The future of Australian property prices

[tothemax6]

Market forces should be dictating the direction of investments
4. Never allow SMSF to purchase residential property.

I guess my point is this, how do you bridge the gap between rich investor bidding on his 10th property with money to burn and the FHB with 2 kids, bidding on his first house?

You don't, you just leave people alone to buy what they want.

And people don't 'have' to buy housing. They can rent. Interest rates are supposed to be peoples signal to either borrow or save money. People should rent and put the difference in savings. Makes for a bigger deposit and thus less loan interest when you come to buy, or when prices are better.

 

[hangseng]

Big news, coming from NAB imo.

Reading a lot of the comments on various property articles lately suggests there is carnage out there, and it only hasn't been reflected in property indexes because sellers haven't adjusted expectations downwards yet. But the falling clearance rates since mid 2010 suggest buyers aren't willing to pay 7 - 8 times earnings for a home. Could more 'bearish' mainstream articles like these cause a flood of negative gearers rushing to the exit?

Anyone making a decision to start "rushing for the exit", or panic selling any investment not just property, based on a bankers view or anyones (in particular the media) for that matter is doomed to financial failure.

I am a diversified investor using stocks, cash and property. I won't be selling any property anytime soon and definitely not because of any "bearish mainstream article". I will just continue to enjoy the benefits of cash flow from rents received and exeventually cash in on the capital gain when I am good and ready and at the right time.

To me having a contrarian view of what is printed in "mainstream" media has generally been of great benefit in the successful pursuit of increasing my financial wealth.

Stocks go up, stocks go down as do property prices. Investing in them requires sound investment decisions and in the case of property in particular long term thinking and planning. So many regard investment as a "quick buck' and get burnt accordingly.

The more the talk of impending doom the more I know it is getting close to the time to buy. When the taxi driver starts giving me stocks tips and the market and media is full of (overley) positive hype, I know it is getting near the time to sell.

I agree with the poster stating negative gearing isn't the root of all evil. I do agree that the both the benefits of doing so should be based on sound long term investment policies. Wipe out negative gearing and I would consider property to be a sell and would like to see how the government intended to make up the rental shortfall.

They sure as hell aren't interested in being landlords, that's why they approach private owners to rent out properties in the defence housing scheme and offer owners incentives to rent at lower rentals.

 

[robots]

hello,

one of my great pleasures in life getting down to the Sugastation shop at Southern Cross station for a bag of lollies

handout some goodwill while i am there, listen to others opinions, and communicate some forward thinking, visions, and reveal a new dimension open to all

and you know, being able to enjoy those lollies while watching Willie Wonka and the Chocolate Factory an extra special moment in life

thankyou
professor robots

 

[FxTrader]

Sound investment policy does not change over time, Infact those that think it does are destined to get severely burnt (the are the ones saying "it's different this time") the most recent crash was yet another example of how even 30 years after his death grahams teaching would have saved millions of people from losing their life savings, if they had just put his teaching into practice.

What constitutes "sound investment policy" is a matter of some debate and not under examination here. Yes you can invest in undervalued businesses that are trading at a discount to valuation for the purpose of achieving a "margin of safety".

But as I stated before, and you have yet to refute, "thorough analysis" (however that is interpreted) is not a guarantee of safety of principle or return on investment but a part of the due dilligence process in assessing an investment. Hence, defining the term "investment operation" the way Graham does is faulty logic IMO.

 

[Bill M]

Today I was listening to the news on the radio and they said that it was forecast that property would go down Australia Wide about (wait for it) .5% this year. That is not a typo they said .5% Big Deal! My rent keeps coming in, my tenant is on a 12 Month lease, my property is walking distance to beaches, transport, supermarkets, clubs and pubs. To me a drop in price more than 20% would make me reconsider my position only because I would have to start looking to buy up again.

What happened 4 years ago? They said subprime will come to Australia? It didn't.

Then The GFC came 2 years + ago and they said Australian property will crash, it didn't.

Some idiots were saying fiat currency was a thing of the past and a new gold standard would come, it didn't.

So while we are at it how many people on this forum are predicting Australian property crashes of 40% like that Professor Keen said would happen? Put your signature to that to that if you are game.

See ya got to go check prices on realestate.com, I might be lucky to see a .5% reduction.

 

[Bill M]

To me having a contrarian view of what is printed in "mainstream" media has generally been of great benefit in the successful pursuit of increasing my financial wealth.

Stocks go up, stocks go down as do property prices. Investing in them requires sound investment decisions and in the case of property in particular long term thinking and planning. So many regard investment as a "quick buck' and get burnt accordingly.

The more the talk of impending doom the more I know it is getting close to the time to buy. When the taxi driver starts giving me stocks tips and the market and media is full of (overley) positive hype, I know it is getting near the time to sell.

I couldn't agree with you more, good luck mate and Happy Australia Day.

 

[wayneL]

I don't really understand what the exact question you are asking me is.

As I said before pe is price to earning ratio,

Are you asking how you calculate the pe on property or what a a fair pe is to expect when purchasing.

I am asking what is the current price (or current value) to earnings ratio of residential property.

 

[FxTrader]

Anyone making a decision to start "rushing for the exit", or panic selling any investment not just property, based on a bankers view or anyones (in particular the media) for that matter is doomed to financial failure.

Actually notable doomsayers who were not mainstream media (like Peter Schiff) in the U.S. called the housing crash and GFC there. The financial media (CNBC and such) didn't see it coming. The warning signs were there for those willing to examine the data and evidence. Keeping you head buried in the housing bubble quicksand will not serve you well. The evidence for an impending correction is mounting for those who chose to listen.

Stocks go up, stocks go down as do property prices. Investing in them requires sound investment decisions and in the case of property in particular long term thinking and planning. So many regard investment as a "quick buck' and get burnt accordingly.

I am certain that the millions of property investors in the U.S., Ireland, U.K., Japan etc. also thought property was solid long term investment. Unfortunately they were wrong.

But Aus is different we're told by the perma bulls, measures of affordability and debt don't mean anything here. Who wants to live in London when for a little more (relative to median income) you can live in Geelong! Perhaps we should consider Japanese style 100 year mortgages, that should keep the bubble inflated for a while longer.

The more the talk of impending doom the more I know it is getting close to the time to buy.

Go for it, catch the falling knife, someone needs to buy on the way down to cushion the fall.

 

[Tysonboss1]

I am asking what is the current price (or current value) to earnings ratio of residential property.

if you want an idea of a certain market you can you can just work it out based on median price to median annual rent. this can give you a gross yield to price ratio.

However since your probably not going to be investing in a redsidential index fund then market wide statistics are much less important. so it is best to work it out on each indiviual property. to work it out i normally use this calculation.

Gross annual rent - 20% (rates, matainance etc.) = estimated net earnings

Purchase price (or current value) / estimated earnings = P/E ratio

A P/E of less than 22.5 is desireable, less than 20 prefered.

 

[robots]

hello,

http://www.theage.com.au/business/inflation-rate-drops-to-decade-low-20110125-1a3if.html

oh well, not looking good againstthegrain for another rise brother,

look its just the way it goes, life is a funny journey, ups and downs but you just have to plod along

the great thing about Australia still plenty of opportunity, perhaps if you save and work a bit harder your position may change, get a promotion, dont be a slacker

thankyou
professor robots

 

[robots]

hello,

anyone heard from stockmad?

thankyou
professor robots

 

[nukz]

hello,

http://www.theage.com.au/business/inflation-rate-drops-to-decade-low-20110125-1a3if.html

oh well, not looking good againstthegrain for another rise brother,

look its just the way it goes, life is a funny journey, ups and downs but you just have to plod along

the great thing about Australia still plenty of opportunity, perhaps if you save and work a bit harder your position may change, get a promotion, dont be a slacker

thankyou
professor robots

You should re-finance and buy another property, whats better than having one property making huge gains... 2 property's

Unless your worried about a correction

I think your looking at property as a place to live, thats why your views are different from some of the others here who look or have looked at it in the past as investment vehicles.

 

[drsmith]

Can some body explain why they believe a tax based on asset value would be better than a tax based on earnings.

After all any tax must be paid from earnings, so shouldn't it be based on earnings?

I think focusing on negative gearing as the evil of all evil's in relation to property investing is a bit silly, after all it's only a temperary situation generally.

The only tax on capital profit should be on realisation (CGT) and that should reward long term investment as noted earlier. Ken Henry though does not agree, preferring to tax "what cannot be moved" in the form land taxes as well. This though strikes me as a soft option. Isn't it better to deal with holes in income tax net to make that tax base more robust ?

Negative gearing needs to be considered in the context of broader tax reform on property and perhaps income as well. As it stands, unincorporated investors can claim deductions against unrelated income such as salary. Governments get at least some of this back through other property taxes such as stamp duty on transactions and land taxes on investment property. The negative gearing element though creates investment distortions in that investor decisions are taken less on the basis of investment merit and more on the basis of tax. The nett result is an artificial increase in prices made worse by a 50% discount to capital gains after one year fuelling short term speculation.

The agricultural scheme losses to both government in terms of tax revenue and to individuals should be a sobering lesson of what can go wrong. These in effect became ponzi schemes based on tax minimisation. Return on underlying investment in the schemes was in itself very poor.

For the record, I don't consider that investors should be able to offset salary income against income losses on geared share market investments either.

 

[white_goodman]

Today I was listening to the news on the radio and they said that it was forecast that property would go down Australia Wide about (wait for it) .5% this year. That is not a typo they said .5% Big Deal! My rent keeps coming in, my tenant is on a 12 Month lease, my property is walking distance to beaches, transport, supermarkets, clubs and pubs. To me a drop in price more than 20% would make me reconsider my position only because I would have to start looking to buy up again.

What happened 4 years ago? They said subprime will come to Australia? It didn't.

Then The GFC came 2 years + ago and they said Australian property will crash, it didn't.

Some idiots were saying fiat currency was a thing of the past and a new gold standard would come, it didn't.

So while we are at it how many people on this forum are predicting Australian property crashes of 40% like that Professor Keen said would happen? Put your signature to that to that if you are game.

See ya got to go check prices on realestate.com, I might be lucky to see a .5% reduction.

i think your underestimating the power of govt to prop the market up...
forecast .5% drop, thats a forecast, its not set in stone.

Id gladly put my signature to property going down int he mid term, the only way for it to go up is for govt to step in heavily with some sort of desperate measure.

I dont know where you think this supposed demand is coming from, we are at real risk from an unemployment > real estate led recession. Not saying its 100% going to happen but you would have to have rocks in your head to think prices can continue to go up higher than the rate of real wages growth.

 

[white_goodman]

if you want an idea of a certain market you can you can just work it out based on median price to median annual rent. this can give you a gross yield to price ratio.

However since your probably not going to be investing in a redsidential index fund then market wide statistics are much less important. so it is best to work it out on each indiviual property. to work it out i normally use this calculation.

Gross annual rent - 20% (rates, matainance etc.) = estimated net earnings

Purchase price (or current value) / estimated earnings = P/E ratio


A P/E of less than 22.5 is desireable, less than 20 prefered.

yeh technically thats a fudged PE then, cos borrowing costs will turn that PE ratio to absolute ****, most likely negative. SO unless ur buying properties 100% in cash, im afraid its not a good calculation.

Also in property you refer to cap rates and Years Purchase, not PE. Essentially the same tho

 

[white_goodman]

also anyone that relies on negative gearing and the tax benefit of it seriously needs to help themselves to a calculator... its obvious many sections of society have been spruiked to in 'millionaire creation seminars' lol

 

[Tysonboss1]

yeh technically thats a fudged PE then, cos borrowing costs will turn that PE ratio to absolute ****, most likely negative. SO unless ur buying properties 100% in cash, im afraid its not a good calculation.

Also in property you refer to cap rates and Years Purchase, not PE. Essentially the same tho

Well the same with stocks, Obviously if you decide to use margin then that will have to factor into your calculations.

 

[Bill M]

I dont know where you think this supposed demand is coming from, we are at real risk from an unemployment > real estate led recession. Not saying its 100% going to happen but you would have to have rocks in your head to think prices can continue to go up higher than the rate of real wages growth.

There is a shortage of supply on the Northern Beaches of Sydney (I don't know about any other areas of OZ). Any unit that is priced fairly is sold very quickly. My unit is only 80 sqm and was rented for $420 a week, several renters came through looking and it was snapped up on the first day of it being shown. I have have had 2 renters in 20 Months, it has never been empty. I do not have any mortgage on it. Once again I ask the question, if you think prices are going to fall then take guess and tell by how many % as I would like to blog the comment for further reference. If it drops as I said well in excess of 20% I may move quickly to buy another. I am not frightened by a drop in price I just don't think it will happen but if it does it only makes it a more compelling investment.

 

[Tysonboss1]

What constitutes "sound investment policy" is a matter of some debate and not under examination here. Yes you can invest in undervalued businesses that are trading at a discount to valuation for the purpose of achieving a "margin of safety".

But as I stated before, and you have yet to refute, "thorough analysis" (however that is interpreted) is not a guarantee of safety of principle or return on investment but a part of the due dilligence process in assessing an investment. Hence, defining the term "investment operation" the way Graham does is faulty logic IMO.

What you and I were debating was Grahams definition of investment which was =

An Investment operation is one which upon thorough analysis promises safety of priniciple and an adequate return.

Under this definition the term "thorough Analysis", Is not describing security analysis.

What he is saying, is that your own capital management operation can only be described as an investment investment operation if after you have examined your portfoilio allocation (in it's entirety) and after you have conducted this examination you find that it promises safty of principle with an adequate return over time.

I repeat yet again, he is not saying that just by conducting strict security analysis that you can be 100% sure you will not lose on any one security.

However what he is saying is that is you focus you attention on building a diversified portfolio, with each item purchased at sensible prices across varying asset classes, you will have a portfolio that with not only produce a return but also protect you capital from any loss large enough to offset the income produced over time.

 

[Tysonboss1]

Also in property you refer to cap rates and Years Purchase, not PE. Essentially the same tho

Thats right, but we are in a stock thread. So I used pe because it is a term everyone here would be familar with. and also it's just a more simple term really.