The future of Australian property prices

[Tysonboss1]

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.

Yes it is a boring debate, so why start it. And yes property does yield lower returns and so it should, hence my original comment where I said I thought of my property investments as inflation hedged bonds, where you receive a steady, safe although low cash-flow while you principle over time is largely protected for loss in value due to inflation. Remember this does not mean property prices will not fall or stagnate, after all even government bonds can fall in value compared to their face value.

 

[againsthegrain]

Well this is how I see property, A safe investment when purchased at sensible levels

*
... x2

 

[Tysonboss1]

*
... x2

Sorry, I don't get what that means.

 

[againsthegrain]

Sorry, I don't get what that means.

times two

 

[FxTrader]

Yes it is a boring debate, so why start it.

I did not start it, but did participate since the IP spruikers here are so intent on bragging about their capital gains made on property they purchased 10+ years ago or flipped for speculative gain as if such gains are special by comparison with other assets.

And yes property does yield lower returns and so it should, hence my original comment where I said I thought of my property investments as inflation hedged bonds, where you receive a steady, safe although low cash-flow while you principle over time is largely protected for loss in value due to inflation. Remember this does not mean property prices will not fall or stagnate, after all even government bonds can fall in value compared to their face value.

More unsubstantiated generalization and nonsense from a blinkered property bull. Go and tell your tall tale of how safe, secure and inflation hedged property is to the millions of Americans, Japanese, Brits, Irish etc. who are bankrupt or broke as a result of such faith in property investment. Sure, if you don't over leverage you can hang onto your cash flow positive IP in a crash, but your net worth on your balance sheet reflects that you have taken a hit from which, other than selling prior, you could not protect yourself from. The lower returns available in the property market now do not reflect the risk being taken by IP investors.

Bonds rise and fall in tradeable value with interest rate movements, the yield does not change to the investor and the capital value does not change to maturity, a rather silly comparison to property I think.

 

[tech/a]

Why so aggressive
There are 2 sides

 

[explod]

Why so aggressive
There are 2 sides

Can understand it.

From my point a lot of ordinary good honest wager earners are hurting bad because of the home mortgage and with inflation kicking in now a bloodbath here in Australia is now coming.

The smugness of the property bulls has been hard to take, however a lot of them are also going to feel pain soon. Some of the bias, that it cannot happen here borders on stupidity IMHO

Of course I know some of you are wonderful and will never be effected. But it is your influence over the innocent that I do not like.

Real financial education and mentorship is sadly lacking. "Keep em dumb so that we can skin em"

 

[AlexG1]

More unsubstantiated generalization and nonsense from a blinkered property bull. Go and tell your tall tale of how safe, secure and inflation hedged property is to the millions of Americans, Japanese, Brits, Irish etc. who are bankrupt or broke as a result of such faith in property investment.

I think you are being more than a bit unfair and inflammatory here. I for one have valued Tysonboss's contribution (certainly hope the grammar police will agree with my choice of forms for the possessive plural here). From my evaluation of his posts as a whole he's certainly not a property bull. He's merely pointed out that carefully chosen property can be a good safe investment over a long time frame (and assuming you are not forced to sell in a trough - that's my reading between the lines rather than a quote).

Problem with email is that it's a block of thoughts in text and does not allow for the cut and thrust of spoken conversation. Additionally you don't get the body language feedbacks. It's pretty difficult to present a completely seamless argument on paper especially if you don't want to write 20 pages. So you often make an assumption that a reader will understand where you are coming from and gloss over certain detail. When the reader is coming from a completely different place or looking for a fight then it's pretty easy for something to be bent out of shape. My point is it's easy to misinterpret what people mean.

Anyway - back on thread - my thoughts on property are as follows. If you buy it at a good price then it is a very good bet that it will at least match inflation. It's an essential item as has been pointed out by others - people need to live somewhere. Further to this point - it's completely tangible. There is no management team influencing the quality of the asset. WOW is a company that also deals in essential items and would therefore also be considered a reasonably safe investement (but it can also be overpriced). However, it would be quite possible to get a stupendously awful management team in place that would severely damage the underlying value.

There's loads of potential 'holes' in what I am posting there but I'm hoping that people can see the general point...

Finally, I believe that investing in property in the current market is over valued (based on the levels of debt, the potential slowdown in the resources boom, and the high median value compared to median salary) and a disaster if you leverage to the point where you may be forced to sell. If property does crash - I'll be in there like a shot. If it doesn't crash and stagnates for a few years I'll be in then (I already own a PPOR). If it just goes up forever, then I made a bad investment decision. I prefer to preserve capital and miss an opportunity I am uncomfortable with. There will be other opportunities that I am comfortable with.

AlexG.

 

[schnootle]

Can understand it.

From my point a lot of ordinary good honest wager earners are hurting bad because of the home mortgage and with inflation kicking in now a bloodbath here in Australia is now coming.

The smugness of the property bulls has been hard to take, however a lot of them are also going to feel pain soon. Some of the bias, that it cannot happen here borders on stupidity IMHO

Of course I know some of you are wonderful and will never be effected. But it is your influence over the innocent that I do not like.

Real financial education and mentorship is sadly lacking. "Keep em dumb so that we can skin em"

Well said.

I think a key factor in this thread is that people that have made significant money out of property are the Bulls and the ones that haven't are the Bears - both are very biased positions. I would like to here from the people that have made lots of money from property before and who think it is now doomed, and also people with no property that are bullish and keen to get in - I reckon these are the minority.

I think it all needs to get back reality personally. All this talk on the news about people panicking that electricity prices are going to go up $300 a year because of a carbon tax and how it is going to push families to the wall is stupid. how many orders of magnitude more that that do people pay on their mortgages? Mortgages are going to push families to the wall, not a carbon tax.

 

[Dowdy]

If you're talking about an inflation hedge, how come no one has mentioned gold/silver bullion.

It's been historically (throughout the world) the best inflation hedge. The only downside is that you don't earn dividends but you don't need them at the current growth levels.

A kilo of silver bought in 2008 was around $550-600. Now in 2011, it's $1000-1400. Property is at an all time high and yet silver still hasn't reached it's high (even with inflation) from the 1980's

 

[AlexG1]

Interesting analysis of the Canadian market with parallels to the Oz market here

http://macrobusiness.com.au/2011/02/will-canadas-housing-market-be-the-next-to-fall/

 

[KurwaJegoMac]

Why so aggressive
There are 2 sides

Can understand it.

While you may agree with his point of view, it doesn't justify the need to be so aggressive. Take your post for example - you present a view similar to FXTrader but you don't arch up like a cat trapped in a corner the moment someone disagrees with your opinion.

I think AlexG1's entire post sums it up nicely.

Problem with email is that it's a block of thoughts in text and does not allow for the cut and thrust of spoken conversation. Additionally you don't get the body language feedbacks. It's pretty difficult to present a completely seamless argument on paper especially if you don't want to write 20 pages. So you often make an assumption that a reader will understand where you are coming from and gloss over certain detail. When the reader is coming from a completely different place or looking for a fight then it's pretty easy for something to be bent out of shape. My point is it's easy to misinterpret what people mean.

So well said and so very true. It's dead easy to selectively quote a single line and conveniently ignore the entire piece - then bend the quote out of shape, imply something else and then rip it to shreds.

Anyway this thread is starting to get spammed by "Asset class X is better than property for reasons y". These sorts of conversations have been done to death in the past - this thread is on AUSTRALIAN PROPERTY so how about we all get back on topic and please no talk of fx or shares being a better investment. Post that in a Property vs Shares thread - plenty of those around.


-------


On a side note:

I for one have valued Tysonboss's contribution (certainly hope the grammar police will agree with my choice of forms for the possessive plural here).

That is the correct form for the possessive plural as the name ends with an s



Smile everyone! Today is a beautiful day

 

[Beej]

If you're talking about an inflation hedge, how come no one has mentioned gold/silver bullion.

It's been historically (throughout the world) the best inflation hedge. The only downside is that you don't earn dividends but you don't need them at the current growth levels.

A kilo of silver bought in 2008 was around $550-600. Now in 2011, it's $1000-1400. Property is at an all time high and yet silver still hasn't reached it's high (even with inflation) from the 1980's

Gold has been a terrible inflation hedge from 1980 for 20 whole years up until about 2000! It's only been a good investment for the last 5-10 years IF you were hedging $US. If you are/were trying to inflation hedge your AUSTRALIAN dollars, it hasn't even worked very well in the last few years - value of gold in $AU is a hundred dollars or more off it's peak a couple of years ago. Timing/luck of purchase would have been critical.

http://goldprice.org/gold-price-history.html#20_year_gold_price

http://goldprice.org/charts/history/gold_10_year_o_aud.png

EDIT: I don't mean to start a gold-flame war or anything here, and I am not saying Gold/Silver etc cannot be great investments, and certainly they can be traded a number of ways including through the futures markets etc which can have many advantages. POG may well rise a lot from here (or it may not!). I'm just arguing that especially in Australian dollars the "inflation hedge" argument does not stand up to much scrutiny. Maybe it's more of a speculative/directional commodoties play with the bonus of being a doomsday/Mad Max hedge??

 

[financialdonk]

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.

Tech, what have you done in the intervening period from when you were last facing financial turmoil to safeguard yourself against it happening again? And if safeguarding is not something you exercise in order to maximise your returns, roughly what % chance would you place on yourself facing personal economic ruin again?

 

[tech/a]

Tech, what have you done in the intervening period from when you were last facing financial turmoil to safeguard yourself against it happening again? And if safeguarding is not something you exercise in order to maximise your returns, roughly what % chance would you place on yourself facing personal economic ruin again?

Good question.
Since a few here forget (Didnt know) Ive faced the street 2wice in this interesting life.
So what Have I done to minimise the chance of riun this time that I hadnt considered or implemented (Some due to circumstance) on the other 2 occasions.

(1) My income is way way in excess to that which I had available in the 80s.
10-15x,but is also much more diverse. I only had one income stream than I now have 3
Freehold asset backing is infinately more now than then---when I look back I really was a cowboy!---but wow was it a rush!---learnt more from severley stuffing up than from getting it right. (Went from $4.5 mill net worth to $5K in the bank and no house---wife kids---skeleton of a business and a heap of misery!!)
(2) I have reduced debt and increased freehold asset.
(3) Everything I have is positively cashflowed and without increasing rents (which are way way overdue) and will remain so to 12%
(4) I understand risk and cashflow to a far greater degree and have actually implemented (In the above) safeguards.
(5) I have specialised in Growth areas at end of freeways and rail lines.
and Esplanade property---neither has seen lack of demand---yet.
(6) I still continue to grow the portfolio while decreasing debt. (IE Develop 3 and sell 2)
which brings back to (1) which allows this.

Ruin
Its a possibility as the whole world could be in ruin.
But in general terms I dont think so.
Nett wealth could be severely depleated but relative to all of us still livable.
It would also only be temporary---things recover just as they collapse.

 

[financialdonk]

I think you are being more than a bit unfair and inflammatory here. I for one have valued Tysonboss's contribution (certainly hope the grammar police will agree with my choice of forms for the possessive plural here). From my evaluation of his posts as a whole he's certainly not a property bull. He's merely pointed out that carefully chosen property can be a good safe investment over a long time frame (and assuming you are not forced to sell in a trough - that's my reading between the lines rather than a quote).

Problem with email is that it's a block of thoughts in text and does not allow for the cut and thrust of spoken conversation. Additionally you don't get the body language feedbacks. It's pretty difficult to present a completely seamless argument on paper especially if you don't want to write 20 pages. So you often make an assumption that a reader will understand where you are coming from and gloss over certain detail. When the reader is coming from a completely different place or looking for a fight then it's pretty easy for something to be bent out of shape. My point is it's easy to misinterpret what people mean.

Anyway - back on thread - my thoughts on property are as follows. If you buy it at a good price then it is a very good bet that it will at least match inflation. It's an essential item as has been pointed out by others - people need to live somewhere. Further to this point - it's completely tangible. There is no management team influencing the quality of the asset. WOW is a company that also deals in essential items and would therefore also be considered a reasonably safe investement (but it can also be overpriced). However, it would be quite possible to get a stupendously awful management team in place that would severely damage the underlying value.

There's loads of potential 'holes' in what I am posting there but I'm hoping that people can see the general point...

Finally, I believe that investing in property in the current market is over valued (based on the levels of debt, the potential slowdown in the resources boom, and the high median value compared to median salary) and a disaster if you leverage to the point where you may be forced to sell. If property does crash - I'll be in there like a shot. If it doesn't crash and stagnates for a few years I'll be in then (I already own a PPOR). If it just goes up forever, then I made a bad investment decision. I prefer to preserve capital and miss an opportunity I am uncomfortable with. There will be other opportunities that I am comfortable with.

AlexG.

Post more please. Thankyou for the reasoned and articulate points.

 

[Dowdy]

Gold has been a terrible inflation hedge from 1980 for 20 whole years up until about 2000! It's only been a good investment for the last 5-10 years IF you were hedging $US. If you are/were trying to inflation hedge your AUSTRALIAN dollars, it hasn't even worked very well in the last few years - value of gold in $AU is a hundred dollars or more off it's peak a couple of years ago. Timing/luck of purchase would have been critical.

http://goldprice.org/gold-price-history.html#20_year_gold_price

http://goldprice.org/charts/history/gold_10_year_o_aud.png

EDIT: I don't mean to start a gold-flame war or anything here, and I am not saying Gold/Silver etc cannot be great investments, and certainly they can be traded a number of ways including through the futures markets etc which can have many advantages. POG may well rise a lot from here (or it may not!). I'm just arguing that especially in Australian dollars the "inflation hedge" argument does not stand up to much scrutiny. Maybe it's more of a speculative/directional commodoties play with the bonus of being a doomsday/Mad Max hedge??

Like I said it's an inflation hedge, not a long term hold. When gold reached a high in the 1980 it was when inflation was out of control, during the s&l crisis - when interest rates were 17%, so yes it was a great inflation hedge back then aswell.

I don't plan to keep my silver until I retire.

 

[Dowdy]

It would also only be temporary---things recover just as they collapse.

Not if the world is doing what Japan did in the 1990, considering it's been in stagflation for 20 years and last time I checked, the world is doing exactly what Japan did

 

[nunthewiser]

yep sunshine and lollipops brothers..

Perth house prices have continued their dive, dropping another 1.6 percent in January according to new figures out today.

The RP Data-Rismark measure of prices showed the median price in Perth slipped to $480,000 last month to be down 2.3 percent over the past quarter and 4.3 percent over the last year.

It is a similarly sad story for those in the unit market, with the median unit price dropping 1.1 percent through January to be down 3.4 percent over the past 12 months.

Nationally, prices were down one percent led by a 4.8 percent drop in Canberra. Prices were also down in every capital city except Darwin where the median price was up 2.5 percent.

Perth's median house price is now $10,000 below the national median.

Despite the fall, RP Data cautioned that natural disasters across the country may have had an impact on the housing market.

"The volume of sale transactions in January is normally much lower than other months due to the seasonality of the market," RP's research director Tim Lawless said.

"This year the downturn in activity has been compounded by the spate of natural disasters experienced around the country.

"It is quite possible that the RP Data- Rismark index results for January will show a larger than normal revision when updated next month."

The Reserve Bank board meets tomorrow with interest rates expected to be left on hold.

Rismark joint managing director Ben Skilbeck said the RBA was deliberately seeking to temper activity in the household sector so the resources sector could grow.

 

[financialdonk]

(5) I have specialised in Growth areas at end of freeways and rail lines.
and Esplanade property---neither has seen lack of demand---yet.
which brings back to (1) which allows this.

I'm not sure where you are based (Adelaide?), but being from WA myself the growth surrounding the north/south freeways has been phenomenal since I moved to Perth to study in 2003. Besides the obvious access it provides to the CBD, it is also positioned relatively close to the coast. For some reason unbeknown to me, people continue to pursue a policy of trading distance from CBD (effectively work) for their own house and garden. Is this something that can continue into the foreseeable future? Or was it a medium term event not too be repeated again until fundamental and vast changes to transport infrastructure occur (think high speed rail)?

Will Australians ever willingly accept highly dense big urban living akin to Western Europe/Japan/States in it's largest cities? And if they do what effect will this have on outlying property prices?

(Not expecting you to take on the burden of answering all those questions Tech - more of a general question to the entire thread's participants)