House prices to stagnate for 'years'

Bill M said:

The original article was posted in Sept. 2005, quite a lot of it stands true, particularly the petrol and energy costs rising and in some cases house prices stagnating.

I downsized from a larger nice property to a smaller unit with a view in Feb 2003, about 5 years ago. We bought our unit for the location and it's views and to date we still love it. It was a move I really wanted to do because I wanted to free up some capital for stockmarket investment as well.

Over the 5 years our new unit did not go up in price (Sydney). The reason is that my suburb has got several newish high rise units available for sale. This of course doesn't worry us because we have the location and the views we have always wanted. The other big plus is that to rent our unit it would cost us $320 a week. Over 5 years that would have cost us $83,200..... money down the drain I think. Although our unit didn't go up we lived in it rent free all those years and eventually when it does go up and if we do sell all will be capital gains tax free. In the end even with no capital gain, we can not get kicked out, we have good views and location, we are happy and most of all no on going rent.

With the money I had left over from 5 years ago I bought some good stocks and they fund our retirement. The stocks have done well and they are still returning good strong dividends.

In my opinion a house or unit for you to live in where you want and how you like is a great investment for your way of life. But to fund your retirement stocks that pay fully franked dividends are very hard to beat. To put it another way, I would rather put 500K into good stocks that pay 6% fully franked than put it into a 2 bedroom unit and get 6%, less water rates, less tenancy problems, less levy payments, less agents fees, less special levies, less council rates, less repair bills etc ect and then from what you have left YOU WILL PAY TAX, cheers.

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The decision to buy a house is indeed a personal one and there are numerous lifestyle and other benefits that are worth mentioning. However to have bought a house 5 years ago out of hard earned capital which has not gone up in value at all and then claim that you are on top because you have saved yourself $83,200 in rent is a little foolish in my opinion. If this Unit cost you $400,000 which you could have invested in shares at 10% after tax (relatively conservatively the past 5 years) then your capital today would be worth $644,204 which means owning your own house has cost you 244,204-83,200 the lost growth less rent. Your opportunity cost of renting is $161,004 for the last 5 years.

Of course share markets do not go up every year and history is not an accurate way of forecasting the future but it is the most reliable measure we have. But history will tell you that shares outperform property over the longer term.

Cheers

PS I am a home owner despite the above as it is a lifestyle decision and it is very hard to put a value on that. However I do not believe that I am coming out on top regardless that is irrational.

RustyK said:

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The decision to buy a house is indeed a personal one and there are numerous lifestyle and other benefits that are worth mentioning. However to have bought a house 5 years ago out of hard earned capital which has not gone up in value at all and then claim that you are on top because you have saved yourself $83,200 in rent is a little foolish in my opinion. If this Unit cost you $400,000 which you could have invested in shares at 10% after tax (relatively conservatively the past 5 years) then your capital today would be worth $644,204 which means owning your own house has cost you 244,204-83,200 the lost growth less rent. Your opportunity cost of renting is $161,004 for the last 5 years.

Of course share markets do not go up every year and history is not an accurate way of forecasting the future but it is the most reliable measure we have. But history will tell you that shares outperform property over the longer term.

Cheers

PS I am a home owner despite the above as it is a lifestyle decision and it is very hard to put a value on that. However I do not believe that I am coming out on top regardless that is irrational.

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I like your post, it put that facts cleaerly. My wife and I chose to sell our home as from a text of Robert Kyosaki I did the sums and put the money into share trading. Now by active share trading and getting on trends following simple rules has made us a safe and steady 60% average per year.

And we are portable. Going to live for 4 months in Cairns this winter.

explod said:

I like your post, it put that facts cleaerly. My wife and I chose to sell our home as from a text of Robert Kyosaki I did the sums and put the money into share trading. Now by active share trading and getting on trends following simple rules has made us a safe and steady 60% average per year.

And we are portable. Going to live for 4 months in Cairns this winter.

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Robert Kyosaki's Teachings say that Property investment is an essenitial part of a wealth creation stratergy.

Robert kyosaki believes that property investments are the very foundation that supports the rest of your portfolio.

Tysonboss1 said:

Robert Kyosaki's Teachings say that Property investment is an essenitial part of a wealth creation stratergy.

Robert kyosaki believes that property investments are the very foundation that supports the rest of your portfolio.

Click to expand...

A quote from the man himself:

There is a saying that goes, "When your picture appears on the cover of Time Magazine, your career is over." If you have access to the June 13, 2005 issue of Time Magazine, you will see a picture of a man hugging his home. The title and subtitle say, "HOME SWEET HOME: Why we're going gaga over real estate."

There is another saying that goes, "As General Motors goes, so does the U.S." Well, today, both General Motors and Ford have had their corporate bonds downgraded to "junk bond" status.

Rich dad would say, "As one party ends, another begins." This real estate bubble has made many people very, very, rich. I hope it has made you rich. It has certainly made Kim and I very, very rich. But in my opinion, this party is over... so see you at the next party.

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RustyK said:

The decision to buy a house is indeed a personal one and there are numerous lifestyle and other benefits that are worth mentioning. However to have bought a house 5 years ago out of hard earned capital which has not gone up in value at all and then claim that you are on top because you have saved yourself $83,200 in rent is a little foolish in my opinion. If this Unit cost you $400,000 which you could have invested in shares at 10% after tax (relatively conservatively the past 5 years) then your capital today would be worth $644,204 which means owning your own house has cost you 244,204-83,200 the lost growth less rent. Your opportunity cost of renting is $161,004 for the last 5 years.

Of course share markets do not go up every year and history is not an accurate way of forecasting the future but it is the most reliable measure we have. But history will tell you that shares outperform property over the longer term.

Cheers

PS I am a home owner despite the above as it is a lifestyle decision and it is very hard to put a value on that. However I do not believe that I am coming out on top regardless that is irrational.

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I don't have an argument with you RustyK as you are right. You answered the question for me. Mate, I rented plenty of places before I bought my first property in Sydney, I was always a good tenant. After being asked to vacate the premises a few times just around about Christmas time I thought enough is enough. The lifestyle I have and the piece of mind I have knowing no one can kick me out at Christmas time has no price tag on it. Yes I suppose I could have used that 400K to do better but if I was renting and I was asked to vacate my missus would be running after with meat cleaver all the way to the beach.:samurai:

About shares and 10% return (conservatively).... Just imagine if someone retired on Nov 1st. last year and put their 400K nest egg into the sharemarket when the all ords hit 6,800 points. They would be looking at a 11% loss in what 2 Months? Their 400K would only be worth 356K now I understand the markets quite well but some people don't, I can talk until I am blue in the face about the opportunities in investing in the sharemarket but some people can not cope with this risk. Don't worry RustyK, I'm with you, just trying to show the other side on both counts, cheers mate.

Just speaking to Moneytree and thought you guys might like to know....


He made $202K for 2007 year being long property.

I think he bought $257K and sold $390K (return of 51%)

2nd property bought $300K and sold $435K (return of 45%)

Both held for 6 months and being the primary residence NO CGT

Well done to him.


PS I have his permission to post this

"Adding fuel to the rental market surge are the supply constraints flowing on from fewer new dwellings being developed which is contributing to the undersupply of rental stock."

The figures show that within the detached housing market, Darwin is recording the highest rental yields, averaging 5.45 per cent.

Canberra, meanwhile, is returning the the highest average rental yield in the apartment market with 6.08 per cent.

The lowest average yields for both houses and apartments are in Perth where the average gross rental yield on a house is 3.41 per cent and 3.88 per cent for an apartment.

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http://www.news.com.au/heraldsun/story/0,21985,23033257-664,00.html

No wonder few dwellings are going up with returns like that, Perth is unreal , putting alot of faith in Capital appreciation. Gawd to make it an attractive investment you really need rents to like double from 400 to 800, which we all know is Impossible for a long long time.

tick tock tick tock

robots said:

hello,

great stuff frinkster, hope you have many happy years there

I lived with my brothers (3) at the one house here in melbourne for 21 yrs from birth, great time, driveway cricket, pool, footy etc

thankyou

robots

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Cheers robots, I plan on doing just that. No pool for me(can't have it all with a first home), but I do have this less than a 2 minute walk down the road, so I think Mrs Frink, the 2 dogs and I will get by

numbercruncher said:

http://www.news.com.au/heraldsun/story/0,21985,23033257-664,00.html

No wonder few dwellings are going up with returns like that, Perth is unreal , putting alot of faith in Capital appreciation. Gawd to make it an attractive investment you really need rents to like double from 400 to 800, which we all know is Impossible for a long long time.

tick tock tick tock

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Considering wages for the majority of renters in Perth HAVE NOT increased in 5 years. Yeah, fly in fly out jobs obfuscate the facts, but the reality of the siutuation is most renters have not had any substantial wage gain alongside massive costs of living increases here.

The news says WA is facing severe mortgage stress, defaults are apparently increasing quickly.

And anecdotally at least, some places around us have been on the market for close to a year, without moving (I can't actually remember the last time I saw a sold sign on one). A lot seem to have given up. And this is in a suburb 2 mins drive from Freo, 2 mins drive from the Freeway and train station.

Obvious conclusion...

hello,

might want to add another 1% onto that loss for the market now Bill M,

great time for buying stocks isn't it?

thankyou

robots

Bill M said:

I don't have an argument with you RustyK as you are right. You answered the question for me. Mate, I rented plenty of places before I bought my first property in Sydney, I was always a good tenant. After being asked to vacate the premises a few times just around about Christmas time I thought enough is enough. The lifestyle I have and the piece of mind I have knowing no one can kick me out at Christmas time has no price tag on it. Yes I suppose I could have used that 400K to do better but if I was renting and I was asked to vacate my missus would be running after with meat cleaver all the way to the beach.:samurai:

About shares and 10% return (conservatively).... Just imagine if someone retired on Nov 1st. last year and put their 400K nest egg into the sharemarket when the all ords hit 6,800 points. They would be looking at a 11% loss in what 2 Months? Their 400K would only be worth 356K now I understand the markets quite well but some people don't, I can talk until I am blue in the face about the opportunities in investing in the sharemarket but some people can not cope with this risk. Don't worry RustyK, I'm with you, just trying to show the other side on both counts, cheers mate.

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Let take another look from business perspective angle....

You own a little business that pay nicely income of 20K-30K a year
say a PE any where between of 15-20, so your business is roughly worth 400K for this retiring chap and it been like that for several years.

On a happy day mr Market decided he will pay 450K for your business which is 10% above your premium you probably want to sell it but thinking will I get the same income when I Sell that business with the money I got?
I decided to hold and get my income. The business going well and my earning start to increase to 30K-40K a year ..Damn I'm glad I didnt sell it.

Then one day Mr Market feel depress and decided to offer you 300K for you business because things don't look too good in the near distance future and your earning may go back to 20K-30K a year, never the less the income still there

would you sell your business now?

so for this retire person putting 400K into a decent company and now Mr Market wants it for 350K or 300K should worry this person at all. He still get his income and should be merry.

Five or ten years down the track when the business is booming and earning pick up Mr Market will come around again and offer 20,50, 100% premium for his business. Stock that went through this scenario, CBA, WOW, BHP, FLT
you name it there are hundred of them out there.

Daily price movement of the stocks or your portfolio shouldn't effect your initial investment decisions and that is to buy exceptional stocks and hold it through thick and thin for a long period time. Only sell out when you need the money to do something useful. The guys that get depress or worry about their stocks are not in there for a long halt and more like a traders rather than investor.

If I identify a good business and if it selling below or at the price I'm willing to pay I buy it even in bear market down 50%.

If you put Residential property market on a stock market you get the same sort of daily price movement. Look at property trust (that the closest thing about property investment on the stock exchange).

Cheers

ROE said:

so for this retire person putting 400K into a decent company and now Mr Market wants it for 350K or 300K should worry this person at all. He still get his income and should be merry.

Five or ten years down the track when the business is booming and earning pick up Mr Market will come around again and offer 20,50, 100% premium for his business. Stock that went through this scenario, CBA, WOW, BHP, FLT
you name it there are hundred of them out there.

Daily price movement of the stocks or your portfolio shouldn't effect your initial investment decisions and that is to buy exceptional stocks and hold it through thick and thin for a long period time. Only sell out when you need the money to do something useful. The guys that get depress or worry about their stocks are not in there for a long halt and more like a traders rather than investor.

If I identify a good business and if it selling below or at the price I'm willing to pay I buy it even in bear market down 50%.

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So, on the above principle, if there is a full blown recession and our market doesn't recover for, say, two years. are you still going to be happy seeing your investment continue to decline or at best go sideways?

Julia said:

So, on the above principle, if there is a full blown recession and our market doesn't recover for, say, two years. are you still going to be happy seeing your investment continue to decline or at best go sideways?

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Sure I don't know what other people buy ..What I'm buying I dont care if the stock rise or fall on any given day. I buy more if the market drop and the price is right .... I have a dozen of stocks I want to buy but it's not there yet so I just be patient and drink my coffee and snap up the one that pitch right at me for a swing.

I'm happy to sit in 5-10 years if that what it takes...I got 30 years on my hand do I really care what happen in the next 5 years

explod said:

I like your post, it put that facts cleaerly. My wife and I chose to sell our home as from a text of Robert Kyosaki I did the sums and put the money into share trading. Now by active share trading and getting on trends following simple rules has made us a safe and steady 60% average per year.

And we are portable. Going to live for 4 months in Cairns this winter.

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Xplod, Can't wait till the kids are off my hands, I'll be spending Melbourne winters up north as well. Have to refine my share trading/investment skills though after the past few weeks as I just entered the market before all this sub prime and US recession talk started. Regards, CB

Tysonboss1 said:

Robert Kyosaki's Teachings say that Property investment is an essenitial part of a wealth creation stratergy.

Robert kyosaki believes that property investments are the very foundation that supports the rest of your portfolio.

Click to expand...

It was not his preference of investement but the calculations for investment that I took from Kyosaki. In one book he said, "if you are travelling by air, you dont buy the plane you hire it" His property deals if you check were commercial enterprises/undertakings even if some were residential in nature.

In a recent newsletter he said, "Silver under $20 oz is cheap"

The arguments should not be the product itself but what the product returns to our pocket.

The home as "our castle" puts emotion into the equation. Emotion does not drive good investment decisions.

hello,

I hope Kathmandu DAVE can post the article of the Byron Bay house that went from 5.2k to 6mil,

emotion hasnt caused too much of an issue on that one,

you'r home is probably one of the best passive investments around on a P & I loan

thankyou

robots

hello,

great article here today,

http://business.theage.com.au/house-prices-to-keep-going-through-the-roof/20080111-1lhr.html

if someone could please paste it would be great thanks,

0.4% difference between property and shares over 23 yrs

thankyou

robots

robots said:

hello,

great article here today,

http://business.theage.com.au/house-prices-to-keep-going-through-the-roof/20080111-1lhr.html

if someone could please paste it would be great thanks,

0.4% difference between property and shares over 23 yrs

thankyou

robots

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Natalie Craig
January 12, 2008
Page 1 of 2
ONE man's housing affordability crisis is another man's lucrative investment market.

Escalating house prices show little sign of abating and long-term figures confirm Australian residential property is a strong, stable investment ”” sexy qualities in these shaky times.

The ANZ property market outlook for 2008 was unequivocal in its recent forecast: "A severe and potentially intractable shortage of housing will continue to drive house prices and rents sharply higher in the years ahead."

This was despite Bureau of Statistics data on Tuesday showing total building approvals rose 8.9% ”” on a seasonally adjusted basis ”” and were up 14.6% last year.

The Australian Property Council welcomed the figures, but said underlying demand was still outweighing supply. Head of financial analysis at ANZ, Paul Braddick, agreed: "It's probably likely to be very short-lived … Supply remains constrained and demand is still incredibly strong, bolstered by high net migration."

ANZ analysis shows residential property has had remarkable returns over the past 23 years. Since 1984, residential property delivered a compound annual total return of 13.4%, only slightly below equities (13.8%) and well above commercial property (10.3%) and bonds (9.4%).

But once volatility was added to the equation, residential property returns more than tripled those of equities and more than doubled those of commercial property and government bonds.

In stark contrast to the shaky sharemarket, ANZ reported that house prices had "virtually never fallen", apart from a 0.3% drop during the recession in the early 1990s, and a 0.9% drop in 1996.

Mr Braddick said growth continued to defy those waiting for the "bubble to burst", and expected residential property to outgrow equities in 2008. He also predicted the gap between prices in inner-city and outer suburbs would narrow.

But Alliance Finance Group director Craig Dres said he believed sections of the market would decline. "I suspect there will be a fallout, and those glued to the set will find some discounted prices. It's inevitable. The highs can't continue forever, and the cycle will turn, although I think inner suburbia is still solid."

Mr Dres said the market was yet to see the impact of November's interest rate rise, and that the outer suburbs would soon start to feel the pinch. Renters are also likely to suffer from the rate rise and escalating house values. Australians For Affordable Housing chairman Michael Perusco said he hoped some of the money flooding into residential property would be channelled by affordable housing schemes and new tax offsets offered by the Government's National Rental Affordability Scheme.

explod said:

It was not his preference of investement but the calculations for investment that I took from Kyosaki. His property deals if you check were commercial enterprises/undertakings even if some were residential in nature.

The arguments should not be the product itself but what the product returns to our pocket.

The home as "our castle" puts emotion into the equation. Emotion does not drive good investment decisions.

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I don't own "a castle" that I am emotionally atached to, I actually rent a very modest 1 bedroom apartment in sydney that I share with my partner,

But I do hold a property portfoilio with over $1m of equty, which over all is returning a postive income and most of the properties are in suburbs of brisbane achieving good capital growth.

I have stratergies that I can use to make money in just about any property market whether it be up down or sideways, so saying people won't make money in property is just plain wrong. The problem is when most people bag property investment they are only thinking of the "buy and hold" stratergy.

the "Buy and Hold" stratergy is just one property investment stratergy, the buy and hold stratergy will only make you money 1/3rd of the time, simply because property only goes up 1/3 of the time the rest time its down or flat,
however having said that if you are wise enough with the areas you choose the up periods will always increase the property value by far more than the down and flat periods will bring the prices down, so over the longterm if you buy and hold you will make money.

My property portfoilio has deffiantly been the key part of my investment portfoilio that has allowed me to grow both my business and my other investments much faster than I other wise would.

I maintain the opinion that to accelerate your growth you need Property, Business and equity investments. focusing on any one of these three by itself will never Bring the sustained longterm growth you will get by putting together a portifiolio that allows the strengths of each asset class to offset the weaknesses in the other.

tyson similar to you but own my own home.

Agree with most you have said but perhaps one.
You can specialise in Property/Business and or equities and excel beyond the "Norm"
Often as has been my case with property this becomes a business in itself quite separate from my core business--Civil Construction.
But agree balance is best.