House prices to keep rising for years

MR. · 21 October 2009

Beej,
Hang on I did look at a couple of holiday rental units, two months ago. They were all two bedders all “absolute ocean front” the better of the lot returned 2.85% net. It was 99% occupied. They had lowered the rents and were doing better than the rest. (went back 2 years)

The owner didn’t seem to understand why there is little interest. The outlay of 700K and the returns are 20K per year. The agent originally claimed the return was somewhere just above 5%. That interested me. (for ocean front) But was far from the case. The vendor and agent appear to be waiting for bigger suckers to come along.

On a side note the share of the land value for that unit was $250K at 2007 prices. What's it cost for a 20 year old 90 square metre unit?

Beej · 21 October 2009

Satanoperca - thanks for the median figures, very good data! Houses usually provide lower gross rental returns due to lower fixed holding costs relative to price, a higher "ownership" premium that investors must compete against, and usually higher potential for capital growth due to direct land ownership component.

Having said that, Gold Coast, Brisbane etc look more expensive to me than Sydney based on rent returns - but remember Sydney had lower rental returns 5 years ago as well, and this has changed due to rising rents not falling property prices.

MR. said:
That 5.5% of yours can be achieve as a bank deposit if someone had the cash. Honestly never really looked at small units because of control issues.

Yes, but in the bank you have exactly ZERO opportunity for capital growth, and no ability to leverage to benefit further from any capital growth (with commensurate downside risk of course), and also no hedge/protection against inflation. I think the inflation hedge aspect plus potential steady returns equivalent to bank cash rates may be what are/will attract SMSF investors into the market in the coming months. We shall see!

MR. said:
Beej,
Hang on I did look at a couple of holiday rental units, two months ago. They were all two bedders all “absolute ocean front” the better of the lot returned 2.85% net. It was 99% occupied. They had lowered the rents and were doing better than the rest. (went back 2 years)

The owner didn’t seem to understand why there is little interest. The outlay of 700K and the returns are 20K per year. The agent originally claimed the return was somewhere just above 5%. That interested me. (for ocean front) But was far from the case. The vendor and agent appear to be waiting for a bigger suckers to come along.

On a side note the share of the land value for that unit was $250K at 2007 prices. What's it cost for a 20 year old 90 square metre unit?

Well they sound like poor value for an investment to me. I can only guess that they also have a market for OOs and can get a premium for that due to the ocean-front aspect? But it sounds like they weren't selling at those asking prices so therefore they are not worth that regardless?

Cost to build a 90 sqm unit? Maybe $150k-ish I would guess depending on how many in the block, and quality of materials, fit-out etc.

Cheers,

Beej

MR. · 21 October 2009

Beej said:
Yes, but in the bank you have exactly ZERO opportunity for capital growth, and no ability to leverage to benefit further from any capital growth (with commensurate downside risk of course), and also no hedge/protection against inflation. I think the inflation hedge aspect plus potential steady returns equivalent to bank cash rates may be what are/will attract SMSF investors into the market in the coming months. We shall see!

Well they sound like poor value for an investment to me. I can only guess that they also have a market for OOs and can get a premium for that due to the ocean-front aspect? But it sounds like they weren't selling at those asking prices so therefore they are not worth that regardless?

Cost to build a 90 sqm unit? Maybe $150k-ish I would guess depending on how many in the block, and quality of materials, fit-out etc.

Cheers,

Beej

Cheers thanks, not far from the value I put on it. I estimated $200 (new).

I guess, I am (still) not convinced of further real estate gains in the coming years.

Soft Dough · 21 October 2009

MR. said:
Beej, had read about your one bedder before somewhere here.

From my figures for example Pacific Pines (Gold Coast QLD) 3.93% net, Watsonia (Melbourne VIC) 3.73% net, Springwood (Brisbane Qld) 4% net. These are houses not units as well.

That 5.5% of yours can be achieve as a bank deposit if someone had the cash. Honestly never really looked at small units because of control issues.

Trying to be in the glass half full group but just can’t see it....

Don't know about the others,

but pacific pines and springwood are not very good suburbs, and I know that Pacific pines prices have gone down considerably, and assume that springwood has not fared well over the last 6 months.

I think that the returns reflect the poor capital prospects of these two undesirable suburbs.

Bill M · 21 October 2009

robots said:
hello,

hang on to it Bill M, unless you "really" need the cash

superb location, sit tight

put it up for rent and help out a member of the community and just ride the wave of residential property

with the shonk market you will have to deal with boards, management, regulation but with plain old vanilla real estate its all you and utopia

great start

thankyou
Doctor Robots

I am thinking along the same lines and haven't we seen some real dooozys in the past 2 years. How can directors sell hundreds of thousands of $$$ worth of shares 1 week before a general public announcement which saw share prices dive 10% to 20% and still get away with it. Crappy regulation here in OZ.

MR. said:
Why are people now looking to upgrade or invest?
Job secure! Interest rates low! more speculation?
Rental returns are still terrible!

In my case it was purely a lifestyle choice. Having said that, plenty out there will never ever trust the stockmarket again. A lot of the older investors will just just go property even if returns are a bit lower. It's a lot easier to know you got $400 p/w coming in from good tenants rather that risking it on blue chip stocks that had cut their dividends by 30% to 40% and still haven't recovered their capital losses.

robots · 21 October 2009

hello,

yes Bill M, the regulation is dubious and thats why people have to get away from them and take charge of own life

shareholders have no idea about the position of a company, unlike RE, you can cruise past, inspect it, beautiful

anyhow back to the real asset class that performs year after year after year,

it was a great night last night, looks as though we got this thread back on track after the "no-content" posts that were thrust upon it,

some more questions

thankyou
Doctor Robots

Dowdy · 21 October 2009

robots said:
shareholders have no idea about the position of a company

Never heard of a PDS?

it was a great night last night, looks as though we got this thread back on track after the "no-content" posts that were thrust upon it,

some more questions

Yes, it's great to see you, in particular, come up with more meaningful content rather then the usual one word/no content post - ie. Utopia, great day for a coffee, paradise etc and your usual one sentence nonsense.

Hopefully you can keep up your more informative and thought out post then we can all benefit and live in utopia. Even if we don't agree, we can atleast still have a meaningful discussion

robots · 21 October 2009

Dowdy said:
Yes, it's great to see you, in particular, come up with more meaningful content rather then the usual one word/no content post - ie. Utopia, great day for a coffee, paradise etc and your usual one sentence nonsense.

hello,

dont forget SPECIAL

thankyou
Doctor Robots

nunthewiser · 21 October 2009

you certainly are Doctor R

trainspotter · 21 October 2009

1986 to 2006 graph evidencing that Doctor/Professor Robots is on the money .... House prices in Australia have risen substantially over the past 20 years, far outpacing the growth in inflation, average earnings and household income. http://www.aph.gov.au/library/pubs/RN/2006-07/07rn07.htm

Soft Dough · 21 October 2009

trainspotter said:
1986 to 2006 graph evidencing that Doctor/Professor Robots is on the money .... House prices in Australia have risen substantially over the past 20 years, far outpacing the growth in inflation, average earnings and household income. http://www.aph.gov.au/library/pubs/RN/2006-07/07rn07.htm

And it looks fair, reasonable, and realistic until 2001.

What happened then?

Is it sustainable?

Is it desirable to be sustainable?

Answers which we know the answers to, but self interest dictates what our answers will be.

We are VERY lucky that cmpanies such as RIO and BHP began flooding the economy with wealth generated by exploiting our resources.

MrBurns · 21 October 2009

trainspotter said:
1986 to 2006 graph evidencing that Doctor/Professor Robots is on the money .... House prices in Australia have risen substantially over the past 20 years, far outpacing the growth in inflation, average earnings and household income. http://www.aph.gov.au/library/pubs/RN/2006-07/07rn07.htm

I guess you could also say that shares also only rise over time.

This whole thread is BS, of course property rises over time, what is also true is that there are times when it goes in reverse.

However property, like shares always recovers and goes forward, the way to succeed in either is to have impecable timing, not possible, only luck, or be almost debt free or have an ability to service debt regardless of economic conditions.

Thats it, thread closed !!!!!

Knobby22 · 21 October 2009

You aint got the power Burnsey!

trainspotter · 21 October 2009

Look at it any way you will .... Doctor/Professor robots is technically correct when he states the name of this thread "House prices to keep rising for years." Graphic evidence in the form of a graph from the most trusted of sources. The Guvmnt. We can theorise about sustainablility and macro and micro economic factors and "push pull" fiscal policies with RBA's interetst rate rises and KRudds stimulus packages all we like. Bottom line is that the residential RE is rising. How long will it last? It keeps on going, man.

MrBurns · 21 October 2009

Knobby22 said:
You aint got the power Burnsey!

If robots is a professor I'm a wizard and can close threads at will, I'll just consult the wizard book again.....

trainspotter · 21 October 2009

MrBurns said:
If robots is a professor I'm a wizard and can close threads at will, I'll just consult the wizard book again.....

Hey Mr Wizard/Burns ... can you conjure up me a nice fat RE deal with 25% nett per annum with low risk and LVR of no more than 65%?

MrBurns · 21 October 2009

trainspotter said:
Look at it any way you will .... Doctor/Professor robots is technically correct when he states the name of this thread "House prices to keep rising for years." Graphic evidence in the form of a graph from the most trusted of sources. The Guvmnt. We can theorise about sustainablility and macro and micro economic factors and "push pull" fiscal policies with RBA's interetst rate rises and KRudds stimulus packages all we like. Bottom line is that the residential RE is rising. How long will it last? It keeps on going, man.

You dont need a graph to know that property prices rise over time.

The only thing debated in this thread of mostly crap is that it corrects after bubbles, stagnates then goes ahead again.
That is just as true as the statement that property keeps rising..........eventually.

So if anyone wants to argue that property doesnt crash sometimes then go ahead after a pause then keep this drivell going otherwise perhaps it just morphes into a general property thread.

MrBurns · 21 October 2009

trainspotter said:
Hey Mr Wizard/Burns ... can you conjure up me a nice fat RE deal with 25% nett per annum with low risk and LVR of no more than 65%?

No problem, no hang on that was in 1985, sorry closed out

trainspotter · 21 October 2009

MrBurns said:
You dont need a graph to know that property prices rise over time.

The only thing debated in this thread of mostly crap is that it corrects after bubbles, stagnates then goes ahead again.
That is just as true as the statement that property keeps rising..........eventually.

So if anyone wants to argue that property doesnt crash sometimes then go ahead after a pause then keep this drivell going otherwise perhaps it just morphes into a general property thread.

It has morphed into an entertaining thread as it seems that robots the good human is on some really, really good gear called property and he can't wait to tell all and sundry about it VS the guys who believe that they should take the bait every time he posts. "Don't feed the trolls" I think they call it !! LOL.

nunthewiser · 21 October 2009

Might be a good idea to totally ignore any japanese graphs/data then guys ..

It could never happen here after all

might pay to compare a few graphs actually and compare the lengths and velocitys of various countries "bubbles" though but i dare say we can always come up with reasons that this time "its different"

and a BIG thanks to all the SPECIAL people here

sunshine and lollipops , nirvana and a 6 pack and a pizza thanks

anyways ........ as you were

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