The future of Australian property prices

[So_Cynical]

What? Average salary in OZ is around 64K per year. LINK HERE

and you can still buy a cheap old small house just 1 hour north of sydney for 210K.
For a starter that's darn cheap!

Link to Cheap House

Is that a old housing commission area? a 3 hour commute to the city and back every day...12 hours a week commuting, its like working 6 days in 5, a couple of years of that and i would be ready to throw myself in front of the train!

 

[So_Cynical]

http://www.realestate.com.au/property-unit-nsw-liverpool-106653137

Come on ****ty apartments sell for less than $400K. look at the link above

Liverpool lolol Tyson...what Sydney do you live in? Liverpool is an awful place...i remember refusing to met a woman i met on POF after i found out she lived in Liverpool.

My first memory of visiting Liverpool (on foot) involved walking behind a young man totally off his head on what i can only assume was heroin...it was as if he was walking in slow motion, taking 3 steps forward only to lose balance and take 3 steps back...this in one of the main street in the middle of a sunny Saturday afternoon.

 

[medicowallet]

I bought my first property in 2001 so just on 10 years since I bought it, But it was built in 1993 and still have the original kitchen and bathroom, budjeting to replace the kitchen and bathroom every 15years is over the top.

.

I also service my car every 80000k.

You are either not maintaining your property properly, or are not getting the rent/tenants you can get.

I have been investing in property for a considerably longer time, and 15% just does not, ever cover expenses.

With $20k rent, rates and insurance chews up a substantial percentage of $20k, and leaves little for maintenance.


But then again, there are a lot of "investors" who have no idea what their outgoings are.

I wonder how good the quarterly reports you get from your accountant are?

 

[Tysonboss1]

I also service my car every 80000k.

You are either not maintaining your property properly, or are not getting the rent/tenants you can get.

I have been investing in property for a considerably longer time, and 15% just does not, ever cover expenses.

With $20k rent, rates and insurance chews up a substantial percentage of $20k, and leaves little for maintenance.


But then again, there are a lot of "investors" who have no idea what their outgoings are.

I wonder how good the quarterly reports you get from your accountant are?

I have gone years sometimes (2-3years) without having any maintaince requests,

In 10 years the property that I have owned the longest has only even has the following work done.

1 x new hotwater system
1 x full Repaint
1 x partial repaint ( two rooms )
1 x Installed electric garage door ( tenant asked for it and I raised rent by $10/week as a result)
Some basic plumbing (washes etc)
1 x repair to electric stove
2x termite inspections
1 x termidoor treatment.
smoke alarms installed
battery replaced on smoke alarms.

I also manage it myself, so no management fees.

The rest is original, I have only ever 1 tenant change so both tenants have been longterm tenants and are happy with the house so why would I rush in and put new bathrooms etc in.

the maintaince costs very small over the years, offcourse there will be some big ticket items coming up, but if you divide the cost of them by the number of years it takes for them to wear out the cost per year is low, and you can get them done cheaper if you be smart about it, for example I will be recarpeting my properties soon and I have already made some calls and I will be getting a cheaper price by getting three properties done at once.

But If you are silly, responding to every tenants whim, getting ripped off by contractors, over capitalising on things that don't need to get done etc.etc I aggree with you the maintaince costs are limitless. You have to treat an IP like a business, not like a PPOR or a holiday home.

I will put in new kitchens and bathrooms, when spending the money to do so makes sense when compared to the extra rent it will provide and not before. But to be honest the kitchen and bathrooms are still in good nick, they have been looked after by the tenants, and the tenants are happy with it, so why spend the money.

 

[TabJockey]

There is no doubt you can get away with very little in maintainance and capex spending in resi property in tight rent markets and maintain tenants and rental rates.

In some cases it makes sense to run improvements into the ground but in some cases it does not.

 

[Tysonboss1]

Liverpool lolol Tyson...what Sydney do you live in? Liverpool is an awful place...i remember refusing to met a woman i met on POF after i found out she lived in Liverpool.

My first memory of visiting Liverpool (on foot) involved walking behind a young man totally off his head on what i can only assume was heroin...it was as if he was walking in slow motion, taking 3 steps forward only to lose balance and take 3 steps back...this in one of the main street in the middle of a sunny Saturday afternoon.

I live on the north shore, But I did live in wattle grove when I was in the army which is right next to liverpool.

I aggree liverpool is a dodgyarea, But he said that even I shetty apartment was $400,000, I was just showing that you can get a shetty apartment for half that price, although an apartment in liverpools ghetto is probally not all that apealing, But you can walk to the train station ( just don't do it at night)

 

[Bill M]

Is that a old housing commission area? a 3 hour commute to the city and back every day...12 hours a week commuting, its like working 6 days in 5, a couple of years of that and i would be ready to throw myself in front of the train!

No, Gorokan on the Central Coast is an older suburb that most oldies retired to back in the 60's and 70's, hence there is lot of fibro, timber or clad cottages. It is also an old tourist town just up from Toukley. There is some housing commission in the area but it's not overloaded. To be honest if one was hard up for cash and had to retire with limited funds you could buy a place for around 210K to 250K not far from the lake and club and just take it easy. Of course the commute to Sydney if you had to work could be a drag but what I was trying to point out was that there are cheap houses around, cheers.

 

[medicowallet]

I have gone years sometimes (2-3years) without having any maintaince requests,

In 10 years the property that I have owned the longest has only even has the following work done.

The rest is original, I have only ever 1 tenant change so both tenants have been longterm tenants and are happy with the house so why would I rush in and put new bathrooms etc in.

the maintaince costs very small over the years, offcourse there will be some big ticket items coming up, but if you divide the cost of them by the number of years it takes for them to wear out the cost per year is low, and you can get them done cheaper if you be smart about it, for example I will be recarpeting my properties soon and I have already made some calls and I will be getting a cheaper price by getting three properties done at once.

You are very lucky on multiple levels

1. Excellent tennants (I have a few like this, but they are the exception). I am also not as confident to not have a real estate deal with troublesome ones, as I have been stung before.
2. Luck with electicals and build quality. I guess it also depends upon what your house has, but things like airconditioning, fans and plumbing, not really causing any problem at all in a 10 year period is definitely and outlier.

and most importantly

3. The economic conditions - you have never experienced pain from property, and I understand that this has made you overconfident. When I started building my portfolio, the government was not so gutless, bailing out housing "investors" to buy votes.

Also, vacancy rates will rise, as Australians (especially younger) start to share house with others, like in the UK, and us older farts downsize, or as I will hopefully do in the next 5 years, leave the country to one which is not such a socialist one (like America)

We have all made a lot of money over the past decade, and the good times can not and will not last forever. This applies to rents we can charge and the price we can demand.

 

[explod]

This thread is gradually becoming a waste of space as it is rarely on topic. It reflects only how good some people have been in the past and only in the area of investment properties.

This thread is about the direction of, ie. "The future of Australian property prices" and that is it.

If you do want to analyse the facits of owning investment properties I suggest you start a thread on the subject.

Back on topic:-

The popular press itself overall would suggest the bubble has popped and Australian property prices are at best sideways at the moment. Would be good to hear some comment on this assertion?

And the weekend clearance rate for last weekend there ole botty?

You must be all smiles with the silver price now ole Champ

 

[Tysonboss1]

This thread is about the direction of, ie. "The future of Australian property prices" and that is it.

If that were the only topic to be discussed, then this thread would be a waste of time. The future direction of property prices is simply not knowable.

Nobody knows the future direction, people can have an opinion and by default some will be right and others will be wrong. What did you want this thread to be, did you just want people from time to time post single word posts of "UP" "DOWN" or "FLAT".

 

[Tysonboss1]

Back on topic:-

The popular press itself overall would suggest the bubble has popped and Australian property prices are at best sideways at the moment. Would be good to hear some comment on this assertion?

They get it wrong just as often as they get it right, So who knows, I don't think a bunch of journalists can tell us whats happening. They didn't see the GFC till after the fact and they didn't see the recovery until after the fact.

If you follow the popular press you will undoubtly buy after the boom and sell after the crash, and thats true with shares and property.

 

[Tysonboss1]

FLAT

 

[trainspotter]

FLAT

Aaaaah yesssssss ........ but wait for the dead cat bounce.

 

[financialdonk]

http://www.watoday.com.au/business/building-approvals-dive-most-in-8-years-20110303-1bfj9.html

If nobody is buying existing houses at auction or seeking to build new ones then time may be the only variable between flattening prices and a decline.

 

[satanoperca]

http://www.watoday.com.au/business/building-approvals-dive-most-in-8-years-20110303-1bfj9.html

If nobody is buying existing houses at auction or seeking to build new ones then time may be the only variable between flattening prices and a decline.

In the year to January, nationwide building approvals were down 24.8 per cent, the Australian Bureau of Statistics said today.

So do we have a shortage and this ad to the shortage? Or have we always had an oversupply?

Off to get a latte and smell them roses.

 

[againsthegrain]

Lately the arguments for a continual bull run are getting more desperate, now all I hear is investors coming to bail out baby boomers and a continual increase of "new austraians" and shortage

most of the "new" australians I see look like they can afford alot less then the "old" australians who are not even looking at property anymore.

So even if there was a shortage of supply it will not be physically possible for people to take up huge loans. The bank says no

 

[white_goodman]

http://www.netcastdaily.com/broadcast/fsn2011-0301-1.mp3

 

[greebly24]

Just looking very basically at that example above of the house at Gorokan:

Price $210k
10% deposit = $21k
Mortgage = $189k
Weekly Repayments @ 6.5% = $295
Annual Repayments = $15,340

Weekly Rent = $240
Annual Rent = $12480
Minus 15% costs = $10,600

So it is negatively geared to the tune of about $5k per year.

Assuming a 5% capital growth in the first year = $10,500.

So you're going to make about $5k in the first year. On your $21k initial investment, that's a return of 25%. Pretty good. Guess that's before tax though, and without all the other costs.

My main concern is the very realistic possiblity that the mortgage goes up to 8%, while the capital growth drops to 3%.

Mortgage repayments = $336/wk or annually $17,472
Annual rent after costs = $10,600
Capital Growth = $6,300

And then you're losing money, basically. Not very much, but with additional costs you're not even breaking even.

And what happens in a really bad scenario if your mortgage goes to 10% and the property value drops 5%?

Mortgage repayments = $20,600
Annual rent after costs = $10,600
Capital Loss = $10,500

Then the house cost you $20k+ that year. Or a 95% loss of your original $21k. And forget about selling. It wouldn't cover what you owe the bank.

Take the nightmare mortgage rate of 12% and a five year property drop of 20%, then the picture would be disastrous for those first home buyers who were suckered in, or those middle-aged people who decided to unlock their equity, or those approaching retirement who have not other investments besides their own home. This nightmare has occurred in many other Western countries.

This is the potential problem new property investors face. Just because an asset class has boomed for a decade or two, doesn't mean it will keep booming. There are factors such as rising interest rates & retiring baby boomers and a possible Chinese slow-down which would negatively affect the Australian economy, not to mention the drying up of the home equity loan market.

But it doesn't mean the property market will bust either. Issues such as lack of land releases and foreign investment may keep prices high. But with full-recourse mortgages, people just getting in to the game need to be very careful that they aren't left with a unsustainable level of debt that is greater than the asset value. Real estate slogans won't help you then.

 

[mazzatelli]

I am not referring to a cash vs. property debate for inflation hedging, as in general the majority of real assets will outperform cash.

I am asking:
1) Is property the best tool for hedging inflation and;
2) If so, which is better - property financed with cash or credit?

Still awaiting you expert opinion on this Tyson...

 

[Bill M]

Take the nightmare mortgage rate of 12% and a five year property drop of 20%, then the picture would be disastrous for those first home buyers who were suckered in, or those middle-aged people who decided to unlock their equity, or those approaching retirement who have not other investments besides their own home. This nightmare has occurred in many other Western countries.

Hello greebly24, I wanted to quote your whole post but people don't like you doing that. Anyhow thanks for a well balance post and opinion. Just thought I would add that when I borrowed for my first mortgage in 1979 my interest rate was 11% then. Rates hit 17.5% at one stage many years later. I still made money on my properties regardless of that. It has never been easy to invest in and make money in property but one thing for sure prices just keep climbing. Yes you have some flat or slightly negative years but nothing like the share market crashes of 87 and 2009 where people lost half their money. Your post is good reading for anyone wishing to buy, everything you wrote should be considered, cheers and thanks.