ is going to continue declining in price for the next few years while the massive global debt-overhang is sorted. Can't see any other way out. China's biggest customers (US & EU) got too much debt, so China export growth slowing & manufacturing shrinking (PMI under 50), so commodity prices dropping. Global trade dropping too (check out the plummet in shipping rates causing bankruptcies). BRIC stockmarkets all down 30% this year too. And locally recent NSW, VIC and SA budgets showing big drops in revenue (partly due to overreliance on now-shrinking property taxes just like happened in the US) mean government cutbacks looming. Plus the best indicator of the future of property prices, credit growth, is slowing and is way below the boom-years average.

That can only mean lower RE prices, as we've seen over the past year in all capital cities. But rents might increase, so yields on investment properties might increase too. Cash flow, not capital growth, gonna be the name of the game for both RE and shares over the next few years me thinks.

(And yeah, satanoperca, Ireland has full recourse loans too, and even debtor's prisons. Didn't stop that property bubble bursting.)

 

[young-gun]

Are we that different here?

Over this thread and the previous property thread there was discussion that in Oz we are different. The US property market crashed due to the notion of "jingle mail" or non recourse loans and that Oz only has full recourse loans.

Some facts :

The US has 11 states that have non recourse loans and even those loans can be recourse, it just depends on what the judge determines if the lender takes the mortgagee to court.

Secondly, the states that had the greatest falls in property prices had full recourse loans , Nivada and Florida. Funny that anything that got smashed ended in a "a" just like Australi"a".

So that sort of squashes the myth on the American environment.

So Oz has full recourse loans so our property prices cannot crash, hmmmm, the funny thing is Ireland had full recourse loans and what happened to their property prices, they were in a bubble and crashed.

So we move on, Australia has a shortage of properties. This one has been much debated on this thread and many others, all sorts of stats have been thrown around. For me there will always be a shortage of affordable houses, but that does not mean there is a shortage of houses. I for one have been watching with baited breath the build up of unsold properties across Australia. Why arn't they selling, especially if they are a rare commodity. Interest rates are at historical lows and unemployment is still low.

And we move, Australian banks have been prudent in lending, bull---h. Many have offered 95% LVRs or greater and Australians mortgage debt to GDP is over 90%, this seems very dangeous to me with Australias ratio greater than the US. But we are different here we have Kangaroos and Echinas.

It would be great if some of the property bulls on this forum, they to are in shortage can counter argue the above with exception that I already know are fauna and flora is unique to Australia.

Cheers

love your work satanoperca,

miami, fallen over 50% i believe. but everyone wanted to live there! apparently not

i work with an irish guy, just before the crash he had an offer on one of his properties over there for 500k euros. he inquired into putting it on the market, was told hed be lucky to get 290k euros. cant remember why he didnt take the offer initially, perhaps thought the market had one last burst in it

indeed prices are set to crash. luckily our banks are stess testing for homes to fall to 30%, that should ensure their survival

now i wonder why banks would be carrying out such tests?

 

[Wysiwyg]

Personally I think RE in OZ is going to continue declining in price for the next few years while the massive global debt-overhang is sorted.

RE is not declining everywhere in Australia! The internet is such a valuable research tool and you can find what you're looking for most of the time.

 

[young-gun]

RE is not declining everywhere in Australia! The internet is such a valuable research tool and you can find what you're looking for most of the time.

yet.

 

[Wysiwyg]

yet.

When this resource rush starts to decline I agree property in the present growth areas will moderate.

 

[quadfin]

Australian Property is so far out of wack to wages it must crumble eventually , if the government was serious they would remove negative gearing, problem solved, housing now affordable, supply increases due to the exit of the rich no longer having a tax dodge & gen x onwards could afford to buy rather than pay astronomical rents.

Plus it would remove the banks from supplying money to a loss making enterprise funded by the taxpayer, than people could buy a home, less demand lower interest rates

in review get rid of tax breaks, stop funding loss making enterprises at the expense of the tax payer, property prices drop everyone can afford a home, my property can halve in value i don't care its my home .

i invest i things that are real & have a value, property does not

 

[Julia]

l

indeed prices are set to crash. luckily our banks are stess testing for homes to fall to 30%, that should ensure their survival

now i wonder why banks would be carrying out such tests?

Banks carry out such tests all the time. It's completely routine for them and one of the reasons we have such strong banks.
APRA has just issued a directive to them to do this.
This will not cause the banks to do anything more than usual. It is APRA wanting to be seen to be doing something so no one can accuse them of being asleep at the wheel when the crash comes.

 

[young-gun]

Banks carry out such tests all the time. It's completely routine for them and one of the reasons we have such strong banks.
APRA has just issued a directive to them to do this.
This will not cause the banks to do anything more than usual. It is APRA wanting to be seen to be doing something so no one can accuse them of being asleep at the wheel when the crash comes.

Thanks for the info Julia. Wasn't aware that this was standard procedure for banks.

 

[RandR]

When this resource rush starts to decline I agree property in the present growth areas will moderate.

meh, there will always be areas worth buying. The place where I grew up used to be a small rural town 45minutes out of brisbane, and 40 minutes to the gold coast. The QLD government is putting a new 'planned super city' of 50,000 people and 20,000 homes 5 minutes down the road. What do you think is going to happen to the value of the acreage properties we have and in that area ?

(disclaimer - I should add though that the local real estate agency let slip to me a week ago, they'd only sold 1 property in the last 3 months )