The future of Australian property prices

[FlyingFox]

Which, from my understanding, is about as enforced as the laws in Australia relating to non-resident, non-citizens buying residential property.

I suspect it depends on who you are and whom you know.

 

[CanOz]

Which, from my understanding, is about as enforced as the laws in Australia relating to non-resident, non-citizens buying residential property.

I've been going to a few auctions lately, and I'll say that once you hit the $1.2-$1.3m mark it's all foreigners.

Perhaps the g'men can get around it, but not the ordinary folks like us....

This bubble ain't gonna burst easy, but boy when it does...I suppose it will affect allot asset markets, and maybe if they can't liquidate what's at home they'll liquidate foreign assets...no idea. Nothing has ever been seen on this scale?

CanOz

 

[DB008]

Perhaps the g'men can get around it, but not the ordinary folks like us....

This bubble ain't gonna burst easy, but boy when it does...I suppose it will affect allot asset markets, and maybe if they can't liquidate what's at home they'll liquidate foreign assets...no idea. Nothing has ever been seen on this scale?

CanOz

What sort of time frame are you look at CanOz for the bubble to potentially pop?

I have heard from a few people that very recent figure coming out of China are very scary indeed. If China does burst, we'll be stuffed here in Australia.

 

[CanOz]

What sort of time frame are you look at CanOz for the bubble to potentially pop?

I have heard from a few people that very recent figure coming out of China are very scary indeed. If China does burst, we'll be stuffed here in Australia.

I really have no idea ya know, it's impossible to know. Can't even guess really, these things always drag on longer than you expect, that's why bears always get hurt calling tops.

The banks have a hundred billion or so of bad loans, a four high I think. Local governments have debts far exceeding the national GDP.

They still have a ton of assetts to sell if they wanted to privatize, they've started already. Actually I just had a lunch with a mate that runs one of the privatized assets for a foreign company now. So the process of privatizing has a double benefit. They get foreign cash for assets, then they are relived of the burden as well....

I heard one time that they suspect that privatization will be the next boom in China.

Works well.....once.

CanOz

 

[sydboy007]

Slowing economy.

Stagnating employment even with increasing GDP

Most high employment sectors not really hiring.

Private sector debt barely lower than historically high 2007 levels pre GFC.

My feeling is since we're a nation of landlords now, we've never been through a recession with so many properties to sell. Aussies have pretty much cut back on everything to pay the mortgage, but I doubt the same will be done for the investment property.

I have a feeling when the property market route sets in, it will be rather quick, and the falls will be quite large due to the fact that so many of those "investors" are loosing money and wont be able to afford that if they lose their jobs, or suffer a pay cut.

We wont see much lower interest rates, so that kick the can down the road is gone.

Then there's all the FHBs who got conned into the market in 2008-09 who are still probably under water sine they tended to buy in the areas that have had the largest price falls over the last few years.

Those ILBs offering 3.5% + CPI are starting to look mighty tasty at present.

Oh and Aussie bank 5 yeards CDS have jumped from about 70 bps to over around 108 ie a 50% increase in a month.

Doesn't bode well for the banks passing on in full any further interest rate cuts

 

[Tyler Durden]

Read in the news today that Lend Lease's SP dropped like 8% due to announcement of restructuring because of flat construction industry. Not sure if Lend Lease does any residential stuff, but not good news in the property area in general.

 

[FlyingFox]

Read in the news today that Lend Lease's SP dropped like 8% due to announcement of restructuring because of flat construction industry. Not sure if Lend Lease does any residential stuff, but not good news in the property area in general.

Lend Lease does a fair bit of residential. Communities/estates as well as high rises.

 

[moXJO]

Bears are out must mean more up in prices

 

[ROE]

Very tricky to get the money out though, 50k per year is the max currency conversion per person.

CanOz

Corrupt people bends the law and dipped their hand in the money and they cant work out how to get more than 50K a year out of the country?

Laundering money is also illegal wonder how the underworld guys do it to buy their cars and mansion

 

[FlyingFox]

Corrupt people bends the law and dipped their hand in the money and they cant work out how to get more than 50K a year out of the country?

Laundering money is also illegal wonder how the underworld guys do it to buy their cars and mansion

Legally it is very hard to get money out of the country. As with all laws (except for those of nature), there is a way around.

As CanOZ was saying not everyone that is rich in China is corrupt. Many made a lot of money out of the property boom but unless they are connected or in business, it is very difficult to legally get the money out. Alternatively, if you have a mate in customs, nothing stopping you from walking onto a plane with your jacket stuffed with 100 dollar bills .

 

[sydboy007]

The issue that worries me most, not so much because of the impact on house prices, but because it will cause huge issues for the banks and then the rest of the economy, is the net negative investor class.

We've never had a recession where $5-7B a year is lost on rental properties. Prior to the halving of CGT on assets held over 12 months, over the medium term investors were breaking even. Since 2000 cumulative losses are north of $40B (worse if adjusted for inflation).

I'm not sure what the stats are in terms of those who are positively geared over negatively geared, but it doesn't take too high a % to get into trouble before we have a destructive feedback loop of falling property prices feeding int increasing bank bad debts, lower credit growth, high unemployment, banks unable to lend due to high debt loads. It'll be just like the USA or Spain.

I wonder how long the Government will be able to stand strong against bailing the "investors" out.

Tally Ho with the mega FHB grant targeted to the purchase of existing dwellings I presume.

 

[McLovin]

The issue that worries me most, not so much because of the impact on house prices, but because it will cause huge issues for the banks and then the rest of the economy, is the net negative investor class.

We've never had a recession where $5-7B a year is lost on rental properties. Prior to the halving of CGT on assets held over 12 months, over the medium term investors were breaking even. Since 2000 cumulative losses are north of $40B (worse if adjusted for inflation).

I'm not sure what the stats are in terms of those who are positively geared over negatively geared, but it doesn't take too high a % to get into trouble before we have a destructive feedback loop of falling property prices feeding int increasing bank bad debts, lower credit growth, high unemployment, banks unable to lend due to high debt loads. It'll be just like the USA or Spain.

I wonder how long the Government will be able to stand strong against bailing the "investors" out.

Tally Ho with the mega FHB grant targeted to the purchase of existing dwellings I presume.

It would have been a couple of years ago, and I don't have it to hand, but there was a survey done of property investors and how long they would continue to hold in a period of flat capital gains. It wasn't pretty. The point being, most property investors believe in the old spruiker's line of doubling every 7-10 years. Unlikely from here, IMO.

 

[prawn_86]

The point being, most property investors believe in the old spruiker's line of doubling every 7-10 years. Unlikely from here, IMO.

Yeh I would be interested to see some stats of properties bought post 2008 and see if they are on track to double, as it is 5 years since the GFC

 

[FlyingFox]

It would have been a couple of years ago, and I don't have it to hand, but there was a survey done of property investors and how long they would continue to hold in a period of flat capital gains. It wasn't pretty. The point being, most property investors believe in the old spruiker's line of doubling every 7-10 years. Unlikely from here, IMO.

Its worse than them believing, they actually need almost that level of growth to support negative gearing losses (less so now with lower interest rates). Not to mention a very liquid market in case something goes wrong.

A lending manager at my bank tried to run that line by me the other day lol ... "Imagine all the capital gains you are missing out on by renting."

 

[FxTrader]

Its worse than them believing, they actually need almost that level of growth to support negative gearing losses (less so now with lower interest rates). Not to mention a very liquid market in case something goes wrong.

Astute property investors focus on positive cash flow properties (once all tax deductions and concessions are taken into account). In that case, negatively geared property generates losses for tax offset. Capital appreciation potential is not the primary reason for holding the asset.

Negative after tax cash flow property investors are the ones relying on capital appreciation, and given the continuing flat or negative outlook for property prices in many local markets, are the investors/speculators most likely to head for the exits.

 

[FlyingFox]

Astute property investors

Astute being the operative word. In my opinion although not an extinct species, they are few and far between.

focus on positive cash flow properties (once all tax deductions and concessions are taken into account). In that case, negatively geared property generates losses for tax offset. Capital appreciation potential is not the primary reason for holding the asset.

Again, positive cash flow properties are rare in the big cities. Obviously this depends on the size of your deposit but the deposit needs to be taken into account when computing cash flow. You might not be in trouble, but you will still be losing money.

Negative after tax cash flow property investors are the ones relying on capital appreciation, and given the continuing flat or negative outlook for property prices in many local markets, are the investors/speculators most likely to head for the exits.

What proportion of investors fall in this category? There were survey results a while ago that said something like the majority of property investors had incomes below 80K.

 

[matty77]

I will be honest and say I am thinking about selling some of my shares for a deposit and going and buying a house in Melbourne as might be moving there for work reasons in the next few months and I am not sure I really want to rent a house again.

Say $150k deposit with a total purchase of $500k house, repayments $500-$600 / week on the balance.

Looking at say a 4 year time frame before I move out of Melbourne and go somewhere else. Now the question is what will perform better over the next 4 years? Shares or property? And why?

conundrum..

Capital growth doesnt concern me as I would keep the house anyway when I leave and rent it out, and the low interest rates at the moment are very attractive which is why I am looking at it. That probably leads me more towards just buying a place.

I need to go update my spreadsheet and do the numbers...

What is the property market doing in Melbourne, I heard its a bit flat with some people saying down 20% while others saying not that bad.

 

[FxTrader]

Astute being the operative word. In my opinion although not an extinct species, they are few and far between.

Not really, I have met many but they are definitely not in the majority.

Again, positive cash flow properties are rare in the big cities. Obviously this depends on the size of your deposit but the deposit needs to be taken into account when computing cash flow. You might not be in trouble, but you will still be losing money.

Smart, experienced investors understand that positive cash flow properties are generally not found close to the CBD and don't look for them there. It's all about cash flow, not capital gain. Some go the commercial property route to achieve this but it's higher risk.

You don't lose money unless you realize a loss by selling and even that is a capital loss credit. Your calculated net worth will decline if the value of your property porfolio does but like I said, positive cash flow property investors focus primarily on cash flow.

What proportion of investors fall in this category? There were survey results a while ago that said something like the majority of property investors had incomes below 80K.

Quite a lot actually sit on negative cash flow property expecting value to rise to compensate on sale and this burden can sometimes force a sale. The only reason to sell a cash flow positive property is when someone wants to pay you an incredible price for it or your circumstances change and you need to cash out.

 

[kid hustlr]

I need to go update my spreadsheet and do the numbers...

I think everyone needs to do their numbers. I'm by no means a property bull but off the top off my head a quick numbers example and property doesn't stack up that bad.

Say you have a 120k deposit (20%), 600k apartment in inner city syd which rents for say 600 a week call it 550 after prop manager costs. Say 5k in costs (water/council/strata). 5.5% variable interest rate.

None of these assumptions are that crazy.

Breaks down to:

Total Net rent: $28,600
Less costs (5k) and interest (480k*0.055) = $31,400

Comes at a loss of $2,800. Nothing really

This is a hugely simply example which doesn't factor in number of things (added property costs, tax deductions, adding value to a property, negotiating a good purchase, rent increasing over time etc etc) but at the end of the day 1% cap gains means you are in the black.

Compare this to other options (4% at call cash? volatility of the share market) and you need to be a pretty big property bear for a long period of time to banish the idea of buying a place. Especially if you don't own a PPOR.

my 2c

 

[Klogg]

Compare this to other options (4% at call cash? volatility of the share market) and you need to be a pretty big property bear for a long period of time to banish the idea of buying a place. Especially if you don't own a PPOR.

my 2c

This scenario doesn't really cater for house prices dropping... Given you're highly leveraged, what about the case where your asset drops 5% in value? Or more? (Negative equity anyone?)

That's not to say house prices WILL drop, just that the scenario should be considered...