The future of Australian property prices

[Smurf1976]

The problem is that Australians don't even know what a recession is anymore.

It sounds strange but having had to explain the concept to someone in their early 20's not long ago I agree.

Even after my explanation and examples of what happened last time (1 million unemployed, many people losing their homes, business failures etc) I'm not sure they believed me. Even when I pointed out that youth unemployment was somewhere in the order of 50% from memory, they still seemed to think this an unlikely event as though I was talking about some hypothetical scenario and not something which actually happened around the time they were born.

Despite all the technology we have today, humans still aren't very good at learning from previous mistakes it seems.

 

[young-gun]

You forgot to mention the southerners. Plenty of people selling up the family homes in Sydney and Melbourne for big money and then buying decent homes in Queensland for half the money. It is a great idea in my opinion and it can boost your retirement funds quite a lot which would provide for a decent retirement.

Not sure if this is an opinion you formed on your own bill but I actually watched an interview with Harry Triguboff and he was of the same opinion. Too expensive to live down there, sell up and by cheap up here. From what I gathered he was talking over the next decade or so as the boomers come through. I was referring the prices australia wide but I guess the scenario you outlined may see prices sustained in queensland, unless of course prices dive and people no longer believe it's safe to buy anywhere. I guess the question is how many people are prepared to make the move. I personally wouldn't move to sydney if the situation was reversed, but I'm in an entirely different generation.

FWIW I feel like someone on 60k a year (even with a hecs debt) could afford a 220k property. If that's a dual income situation (ie long term bf/gf or husband + wife or brothers or w/e) then they could pay off a 220k place in <10 years easily.

I agree but a 1 bedroom apartment isn't going to last long if they are considering marriage and family etc. saving 40-60k isn't an easy task for most, not to mention stamp duty on top of that.

Yields are pretty low around here (Paddington, Sydney). On a $1m house (if you can find a house for under $1m!) you'd be lucky to pull in $900/week. That's fairly typical though, as you slide up the price scale the yield falls away. It's the reason property investors stick with low value property.

I've been reading about people reno'ing and flipping high priced housing in inner sydney, seems as though some are doing alright out of it if they know what they are doing.

Never mind how low the yield is anyway Mclovin, haven't you heard about the magic of negative gearing? That's where the real money is made.....

 

[McLovin]

I've been reading about people reno'ing and flipping high priced housing in inner sydney, seems as though some are doing alright out of it if they know what they are doing.

I'd have my doubts about that. The SMH seem to always have a few of those look how much we flipped our reno for but it doesn't seem like they actually make much money off them. From what I've seen a lot of the places tend to be way over-capitalised. It seems like the same sort of people who have an ambition to open a hipster eatery in Surry Hills or East Sydney also enjoy flipping houses, probably because they watch too much of the Block.

 

[banco]

I'd have my doubts about that. The SMH seem to always have a few of those look how much we flipped our reno for but it doesn't seem like they actually make much money off them. From what I've seen a lot of the places tend to be way over-capitalised. It seems like the same sort of people who have an ambition to open a hipster eatery in Surry Hills or East Sydney also enjoy flipping houses, probably because they watch too much of the Block.

Yeah there was one last year (not sure if if it was in the SMH) where when you added it up it was clear they'd made a loss but it was presented as a win.

 

[kid hustlr]

I'll stick with minimal gearing and 6% grossed up returns. Nothing like be a debt free home owner (2 years 3 months but who's counting ).

sydboy given you are so bearish property why not sell now whilst the market is over valued?

 

[13ugs13unny]

sydboy given you are so bearish property why not sell now whilst the market is over valued?

well in my case I won't sell because the cost to buy another is way too high.

Re-purchasing favours the overseas buyer who buys off the plan to save stamp duty and takes advantage of lower dollar, hence artificiality inflating domestic prices.

Its not advice but I believe the best property investment is the one you live in. IMHO why would you spend 300k on for property in the low million dollar range or half that for a property in the 600k range?

Proposed purchase price 1.2 Mil.

Lend - 80%
Loan amount - $960,000.00
Lenders Mortgage Insurance - N/A
Required Deposit - $240,000.00
Solicitor / Conveyancing Costs - $3k approx
Stamp Duty - $51803.50

Simply its just not worth it if your not planning to live in it over 30 years to add value and hopefully the suburb gentrifies. big ifs. Then you got to consider the cost of giving half your life to it, in the hope your health and income don't cause the rug to be pulled from under your feet.

 

[tech/a]

sydboy given you are so bearish property why not sell now whilst the market is over valued?

Just like Stocks
Is it overvalued?
Ever noticed stocks continue to rise even if overvalued.
Property does the same.
Has done all my life.
When I was buying houses at $30K they were over priced--and over valued.
in 1987 when they were at 18% interest rates and $50K they were way way over valued.

In 20 yrs time todays prices are going to look CHEAP!

When I was 16 I remember my father knocking back a 5 Bedroom palatial property for $30000
I remember his words that the property was way over valued when his offer of $28500 was knocked back.
The last time I saw it for sale 2002 it was $690,000.--a forty year old property now!

 

[pavilion103]

There have been other times that property has been overvalued, however we are in unprecidented territory.

A kid could look at a graph of property price growth and point this out.

We only need to look as far as things like the House price to median income ratio. The ease of credit over this boom period (105% lend, low doc, no docs) at historically low interest rates. I'd also be interested to see the stats of percentage of income contributing to mortgage repayments. I dare say we haven't seen the real figures about how distressed some of the current owners area. Obviously negative gearing as well has contributed to this bubble.

I know in Adelaide the median price went from $140,000 to over $400,000 in about 10 years (and would have had some decent growth before this too).

Look at yields. They are pathetic. Aren't we supposed to be investing for yields? Or do we think the gravy train of speculative gains will go on forever? Come on....

I'm not sure if there will be a catalyst which causes a crash (e.g. terrible retail -> unemployment -> default) but I am sure prices will at least go no where for a long time. And in real terms at least, property values will decline over an extended period.

One property 'expert' that I saw talk a couple of years back suggested intergenerational loans like in Japan could be another step which keeps prices up/increasing.

The state of the market is ridiculous.

It will be interesting to see if there are a few more years of no/negative growth. When will those negatively gearing, holding on for speculative gains (investment properties), realise what is happening and say 'enough is enough'. Tens of thousands going OUT a year with NO growth to compensate for it.


Surely it is obvious that we are in unprecedented times???

 

[13ugs13unny]

Just like Stocks
Is it overvalued?
Ever noticed stocks continue to rise even if overvalued.
Property does the same.
Has done all my life.
When I was buying houses at $30K they were over priced--and over valued.
in 1987 when they were at 18% interest rates and $50K they were way way over valued.

In 20 yrs time todays prices are going to look CHEAP!

When I was 16 I remember my father knocking back a 5 Bedroom palatial property for $30000
I remember his words that the property was way over valued when his offer of $28500 was knocked back.
The last time I saw it for sale 2002 it was $690,000.--a forty year old property now!

I agree with what you said. BUT there is a huge BUT. Something every investor trader should understand completely first.

There is a huge problem we all face locally, nationally and globally. when people complain everything can be pointed to the fact very few people understand:

The Exponential Function as explained by Dr. Albert Bartlett.

http://www.youtube.com/watch?v=LqcHG7QUK9k

 

[sydboy007]

sydboy given you are so bearish property why not sell now whilst the market is over valued?

The issue is where to put the money once I sell.

Tax becomes a big issue then. But hopefully the bubble can hold on fo ra few more years and once my personal savings have hit my target I plan to sell up and semi retire teaching English somewhere in Asia for rent money and have a relatively stress free life with a passive income of $30-35K a year.

 

[tech/a]

The issue is where to put the money once I sell.

Tax becomes a big issue then. But hopefully the bubble can hold on fo ra few more years and once my personal savings have hit my target I plan to sell up and semi retire teaching English somewhere in Asia for rent money and have a relatively stress free life with a passive income of $30-35K a year.

regardless of when you sell it tax will be an issue with any capital gain.
to hold out on potential profit due to tax concerns is plain crazy.
Put in place tax minimization strategies---a good accountant will help out.

As for Asia.
Its NOT the Lucky country.
You will be seen as the rich outsider.
Not as Ideal a lifestyle as you think.

AND

Once your setup there you wont have the capacity financially to return (without massive hardship).
think very carefully I know quite a few who rue the day!

 

[13ugs13unny]

regardless of when you sell it tax will be an issue with any capital gain.
to hold out on potential profit due to tax concerns is plain crazy.
Put in place tax minimization strategies---a good accountant will help out.

As for Asia.
Its NOT the Lucky country.
You will be seen as the rich outsider.
Not as Ideal a lifestyle as you think.

AND

Once your setup there you wont have the capacity financially to return (without massive hardship).
think very carefully I know quite a few who rue the day!

On the flip side, to continue living in this country is unaffordable for many.

I am aware of many people who depart to live cheaply in asia or as some i know personally are doing USA, not looking back. And correct me if I am wrong, if departing permanently can take their super with them.

I am thinking of departing as well in the future, especially if house prices continue to climb.

If all you have is your house and can't afford to live here, or there is little prospects for a professional career, with what seems to me overseas professionals are preferred, what's the point?

 

[sydboy007]

http://www.macrobusiness.com.au/2013/09/pimco-warns-on-housing-bubble-dollar/

…Anecdotal evidence from property developers along the east coast of Australia *suggests more intense activity, particularly among those setting up the funds to purchase property. From Queensland’s Gold Coast to Melbourne’s Docklands, developers claim off-the-plan purchases using limited recourse borrowing arrangements account for up to 90 per cent of sales, a four-fold increase in two years.

“In some instances in a single day a spruiker will have a consumer set up a SMSF, borrow heavily, and invest in a *property off the plan, which has been bought from related parties. Often it’s initiated with a cold call and then a high pressure *seminar.”

- - - Updated - - -

regardless of when you sell it tax will be an issue with any capital gain.
to hold out on potential profit due to tax concerns is plain crazy.
Put in place tax minimization strategies---a good accountant will help out.

As for Asia.
Its NOT the Lucky country.
You will be seen as the rich outsider.
Not as Ideal a lifestyle as you think.

AND

Once your setup there you wont have the capacity financially to return (without massive hardship).
think very carefully I know quite a few who rue the day!

It's my primary residence so works out as a pretty good tax shelter and minimisation.

I've done my sums and it's pretty marginal as to whether I'm better off selling now and renting till I semi retire or just staying with the way things are. At least i don't have to worry about being forced to move multiple times over the intervening period.

As for Asia, I've got some good friends in a few cities there. I know it can be a bit tricky, but still feel I can make a go of it, and the advantage is in Asia most people still have respect for teachers, unlike here where parents blame them for every failing of their children.

I'm in no rush. I told myself to stick with my current job till they decide to off shore us at some point in the future. Just save and continue to build wealth and that is the way to provide myself with some choice in the future.

 

[tech/a]

http://www.macrobusiness.com.au/2013/09/pimco-warns-on-housing-bubble-dollar/

…Anecdotal evidence from property developers along the east coast of Australia *suggests more intense activity, particularly among those setting up the funds to purchase property. From Queensland’s Gold Coast to Melbourne’s Docklands, developers claim off-the-plan purchases using limited recourse borrowing arrangements account for up to 90 per cent of sales, a four-fold increase in two years.

“In some instances in a single day a spruiker will have a consumer set up a SMSF, borrow heavily, and invest in a *property off the plan, which has been bought from related parties. Often it’s initiated with a cold call and then a high pressure *seminar.”

- - - Updated - - -



It's my primary residence so works out as a pretty good tax shelter and minimisation.

I've done my sums and it's pretty marginal as to whether I'm better off selling now and renting till I semi retire or just staying with the way things are. At least i don't have to worry about being forced to move multiple times over the intervening period.

As for Asia, I've got some good friends in a few cities there. I know it can be a bit tricky, but still feel I can make a go of it, and the advantage is in Asia most people still have respect for teachers, unlike here where parents blame them for every failing of their children.

I'm in no rush. I told myself to stick with my current job till they decide to off shore us at some point in the future. Just save and continue to build wealth and that is the way to provide myself with some choice in the future.

Ironfish?


My Sister in her 50s has just last month come back from a 2 yr
English teaching position in Vietnam.
Her daughter 24 is still over there doing the same.

Neither have Australian teaching Qualifications!

 

[13ugs13unny]

Ironfish?


My Sister in her 50s has just last month come back from a 2 yr
English teaching position in Vietnam.
Her daughter 24 is still over there doing the same.

Neither have Australian teaching Qualifications!

Not having Australian Qualifications is not held in the high regard it used to be in Asia.

Furthermore universities are now seen as more prestigious in some asian countries.

Australia is seen as easy to get into provided you pay the money.

 

[CanOz]

The issue is where to put the money once I sell.

Tax becomes a big issue then. But hopefully the bubble can hold on fo ra few more years and once my personal savings have hit my target I plan to sell up and semi retire teaching English somewhere in Asia for rent money and have a relatively stress free life with a passive income of $30-35K a year.

Let me know you if you're interested, there's a good school in my town here called the Canadian School. Its a Sino-Canadian JV with the Province of BC and there are about 60 teachers here now, i know the principle there. The pay is pretty good as well. If you're qualified as a teacher even better. Usually a Uni degree is a must near the big cities but up north anything goes...

I have a mate near Harbin that's backing nearly 40k CNY per month between teaching and home tutoring.

heres the link....

http://www.sinocanadahighschool.com/

 

[sydboy007]

Let me know you if you're interested, there's a good school in my town here called the Canadian School. Its a Sino-Canadian JV with the Province of BC and there are about 60 teachers here now, i know the principle there. The pay is pretty good as well. If you're qualified as a teacher even better. Usually a Uni degree is a must near the big cities but up north anything goes...

I have a mate near Harbin that's backing nearly 40k CNY per month between teaching and home tutoring.

heres the link....

http://www.sinocanadahighschool.com/

Thanxs. I've done my CELTA but probably do it again in a few years when i make the change.

Been thinking of Taiwan since i quite liked it when I've visited and the pay is OK. Cost of living their is near Thailand (except for rents)

I'd not mind Cananada except for the cold

 

[Smurf1976]

Just like Stocks
Is it overvalued?
Ever noticed stocks continue to rise even if overvalued.
Property does the same.
Has done all my life.
When I was buying houses at $30K they were over priced--and over valued.
in 1987 when they were at 18% interest rates and $50K they were way way over valued.

In 20 yrs time todays prices are going to look CHEAP!

I remember quite well that a former boss of mine paid the huge sum of $160,000 for a 5 bedroom house on a hill with good views.

Like most, I thought he was crazy at the time. $160K was a huge amount of money, and how on earth would he pay the mortgage given wages at the time?

Some years later I ended up working in that exact job and I bought a house at that time too. Needless to say, I ended up with a smaller house and I paid more than $160K for it.

I agree that residential property is overvalued on most measures, but how and when it will correct is anyone's guess. Like most things, it's taking longer than logic would suggest, such that any fall in "real" value is being eaten by inflation anyway thus avoiding a significant drop in nominal values.

 

[sydboy007]

http://www.thebull.com.au/articles/a/40895-can-lower-income-buyers-build-housing-wealth-too.html

has some interesting historical data. whether the returns can be achieved again, I don't see how when house inflation has been so far above income growth since at least 1995. Those with a mortgage seemed to be geared to a scary degree.

Comparing the bid rent curves for five Melbourne corridors (western, northern, eastern, south-eastern and southern) showed that in 1981 the price curve was flat in all five corridors, with little difference in price as distance from the CBD increased. By 2008 that had changed, with all five corridors showing much higher prices in inner and middle ring suburbs and much lower out towards the fringe.

Six of the cheaper and eight of the more expensive suburbs studied in the research performed better than the median increase in value over the 1981–2006 time period. Of the six areas with the largest increases in wealth between 1981 and 2006, four were lower price areas in 1981, and of these, three had been industrial suburbs close to the CBD that had housed working class families.

A startling 36% of growth zone homes sold four to five years after purchase were sold at a loss, while only 9% of inner zone homes were sold at a loss; after six to seven years, 8% of growth zone homes sold at a loss compared with 6% of inner, showing that capital gains growth had caught up with the transactions costs (such as stamp duty and agent fees) involved in buying and selling a property.

Research shows a land tax, based on land value and universally applied, will most affect higher value land concentrated in the inner and middle suburbs, causing land prices to drop and therefore increasing housing affordability.

 

[Whiskers]

Research shows a land tax, based on land value and universally applied, will most affect higher value land concentrated in the inner and middle suburbs, causing land prices to drop and therefore increasing housing affordability.

Yeah... that's a reasonable economic argument, but it might just mean that the urban sprawl spreads further into viable agricultural land for the wrong reasons... just to get lower tax in the short term. Wouldn't the tax cost balance back after awhile as outlying values rise with competition?

I think we are seeing this happen with retail rents in particular in some places. People are moving out of the traditional CBD because of high rents, the CBD is becoming more deserted and neglected as satellite towns and shopping centres restart the cycle again. It's a bit of a dog chasing it's tail.

While it will tend to flatten out the price of land somewhat, I'm not sure that extending the urban sprawl is a good trade off.