The future of Australian property prices

[Soft Dough]

He might have lost the fight but not the war.

It is conceivable that prices could fall up to 40% given their historic rise last year and the momentum to push them higher this year.

So at the end of the year, if they rose 10% a fall of 30-40% would only put prices back to 2007-2008 levels. No biggy really.

Cheers

Then the banks panic

Then the believers panic

Then the foreign investors panic

Then the businesses fail

Then unemployment rises

Then FINALLY Robots eats humble pie


I like the fact that banks are improving their balance sheets and reducing the Gearing ratios for borrowers, at the same time that the government is reducing the first home buyers vote grab.

I'd kill three fluffy seal pups to read the henry report recommendations, I'm sure there is some good stuff in it for people who are cashed up.

Mostly cashed up waiting for the fall... and proud of it.

 

[Beej]

I like the fact that banks are improving their balance sheets and reducing the Gearing ratios for borrowers, at the same time that the government is reducing the first home buyers vote grab.

I'd kill three fluffy seal pups to read the henry report recommendations, I'm sure there is some good stuff in it for people who are cashed up.

Mostly cashed up waiting for the fall... and proud of it.

Ha! You should have bought during the falls of late 2008/early 2009 when myself and others were trying to tell everyone here that things were about as good as they get for a residential property buyer......

IMO you won't see a market with the opportunities that were presented at that time for many years. The low end may stagnate/soften for a while (more sensitive to grants, interest rates and banks LVR policies etc), but you won't see 20%+ discounts off previous market price for the well located premium properties like we saw 12/18 months ago..... Not until the next significant down part of the price cycle anyway, which as I said is probably sometime in the next 5-10 years.

Cheers,

Beej

 

[wayneL]

Ha! You should have bought during the falls of late 2008/early 2009 when myself and others were trying to tell everyone here that things were about as good as they get for a residential property buyer......

IMO you won't see a market with the opportunities that were presented at that time for many years. The low end may stagnate/soften for a while (more sensitive to grants, interest rates and banks LVR policies etc), but you won't see 20%+ discounts off previous market price for the well located premium properties like we saw 12/18 months ago..... Not until the next significant down part of the price cycle anyway, which as I said is probably sometime in the next 0-10 years.

Cheers,

Beej

Corrected to reflect true possibilities.

 

[Soft Dough]

Ha! You should have bought during the falls of late 2008/early 2009 when myself and others were trying to tell everyone here that things were about as good as they get for a residential property buyer......

IMO you won't see a market with the opportunities that were presented at that time for many years. The low end may stagnate/soften for a while (more sensitive to grants, interest rates and banks LVR policies etc), but you won't see 20%+ discounts off previous market price for the well located premium properties like we saw 12/18 months ago..... Not until the next significant down part of the price cycle anyway, which as I said is probably sometime in the next 5-10 years.

Cheers,

Beej

Hope you have locked in your profit, you might see it slip away really soon.

 

[Fleeta]

Can anybody believe that the media print this stuff?????

http://www.heraldsun.com.au/news/broadmeadows-million-dollar-future/story-e6frf7jo-1225832359213

THIS IS PROPAGANDA! YOUNG AND UNEDUCATED PEOPLE ARE [MAYBE] STUPID ENOUGH TO BUY HOUSES IN BROADMEADOWS THINKING THIS IS TRUE!! THIS TYPE OF REPORT SHOULD BE ILLEGAL!

Can anybody explain how this report could report could actually be true in the absense of either (1) an explosion of wages (and inflation) or (2) banks dishing out 50 or 75 year loans?????

You can protect the sheep from the wolves, but you can't protect the sheep from themselves...

 

[joeyr46]

Can anybody believe that the media print this stuff?????

http://www.heraldsun.com.au/news/broadmeadows-million-dollar-future/story-e6frf7jo-1225832359213

THIS IS PROPAGANDA! YOUNG AND UNEDUCATED PEOPLE ARE [MAYBE] STUPID ENOUGH TO BUY HOUSES IN BROADMEADOWS THINKING THIS IS TRUE!! THIS TYPE OF REPORT SHOULD BE ILLEGAL!

Can anybody explain how this report could report could actually be true in the absense of either (1) an explosion of wages (and inflation) or (2) banks dishing out 50 or 75 year loans?????

You can protect the sheep from the wolves, but you can't protect the sheep from themselves...

I would think this is proof positive that a bubble will not occur in housing as it already has occurred just like the Dow in 2000 when we had books coming out about dow 50000 and when oil was $147 we had people in the industry writing about peak oil and how high it was going to go. Not rational arguments about prices going up but irrational arguments that took no real notice of (a) what causes prices to be what they are or (b) not having an understanding that all things are connected and not isolated
the two things all these irrational arguments use is
(1) the belief that supply / demand drives prices as opposed (a) to peoples belief in what prices should be driven by psychology and (b) liquidity in the system
(2)Prices always go in 1 direction ie. they always extroplate the current trend to an extreme

 

[prawn_86]

I know therew has been plenty previously, but i forgot to save them to my comp.

Would someone be so kind as to provide a spreadsheet they have made up for thier property decisions?

 

[ROE]

Can anybody believe that the media print this stuff?????

http://www.heraldsun.com.au/news/broadmeadows-million-dollar-future/story-e6frf7jo-1225832359213

THIS IS PROPAGANDA! YOUNG AND UNEDUCATED PEOPLE ARE [MAYBE] STUPID ENOUGH TO BUY HOUSES IN BROADMEADOWS THINKING THIS IS TRUE!! THIS TYPE OF REPORT SHOULD BE ILLEGAL!

Can anybody explain how this report could report could actually be true in the absense of either (1) an explosion of wages (and inflation) or (2) banks dishing out 50 or 75 year loans?????

You can protect the sheep from the wolves, but you can't protect the sheep from themselves...

Ah the good old famous quote house price double every 7-10 years

there is no need to protect anyone from anything, it's the nature of capitalism.

it is wisely sum up by Uncle Warren Buffett and Uncle Charlie Mungers

"Certainly at the high end of the real estate market in some areas, you've seen extraordinary movement.... People go crazy in economics periodically, in all kinds of ways. Residential housing has different behavioral characteristics, simply because people live there. But when you get prices increasing faster than the underlying costs, sometimes there can be pretty serious consequences."

 

[prawn_86]

Does anyone have any experience investing in resorts/serviced apartments?

We are considering a small entry investment and think we have located a few decent priced properties to suit our budget, but a lot of them are actually units within a resort. Is there anything in particular we should look out for? Obviously vacancy rate is one thing, but looking for other ideas.

Thanks

 

[Tysonboss1]

Does anyone have any experience investing in resorts/serviced apartments?

We are considering a small entry investment and think we have located a few decent priced properties to suit our budget, but a lot of them are actually units within a resort. Is there anything in particular we should look out for? Obviously vacancy rate is one thing, but looking for other ideas.

Thanks

Treat it as you would treat a commercial property, the strength of the property as an investment is going to come from it's lease or management contract.

Some things to look at are,

Is the total rent received from all the rooms divided between all the owners or do you only recieve rent when your room is let, If so How do they cycle the rooms, are some rooms going to be constantly let while others remain vacant.

What are the management fees and charges imposed on you,

Is the management company professial and succesful, how long is their contract to manage the place for,

You are also opening your self up to alot more business risks than a standard residensial property investment has, What so of people rent the apartment,
Is it a holiday type tourism venture, an over night motor inn, an inner city short stay business type property, all this properties have pros and cons and operate differntly.

Can you get finance for it, somtimes these types of properties require larger deposits from lenders.

Does the price you pay leave enough margin of safty to allow for the added risks you are taking.

Can you see infomation on the last serveral years income statment for the property.

 

[prawn_86]

Thanks Tyson, good advice there

 

[moses]

Does anyone have any experience investing in resorts/serviced apartments?

We are considering a small entry investment and think we have located a few decent priced properties to suit our budget, but a lot of them are actually units within a resort. Is there anything in particular we should look out for? Obviously vacancy rate is one thing, but looking for other ideas.

Thanks

Be careful. Too many people buy units within resorts on the self pretence it is an investment but the real driver is that they want to own the holiday unit they want to stay in. This can put the price up artificially and can make these units a poor investment.

 

[prawn_86]

Be careful. Too many people buy units within resorts on the self pretence it is an investment but the real driver is that they want to own the holiday unit they want to stay in. This can put the price up artificially and can make these units a poor investment.

Based on back of the envelope calcs the ones we are looking at make sense financially. IE get a long term tennant and its close to cash flow positive off the bat.

I guess we are just wondering what some of the downfalls are.

So far have:
1. not being able to get long term tennants. ie high vacancy
2. What happens if resort gets sold/renovated
3. What room for movement in prices in there. I looked at some of these a year ago and prices havnt moved since then.
4. Management worries/costs as Tyson has alluded to already

 

[Soft Dough]

Based on back of the envelope calcs the ones we are looking at make sense financially. IE get a long term tennant and its close to cash flow positive off the bat.

I guess we are just wondering what some of the downfalls are.

So far have:
1. not being able to get long term tennants. ie high vacancy
2. What happens if resort gets sold/renovated
3. What room for movement in prices in there. I looked at some of these a year ago and prices havnt moved since then.
4. Management worries/costs as Tyson has alluded to already

I have looked at this personally and would go residential property as for me :

It

1. Is secure vs recessions / downturns
2. Is not drastically affected if there are new properties / hotels opened down the road.
3. Should be cheaper to maintain.
4. Gives YOU control over cashflow, taxation decisions and renovation decisions.
5. Is not subject to as much corruption as occurs in managed resorts.
6. Capital appreciation is usually greater.
7. Can usually be sold more easily in downturns/recessions
8. Easier to base investment decisions around as cashflow is usually more secure.

I personally NEVER give up the decision making of any of my investments to third parties. Hence I believe that point 4 is the most obvious reason as to why I would never do it.

BUT the only advice I offer is that you should talk to your accountant about it first to see how a decision like this affects your circumstances.

 

[bellenuit]

A question for those of you who think property prices are likely to fall in the not too distant future.

Since property is land and buildings, in regards to new property, if there is a correction, on average is the effect likely to be equally shared by each component. So if a typical inner suburb development today consists of land ready for building worth $500K and building costs of $500K, and there is a 20% correction, would this likely mean that the same development after the correction would be $400K and $400K or would one component hold value better than the other.

It may seem a strange question, but I am toying with building two town-houses at the rear of my house which is on a block zoned R60. My intention is to retain both new properties and rent out. However, it will be a major investment and talk of a collapse in property prices is worrying.

If an imminent collapse in prices is going to predominantly effect the land component, then that should not be of great concern. Since I already own the land, that component will go down in value whether I develop or not and so long as I am not selling then I won't be realising a lesser value than otherwise. However, if it is the building costs that will predominantly fall, then it would make sense to hold off for a while and see what happens. It might be a lot cheaper to do the building a year or so from now.

 

[So_Cynical]

Prawn are you considering this because you cant afford a proper property?

 

[tywo]

Hi all,

I thought i might do a detailed Elliott Wave analysis on home prices in Sydney (this should cover a similar trajectory for all property prices in Australia). For those who are not familiar with the Elliott Wave principle, it is based on collective investor psychology to help forecast future market trends. My analysis can be found at

http://www.tradeyourwayout.com/2010/02/elliott-wave-analysis-on-sydney-home.html

please feel free to comment

 

[drsmith]

please feel free to comment

A log scale as opposed to linear over that time frame ?

 

[prawn_86]

Prawn are you considering this because you cant afford a proper property?

lol what is a 'proper' property? :

Considering it as we are just beginning to look at our options at the moment and it may be a good stepping stone investment. Bascially we want to get something cash-flow positive as soon as possible and it seems this may be one way. I mean if it stacks up as an investment then why not, but as others have mentioned there are a lot of different issues to standard residential property, so will need to find out the full details

EDIT - does someone have the property spreadsheet that was floating around one of these threads?

 

[Taltan]

A question for those of you who think property prices are likely to fall in the not too distant future.

Since property is land and buildings, in regards to new property, if there is a correction, on average is the effect likely to be equally shared by each component. So if a typical inner suburb development today consists of land ready for building worth $500K and building costs of $500K, and there is a 20% correction, would this likely mean that the same development after the correction would be $400K and $400K or would one component hold value better than the other.

Generally if prices drop it is the land that drops more than the building. The building remember needs to be built (eventually rebuilt) and so an alternative has a built-in cost.

So in a 200k fall your 500k land becomes 400k and your 400k building becomes 400k however in a 200k rise your 500k building is still 400k its your land thats now worth 800k.

Buildings don't really appreciate in value unless you renovate, just the land does. Thus should a bust occur its also the land that goes down because it is the more speculative element of property prices