The future of Australian property prices

[medicowallet]

'Median' is a good guide but where are the 1000% price increases holding it up?

Median does not take into account the size of the house etc, eg would you prefer the size of a 1980s house or a 2010s house?

There was considerable increase in house size from 2000 to 2010

 

[trainspotter]

you cant look at any one suburb for stats or signs of volatility when such little transactions take place and any one sale can skew the data... its not a good argument for price volatility.

Hear hear. Generally the most "over priced" areas suffer the most clawback due to the very nature of the cycle of velocity of money. Once the high flyers start trimming back the rest of the country suffers. I remember buying a property from a marriage break up. They would sign anything to get their hands on the money they hated each other that much. BARGAIN. Did this bring the overall price of commercial property down in the area? Maybe it contributed to the statistics BUT it sure as **** did not stop me from selling it for a healthy profit. Yes yes yes I hung onto it for a couple of years BUT that was the original plan. DOH !

This is a real "set and forget" time for RE. AND interest only is the only way to go on investment property. The idea is not to own it but (great if you can) by way of tax deductions of the interest component and outgoings. As long as you have purchased in an established area of REAL growth (not Noosa Heads or Mandurah) then you cannot go too far wrong. Wait for the capital appreciation to rollover and use this to your advantage.

Has anyone considered the REAL reason as to why houses are getting more expensive as time goes on is that no one wants to live in a 3 bedroom 1 bathroom sh1tbox anymore? They all want their friggin McMansions with ducted aircon and a BMW parked out the front.

Hello ??? Anyone? Please feel free to enlighten me.

Oh bugger ...... I see Medicowallet is onto the size thing !!

 

[ginar]

When I said crash in a day I was refering the fact that sharemarkets routinely fall and rise in value by amounts of up and somrtimes more than 5%, this is a volitile asset class, Property does not do this, it's ups and downs take much longer to play out,

And as I have said many times when I say that property values will rise with inflation I am not saying property will not crash in the short or medium term, what I am saying is that this,

If a property's fair value (outside any bubble conditions) is $100K, That fair value will increase over time with inflation as it's rental yield also increases with inflation. That does not mean you can purchase it at any price at any time and not have it fall in value.

If speculaters push the "market price" of that $100K property well above it's "fair value" of $100K then offcourse you could expect it to suffer declines or atleast a prolonged period of stagnation while population growth and inflation raise it's value back to the market price.

The reverse is also true, if there is a long period of stagnation and inflation pushes the fair value higher than the market price eventually there will be a boom,

Really is like comparing apples to oranges , hell the brokerage on selling your house is 5% so try and sell that house the next day and see where you get to . liquidity is so different its not funny . remember you are just as likely to make that 5% the next day on shares as you are to lose it . this whole shares vs property thing is just 2 different universes . they are so different , a properly run blue chip portfolio will make mince meat of the returns on property , of that there is no doubt . most have no idea on both types of investments . shares you get divs and you can write out of the money options 12 times a year , this alone will out perform property hand over fist over a long period with absolutely no capital gain included . this arguement really is irrelevant in a way as there is no way to compare . but i know where my money is going in the main . property is all about lifestyle for me and any capital gains are a bonus . the people who make money from property day in day out will do just as well if not better using a share portfolio . its all about whats between the ears and has nothing to do with the asset class ...............

 

[Wysiwyg]

Has anyone considered the REAL reason as to why houses are getting more expensive as time goes on is that no one wants to live in a 3 bedroom 1 bathroom sh1tbox anymore?
Hello ??? Anyone? Please feel free to enlighten me.

Depends what economic class thou chooses or is born into really. If you're on 500 bucks per week then the box made of ticky tacky appears to be a mansion as opposed to paying rent (to the leeches or investment savvy pending on fence side). If you're 20 something and pulling in gorillas per week like it seems plenty are doing these days then Gold Coast beachfront is not out of the question and a great chick puller to boot.

Oh I forgot about inflation.

 

[Wysiwyg]

Median does not take into account the size of the house etc, eg would you prefer the size of a 1980s house or a 2010s house?

There was considerable increase in house size from 2000 to 2010

Not to mention the population of Oz has more than doubled in the last 50 years. But incredulously the number of dwellings in my home town has increased 10 fold. Location location! While one area booms another dies. Supply and demand forever and ever.

 

[tech/a]

Well this has nothing to do with the volatility argument but since you bring this up, please do give some examples of where established residential property (the category most IP investors invest in) returned 1000% plus in 10 years.

Most suburbs.
I was buying 4 bedrooms for $90K in 1996 fo 89K and 20K down.
Sold one in 2006 for 312K thats 223K on my 20K.
One on the esplanade I still hold paid $90K now 620K nothing down just used equity.

True, depending on how you define experienced.

Able to generate consistent profit in both bull and bear markets in each vehical.

Quite incorrect, there are so many examples. Take TLS (a widely held, blue chip mom and pop stock), calculate it's 10 year return and report on those gains for me.

As for the question in your chosen graph, "Are Australian property prices cheap or in a bubble?" while looking at a spike in a logarithmic plot, wow that's a tough question. LOL

Sorry I wasn't including morons.

For what its worth if you cant positively gear property you shouldn't be buying it unless you understand Negative gearing and need it to minimize tax exposure.
Ive never been negatively geared although in the late 90s I was 85% geared.

 

[againsthegrain]

One on the esplanade I still hold paid $90K now 620K nothing down just used equity

This is a unbiased question, but in 5 years time where roughly do you see the currently valued 620k property to be at?

For a person like me who owns no property would buying it for 620k today I make money selling to in 5 years time or just break even on inflation and interest?

 

[Beej]

I am not comparing share price volatility with property price volatility, that is your obsession not mine, and a useless one I might add.

Well then I don't know why you bothered to respond to my original post on this topic, which was in direct response to the following claim made by medicowallet :

However, I disagree that property is not as volatile as shares. In my opinion it is just as volatile on a day to day basis, it is just that the owners cannot see it and/or are naive to the concept.

Pretty confusing now what you are going on about then? But the relative volatility of aussie residential property vs aussie shares was very much the topic at hand that you jumped on.

 

[wayneL]

Most suburbs.
I was buying 4 bedrooms for $90K in 1996 fo 89K and 20K down.
Sold one in 2006 for 312K thats 223K on my 20K.
One on the esplanade I still hold paid $90K now 620K nothing down just used equity.

While that's a nice return in anyone's language:

1/ That is a leveraged return akin to option spruiker's 1000% in 3 days or whatever.

2/ It takes no accounts of transaction, maintenance and holding costs.

Returns on property are a bit more opaque than bought for x and sold for y.

The actual return (though may be better or may be worse) will not reflect those simple buy sell numbers.

 

[FxTrader]

Most suburbs.
I was buying 4 bedrooms for $90K in 1996 fo 89K and 20K down.
Sold one in 2006 for 312K thats 223K on my 20K.
One on the esplanade I still hold paid $90K now 620K nothing down just used equity

Hmm, ok so you sold an IP that you held for 14 years for a gross profit of $223k. What were your buying costs, selling costs, interest cost over 14 years, income after tax on rental and other costs including captital gains tax. Then we can get better take on the actual annual return on your investment.

But let's say your total take was $200k after 14 yrs with only 20K down. That's an annual return of 16.5% on your funds. That is a very good result but let's say you put 20k into BHP 10 years ago, what would it be worth now.

The annual share holder return for BHP for the last 10 years, using no leverage, was 20%. That's 20% with no borrowing, no tenants, very low buying and selling costs, no maintenance, no accounting hassles etc.

Sorry tech but you should have sold that IP 10 years ago, invested it in BHP shares and geared the portfolio by a conservative 50%. Had you done that you would have outperformed your property purchase by a country mile.

 

[tech/a]

This is a unbiased question, but in 5 years time where roughly do you see the currently valued 620k property to be at?

For a person like me who owns no property would buying it for 620k today I make money selling to in 5 years time or just break even on inflation and interest?

Ill be pushing it over and building 3 Apartments on it.
They will go for around $800K each.
Development costs around $350-$400 each

1/ That is a leveraged return akin to option spruiker's 1000% in 3 days or whatever.

difference is I wasn't expecting it.
I would have been happy with 10% a year.

2/ It takes no accounts of transaction, maintenance and holding costs.

true but in the scope of things in THIS instance they had little baring.

Returns on property are a bit more opaque than bought for x and sold for y.

The actual return (though may be better or may be worse) will not reflect those simple buy sell numbers.

True but the period was definitely the fastest bull run in my lifetime in property and I wont see another like it!

Still Ive lost far more in my life from selling property than if I had held it.

If I had held every property Ive sold Id be in fortune 500.(Not really but you get the idea)

Sorry tech but you should have sold that IP 10 years ago, invested it in BHP shares and geared the portfolio by a conservative 50%. Had you done that you would have outperformed your property purchase by a country mile.

Well I didn't--- nor did you or anyone I know---but I have and continue to be involved in property all part of a much larger picture.
I'm not un happy and really Dont give a rats about what COULD be achieved.
I know what I have and am achieving---and its not that tardy.
But hey you guys argue infinitum.

 

[Tysonboss1]

I ONLY work on interest only.
Its all tax deductible so I make the most of it.
I want as much free capital as possible for future opportunities and cash flow.

I understand that, It's just not the game I play. I used to be full interest only but I have changed my stratergy somewhat.

 

[Tysonboss1]

So what is the daily volatility of residential property?

Because each individual house is individual, how did my house value track monday to sunday last week?

I can tell you how my BHP shares went.

In fact, I have a rental in rural NSW I have owned for 12 years, how much is it worth today?

How much is it worth tomorrow?

In my view and the way I invest it doesn't really matter what I can sell it for each day, and that is the same with the shares I own. The daily price movements mean very little. The changes in underlying value concern me more.

 

[FxTrader]

Well I didn't--- nor did you or anyone I know---but I have and continue to be involved in property all part of a much larger picture.
I'm not un happy and really Dont give a rats about what COULD be achieved.
I know what I have and am achieving---and its not that tardy.

Well your the one spruiking your returns here and inviting comparsion with return on shares yet when one does this you could'nt give a rats and are dismissive. By the way, you have no idea what I did or did'nt do for the last 10 years with shares. For the record though, if I only make 5%/month return on my investments on average in a year then I consider it a bad year these days.

No one said you should be dissatisfied with your returns as they are very good, but compared with shares and other derivative instruments they are only ordinary, like it or not.

 

[Tysonboss1]

they are so different , a properly run blue chip portfolio will make mince meat of the returns on property , of that there is no doubt . most have no idea on both types of investments . shares you get divs and you can write out of the money options 12 times a year , this alone will out perform property hand over fist over a long period with absolutely no capital gain included .

Yes I know know the strengths and weaknesses of both asset classes very well. I have not been trying to make posts that start the tired old "shares vs property" arguements again.

I have been investing in the stockmarket since I was 14 and the property market since I was 20, I have built an investment operation that uses Property, shares and my own business ( along with some options ), that produces steady all weather returns. and I do this with next to no trading.

Look, anyone that says Property is better than shares is just as wrong as any body that says shares are better than property, In my opinion an investment operation that excludes either one is lacking. But it's your life so do whatever.

I don't care if people dismiss my thoughts or opinions, People can say what they like, But I am not 30 yet But I am in a position where I can retire on multiple passive income streams that don't require super high trading profits or anything unsustainable like that, My investment operation will survive any market crash (property or shares) and thrive in the after math. So I don't really care if some geek disaggrees with me.

 

[Tysonboss1]

Returns on property are a bit more opaque than bought for x and sold for y.

Only if your using negatively geared debt,

For example If I purchased (debt free) $100K in 2000 and sold it for $300K in 2010, I can say that I made $200K, just as I could if I bought shares in the same ratio.

Offcourse you will say , but what about rates, maintaince, etc.etc. Well the rent more than covers that stuff, Infact only about 15% of the rent would go for that stuff, So by saying I earned $200K I have really under estimated the returns.

What makes it opaque is the leverage, but this ture with margin loans also.

 

[medicowallet]

In my view and the way I invest it doesn't really matter what I can sell it for each day, and that is the same with the shares I own. The daily price movements mean very little. The changes in underlying value concern me more.

Oh I agree totally, and I am a investor, as I am not a good trader.

But people who say that housing has less volatility, do not realise that the price definitely has lots of volatility, they are just not aware of the volatility on a day to day basis.

Which is one of the reasons why housing is a good investment for people who can't handle volatility, as imo, their naivety leads them to believe that their house is "stable" and their house is "different"

Nothing wrong with that, but to deny the volatility is to be unaware that prices do fluctuate (especially as the market for a single dwelling has massive volatility on a day to day basis).

 

[Tysonboss1]

Hmm, ok so you sold an IP that you held for 14 years for a gross profit of $223k. What were your buying costs, selling costs, interest cost over 14 years, income after tax on rental and other costs including captital gains tax. Then we can get better take on the actual annual return on your investment.

But let's say your total take was $200k after 14 yrs with only 20K down. That's an annual return of 16.5% on your funds. That is a very good result but let's say you put 20k into BHP 10 years ago, what would it be worth now.

The annual share holder return for BHP for the last 10 years, using no leverage, was 20%. That's 20% with no borrowing, no tenants, very low buying and selling costs, no maintenance, no accounting hassles etc.

Sorry tech but you should have sold that IP 10 years ago, invested it in BHP shares and geared the portfolio by a conservative 50%. Had you done that you would have outperformed your property purchase by a country mile.

Just because you allocate some capital into property does not mean you can't also allocate funds into shares. I tell you having about 50% of my funds invested in property certainly made the GFC alot less scary, and being able to lend against the properties without the fear of margin call and buying into the stockmarket certainly made the GFC fun.

Alot of people here advocate Buying gold as an inflation hedge and a store of value, They know it's not going to outperform Sound and expanding businesses ( except for some goldbugs that are just like over the top property bulls). But the are buying to protect against inflation and be some what safer because they are controlling it, they can hold etc.

Well this is how I see property, A safe investment when purchased at sensible levels, that just like gold will offer inflation hedgeing, But unlike gold it produces weekly income. Offcourse the property price can stagnate or fall, But so can gold and when you have positive cash flow weekly from rent, who cares what property values do, As a matter of faact you should be hoping that the fall.

Thats why I always say I don't care if property of shares fall in quoted value, thats what I hope for,

 

[medicowallet]

Just because you allocate some capital into property does not mean you can't also allocate funds into shares. I tell you having about 50% of my funds invested in property certainly made the GFC alot less scary, and being able to lend against the properties without the fear of margin call and buying into the stockmarket certainly made the GFC fun.

I am with Tyson on this one.

I also find cherrypicking shares with the benefit of hindsight quite amusing (even though BHP should have been in most people's portfolios over the past 10 years)

It is what makes this thread so interesting,

You have people who are 100% housing
You have people 100% shares

and people who are in between (of which I am one)

I would prefer to lose twice as often, but for less than to have all my eggs in one basket, it surely DOES help me sleep better when one of the 2 fails.

Oh, and they BOTH fail from time to time

 

[FxTrader]

I also find cherrypicking shares with the benefit of hindsight quite amusing (even though BHP should have been in most people's portfolios over the past 10 years)

BHP was a conservative example, and I did not pick it with hindsight in mind, I could have chosen far more profitable stocks as an example. None of the property bulls here want to discuss when property investment goes bad and wipes out the life savings of investors. No, they only roll out the success stories so I do the same. The property vs shares (or derivatives) debate is frankly a boring one for me, property investment performance never compares favorably with good stock selection nor should it, property is a conservative investment that yields comparatively lower returns.