House prices to keep falling for years

S&P/ASX 200 A-REIT [XPJ] getting hammered again. Here is just one of the miserable examples of why I think RE is going to suffer over the coming months.

ING Industrial Fund down 40% today.

From Commsec company info -

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ING Industrial Fund (IIF) invests in industrial properties in key global markets. Its portfolio is primarily made up of Industrial Properties and Business Parks. As at June 2008, IIFs portfolio comprised interests in around over 550 properties with total assets of around $6bn. Properties are located in Australia, Europe and Canada. The fund is managed by ING Real Estate Australia.

IIF is currently in harm minimisation mode, with falling property values pushing gearing to uncomfortable levels. Asset sales into weak markets are necessary to fund the large development pipeline and avoid triggering debt covenants. ING Industrial Fund reported NPAT down 90% to $39m for the year ended 30 June 2008.
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SP has plummeted from abt $2.85 (last year) to 40c (today) - an 86% drop in 1 year.


If these RE fund companies are where a lot of development moolah comes from, the near future is looking dim IMO.

Todays firesale of the S&P/ASX 200 A-REIT [XPJ] continues unabated - sector is now down almost 12% for the day across the board at this time.

Isabelle Oderberg: What is the residential property market like at the moment? Are we seeing some of the interest rate cuts feeding through?

Enzo Raimondo: Look, it’s a bit early to ascertain whether there’s been any effect on transaction volumes because of the interest rate cut or the government’s announcement. I think we’ve got to wait for another three or four weeks to see that, although this Saturday coming it will be a real test for the residential market in Melbourne because we’ll have close to 1,100 auctions. If we see a clearance rate in the mid 60s, I would suggest that that’s a pretty good result given what’s happening in the broader economy.

But no, we haven’t seen any effect on transaction numbers because of the interest rate cut or the government announcements, but we have seen, and agents tell me that they’ve seen more people attending auctions, a bit more confidence although cautious confidence. People sort of not bidding as enthusiastically as they were this time last year, and the agents I’ve spoken to suggest that early indications are that investors are certainly back in the market place looking at investment property mainly in the apartment / townhouse market.

IO: Given the additional grant money that would be given to first home buyers looking at a new build or off-the-plan property, are you expecting to see a shift in the market towards those sorts of properties?

ER: No, I don’t think there’ll be any great shift in people building or buying an established home. The first home buyer market generally fluctuates between 17 per cent to 20 per cent if it’s really buoyant, so 20 per cent is probably the top end of the first home buyer’s market, that’s about 20 per cent of total transactions and within that 20 per cent it’s probably a similar split of how many people build their first home and buy established. But I don’t think there’ll be a significant shift, but it will be an important part of the market that needs some confidence.

For the best of this century since 2000, first home buyers have found it reasonably difficult to get into the market. We’ve seen affordability at its worst in 25 years. We’ve probably had the tightest continuing rental market that we’ve had in the same period as well in the last 25 years. Vacancy rates are still one per cent or just above one per cent which is a very tight rental market. So for first home buyers, it hasn’t been a very good scenario or situation to buy their first home, but certainly now in the last four or five months the market has turned towards the buyers a bit more so. It’s probably the best situation or best opportunity they’ve had in the last eight years to get into home ownership if first home buyers are serious. And with the, potential $21,000 to build your home and $14,000 to buy an established home and I think an extra $3,000 from the state government if you buy under a certain amount, that’s significant assistance and we believe it will add some confidence to that sector of the market.

IO: Does the increase in grants for first home buyers encourage people who hadn’t previously been looking to enter the market or push those who are already looking into a higher bracket? What’s your opinion?

ER: Look, there’s no doubt that the $14,000 or the $21,000 is a significant boost to your purchasing capacity and I know there are a lot of people who have delayed their purchasing decision because of prices last year hitting all time highs. We saw 2007… You know it was an aberration in relation to property prices. It was the strongest year in a long, long time where we had most suburbs going up at least 20 per cent in the year.

We believe that when we release our medians for the September quarter we’ll see a reduction in the value somewhere between three per cent and five per cent, I suspect on the Melbourne median. More importantly, we’ve seen probably a larger reduction in the number of transactions. They’re about 26 per cent down on this time last year. So for first home buyers it’ll provide some opportunities, but they’ll have less choice. I mean last year everybody was buying and everybody was selling. This year it’s a totally different market place, but it does favour buyers, especially first home buyers, all buyers really. If you’ve got the capacity to obtain a loan and service a loan, now is probably the best it’s been for buyers in a long time.

IO: How are you expecting things to evolve towards Christmas given that it’s likely we’re going to see two more rate cuts of about fifty basis points each?

ER: Well, that’s a good question because of the interest rate movement. I’ve been a bit sceptical of it since the beginning of the year when we had the banks telling us that they had to put interest rates up outside of the RBA because of costs of funds, cost of borrowing. We heard that only a few weeks ago and then we’ve seen ANZ reduce their interest rates by 0.25 and NAB and Commonwealth have followed. There’s speculation of other interest rate cuts by the RBA and I’m not sure whether the banks are preparing us not to pass on the 0.5 by giving us a 0.25 at the moment.

I don’t know if that’s the case, but it just seems to be that they’ve argued or they’ve presented the case that the cost of borrowings between banks and the costs of funds to banks have been increasing, yet we see them acting totally opposite by reducing interest rates. So I’m not sure what’s happening in the interest rate market, but I can tell you that every time there is a movement up or down in interest rates, there is a correlating effect in the property market, but it’s usually you know a minimum of four weeks from the time of that interest rate movement. So if we see another one, I think November will probably be a fairly hectic month for residential property sales in Melbourne and I think it will make a lot of people happy especially vendors and estate agents.

Aussiejeff said:

Todays firesale of the S&P/ASX 200 A-REIT [XPJ] continues unabated - sector is now down almost 12% for the day across the board at this time.

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When debt deflator and de-leverage comes, nothing is spared in its wake ..... all Asset will continue to fall until the
beast is contained and debt once again on the rise.
Economic 101.

the guys with cash can pick and chose the best of the best. Never in my life I seen so many good stocks trade close to book value and below PE of 10 and continue to pick and chose the best of the best.

Today Courier Mails states in July there were 138 houses foreclosed on this month up to 100 so far BUT it does not include the "Investors" who are walking away from their "Investment"
Some Banks are foreclosing the day after the payment is over due.
So if you are in to buying "investment " properties get in now and like the sign use to say this Man is waiting for the price of real estate to come down and a picture of an old Man in a chair it will now read this Man is waiting for the price of real Estate to go up..

Glen48 said:

Today Courier Mails states in July there were 138 houses foreclosed on this month up to 100 so far BUT it does not include the "Investors" who are walking away from their "Investment"
Some Banks are foreclosing the day after the payment is over due.
So if you are in to buying "investment " properties get in now and like the sign use to say this Man is waiting for the price of real estate to come down and a picture of an old Man in a chair it will now read this Man is waiting for the price of real Estate to go up..

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why don't you buy up all the bargains, you be millionaire in 7 years cos real estate will be double by then

Boral's August 2008 graph showing where detached house approvals are heading. NSW looking particularly sick, given that this downturn is likely to follow the trend as indicated by the significant drop in approvals around 2001....

Coincidental to that big plunge in Oz house starts around 2001, the $AUBananaBuck had briefly slumped to it's lowest ever level since floating - a mere $US 0.489 in March 2001. It took 24 months to recover back to $US60c in March 2003.

It has now dropped (today) to $US 0.6224 and likely to head into the sub-$US60c zone next week. Will it hit the sub-$US50c? Will it languish in the twilight zone for years again (would seriously hurt importers of furniture / household items)?



aj

Does anyone have, that real estate stronghold called Melbourne's, auction clearance rates? Did they 'rocket' or did they 'plunge'?

Pommiegranite said:

Does anyone have, that real estate stronghold called Melbourne's, auction clearance rates? Did they 'rocket' or did they 'plunge'?

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Auction results 53%

It's being touted as "black Saturday" by the Herald Sun - Auction sales keep falling

Pommiegranite said:

Does anyone have, that real estate stronghold called Melbourne's, auction clearance rates? Did they 'rocket' or did they 'plunge'?

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Notice you have the thumbs up on the thread now Pommie, a good show, or very bad show, depends where you are coming from.

Usually get a report from my pal Robots on Melbourne's Sat'dy take. Seems to be missing. Maybe he is carrying the water for Enzo Ramondo, REIV head here in Vic.

Age today "Auction Clearance rates collaps to four year low. Down to 53%, lowest since July 2004. Article by Vedelago.

thankyou

explod

CamKawa said:

Auction results 53%

It's being touted as "black Saturday" by the Herald Sun - Auction sales keep falling

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Thanks Camkawa. Robots, were you in the 53%? Probably not seeing the way you value property.

Here is how its reported in the Age:

Auction clearance rates collapse to a four-year low

• Chris Vedelago
• October 26, 2008

MELBOURNE'S auction clearance rate plunged to its lowest level in more than four years yesterday, with almost half of the properties up for sale failing to sell.
The clearance rate fell to 53%, the lowest since July 2004. Yesterday was the third Saturday in a row the rate has fallen. It has plunged a total of 15 percentage points in just three weeks ”” down from 68% in the first week of October.
"What else can you call it but Black Saturday?" said David Morrell, a director of buyer advocacy group Morrell & Koren. "It's the real estate equivalent of what's been happening in the financial markets."
But the Real Estate Institute of Victoria said the slide in sales was due to buyers holding back out of fear, rather than any real indication that Melbourne's property market is in trouble.
"People are very, very nervous about what is happening and what they fear might happen with the Australian and world economies. That's translating into a real confidence problem when it comes to buying," said Enzo Raimondo, chief executive of the REIV.
"But they need to remember that property isn't shares, and the Melbourne property market isn't anything like the US property market."
Hocking Stuart director Scott McElroy said yesterday's market had over 50% more homes for sale compared to last Saturday. "It's a lot of properties to sell on any day, and especially at a time when buyers just have no confidence."
The clearance rate varied widely by region and type yesterday, with just 50% of houses selling compared to 61% of apartments. The hardest hit were houses in the city's north-east and inner-east, where clearance rates fell by 17% to 45%, and 7% to 40%, respectively, compared to last week.
Apartments in the north fell by 22% to 55%. The inner-south fell 20% to 49%.
The flagging clearance rate comes despite two recent cuts in the Reserve Bank interest rate and the Federal Government's $10.4 billion rescue package announced last week, which included sizeable increases to first homebuyer grants.
Agents reported that attendance at auctions and open-for-inspections was noticeably up yesterday, although most people were adopting a wait-and-see approach.
"There's no shortage of buyers out there. We're seeing them in larger numbers than we have in months. They're just holding back because they have no idea what to think," said Barry Blant, chief executive of Barry Plant Real Estate. "They are just there, watching."

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explod said:

Notice you have the thumbs up on the thread now Pommie, a good show, or very bad show, depends where you are coming from.

Usually get a report from my pal Robots on Melbourne's Sat'dy take. Seems to be missing. Maybe he is carrying the water for Enzo Ramondo, REIV head here in Vic.

Age today "Auction Clearance rates collaps to four year low. Down to 53%, lowest since July 2004. Article by Vedelago.

thankyou

explod

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Hey explod, the thumbs up is for affordability being slowly brought back to the masses. Its the next generation we should be thinking off. Just want the world to be a better place for our kids.

I think an interesting point was raised in another thread....

Th $21,000 grant is all about keeping property prices up..... Why?


What position would the big 4 be in if we saw forced closures on a number of homes which had negative equity? Not good I presume.

Pommiegranite said:

Thanks Camkawa. Robots, were you in the 53%? Probably not seeing the way you value property.

Here is how its reported in the Age:

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hello

hear a rumour Robots have looose screw service

bewdy bonza mates

aussiebots

"Black Sunday" ? ha, it's like the entire world has ended for them! jeez, could actually be worse.

Keep holding off buyers, grab yourself a bargain in a few months time

What was that about record population growth, migration will save us, or some such:

http://www.theage.com.au/national/call-for-a-25-cut-in-migration-20081025-58oc.html

AUSTRALIA'S migration intake must be immediately slashed by one quarter to help cope with the global financial crisis and relieve pressure on cities and the environment, says the Federal Opposition.

Amid growing concern that Australia's unemployment rate is set to increase, Opposition immigration spokeswoman Sharman Stone said plans for a record 190,300 migrants in 2008-09 should immediately be scaled back to the 2005-06 level of 142,930.

That would represent a 25% drop, effectively ending Australia's policy of relying heavily on migrants to plug skills shortages in an acknowledgement that the economy is set to slow sharply.

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explod said:

Age today "Auction Clearance rates collaps to four year low. Down to 53%, lowest since July 2004. Article by Vedelago.

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fantastic news for ex-pats returning home hoping to pick up a bargain. take good care of the place while I'm away.

thankyou

expatbots

Buoyed home buyers back on streets: Plibersek
October 25, 2008 - 5:57PM

An increase in the first home buyers grant is helping renew interest in the housing market, federal Housing Minister Tanya Plibersek says.

http://www.brisbanetimes.com.au/news/national/housing-market-on-the-mend-govt/2008/10/25/1224351604380.html


A case of "open mouth - engage foot" I believe....

Surely the smart thing would have been to wait until clearance rates were released yesterday evening before passing any further comment on the issue???


I noticed 14 blocks of land in Oakhurst (Sydney) yesterday were all passed in without any interest.... Ooops

http://www.homepriceguide.com.au/saturday_auction_results/sydney.pdf

Big thumbs up for the guvmnt thinking the first home buyers would support the failing housing market....

singlefished said:

Buoyed home buyers back on streets: Plibersek
October 25, 2008 - 5:57PM

An increase in the first home buyers grant is helping renew interest in the housing market, federal Housing Minister Tanya Plibersek says.

http://www.brisbanetimes.com.au/news/national/housing-market-on-the-mend-govt/2008/10/25/1224351604380.html


A case of "open mouth - engage foot" I believe....

...Big thumbs up for the guvmnt thinking the first home buyers would support the failing housing market....

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In this world of "instant gratification", a quick policy jab should be followed by a satisfying K.O. Unfortunately, the Guv-Mint appear$ to be using Kid Gloves.....

... after putting both hands behind their back and knotting the laces together!





aj