The future of Australian property prices

[DB008]

Rent is still going up...

Rents rise in 2011 - Switzer

While property prices remained fairly subdued in 2011, weekly rents continued on an upwards path in most capital cities. Last year, Sydney was among the standout performers with rents increasing by an impressive 4.2 per cent for houses and 4.5 per cent for apartments. Great news for investors but spare a thought for all the tenants out there competing for their next home!

The latest rental report from Australian Property Monitors (APM) says the median rent for a house in Sydney has reached a record of $500 per week, with apartments a little more affordable at $460 per week.

Rents for apartments are increasing at a more rapid rate because more people are competing for the cheaper option. There’s also the ongoing desire, especially among Gen Y, to live in trendy inner city locations close to cafes, beaches, transport and the CBD and there are more apartments than houses available in those areas.

Sydney rents on the upward march again

After a flat patch in the middle of last year, Sydney rents have resumed their upward trajectory. The latest Australian Property Monitors Rental Report, released this week, reveals median weekly asking rentals for houses rose by 1 per cent in the December quarter.

There was an even stronger rise in apartment rents, which surged 2.2 per cent.

Rents for houses rose by 4.2 per cent in 2011 with apartment rents up by 4.5 per cent.

Nationally, the story was similar with house rents rising by 1.1 per cent and apartment rents up 1.4 per cent, with most capitals recording rises in rents in the December quarter.

Melbourne remains the most tenant-friendly capital, with no rise in rents in the December quarter. House rents in Melbourne actually fell during 2011, by 1.4 per cent.

 

[Starcraftmazter]

I don't think that is true. Tax deductions on investment properties make them cheaper then they appear. There are property investors only after an income stream, once purchased, they could not care less about the dollar value of the house just as long as someone will send them some pocket money every week.

Just because previous governments were stupid to encourage said speculation doesn't make it a good thing.

Rent is still going up...

That's less than half of the 10% with which it was earlier claims by bulls rent is going up. It is basically just barely keeping in line with inflation now.

Never been a better time to rent.

 

[wayneL]

How can that be true? Companies invest earnings in R&D, equipment, factories, stores, etc - whatever it may be. Company add value by growing, they can legitimately increase they produce.

A house cannot.

But earnings can be reinvested into the property to increase value, increase rent, or subdivide, or other ways to augment capital value and returns, same as a company.

If people want to hedge against inflation then just buy gold - it's really not hard. Why bother with property or stocks if that is all you want to do.

Oh really? LOL

Gold is speculative plain and simple, it hedges fear, not inflation. Gold has decreased in nominal and real terms during periods of inflation in the past, hence not a reliable hedge.

RE capital values don't always move lock-step with inflation either, but rental returns tend to do so...

...and gold doesn't yield a thing.

Leverage is speculation. I bet nobody would ever use leverage if property rose in step with broader CPI. Only in some markets, and only some people and only under very favourable demographic and credit conditions, will they be successful for some unknown amount of time in their speculation. And in the end, it destroys the economy of whichever nation allowed it.

Dear Lord! Please do some maths FFS. If property reliably tracked inflation and no more, leveraged, cash flow neutral RE investment is a no brainer.

Now there's something which hasn't changed in hundreds of years.

If one was not a scumbag speculator intent to destroy his nation's economy, clearly there are better ways than property to hedge against inflation (gold) and invest with the aim to increase wealth (companies).

I agree rampant speculation on RE is a negative, but this bears no relation to sensible investment.

 

[Starcraftmazter]

But earnings can be reinvested into the property to increase value, increase rent, or subdivide, or other ways to augment capital value and returns, same as a company.

Surely you can't say it's the same.

With a company, you can build another factory and permanently increase your output. Doing renovations merely maintains the quality of the house or apartment.

Subdividing is like cutting a factory in half. Nothing is really created.

Gold is speculative plain and simple, it hedges fear, not inflation. Gold has decreased in nominal and real terms during periods of inflation in the past, hence not a reliable hedge.

Like when? There should be no debate that gold has returned to it's historic status as money and a real store of value. In the last decade it easily beat inflation and any rental returns, putting an equal amount of capital in it and housing. Except unlike housing worldwide gold is not in a speculative bubble and has not crashed.

Dear Lord! Please do some maths FFS. If property reliably tracked inflation and no more, leveraged, cash flow neutral RE investment is a no brainer.

That's only true if interest rates are lower than inflation. Historically, that has never really happened - except now, specifically in countries where RE bubbles burst.

I agree rampant speculation on RE is a negative, but this bears no relation to sensible investment.

I would prefer to invest in things which were not speculated upon, would you not?

 

[Glen48]

Picture this:
You are in dark Africa and have an oz of Gold and a pocket full of USD. RMB etc notes and need water which one would the seller take.
Gold is a voucher just like money only money decreases in value, the good thing is PM's are due to go down due to the oncoming depression so back the truck up and take a trailers as well

 

[wayneL]

Surely you can't say it's the same.

The 'principle' is the same.

With a company, you can build another factory and permanently increase your output. Doing renovations merely maintains the quality of the house or apartment.

Not quite. Facilities can be added... and extra bedroom, another bathroom, a garage where none existed, additional curb appeal etc etc.

All these things can increase yield.

Subdividing is like cutting a factory in half. Nothing is really created.

Say what??? Two, three, fifteen, a hundred and fifty (OR WHATEVER) additional dwellings are created, each creating another yield. Sometimes each new dwelling has a greater yield than the one original.

Like when?

For your education, pull up a cart of gold prices over the last 30 years and a chart of inflation over the same period. The correlation 'at times' is weak at best. At other times the correlation is reverse.

There should be no debate that gold has returned to it's historic status as money and a real store of value. In the last decade it easily beat inflation and any rental returns, putting an equal amount of capital in it and housing. Except unlike housing worldwide gold is not in a speculative bubble and has not crashed.

I'd like you to contemplate on the qualifier you have included (bolded) and consider how you have torpedoed your own argument. If gold has 'returned' to some purported status as detailed, logically there was a time in the near past when such status did not apply.

As to whether gold is is in a bubble, it is very difficult to quantify as there is no yield or other economic markers to compare to. I am not denying gold as a store of value, but would point out that that value is fleeting and marked to market and not to some intrinsic value.

That's only true if interest rates are lower than inflation. Historically, that has never really happened - except now, specifically in countries where RE bubbles burst.

There are other dynamics at play other than interest rates/inflation.

Each must be considered by the investor before investing. There are points where the numbers stack up and points when they don't. But this does not negate RE as an investment class as the same dynamics apply in the stock market

I would prefer to invest in things which were not speculated upon, would you not?

If 'investing', the speculative component is irrelevant. All that matters is if the numbers stack up as an investment. The speculators will do what they will and if speculators have distorted the market to the point where investment is inappropriate, then 'investors' will look elsewhere.

 

[young-gun]

I don't think that is true. Tax deductions on investment properties make them cheaper then they appear. There are property investors only after an income stream, once purchased, they could not care less about the dollar value of the house just as long as someone will send them some pocket money every week.

are you one of these property investors sk? i only ask as I think you would find very very few if any investors that would be happy watching the value of their proeprty either sit there or slide. the only ones who would be happy to are thoes that bought 30, 20 and even 10 years ago. why? because they have seen stupid percentage increases already and prob all have over 50% equity(if not more), so even if prices did crash by 50 they still break even if they sell, and keep making money off rent if they hold.

if i bought an investment property tomorrow, and it went no where for 10-20 years, and all i did was reduce my taxable income while helping the bank make hefty profits, i would be pissed off.

 

[Caveman]

Like when? There should be no debate that gold has returned to it's historic status as money and a real store of value. In the last decade it easily beat inflation and any rental returns, putting an equal amount of capital in it and housing. Except unlike housing worldwide gold is not in a speculative bubble and has not crashed.

Well if you had bought either gold or real estate in 2000 you would have made a killing.
But what about previous to that?If you sold your house in 1984 to buy gold you`d be kicking yourself
Who`s to say we aren`t at another 1980 PM peak?

 

[DB008]

30 year Gold chart

http://goldprice.org/30-year-gold-price-history.html

 

[Tink]

If this is true then Buffet style value investing in stocks is also a non investment.

There was some analysis done that the real value of stocks only increases via the retention of earnings, so same thing.

In addition, this is one of the hopes of long term investment, as a hedge against inflation. Ergo, if it keeps keeps pace with inflation, especially with regards to yield, then the investment is worthwhile as it outperforms cash.

Returns in excess of inflation are cream.

Both stock and RE 'investment', if well selected will outpace inflation. Gearing enhances this.

The great advantage of RE is that even when leveraged is that it is not marked to market. As long as repayments are covered (by whatever means), one can hold for the long term and allow inflation to diminish real debt.

I agree that RE investment has been rather more speculative of late, but this does not detract from the intrinsic good sense of RE as an investment class as at least part of one's total portfolio.

Great posts Wayne, agree.

I must say I am more FOR property than against, was raised in a family of -- never sell RE
Hope my children have taken that on board.
Son is looking into buying his own investment in a few years

 

[MrBurns]

-- never sell RE

I've seen that in action, multi millionaires made as sure as night follows day and it's safe and easy as long as you can afford to service any loans.

Crashes/recesssions mean nothing, just hold and forget aboiut it , it will always look after you in the end.

 

[odds-on]

it's safe and easy as long as you can afford to service any loans.

Here is the problem. As the years move on personal circumstances and/or financial circumstances could change which mean this becomes a significant risk. RE investment is still a bet just like the stockmarket or any other business. I would not bet with leverage.

 

[skcots]

are you one of these property investors sk? i only ask as I think you would find very very few if any investors that would be happy watching the value of their proeprty either sit there or slide. the only ones who would be happy to are thoes that bought 30, 20 and even 10 years ago. why? because they have seen stupid percentage increases already and prob all have over 50% equity(if not more), so even if prices did crash by 50 they still break even if they sell, and keep making money off rent if they hold.

if i bought an investment property tomorrow, and it went no where for 10-20 years, and all i did was reduce my taxable income while helping the bank make hefty profits, i would be pissed off.

In my post I am talking about property growing with CPI not dropping but in either case a lot of people don't care about the dropping price as long as they are getting a stable yield. Dropping price means time to buy a second or third property. Selling just means capital gains tax.

Regarding my personal situation, yes I bought property (overseas) and would rather it not drop in value but don't really care if it does as long as I get a stable yield. My situation is a bit different thought as I paid cash.

 

[qldfrog]

My situation is a bit different thought as I paid cash.

hum not really, you lower the risk of the bank calling for its mortgage, yet by paying cash, you loose the 6% on ubank that you could get
Always hard to judge, I have an IP, a fully own owned home and play the market:
market has been a no hope affair for the last few years, made a few k trading but heavy involvement, risk..and definitively not an easy one yet I am in place IF the market goes up;
Purchased IP at good time/location (well, until the next crash..) so did not loose too much value if any since purchased but return on investment is pathetic and without NG would be a no go...so where from now..
I can get 10% from hybrids with reasonable risks but they will never provide me with substantial capital gain...
I can have no risk and 6% as TD,
both above fully taxed or I can bet on RE with government help (NG and CGT discount)...
weird world...
Toying with commercial properties but businesses health is a disaster in my opinion in Brisbane so still holding on cash

 

[Starcraftmazter]

Not quite. Facilities can be added... and extra bedroom, another bathroom, a garage where none existed, additional curb appeal etc etc.

Firstly that can't be done with units. Secondly, you would do such major transformations with a house you are renting out? Sounds totally bizarre.

Say what??? Two, three, fifteen, a hundred and fifty (OR WHATEVER) additional dwellings are created, each creating another yield. Sometimes each new dwelling has a greater yield than the one original.

Subdivision is immoral in my view. Give young families and their children enough land to play sports on. Moreover constructing a house requires additional capital, and it seems better to construct additional dwelling on new plots of land rather than on old. It is a stupid way to build a city.

For your education, pull up a cart of gold prices over the last 30 years and a chart of inflation over the same period. The correlation 'at times' is weak at best. At other times the correlation is reverse.

I don't really see it. There was a lot of gold selling by central banks after the gold standard was dropped, and once it became apparent that this fiat currency system is doomed even that wasn't enough to keep down the price of gold.

Right now, gold has nowhere to go but up. $2000, $5000, tens of thousands. Sky's the limit.

I'd like you to contemplate on the qualifier you have included (bolded) and consider how you have torpedoed your own argument. If gold has 'returned' to some purported status as detailed, logically there was a time in the near past when such status did not apply.

Yes, after the gold standard was dropped from the US dollar and it was heavily sold down by central banks.

As to whether gold is is in a bubble, it is very difficult to quantify as there is no yield or other economic markers to compare to. I am not denying gold as a store of value, but would point out that that value is fleeting and marked to market and not to some intrinsic value.

It's intrinsic value is quite simply - whichever fiat currency you want it to be valued in's worth of all assets in the world.

Gold is not priced in USD or AUD. USD and AUD are priced in gold. Gold is the only real money, the only real store of wealth. The last beacon of stability and righteousness - the people's money, and so on and so forth.

If 'investing', the speculative component is irrelevant. All that matters is if the numbers stack up as an investment. The speculators will do what they will and if speculators have distorted the market to the point where investment is inappropriate, then 'investors' will look elsewhere.

Given there are plenty (even within this thread) who would consider themselves property "investors" in our highly speculated upon market, I would challenge your point of view.

Who`s to say we aren`t at another 1980 PM peak?

I am, completely different circumstances. BRIC countries purchasing massive amounts of gold ahead of their plan to launch a gold-backed currency to take over the USD in international trade.


Back to rents as well, here's the actual APM data:





And these aren't real, so rents in the last year have failed to keep up with inflation, and in the last quarter they have without a doubt began to drop - which indeed backs up the comments of us renters that we are just not seeing these rental increases that property "investors" always foam at the mouth about.

 

[wayneL]

Try answering objectively, your answers are subjective... and highlight a lack of real world experience.

 

[Ves]

Firstly that can't be done with units. Secondly, you would do such major transformations with a house you are renting out? Sounds totally bizarre.

Actually, a simple kitchen or bathroom renovation, on an older style unit, even if it is only cosmetic can substantially increase the rent received per week.

 

[Starcraftmazter]

Actually, a simple kitchen or bathroom renovation, on an older style unit, even if it is only cosmetic can substantially increase the rent received per week.

That's one way of looking at it. Another (and one I favour due to very low rental yields in Australia) is that it's rental value has depreciated overtime along with the building structure / interior itself - and quite so, this is what people refer to when they say real-estate is a depreciating asset. The point however is that through renovation you are merely investing to maintain the relative quality of the dwelling, allowing yourself to take advantage of the full rental value it once had before it depreciated too much.

 

[Trembling Hand]

That's one way of looking at it. Another (and one I favour due to very low rental yields in Australia) is that it's rental value has depreciated overtime along with the building structure / interior itself - and quite so, this is what people refer to when they say real-estate is a depreciating asset. The point however is that through renovation you are merely investing to maintain the relative quality of the dwelling, allowing yourself to take advantage of the full rental value it once had before it depreciated too much.

I don't know why i bother but,

Do you know how Tax depreciation works in relation to fixtures and equipment?

Have you done a tax return let

 

[Starcraftmazter]

I don't know why i bother but,

Do you know how Tax depreciation works in relation to fixtures and equipment?

I really fail to see why it's relevant, especially because it is implied that an older unit is bought and renovated for rental purposes.

You're again missing the point.