The future of Australian property prices

[Julia]

Absolutely. Investing in property can be a fantastic investment, and has been for many. Fact is you have to pick your timing. Now is most certainly not the time. Sure you can get in, negative gear your way through, and eventually get your investment cashflow positive.

Even if it's cashflow positive, at least where I live the yield absolutely does not justify the capital risk.
There's also the risk of the IP not being fully tenanted. Lots of empty rentals around here, regional coastal Qld, and they're only rentals because they have failed to sell. I've never seen such a soft market.
Might be different in capital cities.

 

[moXJO]

Absolutely. Investing in property can be a fantastic investment, and has been for many. Fact is you have to pick your timing. Now is most certainly not the time. Sure you can get in, negative gear your way through, and eventually get your investment cashflow positive. In some cases do the research and you can even pick up something already cash flow positive Im sure. Why do this when the risk of your IP crashing in price is so high at the moment?

Identifying bubbles is key to making big money in RE(imo). I could buy now and set up a portfolio but there are far better opportunities, and yields will be far greater against capital outlay once it pops. The US rents are rising and prices have crashed(and will continue to).

Really? so you guys think the aussie housing market moves as one across the nation. And the strategy I am limited to making money is buy an ip.

 

[moXJO]

pbut I firmly believe worldwide we are in a state of private deleveraging, balance sheet recession, and we are all mini Japans

I agree with this to a point. However australia has a decent lag time between the rest of the worlds woes and our current position. And for me the name of the game is to gouge as much cash in shortish term trades as I can. There are still booming housing markets in this country and milking them before we do deleverage/crash is what Im interested in. Once the big money goes off the table there may not be another chance for a long time. I have a birds eye view at the moment of a few investors turning big roi%. So listening to some of the stuff peddled on here can be a bit of a laugh. Its not vanilla buy and hold stuff though.

 

[young-gun]

Really? so you guys think the aussie housing market moves as one across the nation. And the strategy I am limited to making money is buy an ip.

If your aim is to draw stupid assumptions from others posts then so be it.

 

[young-gun]

Investments create income, personally I can't stick that word in the same sentence as the term "cash flow negative", that belongs with the word speculation. Investments should make sense on their current merit before any potential capital gain is considered. JMO

Well said and a great point, probably words to live by.

Even if it's cashflow positive, at least where I live the yield absolutely does not justify the capital risk.
There's also the risk of the IP not being fully tenanted. Lots of empty rentals around here, regional coastal Qld, and they're only rentals because they have failed to sell. I've never seen such a soft market.
Might be different in capital cities.

I guess it depends on what sort of return you are making. Anything equal to or less than inflation is a waste of time obviously. As you say you need to be making money, and enough to create a buffer for vacancy periods. There has been a few houses around my area with for lease/rent signs out the front, one of them had one up for 4 months!! It was taken down a few weeks back.

Whether that's a sign of the landlord asking too much, or a soft market I'm not sure. Perhaps the returns on commercial RE are better? tech or TS would know.

 

[Mr Z]

Even though property has done what it has over the last five years, or so, there have been better ways to play the peaking of a credit super cycle IMO. Trying to catch profits into the top seems to be trading against probability to me. So while people may see success I would question the sanity of it, there have been safer plays IMO... but then maybe that is just me. I don't like the idea of fighting, or even judging the timing of, the bursting of the personal credit bubble that exists in this country. We are out on a limb that most of the world is retreating from and I'm finding it hard to reason why we are a special case and exempt from the experiences they are having. At the end of the day too much credit is too much credit whatever the price.



Good luck if you are over leveraged into property, I fear you will need it!

 

[DB008]

Mr Z, would supply and demand not play a critical role in the price of properties?

Spain, Ireland and the USA went on a property building boom like a bunch of drunken sailors on a month long bender with unlimited booze = monster hangover (over supplied the market buy a huge (enormous) amount)

Sydney has very low vacancy rates, which l suspect are keeping rental prices high...


Spanish Housing Boom

Spain's Housing Market Faces A Huge Oversupply Of Properties

It will take until at least 2015 for the Spanish property market to absorb the 1.5 million properties currently on the markets, according to consultants.

There are around 1.5 million homes on the market, comprising of 683,000 new builds of which 473,000 are completed and 210,000 are still under construction, between 620,000 and 720,000 resales, plus another 200,000 that belong to banks, the annual Spanish Property Market Situation report by consultants RR de Acuña & Asociados shows.

This is much larger than official government estimates that currently stand at 688,000 homes on the market. But what is perhaps more worrying is the length of time it will take to clear this backlog.

According to the report it will take the market until 2015 to absorb the current supply but in some of the worst hit areas it could be 2017. The estimate is based on the premise that current demand takes up between 240,000 and 280,000 properties per year.

http://www.nuwireinvestor.com/artic...es-a-huge-oversupply-of-properties-56685.aspx

Spain, a housing bubble and who knew what

And it wasn't just the housing boom itself -- Garicano estimates there may be as many as 1.5 million empty housing unit

http://www.thedeal.com/thedealeconomy/spain-a-housing-bubble-and-who-knew-what.php#ixzz27ADbmzED

 

[Mr Z]

Not when credit is not readily available or simply less available than it has been, Real Estate is a credit driven market in the end. + it is also more flexible than people seem to consider, we are running at quite low density in terms of heads per house in this country. We are currently see the market reaction to a slight tightening in lending standards, not to mention the fact that we as a nation are close to maxed out on personal debt.

 

[Mrmagoo]

House down the end of my street been for sale for as long as I can remember. Had an auction the other day, auction sign went down. Come monday... Auction sign is back up....

Also.... I'll bet these published indices have a rolling period to"smooth" the trend.

 

[Tyler Durden]

I haven't read the last 464 pages, and I did a search and nothing I am going to post about came up, so I am assuming this has not been raised yet.

Corrupt Chinese officials in China have been stealing money and basically use it to bring and settle their families in Canada, US and Australia. I read about it in an article a friend sent me a while ago, which I can no longer find (it may have been from Zero Hedge, but I did a search there and nothing came up). My own search found a similar, yet not as detailed article:

China‘s Central Bank has reported that thousands of corrupt Chinese officials stole more than US$123 billion and fled overseas between 1995 and 2008.

The report also cited Associated Press as saying that the United States was a top destination for the looted funds.

The report, released this week by the People‘s Bank of China, says between 16,000 to 18,000 government officials and executives at state-owned enterprises smuggled about 800 billion yuan (US$123 billion) out of China within the period.

The study says the officials smuggled money into the US, Australia, Canada and Holland, using offshore bank accounts or investments such as real estate or collectibles. Officials masked the thefts as business transactions by setting up private companies to receive the money transfers.

Corruption is often a focal point of protests by ordinary Chinese and is seen as a major threat to political stability. But corruption among Communist Party officials is still common.

The report warned that the corruption was serious enough to threaten China‘s economic and political stability.

http://www.chinauncensored.com/inde...nds-in-13-years&catid=25:real-china&Itemid=57

Two experiences which support this theory:

1. My friend told me he went to an auction, where there were two main bidders - an Asian gentleman, and a Middle Eastern gentleman. The latter owned the property next door and so really had his heart set out on winning the auction so he could join the two properties, but no matter what he bid, the Asian gentleman just out-bid him with ease and money did not appear to be a concern.

2. There is a family of some Chinese official who lives near me. Originally, they were going to buy a unit within an apartment (contains about 6-8 units) when it was built, but they ended up buying the whole apartment...for just one family (no, not a big family).

I also saw on the news recently that said 25% of first time property buyers in Australia are Asian. I'd bet a lot of these are ones who came here recently, rather than the ones who are 'Aussie-born' or grew up here as a child.

Please don't take this as a post against Asians (let's just say I was born overseas ).

 

[cynic]

Interesting article, Tyler, but I don't see how anyone can make automatic assumptions about the origins of the money in any particular Real Eastate transaction. Would 123 billion USD actually cover the purchase costs of all celestial R.E. purchases in US, Canada and Australia during the period in consideration?

 

[Tyler Durden]

Interesting article, Tyler, but I don't see how anyone can make automatic assumptions about the origins of the money in any particular Real Eastate transaction. Would 123 billion USD actually cover the purchase costs of all celestial R.E. purchases in US, Canada and Australia during the period in consideration?

An assumption is the highest I can take it, so I can't really answer your question I'm afraid. All I know is I look around, and no one I know from work or in my circle of friends can afford a property (in Sydney)

 

[banco]

I haven't read the last 464 pages, and I did a search and nothing I am going to post about came up, so I am assuming this has not been raised yet.

Corrupt Chinese officials in China have been stealing money and basically use it to bring and settle their families in Canada, US and Australia. I read about it in an article a friend sent me a while ago, which I can no longer find (it may have been from Zero Hedge, but I did a search there and nothing came up). My own search found a similar, yet not as detailed article:



http://www.chinauncensored.com/inde...nds-in-13-years&catid=25:real-china&Itemid=57

Two experiences which support this theory:

1. My friend told me he went to an auction, where there were two main bidders - an Asian gentleman, and a Middle Eastern gentleman. The latter owned the property next door and so really had his heart set out on winning the auction so he could join the two properties, but no matter what he bid, the Asian gentleman just out-bid him with ease and money did not appear to be a concern.

2. There is a family of some Chinese official who lives near me. Originally, they were going to buy a unit within an apartment (contains about 6-8 units) when it was built, but they ended up buying the whole apartment...for just one family (no, not a big family).

I also saw on the news recently that said 25% of first time property buyers in Australia are Asian. I'd bet a lot of these are ones who came here recently, rather than the ones who are 'Aussie-born' or grew up here as a child.

Please don't take this as a post against Asians (let's just say I was born overseas ).

John Bronte had a good post on why Chinese investors buy up western property:

http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html

 

[McLovin]

Interesting article, Tyler, but I don't see how anyone can make automatic assumptions about the origins of the money in any particular Real Eastate transaction. Would 123 billion USD actually cover the purchase costs of all celestial R.E. purchases in US, Canada and Australia during the period in consideration?

This post from Bronte Capital might gives a slightly different reason although the premise is the same; Officials ripping off the state.

The Chinese property market as a savings mechanism

Chinese people have very few savings mechanisms. The major ones (bank deposits and their life-insurance contract twins) have sharp and consistently negative real returns.

Beyond that they have property.

Bank deposits have sometimes 5 percent negative returns. If you got 1 percent negative returns from property – well – you would be doing well. Buying an empty apartment and leaving it empty will do fine provided you can sell the property at some stage in the future.

It is commonplace amongst Western investors to view the see-through apartment buildings of China as insane. And they may be a poor use of capital. But from the perspective of the investors – well they look better than bank deposits.

http://brontecapital.blogspot.com.au/2012/06/macroeconomics-of-chinese-kleptocracy.html

You really must be desperate when you think Australian property is the best thing on offer.

 

[Miss Hale]

Interesting comments/articles re the Chinese investing in Australian property. I've been to two auctions in the last two weeks, one was passed in after one very late half hearted bid, the other was sold for much higher than I expected after enthusiatic bidding by three Chinese bidders pushing the price up.

Another observation. Because I attend so many OFIs I am on many agents' lists (as you have to give name and phone number). Over the last few weeks I've received a few text messages about properties for sale that are not being advertised, why would anyone do this? If you want to sell surely getting you property listed in all the relevant places is paramount (although I suppose you would save on advertising).

 

[tinhat]

Over the last few weeks I've received a few text messages about properties for sale that are not being advertised, why would anyone do this? If you want to sell surely getting you property listed in all the relevant places is paramount (although I suppose you would save on advertising).

If the vendor knows what price they are willing to accept then the real estate agent just needs to find a buyer who is interested in paying that price. The real estate agents know who the buyers are and they can contact them. Some people want their privacy. Why let dozens of people all through your house who are not genuine buyers but nosy neighbours and tire kickers only to have the house passed in at auction and end up negotiating with the two or three genuine interested buyers?

 

[Miss Hale]

If the vendor knows what price they are willing to accept then the real estate agent just needs to find a buyer who is interested in paying that price. The real estate agents know who the buyers are and they can contact them. Some people want their privacy. Why let dozens of people all through your house who are not genuine buyers but nosy neighbours and tire kickers only to have the house passed in at auction and end up negotiating with the two or three genuine interested buyers?

Yes, I can relate to the privacy aspect of it, I just think it's probably worth sacrificing that a bit to get your property out there so to speak. I confess I am pretty much in the nosy neighbour/tyre kicker category but in my defence I do intend to buy at some point and it's my way of doing extensive market research as I am not the type of person to buy on a whim so I need to get a very good feel for the market before I contemplate a purchase.

 

[Mr Z]

A Conversation with Ray Dalio - Bridgewater Capital

Not directly about RE but germane to it...

 

[Tyler Durden]

Another article support my general proposition:

One by one all the money-laundering loopholes in a broke world are coming to an end.

First it was Swiss bank accounts, which for centuries guaranteed the depositors absolute secrecy, and as a result saw money inflows from all the wealthiest savers in the world, who felt truly safe their wealth (obtained by legal means or otherwise) would not be redistributed forcefully. In the ecosystem of finance, Switzerland was the depositor bank. Then 2008 happened, and starting with the US, shortly to be followed by every other insolvent country, demands were issued for a full list of people who had used Zurich and Geneva bank vaults to avoid the risk of asset taxation, capital controls and confiscation on their own native soil. The result was the end of the Swiss banking sector as the ultimate target of all global money laundering. In the ensuing power vacuum, others have sprung up to take its place, most notably Singapore, but its days as a tax-haven are numbered by how long it takes China to fall face first into a hard landing at which point no saving on the Pacific seaboard will be safe.

Now, it is the turn of real estate.

While hardly a secret, for decades the ultra-luxury housing segment in any country was the target not so much of local wealthy individuals and business, but foreigners, for whom the grass was always greener, and sought to put their money into "hard assets" abroad to save it from local confiscation. After all, it is far easier to be sued and prosecuted by your own government than a foreign one. Two very vivid examples are the most expensive house in Miami ever sold, which two months ago fetched a price of $47 million, which was purchased by "a Russian who bought the home in the name of a U.S.-based limited-liability company" and in the until recently a record $88 million paid for a 15 CPW penthouse for the daughter of Russian billionaire, Dmitry Rybolovlev (bought from Citi's Sandy "End TBTF" Weill). The record was topped at $90 million paid for a One57 duplex apartment paid by an unknown individual, almost certainly a foreigner.

The common theme here of course is that foreigners come to the US (or London, or Geneva, or Hong Kong) or any other wealthy megapolis with their almost always ill-gotten, and untaxed gains, spend the money indiscriminately on local real estate even as the local authorities look the other way because by lifting any offer, these foreigners, while laundering illegal money, are also keeping the all important housing market afloat thus perpetuing the illusion that the domestic economic is rising. Instead all that is happening is it is attracting illegal foreign capital flows.

More at:

http://www.zerohedge.com/news/2012-09-30/money-laundering-driven-real-estate-boom-ending

 

[MR.]

Houses up 1.4% in September!

http://www.thebull.com.au/articles/a/31872-house-prices-rise-1.4-in-september.html

and now interest rates down another 0.25%

http://www.theaustralian.com.au/bus...of-rate-decision/story-e6frg916-1226486479765

Watching with interest!