House prices to stagnate for 'years'

[dj_420]

thanks jay-684

 

[tech/a]

Tech,

Are the 2 blocks industrial or commercial? You said commercal blocks but then said they are located in an industrial area. I know nothing of Adelaide & its prices, however, the prices you mentioned seem to indicate they are industrial blocks.

My apologies.
Industrial.
While its possible to run a commercial venture in an Industrial developement its Industrial as will be the developement.

 

[dj_420]

ok so i need to use other assets to provide initial capital. what about shares does that count as an asset which you could offset to purchase property?

 

[dubiousinfo]

thanks for that tech/a! very much appreciated!

the reasoning for my curiosity is two fold. Firstly I am currently in my final semester of a Bachelor of Business (Property) degree at Western Sydney University. Obviously firstly I will need experience so I plan to go into property management and asset portfolio management (or gaining a job with Mirvac, Sotcklands etc) for the first part of my career. Secondly, once I feel I have an in-depth knowledge of commercial and indistrial property I plan on becoming a property developer/investor mainly due to the benefits of being self employed and the higher returns (to all the risk averse prople, I know the risk is higher as well).

I am interested in any knowledge you wish to send my way, however it may not be appropriate for this thread (not that half of the posts here are anyway)

For the Sydney market, Industrial property took over from residential but has now softened. Commercial began picking up around 6 months ago & agents have stopped offering incentives for new leases. This is typical of Sydney as its unusual to see more than one class moving at the same time & I don't recall ever seeing all 3 run at the same time.

In smaller towns I have seen all 3 run together, places like Noosa & Darwin come to mind.

Commercial property is very lucrative to be in when it is running & is my personal favourite. The main indicators for us are yield & vacancy rates.

One of the drawbacks when starting out however is finance. When I started out, banks wouldn't lend more than 60% of the development & usually required precommitments. It is getting easier lately & in some instances you can get up to 75%.

Another drawback is the long lead times. From purchasing a property to completion of construction can take from 2 to 3 years, even for medium size developments, so you really need to time it right if you are going to develop. (We are expecting to bring on around 12,000sq meters in the next 6 to 12 months, but this was started 18 months ago)

It's probably best to get in with some experienced partners when starting out, because if you get it wrong it can cost you plenty.

Purchasing strata areas of completed buildings is far less risky. While the yield of residential is currently around 2% to 3%, the yield for commercial is around 7% to 8% depending on location & standard.

 

[nizar]

http://www.bloomberg.com/apps/news?pid=20601109&sid=a4Naw1mqxCRw&refer=home

http://www.bloomberg.com/apps/news?...xCRw&refer=home


Quote:
Housing Slump in U.S. May Lead to First Drop Since Depression

By Kathleen M. Howley and Matthew Benjamin

Sept. 18 (Bloomberg) -- Nancy and Brian Christopherson are asking $389,900 for their eight-room Colonial Revival home in Westford, Massachusetts, featuring a new kitchen with maple cabinets. Even at that price, they'll lose $14,100.

Monthly price reductions since they listed it in May for $429,900 have lured no offers for the house, bought for $369,000 in 2004. ``It's getting scary,'' says Nancy Christopherson.

The sharpest slowdown in U.S. home-price growth in three decades is trapping owners with mortgages they can't afford, pushing unsold homes to a record 4.42 million and gutting profits for builders such as Lennar Corp. and Toll Brothers Inc. The U.S. median home price next year may fall for the first time since the Great Depression, says Gabriel Stein, chief international economist with Lombard Street Research in London.

Wayne and others,

Is the above comment accurate??

Coz i thought property, is just like other markets, and u get cycles, one ends, then another begins shortly after. Property last boomed in the late 80s in australia, and then late 90s, and probably in the next 5-7 years we will get another boom.

Obviously over the long-term property, like other asset classes, is a good investment, but dont u get mini booms and cycles in between?

So is it possible that houses in the U.S. rose for 70 years in a row?? (great depression was like 1930s).... without ever going down from one year to the next....

Or am i misunderstanding something?

Thanks

 

[Julia]

That's right. Rather than the baby boomers selling off their IP's, they'll be selling off their own larger homes and down-sizing into smaller dwellings, eg. units & townhouses. And they'll be putting the difference in the prices into their SMSF or into their self-funded pension annuity. As a b-b myself I am already observing this in my neighbourhood. This could mean the market for larger houses becomes depressed, but the market for more compact retirement-sized homes could benefit.

Regards. YN.

Yes, YN. That sounds entirely reasonable. However, I am noticing more and more advertisements for very upmarket retirement villages, resorts really, with indoor and outdoor heated pools, tennis courts, bowls greens, theatres, bar and restaurant etc etc, in which three brm, 2 bthrm, double garage units (room for the grandchildren to stay etc) villas are priced at about the same as suburban stand alone houses. So I'm just not sure that retirement is necessarily going to mean financially downsizing for the baby boomers.

Again, I think we are inclined to overdo the lumping together of all baby boomers as an a one size fits all economic model, whereas in fact lots of them who have not managed to save enough for retirement will end up paying rent and existing on a government pension. The next decade or so will be very interesting.

Julia

 

[Smurf1976]

Wayne and others,

Is the above comment accurate??

Coz i thought property, is just like other markets, and u get cycles, one ends, then another begins shortly after. Property last boomed in the late 80s in australia, and then late 90s, and probably in the next 5-7 years we will get another boom.

Obviously over the long-term property, like other asset classes, is a good investment, but dont u get mini booms and cycles in between?

So is it possible that houses in the U.S. rose for 70 years in a row?? (great depression was like 1930s).... without ever going down from one year to the next....

Or am i misunderstanding something?

Thanks

One key point to understand is that what constitutes a "median" house changes substantially over the course of the real estate cycle.

It is reasonably well known that quality property will always find a buyer (a point made often by bulls). It is also no secret that poor quality property is incredibly hard to sell in a slump.

But in a boom, ANY property sells and it does so at a rising price.

Consider an anaolgy using second hand cars. If there were a slump in the market, only the better cars would likely find buyers while the old clunkers would head to the wreckers. But in the event of a major boom in the demand for used cars the old clunkers would be selling rather than being wrecked (just as the poorer quality properties sell). And so the "median" cars being sold would be of declining quality, relative to the average of all cars on the road.

Likewise in a real estate boom the quality of the "median" house tends to fall relative to the average quality of all houses in existance (as opposed to on the maket). In a slump with only the better properties selling readily, the median quality of houses selling rises relative to the average quality of all houses in existance.

It's a bit like saying you sell more Barinas in the boom but only BMW's sell during the slump. Since the BMW's sell at a much higher price (new), this will tend to hide the full extent of the slump from the "median" figures since the median car sale is now of much higher quality. Likewise the extent of the boom will be understated as median quality declines during the boom as the lower end cars, houses or whatever find buyers.

So the overall effect is to understate the extent of the boom in the value of the SAME house and also understate the extent of the slump in the value of the SAME house by the constant shift in what constitutes a "median" house. Hence the common stories of house price gains that substantially exceed the "median" price rise during the boom and those stories of price falls much greater than the "median" fall during the slump. The changing composition of the market smooths the price figures.

If median quality improves but price stays the same then the price of the SAME house will likely have fallen. Reverse if median quality declines.

In recent times where I have been looking (Hobart) there has been a marked shift in sales favouring the better quality properties. The ugly ducklings are having real trouble actually selling while the more attractive houses readily find a buyer. Since the better houses tend to be more expensive, this has lead to rising or at least stable (depending on which figures you choose) median prices despite the value of the SAME house being down 10 - 15% from the peak.

Personally, I consider it far more useful to track the prices of very similar houses in the same area(s) as a measure of the state of the market. This avoids the distortion of changes in what is actually being sold which disorts the "median" figures.

Using my criteria of 3 bedroom 13 - 14 square brick freestanding houses on 600 - 750 sq metres of land in selected suburbs of Hobart, asking prices are now about 12% below peak selling prices and properties are not readily selling at those prices.

I also run another criteria of "cheapest available 3 bedroom property in selected low income suburbs". That is down just on 20% and still falling. As is clearly evident, the lower end of the market is taking the biggest hit.

Despite these falls in the price of the SAME or VERY SIMILAR houses, the median continues to rise gradually as buyers get better quality for their money. That doesn't mean there is no slump. It just means that people still have reasonably easy access to credit - they borrow $x and buy the best house they can get with that money. During a slump, they get a better house rather than spending less. Hence any price chart based on "median selling prices" will look a lot smoother than the actual value of the SAME house was over that period.

 

[Realist]

Are 93% of people are quite stupid...?

No regrets for boom home buyers, survey
September 26, 2006 - 11:29AM

Australian home owners who bought during the property boom have no regrets about their decision despite rising interest rates, a survey shows.

According to research commissioned by Wizard Home Loans, 93 per cent of home owners who purchased after the year 2000 believed it was a good decision to have entered the market when they did.

Chairman of Wizard Home Loans Mark Bouris said home owners have realistic expectations about their purchase.

"While there is little doubt that rising interest rates put people on edge, 88 per cent see rising rates as a reality of having a home loan," he said.

"The subsequent higher mortgage repayments have not made them consider selling up."

Mr Bouris said the survey of more than 200 home owners, conducted in mid-September, also confirmed that Australian homeowners were well educated and focussed on building wealth.

"More than 45 per cent of home owners surveyed intend to purchase an investment property in the next five years," he said.

The research showed 15 per cent of those who bought during the boom have already purchased an investment property and are capitalising on the current low vacancy rates and high rental returns across most cities, he said.

Although money can be made in the sector, Mr Bouris warned short term property speculation was a risky.

"Property is a long term investment so it shouldn't matter what point in the property cycle you enter, as long as your timing is part of an informed strategy," he said.

Mr Bouris said that despite tighter household budgets, and speculation of higher rates, Australian home owners are still a happy bunch with 80 per cent either positive or extremely positive about the fact that they own their own home.

 

[tech/a]

Perhaps I look at property differently to the majority.

I'm still developing high density Community title apartments. Which I sell and keep what I can freehold or atleast positively geared.

Those which I bought in 96-2000 Im selling and freeholding the remainder which have greatest potential--Esplanade property.

If you simply bought a home to live in after 2000 then the decisions are limited.

I see times like 96-2001 as outliers in the property market that will take sometime to repeat.
Just like the stock market there will always be opportunity but this 5 yr period was like a stock rising 150%.That may take 15 yrs to increase anywhere near what it has to 2001.
Investors should take advantage of these unusual moves and lighten exposure.

 

[krisbarry]

Perhaps I look at property differently to the majority.

I'm still developing high density Community title apartments. Which I sell and keep what I can freehold or atleast positively geared.

Those which I bought in 96-2000 Im selling and freeholding the remainder which have greatest potential--Esplanade property.

If you simply bought a home to live in after 2000 then the decisions are limited.

I see times like 96-2001 as outliers in the property market that will take sometime to repeat.
Just like the stock market there will always be opportunity but this 5 yr period was like a stock rising 150%.That may take 15 yrs to increase anywhere near what it has to 2001.
Investors should take advantage of these unusual moves and lighten exposure.

I very much agree, it would appear that because your success was based on a particular moment in time, that same success cannot be repeated again for quite some time to come.

 

[Realist]

Perhaps I look at property differently to the majority.

I'm still developing high density Community title apartments. Which I sell and keep what I can freehold or atleast positively geared.

Those which I bought in 96-2000 Im selling and freeholding the remainder which have greatest potential--Esplanade property.

If you simply bought a home to live in after 2000 then the decisions are limited.

I see times like 96-2001 as outliers in the property market that will take sometime to repeat.
Just like the stock market there will always be opportunity but this 5 yr period was like a stock rising 150%.That may take 15 yrs to increase anywhere near what it has to 2001.
Investors should take advantage of these unusual moves and lighten exposure.

Well you got in at the right time Tech/a.

I believe property is all about location and timing, obviously buying in Sydney 3 years ago was a bad move, and buying earlier was good.

The stock market however always has opportunities for astute traders and investors. Just because a stock or the market in general has increased significantly it does not mean it is a bad time to buy shares.

The ASX has dropped from 5350 to 4900 recently yet in that time Fosters, Coles, Mayne, AUM, BMN, HDR, MRE, and many others have soared. And with BHP, RIO, and others selling at low multiples of their current earnings they are arguably quite cheap. Add to that the huge amount of dividends companies are paying out, it is not all bad news.

Those that invested in RIN, DOW, WPL and some others have been stung though. The housing and oil sectors in particular have been hammered.

I don't believe people should ever stay out of the stockmarket. And I would not even recommend reducing their holdings now either. Because the cost of selling, waiting, and buying back in outweighs any advantages that staying out may bring - afterall the ASX may even go up.

 

[krisbarry]

Who is this lady?

I would like to know because when all her mortgagee sales start happening I can profit off her complete incompetence!

Unsure of her name, but she works for or is affiliated with "Destiny Financial Solutions".

 

[Realist]

Unsure of her name, but she works for or is affiliated with "Destiny Financial Solutions".

ahh Margaret Lomas..

Margaret Lomas is the author of the best-selling books "How To Make Your Money Last As Long As You Do", "How To Create An Income For Life", "How to Maximise Your Property Portfolio", and "The Pocket Guide For Investing In Positive Cash Flow Property" . These books explain to new and experienced investors how to manage and profit from a positive cash flow property portfolio without falling for the traps which are often promoted at 'get rich quick' seminars.

Margaret is the founder of the nationally represented company "Destiny Financial Solutions". Commenced in 1992 in Perth WA as a fledgling financial advisory and brokerage company employing just two people, Margaret has built this company into a nationally franchised organisation, offering unique property advisory services to investors all over the country.

She is also a dynamic presenter who is in great demand as a speaker at financial expos, shows and seminars all around Australia in many categories including Property Investing, Women in Business, Building a National Business and many others. She is the resident financial commentator on five radio programmes across Australia and writes articles for several magazines.

Margaret has Diplomas in Financial Advising and Human Resource Management and a Certificate in Franchise Management. She is an affiliate member of the Securities Institute of Australia and the founder of Destiny Financial Solutions Pty Ltd.

Margaret has also been recently appointed to the Board of Business Central Coast, an independent body headed up by former Olympics Committee Chairman Sandy Holway, in place to foster and build business growth on the Central Coast.

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[Realist]

I think the financial advice and property advice industries are much like the fitness industries.

Only for suckers!!

If you eat healthy and exercise then you are wasting you time seeing a fitness advisor. And if you do not eat healthy and exercise then you are wasting you time seeing a fitness advisor.

 

[Julia]

I think the financial advice and property advice industries are much like the fitness industries.

Only for suckers!!

If you eat healthy and exercise then you are wasting you time seeing a fitness advisor. And if you do not eat healthy and exercise then you are wasting you time seeing a fitness advisor.

Ah, Realist, every now and again you absolutely justify your existence on this forum with a little gem like this one!

Succinct, and oh so correct.

Julia

 

[Smurf1976]

Well, that's it. The slump looks to be here in Hobart...

Since 2003 I've been closely watching selected suburbs just to keep an eye on the market. The cracks started appearing a couple of months ago and now there's at least one serious fall and plenty of properties a lot cheaper than they would have been.

Have all houses fallen in price? NO! But there are an increasing number of cheap properties such that those looking to buy a modest house can now get one at a substantially cheaper price than they would previously have paid.

I never was concerned about the top end of town (Sandy Bay in Hobart's case) or some statistical average but rather, how much it costs an ordinary family to put a roof over their head.

My criteria has been fairly simple. A typical 3 bedroom house on a reasonable block. Nothing fancy, just a reasonable suburban house that's ready to move into without extensive renovations and doesn't have any obvious major disadvantages (so ignoring houses located on highways, next to pubs / clubs / service stations or anything else disruptive).

For quite some time the market was stuck in a tight range with both brick and weatherboard houses about the same price. Then came the first falls of 10 - 15% and I suspected the long awaited slump was here.

But then more of those properties started to appear. First one, then more. And they still haven't sold. Meanwhile, more expensive houses (above the modest house in my criteria) have started to come down too.

Earlier this week a colleague who is about to sell their modest suburban house told me that a real estate agent had informed them to be quick as "the top end of the market is simply stuffed". The inference being to get a move on and sell before buyers realise that they can get a much better house for not much more than the one he is selling, thus making his house hard to sell.

And so I just did my weekly check of the market. And what did I find? A modest but perfectly reasonable (so it seems) house for sale that's fully 30% below the peak price. Meanwhile those early cheap offerings 10 - 15% below the peak are still sitting there.

And not only that, but plenty of 2 bedroom houses for sale in another (quite reasonable) suburb at the price of a 1 bed at the peak.

So, the agents say the market for more expensive houses is "stuffed" while even a quick search on the internet turns up an increasing volume of evidence that the market for first home buyer properties is going exactly the same way.

As I have noted on several occasions here and on property forums, Sydney has lead this cycle and Hobart has been next in line for some time now. That doesn't seem to have changed.

For those in the other states, there's no need to move to Sydney or Hobart to grab a bargain. You've had the same boom and it stands to reason that in due course you'll get the same slump.

For those on the commodities boom bandwagon in Perth, I must point out that the largest industry in Hobart is the zinc works (Zinifex) and that Tasmania's exports are overwhelmingly dominated by commodities. Cadbury (a very major employer in Hobart) is expanding production as is Incat (another major employer), the tourism industry is ticking over reasonably well and the largest non-Hydro investment ever proposed in the state, the pulp mill, seems increasingly likely to proceed. Basslink's up and running, natural gas pipes (gas being a new industry in Tas) are going in all over the place and we've got plenty of cruise ships heading here this Summer. None of which have been sufficient to prop up the housing market.

All that said, there's still an awful lot of "boom" priced properties on the market so the falls are somewhat narrowly concentrated rather than broadly spread. But they are slowly spreading...

 

[clowboy]

So how long do you give me to save for the deposit on a holiday home down that way smurf? two or three years?

Would love to vistit that area on day and will need somewhere to stay.

will a nice two by one be under the 100k mark in three years?

 

[noirua]

Motley Fool's view of the UK housing market that booms on relentlessly and their opinions on a future crash: http://www.fool.co.uk/news/comment/2006/c060928a.htm?source=ioowftxt0010011

 

[tasmanian]

hey realist,

can u write something about property??i need some good entertainment to start my weekend of.lol.

cheers

 

[cogidubnus]

realist is a good bloke. I will tell him about kimberlies when I arrive. Today we are driving to perth. My companions cooked a nice meal for me last night. the bus drives well. On monday I will make more money on aar and aex POS POG and POO will move up soon