The future of Australian property prices

[Mr Z]

I always figured it cost me around 1% to keep the place, rates, repairs etc...

I was always lucky with tenants but I did screen them personally, however I was hardly Ian Kiernan!

So Cutz, capital gains would be the sole motivator given those sorts of yields! Discounting of course the "tax problem" motivated negative gearers! I always aimed for positive gearing myself.

Last time I took a serious feet on the ground look at it I came up with 3% gross discounting capital gains for the Bayside area in Melbourne. When I first bought rentals country properties could achieve 8%, albeit with a very modest capital gain outlook at the time... but boy did that turn around!

 

[Mr Z]

dont take things personally its just discussion and debate that will go on for centuries

Ha.... LOL the guy infers that you are a low value, low rent poster on more than one occasion then says don't take it personally its a 'debate'. Yet he refuses to even discuss the reality of his experience or give the benefit of his wisdom.

Good going Mr Bots...

What about we hit the reset, drop the us and them and you try talk us fence sitters into the market.... can you make a good case looking forward from here? It should be easy if you are actually investing because surely you have made the case for yourself? Really you have it all to gain, you are only going to reinforce your position and talk others into the market... that is if you are right. Otherwise you may just raise concerns that could impact your strategy moving forward. It always pays to be introspective and challenge your own assumptions when investing your hard earned. At least that is my humble opinion, but then I am human and I do stuff it up every so often... like most

Low yields would seem to be indicative of a stretched market FWIW.

 

[wayneL]

Ha.... LOL the guy infers that you are a low value, low rent poster on more than one occasion then says don't take it personally its a 'debate'. Yet he refuses to even discuss the reality of his experience or give the benefit of his wisdom.

Good going Mr Bots...

What about we hit the reset, drop the us and them and you try talk us fence sitters into the market.... can you make a good case looking forward from here? It should be easy if you are actually investing because surely you have made the case for yourself? Really you have it all to gain, you are only going to reinforce your position and talk others into the market... that is if you are right. Otherwise you may just raise concerns that could impact your strategy moving forward. It always pays to be introspective and challenge your own assumptions when investing your hard earned. At least that is my humble opinion, but then I am human and I do stuff it up every so often... like most

Low yields would seem to be indicative of a stretched market FWIW.

But it's different this time. :band


::

 

[cutz]

I always figured it cost me around 1% to keep the place, rates, repairs etc...

Gotcha Mr Z,

Now the yield drops to sub 1.5% not including interest expenses based on my original numbers, that’s nowhere near the amount of compensation required to be holding such a high amount of concentrated risk, lady luck may be on your side but so is the risk of a huge failure (blowup in trader talk).

A good case study on property bubbles is the Irish one, makes for interesting reading, parallels between theirs (now popped) and ours seem to become apparent.

 

[Mr Z]

Interestingly the Irish pundits where saying many of the things our pundits have been saying about our market.

Many moons ago when I got going %7 was considered the 'right' return, but you have to factor in rates etc. We have moved a long way from that!

One hard lesson I learn once is that its not the absolute interest rate its the direction that counts. If rates are going up it will always put pressure on at the margin despite the fact that the absolute rate may still be low and in theory manageable all other things considered. Also consider that every point up is a greater % leap from the low end of the scale. 0.25% is a big deal @ 2% where as at 10% it is not such an issue.

Just some random thoughts.

%1.5, yikes Mr Cutz! Thats not appealing.... I wonder if Mr Bots is topping that?

 

[trainspotter]

Agreed that yields are low at the moment on residential real estate and are unlikely to be showing anything above the 2-3 percent range for awhile (2-3 years possible)

Still good value to be found in country areas but who wants to live in the country unless you are looking for a "lifechange". The ten year Government bond rate is around 5.40% but if you have commercial property it is possible to get around 9% RoR. (based on the 2 commercial properties I have now)

 

[MR.]

Many moons ago when I got going %7 was considered the 'right' return, but you have to factor in rates etc. We have moved a long way from that!

One hard lesson I learn once is that its not the absolute interest rate its the direction that counts. If rates are going up it will always put pressure on at the margin despite the fact that the absolute rate may still be low

We are basically at the average interest rate of the past 12 years.

View attachment Interest rates 50 years.pdf

Rental 15-20 years ago returned 7%, today it’s down to half that. If these rental yields were looked upon with a Price/Earnings ratio the market is factoring in a huge return. Where is the money going to come from? Even lower interest rates! Rents must be going to near double then?

Since more than a third of mortgages today are for investment properties, there should be more than a few who can explain where the gains are going to come from!

 

[drsmith]

While this debate has gone on, the fundamentals of residential real estste have not changed. Prices are being proped up by a commodities boom and cheap credit. When there is a sustained turnaround in either of the above, the bubble will burst.

The only question will be the extent to which governments try to stop the tide going out.

 

[robots]

hello,

what an afternoon of enlightenment, i know 11yrs ago when i bought the yield was 5.8% so tell us more on the 7% properties you owned MrZ

not much changed really,

is there any chance the mods can have a word to MrZ about getting a photo of the bullion or some scanned share certificates, i need to push out real soon

oh yeah, it is different, have house prices crashed in Australia?

thankyou
professor robots

 

[robots]

While this debate has gone on, the fundamentals of residential real estste have not changed. Prices are being proped up by a commodities boom and cheap credit. When there is a sustained turnaround in either of the above, the bubble will burst.

The only question will be the extent to which governments try to stop the tide going out.

hello,

and word has it the commodity boom has got many more years left to run (well at least gold apparently)

fantastic,

thankyou
professor robots

 

[drsmith]

The punch tastes best just before that sickening feeling.

By then, it's too late.

 

[awg]

hello,

gidday everyone, great day

well i happened to come across the same sex rally in Melbourne again today, amazing, there was a very happy vibe

i was still a bit cautious though when i got to the socialist crew table after they bashed me last time for mentioning plenty of affordable places around and Aus is different

but made it home in one piece on the pushie, oh well

just a reminder 7.30pm log on for the auction clearance results

thankyou
professor robots

Hi robots,

manage to dodge the bullets on Lygon St

Thought you reckon that stuff only happens in good ole USA

The paper reported locals "are sick of gunfire..it happens all the time":

 

[robots]

hello,

oh yeah big day on friday, but probably would of been 100 dead in the USA and 5000 injured from gunshots

dont know what the paper is on about, the carlton crew got smashed in the underworld war so its been very quiet in Carlton

thankyou
professor robots

 

[UBIQUITOUS]

We are basically at the average interest rate of the past 12 years.

View attachment 38464

Rental 15-20 years ago returned 7%, today it’s down to half that. If these rental yields were looked upon with a Price/Earnings ratio the market is factoring in a huge return. Where is the money going to come from? Even lower interest rates! Rents must be going to near double then?

I've read some nonsense in my time.

Firstly, if you are going to talk about us being at average interest rates, perhaps you would also like to give the evidence that we are also at average borrowing levels over the last 12 years?

Secondly, it is ludicrous to assume that a p/e is a crystal ball. It is far more likely that the high p/e in the RE sector represents a major speculative over valuation, rather than the herd being correct that the p/e is a signal for future growth. If not, then why not go and invest in a stock with a p/e of 1000 - You'll be make a motza!

Since more than a third of mortgages today are for investment properties, there should be more than a few who can explain where the gains are going to come from!

Easy. From the next sucker into Australia's biggest ever Ponzi scheme:

 

[robots]

hello,

gee go easy on one of your brothers there

what is p/e? and a CDO? sounds interesting

p/e of 1000

anyone heard from Mr Burns, gee the list goes on and on

thankyou
professor robots

 

[robots]

hello,

"promises safety of principal and an adequate return"

not looking too good there Ubi on either the recovery from the GFC or the June purchases

and with Julia Gillard looking into introducing stamp duty rates on par with property purchases

i reckon the favorable tax treatment for share transactions is costing the public massive amounts of tax

thankyou
professor robots

 

[trainspotter]

OK ... I am gonna let you guys into what I am up to in the RE world.

Firstly residential speculation. I can go and go and buy a residential block of land for $140,000 in a higher socio economic estate. I then build a 4 bedroom 2 bathroom "turnkey" (landscaping, fencing, finished completely) home for $300,00 with any local builder. Total spend $440,000. Settlement costs and bank fees are approx 5k on the block of land and building contract. I then build the home over an 8 month period and this leaves me 4 months to sell. 12 month program here.

Assuming 20% deposit of $88,000. I then sell the home for $485,000 (no real estate agent involved as a simple sign out the front will work just as well) I have made $45,000 Gross profit. Assuming a 20k interest component (tax deductible) and 5k of fees I have netted $25,000 over a 12 month period.

So therefore my $88,000 has turned an interst rate of 28.41 % CGT is a factor but it depends on how you are structured. Do a couple of these a year and it is good coin.

Secondly commercial. I can go and buy a 2000m2 commercial property (vacant land) for $300,000. I then spend 250k building 2 sheds on the property for rental purposes. As banks want 40% deposit on commercial it costs $220,000 to play. Also approx 10k for fees to setup. My loan is $330,000 at say 8% (margin lending) = $26,400 per annum. I then rent these sheds for 25k each per annum. I am now positively geared to the tune of $23,600. Take out rates and outgoings of say $5000 per year I am in front by approx $18,600 per year. 8.45% return I believe. This is not allowing for capital growth either of say CPI at 3.1%

So tell me again what is so wrong with property?

 

[UBIQUITOUS]

hello,

"promises safety of principal and an adequate return"

not looking too good there Ubi on either the recovery from the GFC or the June purchases

and with Julia Gillard looking into introducing stamp duty rates on par with property purchases

i reckon the favorable tax treatment for share transactions is costing the public massive amounts of tax

thankyou
professor robots

Robots, this is a property thread, and it is looking pretty bleak. Hot of the press:

http://www.couriermail.com.au/prope...-a-buyers-market/story-e6frequ6-1225905044210

Flood of house listings in Queensland mean a buyer's market

by Michelle Hele From: The Courier-Mail August 14, 2010 12:00AM 4


THE number of residential properties on the market is continuing to rise, with analysts warning some sellers will find it tough to achieve their asking price with so many homes to choose from.

The latest figures reveal that every region in Queensland has more property on the market than it did this time last year.

Instead of the expected winter slow down, the figures continued to rise over the past month, says SQM Research.

There were 27,475 properties being offered for sale in the Brisbane region alone, up from 25,265 properties last month and 17,773 properties this time last year.

The Sunshine Coast in July saw 11,333 properties on the market, a leap of 832 on the previous month and more than 3800 on that time last year.

The Gold Coast picture was similar, with 12,117 properties listed, a rise of 1000 from June to July and a jump of 4834 on July 2009.

Many regional areas of the state have experienced a surge in properties being offered for sale in the past year, with north Queensland listings jumping 196 per cent over the year, central coast 76 per cent and the far north coast 65 per cent

SQM Research managing director Louis Christopher says the figures show that the market is continuing to soften.

He said it would normally be expected that, during the traditional winter slowdown from June to July, numbers would remain flat or drop slightly but in all regions of Queensland they had increased.

"Vendors have been – more often than not – failing to get the price they're after," he said. "The old stock hanging on the market is competing with new stock coming on, resulting in an increase in overall supply."

Mr Christopher said the slowdown in the state's property market was caused by a few factors, including increased interest rates at the end of last year and the start of this year.

And, he said, house prices had risen considerably in recent years so Brisbane was no longer considered so affordable to southern buyers who could sell up big in Sydney and Melbourne and buy cheaply here.

Mr Christopher believes the growth of properties being offered for sale will continue to increase, particularly as the spring selling season nears, but he has seen no evidence that there will be more buyers.

"It is definitely a buyer's market and will become increasingly so," he said.

According to Australian Property Monitors, in June it took, on average, 85 days for a home in Brisbane to sell and 123 days on the Gold Coast.

Vendors discounted their initial asking prices by about 6.5 per cent in Brisbane and 7.3 per cent on the Gold Coast.

While days on market in Brisbane are currently significantly higher than the long-term average of 67 days, compared with this time last year homes are still trading faster.

RP Data found there was more than $40 billion worth of property on the market in Queensland.

 

[robots]

hello,

Louis christopher! Hahahahahahahahahahahahahahahaha

Keep listening to failed researchers man, thats right its a property thread so leave the stock comparisons out then

asx recovered from the GFC, nope, principal gone oh yeah
Thankyou robots

 

[cutz]

Robots, this is a property thread, and it is looking pretty bleak. Hot of the press:

Agree UBI,

Looks like it's going to be a slow long painful grind, I pity the fool who is overleveraged into this property bubble.