The Australian property market

[sharechaser]

Regarding interest rates. I think the opposite. The higher the interest rates go, the less affordable housing becomes for the first home buyer, the more demand for rental properties. Thus with the current climate, there are not a lot rental properties out there, this appeals to the investor, which drive up demmand for investment properties, and therefore general house prices.

It's a very basic explanation, but I hope this helps. It's all part of the cycle.

My worth.

eMark - I actually never thought about that before, and I was under the impression that an interest rate rise could actually make housing more affordable for first home buyers due to decreased demand. In my opinion, I think if interest rates went down then more homebuyers and investors would be encouraged to take out mortgages and buy homes, therefore increasing demand and also the price.

On the flip side, I would have thought that the rise in interest rates would result in a less desirable return on equity for potential property investors, causing them to perhaps switch to higher NPV investments such as shares. Around times of increased interest rates you always here many stories of people who can't afford the repayments and are forced to sell, thus creating more supply.

I understand that a higher interest rate would cost more for the home loan of course, but is it possible that for a first home buyer the lower price resulting from a decrease in demand could outweigh the increase in home loan payments, therefore making housing more affordable.

I never considered the idea of more demand for rental properties, and it's a very good point. However as rents rise (as they have been lately) it starts to make sense for more people buy instead of rent, as renting is no longer cheap.

Of course this ignores facts like people moving due to the resouce boom etc and I'm just hypothesising ceteris parabis. Does anyone have any ideas as to exactly what interest rate changes do have on housing affordability?

(Btw i'm obviously using the term housing affordability to include the price of houses, not just loan repayments)

 

[eMark]

I understand that a higher interest rate would cost more for the home loan of course, but is it possible that for a first home buyer the lower price resulting from a decrease in demand could outweigh the increase in home loan payments, therefore making housing more affordable.

I never considered the idea of more demand for rental properties, and it's a very good point. However as rents rise (as they have been lately) it starts to make sense for more people buy instead of rent, as renting is no longer cheap.

Hi sharechaser

The way I understand it is that it all depends on what combination of factors that are involved at the time. Since 2003 (the unofficial end of the last property boom), was because of a surplus of developments & general property available in the market place (which was a direct repsonse to the boom itself), and prices had reached a top. Due to the surplus, developers started to pull out. A natural course developed of very little to no new stock over the next 3 years, which is culminating in todays shortage of properties to rent. Higher rentals are resulting from a lack of stock, which in turn is enticing investors back in to compete with homebuyers equaling higher cost of housing. Higher home prices & interest rates forcing renters to continue to rent. The wheels keep turning.

Of course a few years ago, someone who rented and got sick paying rent could buy a home due to the monthly payment not being much more than the rent itself. But try buying a 3 bedder in middle to outer Melbourne now, and the monthly payment far outweighs what it costs to rent.

 

[theasxgorilla]

Of course a few years ago, someone who rented and got sick paying rent could buy a home due to the monthly payment not being much more than the rent itself. But try buying a 3 bedder in middle to outer Melbourne now, and the monthly payment far outweighs what it costs to rent.

The key reason for this is that interest is only tax deductable on investment properties. It means that the tax payer subsidises the living of renters...or put another way, encourages investors to make available rental accomodation.

In other parts of the world like the US, Sweden and Denmark the interest on your primary place of residence is tax deductable. Discrepancies between the cost to rent and own still develop, since speculators are still willing to take a hit to participate in cap gains...but the discrepancies don't get as far out of wack as they do in Aust.

 

[numbercruncher]

The key reason for this is that interest is only tax deductable on investment properties. It means that the tax payer subsidises the living of renters...or put another way, encourages investors to make available rental accomodation.

I prefer to look at it as the Tax payer Subsidises the property speculator, and to the tune of 5 Billion a year, which could pay for a ship load of public housing stock that could be a national asset that inturn rents back to the Government/Tax payer.

If i was a politician the first thing id do is start reducing negative gearing interest claimability by 10pc a year for 5 years to sort out the trash investments.Let them claim everything at the end added to the capital cost.

House prices in Australia are really a national disgrace in comparison to average incomes. Sometimes i wonder how the CBDs of places like Melbourne and Sydney get any low paid workers outside of the Backpacker industry working in them.

The whole system encourages people to live in a rental and buy an Investment property to gain tax advantages, should start a website negativegearinghookups.com to marry up like minded investors.

Well thats my simple view on the subject and im sticking to it

 

[toothfairy]

If i was a politician the first thing id do is start reducing negative gearing interest claimability by 10pc a year for 5 years to sort out the trash investments.Let them claim everything at the end added to the capital cost.

House prices in Australia are really a national disgrace in comparison to average incomes. Sometimes i wonder how the CBDs of places like Melbourne and Sydney get any low paid workers outside of the Backpacker industry working in them.

Hi there,
there is no difference in negative gearing properties (residential or commercial included) or gearing shares, or borrowing money to run your business etc. As long as they are legitimate income producing business. All borrowing costs should be 100% tax claimable. Don't always think people negatively geared their properties ALWAYS make lots & lots of money, there are also risks involved. Why don't you try it? Yes, some people don't like the idea of the rich gets richer, normally they work harder for their income so instead of paying more tax there should be ways to have another business (like being a landlord) to make their money work harder.
House prices in Australia is low compare to most developed countries with good infrastructures. It seems expensive because we want big houses on own land with nice gardens and close to city, and we object to any high rise developments. We are greedy.
Cheers.

 

[krisbarry]

.
House prices in Australia is low compare to most developed countries with good infrastructures.

I would check your facts again before posting such a ridiculous comment as this...according to latest stats...Australia has become one of the most expensive OECD countries in the world to own real estate.

We now have 3 capital cities where the average house cost are about $500,000+. (Perth, Sydney and Melbourne). More than half of Australia's population live in these 3 cities alone.

 

[marklar]

More than half of Australia's population live in these 3 cities alone.

This certainly is a contributing factor, ACA (I think?)had a story on last night about house prices in Stawell and the so called "tree changers" that they were trying to attract into the area. Nice idea, but how many jobs with decent salaries will be available? How many people have been forced to move to Sydney and Melbourne to find work? How can that be turned around?

m.

 

[KIWIKARLOS]

theres two sides to this arguement should the gov release land and increase the sprawl even more or should they undertake urban consolidation to produce more living space.

I for one am for consolidation, Urban sprawl is costly for installing services and in particular transport + its destroys what little environment is left around Sydney etc.

My work gets me involved with the council planners in Sydney and there 10 year stratagy is to build large multi story units and commercial areas with more parks etc around already established rail infrastructure such as is happening along the whole northern rail line in Sydney.

From their predictions they believe elderly people who's kids left home and young singles will move into these areas freeing up the traditional suburban houses with land etc for familys with children etc. They plan to build i believe about 100000 in 10 years.

I think to make housing more affordable we are going to have to let our wages increase with time rather than dropping house prices or opening up large land releases

 

[toothfairy]

I would check your facts again before posting such a ridiculous comment as this...according to latest stats...Australia has become one of the most expensive OECD countries in the world to own real estate.

We now have 3 capital cities where the average house cost are about $500,000+. (Perth, Sydney and Melbourne). More than half of Australia's population live in these 3 cities alone.

I would rather let you have the pleasure of checking HOUSE prices near the CBD (not flats or apartments as they call in NY) in other cities that we Aussies so adore. Say :
New York
London
Paris
the cheapo Hong Kong (they used to live in Sampans)
the not so popular Singapore
Ok Ok apartments prices will do for the last two as long as they are the same sizes and equal distances from the main city.
Please let me know if you can find any bargains at A$500000 even at today's inflated A$. BTW, good properties in Singapore are sold per square foot.(around $2000).
Good Luck.

 

[toothfairy]

Further to my last post. I am going to do a simple maths exercise to prove our property prices are not excessive.
I am old enough to tell you that a house in Richmond, Vic was worth $200,000 in 1991, and an average house in Kew, Vic was worth $400,000. I know because I bought both. After 17 years now both triple, ie Richmond worth $600000 & Kew 1.2M. Using formula of compound interest 1.07 ^ 17 results in slightly over 3. ( the sign ^ means raise to the power of). So the annual capital gain can be considered as 7%. Taken into account of the interest rates you have to pay (or missed out if you pay cash) during this period, the appreciation is hardly considered as exciting or profitable. It just is ....er.... ordinary or let say reasonable. Mind you, back in those days, everyone thought Richmond (a poor suburb near Melbourne for those who don't know) was way too expensive @ 200000. Conclusion : everybody thinks property prices are expensive today, but in a few years' time they wish they have bought at that less expensive price. I have seen it over & over again.
Just my thoughts, I also missed out on an "expensive" Toorak property in 1995 for 500000.
Cheers.

 

[numbercruncher]

Further to my last post. I am going to do a simple maths exercise to prove our property prices are not excessive.
I am old enough to tell you that a house in Richmond, Vic was worth $200,000 in 1991, and an average house in Kew, Vic was worth $400,000. I know because I bought both. After 17 years now both triple, ie Richmond worth $600000 & Kew 1.2M. Using formula of compound interest 1.07 ^ 17 results in slightly over 3. ( the sign ^ means raise to the power of). So the annual capital gain can be considered as 7%. Taken into account of the interest rates you have to pay (or missed out if you pay cash) during this period, the appreciation is hardly considered as exciting or profitable. It just is ....er.... ordinary or let say reasonable. Mind you, back in those days, everyone thought Richmond (a poor suburb near Melbourne for those who don't know) was way too expensive @ 200000. Conclusion : everybody thinks property prices are expensive today, but in a few years' time they wish they have bought at that less expensive price. I have seen it over & over again.
Just my thoughts, I also missed out on an "expensive" Toorak property in 1995 for 500000.
Cheers.

Just gos to show how crappy an Investment Realestate is, now had you invested your 600k in BHP back in 1990 youd now be sitting on about 8m and be getting 200k a year in Divs , youve still done well though!

 

[toothfairy]

Just gos to show how crappy an Investment Realestate is, now had you invested your 600k in BHP back in 1990 youd now be sitting on about 8m and be getting 200k a year in Divs , youve still done well though!

Yup, from here I am just wondering which is better from now on. For property I am comfortable to negatively gear it, margins on share is never long term. For example, during 1992/3 my properties went cheaper than I bought, if they were BHP, I may have sold them to cut loss. Properties, for better or worse, you are more stucked with them for longer term. Very few people kept BHP (without trading at all) for 17 years. Itching to take profit every now and then, LOL.

 

[pedro64]

Hi there,
there is no difference in negative gearing properties (residential or commercial included) or gearing shares, or borrowing money to run your business etc. As long as they are legitimate income producing business.

[...]

income producing, sure, but i suspect that the majority of housing investment income is passive and therefore contributes little to national productivity and gdp. the government provides us with work and business tax concessions to encourage *productivity*.

-- pedro

 

[toothfairy]

[...]

income producing, sure, but i suspect that the majority of housing investment income is passive and therefore contributes little to national productivity and gdp. the government provides us with work and business tax concessions to encourage *productivity*.

-- pedro

Sure, there are many types of business. Some are productive like lollies factories (good for toothfairies ), some are passive like renting out your houses ( but still promoting a service not dissimilar to hoteliers) and some are counter productive like CASINOS. I reckon a landlord has more rights for tax deduction than casino owners. Don't you agree? So look at them first.
PS. gearing to trade shares are NOT productive either.

 

[bvbfan]

Well we all know the yanks are screwed house prices are falling and troubles on the horizon. My question is how will this effect the Australian housing market.
...
Any thoughts

Let me guess that you fell for John Howards pork pies and you voted Liberal?

There are several issues I have with here.
1 - Prices in some western Sydney areas I believe have dropped around 20% or more from peaks and some buyers face negative equity. (There loans are more than the value of the home now)

2- Australia has very little government debt but a huge personal debt run up on credit cards, personal loans, home loans.
Business also have a lot of foreign debt as bonds issued here and overseas.

3 - The mining boom and corporate profits are doing nothing but funding tax cuts for high income earners, and providing some superannuation benefits to low to middle income earners. The benefits of the current boom are being wasted.

4 - Inflation is only low because of the way it is calculated, if you look at the things that the majority of people use everyday you will have noticed they have gone up a lot more than inflation in the past 5 years or so. (petrol, food, accomadation costs etc)
The blowout in inflation hasn't happened because wages have been kept low (Workchoices, AWA's are great in this respect) and generally wage growth is the last area to catch up in the economic cycle.

5 - The RBA will only lower rates if inflation is in the target band of 2-3% and the growth rate is stagnating around 1-2%.
If inflaton stays around 3% you make actually face further interest rate rises because the RBA primary objective is to control the rate of inflation.

It still seems Australia may be heading for the banana republic that Keating talked about 20 years ago. Except the foreign debt has been transferred from the government to the general public.

Australia may not have the sub prime issues but the low doc and 100%+ finance being offered is a recipe for disaster.

 

[robots]

hello,

yes another drop of 3% on the DOW overnight, great stuff

be plenty with cfd trades out of this world,

be another big weekend for RE as people get the real assets and not the fanciful instruments around at the moment

thankyou

robots

 

[wayneL]

hello,

yes another drop of 3% on the DOW overnight, great stuff

be plenty with cfd trades out of this world,

be another big weekend for RE as people get the real assets and not the fanciful instruments around at the moment

thankyou

robots

No asset class will be unscathed as the biggest credit bubble the world has ever seen unravels right before our eyes.

If you believe RE will appreciate from here.... well good luck.

Even London is down MoM.

 

[robots]

hello

thankyou

thankyou
robots

 

[wayneL]

hello,

yes another drop of 3% on the DOW overnight, great stuff

thankyou

robots

BTW, volatility = $$$$$$$

Cheers

 

[Kathmandu]

No asset class will be unscathed as the biggest credit bubble the world has ever seen unravels right before our eyes.

If you believe RE will appreciate from here.... well good luck.
Even London is down MoM.

Not all RE will appreciate in the short term ,but some will.

Just had Val's done on a large parcel of my IP's and they have gone up close to 30% since same time last year.

Houses that I want to buy near were my PPOR in Brisbane are, have gone up just over $100k in 6 mth's about 35%..

A lot of that buying is passionate first home buyers buying with their heart and not their head, desperate to get the house they feel they have to have.

The number's don't stack up for investor's so we leave them to it.

Fool's with their money.....................well the bank's anyway.

Dave