The future of Australian property prices

[tech/a]

Ive had considerable hdings in property fr over
15 years

For the last 12 mths I've been in the process of liquidating debt.
Un winding my debt in property has been my main priority.
Nearly there!
Will still hold property for passive income but won't carry debt related to it.
For me this may alter if developement of some freehold properties becomes
Financially viable.

Until then my view is to be as debt free as possible going forward.
Cash-flow and liquidity is now and will continue to be king in these
More difficult economic times.

 

[young-gun]

Ive had considerable hdings in property fr over
15 years

For the last 12 mths I've been in the process of liquidating debt.
Un winding my debt in property has been my main priority.
Nearly there!
Will still hold property for passive income but won't carry debt related to it.
For me this may alter if developement of some freehold properties becomes
Financially viable.

Until then my view is to be as debt free as possible going forward.
Cash-flow and liquidity is now and will continue to be king in these
More difficult economic times.

Tech, you have spoken of unwinding/ liquidating/de-leveraging your debt a couple of times over the past 6 months. Is this because you also see a disturbing path ahead for aussie RE? Or are you simply protecting yourself in the event of a bit of turbulence that you think will blow over in the near future(12-36 months)?

 

[tech/a]

Tech, you have spoken of unwinding/ liquidating/de-leveraging your debt a couple of times over the past 6 months. Is this because you also see a disturbing path ahead for aussie RE? Or are you simply protecting yourself in the event of a bit of turbulence that you think will blow over in the near future(12-36 months)?

Y/G
I can't see the point in holding debt if it's not earning you income.
If I'm just collecting interest for a bank then more the fool I am.
I hold the debt they hold the security and I hold all the risk for no or little income.

As for the future.
I see a long flat spot in all areas of investment.
Business is tough,so too property and commodities.

Inflation will return and when it does ----- will be with vengeance.
Perhaps 3-5 years.
When it does you won't want to be on the wrong side of interest rates!

 

[pavilion103]

Y/G
I can't see the point in holding debt if it's not earning you income.
If I'm just collecting interest for a bank then more the fool I am.
I hold the debt they hold the security and I hold all the risk for no or little income.

As for the future.
I see a long flat spot in all areas of investment.
Business is tough,so too property and commodities.

Inflation will return and when it does ----- will be with vengeance.
Perhaps 3-5 years.
When it does you won't want to be on the wrong side of interest rates!

Quoted for truth. Agree 100%.

 

[tech/a]

Quoted for truth. Agree 100%.

I will add that on the other side of that will be opportunity once again.

Oh and PAV I know what you do for a living --- so am glad your in agreeance!

 

[Vixs]

Let s put what I said into context.... so it was not just the contribution, but a load of people focus on the tax rates for super at 15%
when it may be higher than their non super tax rates....plus why lock it into super until retirement.

I did not state the obvious, but there is also a risk with numerous changes in the legislation. There always seems to be someone with their eye on that bonanza, and wanting to get their hands on it. Like swan for instance, taking any balance under $2000 that may be dormant, and turfing it into general revenue.

How would you feel about the unions running the superfunds, in light of how they manage union funds for members?
Now they have changed the Auditor requirements, basically it will only be the larger Auditors to take their share of the mum and dad superfunds in the future. It is moving that way now. I would not be surprised if at some stage they cancelled the DIY superfunds, and made them turn it over to the bigger players.

my earlier post...........

"Wonder how many people are still pouring their money into super, and salary sacrificing under these adverse conditions. I am also surprised so many people still think only of the lower tax rates, as their reason for putting more of their hard earned into super. They have not kept up to date with the lower income tax rates. I think the average tax rate for income around $35,000 is now just under 10%, and around 20% for $50,000. Yet they will pay up for a contribution, paying 15% tax up front before the contribution earns any income, and they are stuck in the super funds until retirement age."

Why do you focus on average tax rates? The impact isn't made at the average rate, it is made at the margin.

You don't get a benefit to the effect of your average tax rate when you reduce your taxable income by making a concessional super contribution. It comes off the top not the middle.

If you don't think having $850 in super earning income at 15% tax for ever after is a reasonable solution to having $660 in your personal investment portfolio earning income at 34% tax at least, that's fine. I'm no massive fan of super as a young person anyway - there are far too many changes to happen in the next 35 years for me to want to save every dollar I can from the tax man by locking it up for 3 or 4 decades. I certainly don't advocate making extra contributions at a point in life when you're better off keeping the money in your hand to pay a mortgage that puts a roof over your head.

This isn't a point made factoring in different asset class returns or industry super funds with union muppets dipping their toes in, I just think that your attitude about average tax rates is stupid, and no-one seems to have taken you to task on it yet.

 

[WilkensOne]

Tech, Pav or anyone else.. What would be your advice for people that are looking to purchase a house for PPOR when it isn't that much more of a jump in price from renting. I understand that prices may trend sideways or whatever else they want to do but do you think it is worth at least putting that dead money (rent) towards a house anyway?

Wilkens

 

[pavilion103]

Difficult question to answer imo.

PPOR isn't completely a financial decision like investing is. The purpose of investing is purely to make money so property now makes no sense. Why take on enormous debt to be paying money out of your pocket each week with no prospect of growth (seen those ads - own your own investment property for ONLY $50 a week - haha)

PPOR obviously has other considerations i.e. how much do you like the property/location, how long do you want to live there (do you want stability)? Do you have a young family and want to settle down. There are many more considerations for PPOR.

My opinion for people choosing to buy for a PPOR due to a number of factors is - don't buy above your means and overextend yourself. Don't be like those who took on huge loans at 105% and with repayments they could barely make at record low interest rates. What would happen if you lost your job?

For me, personally I would avoid it if I could. Only because I believe there is some chance of prices falling enough to make it worth staying out of the market. What if retail gets even worse? what if unemployment rises? What happens when interest rates rise again (they won't now - they are heading down)?
I'm not really sure how bad things are under the surface but I do believe there is some chance of reasonable declines under some circumstances - although the people in charge will do everything possible to avoid this happening.

Right now I want as little debt as possible and I feel much more comfortable after selling my 3 properties.

I'll tell you what dead money is. Having bought a property 12 months ago for $500,000 and seeing it worth $465,000 now with potential for further declines. No one ever seems to include the costs into their calculations either.

 

[tech/a]

Tech, Pav or anyone else.. What would be your advice for people that are looking to purchase a house for PPOR when it isn't that much more of a jump in price from renting. I understand that prices may trend sideways or whatever else they want to do but do you think it is worth at least putting that dead money (rent) towards a house anyway?

Wilkens

PPOR a different kettle of fish.

My advice if it's your first home.
Look to either buy or build with the maximum Govt and or builder discounts
Some are matching first home owners grants.

Selection of "potential" capital appreciation is critical
Don't go for what you like more what you can potentially gain
Worst house in best street if your a DYI kinda guy/girl.

Look at areas of potential demand
Eg no more land releases for the forseeable future
New freeway or rail line.

Remember this will not be your last house.

Put as much as you can into the deposit.
Look at ways to get help with your mortgage
If your in a relationship that helps
Or take on room mates.
Pay down your mortgage as soon as you can.
If an un expected bill arrives you will be able to draw on a line of credit
Set this up if you have enough equity.

If you can make a quick dollar from say renovations or good buying
Then flip it and do it again ---- you'll not have capital gains on your PPOR.
I know a few couples who freeholder their home of $500k in 5-7 yrs doing this.

Remember you'll make the best deal at the point of purchase
A few weeks of negotiation could save $20-50k.
Always make an initial offer you think will be refused and insist that it
Is presented to the vendor in writing.

Write down everything you can think of and start ticking boxes.
Smart young people can lead the pack in 10 short years.
Each time you trade up you'll have more and more equity
Less re payments and more spare cas to put against the mortgage,

Good luck it's worth it!

 

[medicowallet]

Tech, Pav or anyone else.. What would be your advice for people that are looking to purchase a house for PPOR when it isn't that much more of a jump in price from renting. I understand that prices may trend sideways or whatever else they want to do but do you think it is worth at least putting that dead money (rent) towards a house anyway?

Wilkens

Is this before or after you include initial transaction costs, extra insurance, rates, wear and tear etc.

 

[WilkensOne]

Wow, lots of great info.

The house I am looking to buy is owned by my parents who are selling it to eliminate all their debts. The positive of this is that they are taking about 25K off the fair market value for all the fees and time that they would have incurred if sold through an agent. From my research it is a good short/medium term growth suburb, located 8km from Perth CBD, 500m to a university, school and large park. The suburb currently has not had much redevelopment but surrounding suburbs have just started. There is a proposed lightrail to be build close by, NBN and rezoning of development which would allow me to subdivide into 2 blocks.

Myself and my partner are both 22 and are serious about being financially smart, the goal is to live here for the next 4-5 years while we finish our university studies then either look to rebuild a better house, develop it or just sell it for a capital gain hopefully! The location of the house is also great for having other students living in the house which make the repayments more manageable, I am in for a few years of strict living but I think the potential for upside is absolutely worthwhile.

While in the short term the economy is very volatile I think that property can be a great longterm investment and if nothing else, a place to live and call home.

If anyone has some feedback it would be greatly appreciated

 

[WilkensOne]

Is this before or after you include initial transaction costs, extra insurance, rates, wear and tear etc.

I was referring to before the above costs, although I have already considered what they would look like. I know that what I am talking about is viewed purely as an investment would not be very successful but I think a PPOR is more than that, capital gains come more as a benefit of the transaction.

 

[young-gun]

Y/G
I can't see the point in holding debt if it's not earning you income.
If I'm just collecting interest for a bank then more the fool I am.
I hold the debt they hold the security and I hold all the risk for no or little income.

Naturally, but are you saying that you were only holding investments in hope of capital growth? If not then they would have been generating you some income, no? My confusion simply comes from thinking that you wouldn't have ever tied your money up in something that wasn't returning a decent %p/a in the first place.

As for the future.
I see a long flat spot in all areas of investment.
Business is tough,so too property and commodities.

Agree.

Inflation will return and when it does ----- will be with vengeance.
Perhaps 3-5 years.
When it does you won't want to be on the wrong side of interest rates!

time will tell.

 

[pavilion103]

I like what Tech said about saving money on the purchase price. This is big. If you don't become too emotionally attached to a property and are prepared to lose it, you could save a packet on purchase price!

For some reason what people pay for a property often becomes like Monopoly money. People pay an extra $10,000-$20,000 without a fight. You can cut much more than that off the purchase price in this market.

 

[kincella]

I have some theories....

The housing market has withstood the GFC partially due to the fact, that people regained some confidence at a state level, when the labor party in each state were ousted.....I believe that confidence was gained on the premise that a conservative state government would rein in spending, reduce public waste, and retain jobs, all the important things people look for.
There was a renewed confidence leading up to each election, that labor would be tossed out.
Hence you did not see the projected depressed housing market.

There is a similar confidence the federal govnut will not be around after Nov 2013.
People felt confident under the Howard Costello reign, and are looking forward to those heady days returning.

They do not need to wait until the election is held, to change tactics. They are reasonably confident there will be a dramatic change with a new conservative government. They are allowing for a 'tough love' period while the budgets and cut backs are sorted out.
Hence the current confidence in the housing, and jobs market. The stock market has been showing similar confidence.
There is an enormous amount of money stashed away, just looking for a new home.
I believe the majority of people are moving in, are ready to take advantage of the new confidence that will flow, with almost immediate affects after the election.
There is no confidence whatsoever with the current federal government.

There has also been another interesting development, with a new government in Japan.
I do not believe it will all go gang busters next year, but I do believe there will be a quiet confidence that will prevail in the meantime, leading up to a return to a similarity to the Howard years by 2014 and 2015/
I do not see any dramatic deterioration in 2013. There will be job losses and businesses will continue to close down, or be taken over.
Finally the RBA has seen some light, with dropping interest rates, to give relief to the non mining states and businesses.
Fixed rates below 6% for 3-5 years should give you some clues as to the future direction. If you cannot handle those low rates, then you should probably forget about using credit.

 

[tech/a]

Naturally, but are you saying that you were only holding investments in hope of capital growth? If not then they would have been generating you some income, no? My confusion simply comes from thinking that you wouldn't have ever tied your money up in something that wasn't returning a decent %p/a in the first place.

Initially in 1996---2000 yes.
Infact I recognised the opportunity to leverage the hell out of property and get a fantastic return on the BANKS money.
I was putting zero down on a $100K property which I sold for $320K in 2003 (As an example).

Plan always was to freehold as much property as I could eventually.
Did that but through my Super Fund and have held Industrial Property one which houses my company and another ready for development when appropriate---read profitable.

The rest increases equity in those domestic properties I still hold which increases passive income.

So like any investment---when you can use other peoples money to leverage your return---use it.

Fixed rates below 6% for 3-5 years should give you some clues as to the future direction. If you cannot make those low rates profitable for you, then you should probably forget about using credit.

Just altered the wording Kincella This is how I would have expressed it---not that its right just my view on your wording.

 

[medicowallet]

Just altered the wording Kincella This is how I would have expressed it---not that its right just my view on your wording.

One must not confuse a "dividend yield" for a net return.

Still very easy to lose money with residential property even with very low interest rates, say, like over the past 12 months.

MW

 

[prawn_86]

I have some theories....

I would counter that Joe Average really doesnt care about what state or federal government is in power, and certainly dont care who is governing in Japan.

The average house buyer/seller is probably just worried if they can cover the mortage or if they are going to lose their job, or maybe what the value on their property is, but not much beyond that

 

[kincella]

One can use an offset account, effectively not paying any interest on a home or investment loan, but at the same time in receipt of a much higher interest rate, than you would receive on deposits.

Most of the higher deposit rates on offer are only for 3-5 months, then they revert to the standard rates
I would only put deposits with those that have the government guarantee .
I have been earning 5.85 - 6.10% with e savers, but once the honeymoon period ends, you cannot get similar rates by opening another account with the same bank.

I am looking at a double bonanza,,,,I get a new loan rate at 5.4 - 5.7% even on commercial loans, and I have offset accounts, effectively earning the same rate, but for the life of the loan, not just a honeymoon period.
I pay substantially less interest on that part of the loan that is not offset, which frees up capital to apply to pay down the loan balance, much faster and quicker than if the offset was not in place.

Why would you sell properties, when you know they will bounce back in 2 years or less, and will remain stable in the meantime. All the capital costs involved in selling, then buying back, means you are giving away your profit and gains.

Applying short term actions against a long term investment is not smart investing.

 

[againsthegrain]

One can use an offset account, effectively not paying any interest on a home or investment loan, but at the same time in receipt of a much higher interest rate, than you would receive on deposits.

Most of the higher deposit rates on offer are only for 3-5 months, then they revert to the standard rates
I would only put deposits with those that have the government guarantee .
I have been earning 5.85 - 6.10% with e savers, but once the honeymoon period ends, you cannot get similar rates by opening another account with the same bank.

I am looking at a double bonanza,,,,I get a new loan rate at 5.4 - 5.7% even on commercial loans, and I have offset accounts, effectively earning the same rate, but for the life of the loan, not just a honeymoon period.
I pay substantially less interest on that part of the loan that is not offset, which frees up capital to apply to pay down the loan balance, much faster and quicker than if the offset was not in place.

Why would you sell properties, when you know they will bounce back in 2 years or less, and will remain stable in the meantime. All the capital costs involved in selling, then buying back, means you are giving away your profit and gains.

Applying short term actions against a long term investment is not smart investing.

With most banks you are free to open as many new online saver accounts as you please each time attracting the special rate for the first few months, only a few minutes online and instant transfer between accounts. Not much work for a extra 1 - 2 %