The future of Australian property prices

[Bolle]

hence the phrase: location, location, location.

 

[Dowdy]

hence the phrase: location, location, location.

Now the new phrase is speculation, speculation, speculation.

 

[Bill M]

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

Hello Prawn, I feel I need to say something about this. Mate the biggest killer is LEVYS and Management fees. I own an apartment in Sydney with no resort style facilities. The only things we have that resorts/holiday units have is a lift and security door entry and security garage access. We pay $70 per week for levys. On top of that for a "proper rental property" we pay 6.6% agents management fees. The total for the 2 fees is $100 PER WEEK.

In a resort/holiday rental they usually offer much more, like pools, saunas, gyms, BBQ areas, manicured gardens and so on. You will pay much more for your levys and management fees for all these services. This could end up costing you up to $200 per week. Even if you have no holiday makers you must pay at least the levys! What if management is a bit corrupt? It can happen as some owners could be on better terms with the management than others and could get favourable treatment to your detriment. Sure they will tell you it is all fair and documented but how could you ever really know?

I thought about it a long time ago and decided against for all the above risks and I bought residential property instead, nothing better than that regular weekly income. Just be careful that's all mate, good luck.

 

[Soft Dough]

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.

In my experience, it is the value of land which has been the main driver.

What was the average "value" of land in 2000 vs 2005. Why and how can such increases be charged / accepted?

The increases in tradesmen's extortionate rates has been offset by cheaper imported junk fittings and by strong Aussie dollar.

So as you can see, on multiple fronts there is room for correction, and if Krudd did not ridiculously stimulate a housing market already in a bubble and effectively subsidise tradesmen's wages at the behest of the unions

1. house approvals fall.
2. Tradesmen supply and demand corrects
3. Tradesmen wages fall.
4. Construction prices fall.

5. Builders actually need to compete for jobs
6. Builder margins fall.

7. Land developers need to quickly clear tied up cash to improve cashflow in GFC.
8. Land prices plummet.

9. House prices fall, triggering banks to readjust balance sheet, calling in bad debts from people who purchased at the top of the market.
10. Further, forced house price falls.

11. This causes a positive feedback loop, almost exactly the same as which the sharemarket was allowed to experience ( yes, you know the vehicle that funds the companies that a lot of australians work for, and which generate export revenue - yet our stupid pm, for popularist politics, allows that to fall, in preference for a vote grabbing political stunt )

So I think both would fall, but in the above scenario, land would come under the most pressure imo.


Edit - waiting in keep and highly cashed up anticipation to see the fallout over this year, especially with banks massive decreases in LVR.... should be interesting.

 

[Fleeta]

Looks like our friend 'professor' robots has been over posting at www.keenwalk.com.au. No mods to keep his ranting in check over there as well. Go and check it out for a laugh.

The arguments for higher prices are wearing thin, yet it appears to be onwards and upward, particularly in Melbourne...it is surprising how far herd mentality can go!

 

[Soft Dough]

Looks like our friend 'professor' robots has been over posting at www.keenwalk.com.au. No mods to keep his ranting in check over there as well. Go and check it out for a laugh.

Perhaps A/prof Keen will challenge the legitimacy of his qualifications and identify him.

 

[Timmy]

Prof. Steven Keen has lost the well-publicised bet that house prices in Australia would be higher than their September 2008 level a year later. So now he has to walk from Sydney to Mt. Kosciousko.

He has created a web-site with some interesting housing stats. Second part of his bet is a 40% fall over a 10-15 year period.

www.keenwalk.com.au

SMH article on Keen's losing bet - he will be wearing a T-shirt with the words: "I was hopelessly wrong on house prices. Ask me how." (And he wasn't the only one).

Now the bet is a fall over 10-15 years (see article for details). At least he is making time-based, measurable predictions, so there is some degree of accountability, but not too much (standard commentator practice is to keep pushing the timeframe out if you are wrong).

 

[Timmy]

Looks like our friend 'professor' robots has been over posting at www.keenwalk.com.au.

I went over for a look, found this:

hello,
yeah top effort Keen, special shout out to all my friends at ASF i hope some can get along to support Steve in April

look out the window into the sky and the street and you will see how Australia is there brothers

thanks
professor robots

Legendary stuff.
Hope some followed robots' advice and reaped some property profits in the last year or so - plenty there!

 

[Bigukraine]

In my experience, it is the value of land which has been the main driver.

What was the average "value" of land in 2000 vs 2005. Why and how can such increases be charged / accepted?

The increases in tradesmen's extortionate rates has been offset by cheaper imported junk fittings and by strong Aussie dollar.

So as you can see, on multiple fronts there is room for correction, and if Krudd did not ridiculously stimulate a housing market already in a bubble and effectively subsidise tradesmen's wages at the behest of the unions

1. house approvals fall.
2. Tradesmen supply and demand corrects
3. Tradesmen wages fall.
4. Construction prices fall.

5. Builders actually need to compete for jobs
6. Builder margins fall.

7. Land developers need to quickly clear tied up cash to improve cashflow in GFC.
8. Land prices plummet.

9. House prices fall, triggering banks to readjust balance sheet, calling in bad debts from people who purchased at the top of the market.
10. Further, forced house price falls.

11. This causes a positive feedback loop, almost exactly the same as which the sharemarket was allowed to experience ( yes, you know the vehicle that funds the companies that a lot of australians work for, and which generate export revenue - yet our stupid pm, for popularist politics, allows that to fall, in preference for a vote grabbing political stunt )

So I think both would fall, but in the above scenario, land would come under the most pressure imo.


Edit - waiting in keep and highly cashed up anticipation to see the fallout over this year, especially with banks massive decreases in LVR.... should be interesting.

Hi,

Being a sub-contractor and working for myself and also have associate's who are developers a few factors imo that you should consider have been missed and should be assessed :

1) Trade rates may seem high but you have to factor alot of things regarding overhead costs to a self employed person such as insurance,travel,account holding costs (materials),bad debt,public liability, licence costs,downturn in trade etc etc. the modern trade person is a mini company witha ceo that does EVERYTHING by himself. ps left out super and workcover costs.

2) Your work now is now more than ever open to scrutiny and possible litigation due to increasing amounts of product suppliers giving guarantee's regarding application and instalation protacals that must be adhere to to get a 5-10-15 year guarantee. If you follow their instructions the task/job would have a 20-50% extra cost factor that the customer isn,t prepared to absorb so a fine line of workmanship and cost is walked with every job and the posibility of the supplier sueing you for rectification is very real.

3) It is not that easy to get a trade lic, ageing population and hardly any apprentice's taken on doesn't make for a cheaper scenario also if the govt has a change of heart and relaxes regulation it would lead to disaster eg look at the instalation debarcal. More i could add but think i made my piont.

4) developers face ever increasing costs due to the govt over the last ten years waking up to the cash cow that developing can provide. eg augmentation costs, title issue costs ,the list goes on and on and it equates to a large cost component before you factor in land cost development cost and the biggie holding costs.
The local councils now also have there hand out re their cotributions to the proceess and this is another extra costs.


in summery the govt would have to change a lot of the revene stream from the above and a whole lot of cashed up tradies with the right qualifictions will have to appear from no-where before trade prices and the current land price(now maybe a freeze at the current levels) would change in the near future imo.

 

[Mofra]

"Well derr" - it appears overpaying for an asset in a cr@p location is not a good idea. I wonder if anyone will still challenge the notion that there are different segments to the residential property market.

http://www.news.com.au/money/proper...eralds-big-crash/story-e6frfmd0-1225832939381

House price surge heralds big crash

OUTER Melbourne's surging house prices are at risk of a correction, mirroring the boom-and-bust scenario that hit Sydney's outlying suburbs between 2003 and 2005.

In Melbourne's southeast, house prices in Cranbourne South rose 44.6 per cent to a median of $441,000 in the year to November, while in Narre Warren North, prices increased 23.8 per cent to $635,000.

"The higher you rise the harder you fall, potentially," said BIS Shrapnel senior economist Jason Anderson.

The economic research firm still expects Melbourne's overall residential prices to show the strongest growth of all capital cities this year at 8.2 per cent. This compares with forecast increases of 6.8 per cent in Sydney and 5.2 per cent in Brisbane.

 

[MichaelG]

ithink australian prpperty is heading towards bubble zone...but the last part of the rally is always the steepest. so enjoy the ride. i still own my investment properties but it feels too easy to make money!

 

[Bushman]

ithink australian prpperty is heading towards bubble zone...but the last part of the rally is always the steepest. so enjoy the ride. i still own my investment properties but it feels too easy to make money!

There are parts/sectors in Melbourne which have leapt up 30-50% in the past few years (i.e inner city units in the north/west and some established outer suburbs). There are longer term demographic terms at play but that is crazy. I am thinking a West Sydney type bubble bursting at some stage (that stage being mortgage stress induced by Mr Stevens pulling on that lever).

 

[Mofra]

There are parts/sectors in Melbourne which have leapt up 30-50% in the past few years (i.e inner city units in the north/west and some established outer suburbs). There are longer term demographic terms at play but that is crazy. I am thinking a West Sydney type bubble bursting at some stage (that stage being mortgage stress induced by Mr Stevens pulling on that lever).

I agree there will be a pullback in outlying suburbs - anywhere that has a high proportion of FHBs tends to be more of a "stepping-stone" suburb than a place people want to spend decades in. I still think that desireable locations in close proximity to public transport/the CBD will weather any storm and outperform the wider market in the long term.

 

[satanoperca]

Nothing to see here folks, move along.

No potential subprime in the Aussie market.

47% SLUMP IN MORTGAGE SALES: AFG WARNS RBA ON
ANOTHER RATE RISE

Boo hoo, how about them savers. Sorry forgot, saving was a thing of the past, debt is King.

http://corporate.afgonline.com.au/idc/groups/public/documents/web_content/mortgageindex-feb10-national.pdf

Aug 09 Average loan size $347k FHB 20.9% Average Equity 11.9% Intro Rates 17.7% Fixed Rates 5.1%.

So most FHB used the govnuts fee money as equity it would seems.

Will intro rates resetting as we speak, could get interesting if IR's go up another 1-2%.

Cheers

 

[ROE]

Nothing to see here folks, move along.

No potential subprime in the Aussie market.




Boo hoo, how about them savers. Sorry forgot, saving was a thing of the past, debt is King.

http://corporate.afgonline.com.au/idc/groups/public/documents/web_content/mortgageindex-feb10-national.pdf

Aug 09 Average loan size $347k FHB 20.9% Average Equity 11.9% Intro Rates 17.7% Fixed Rates 5.1%.

So most FHB used the govnuts fee money as equity it would seems.

Will intro rates resetting as we speak, could get interesting if IR's go up another 1-2%.

Cheers

But I thought investors going to fill in the gap when FHB exit
damn it where are those investors, buy up, fill the gap keep the economy going

 

[joeyr46]

But I thought investors going to fill in the gap when FHB exit
damn it where are those investors, buy up, fill the gap keep the economy going

Investors wouldn't buy property at $400000 to get rent of $400 a week Would they?
what is that as a return
$20800 a year less rates say $3000 insurance $500 repairs (maintenance) $2000
agents fees (or cost of collecting rent in your time) say 8% $1664 so we clear $13636. That does not take account of vacancy periods advertising etc, less than 3.5% Clearly hoping for capital gains. lets borrow 75%at say 6.5% $19500 interest a year
That's $100000 not earning anything
Can't really call that an investment.
Also anecdotal evidence that rents are starting to top, tenants starting to bargain and getting offers accepted, Know of 2 cases personally
so yes were are those pesky investors, cause there clearly not buying RE (Robots not championing the cause any more thats the problem)

 

[prawn_86]

Investors wouldn't buy property at $400000 to get rent of $400 a week Would they?
what is that as a return
$20800 a year less rates say $3000 insurance $500 repairs (maintenance) $2000
agents fees (or cost of collecting rent in your time) say 8% $1664 so we clear $13636. That does not take account of vacancy periods advertising etc, less than 3.5% Clearly hoping for capital gains. lets borrow 75%at say 6.5% $19500 interest a year
That's $100000 not earning anything
Can't really call that an investment.
Also anecdotal evidence that rents are starting to top, tenants starting to bargain and getting offers accepted, Know of 2 cases personally
so yes were are those pesky investors, cause there clearly not buying RE (Robots not championing the cause any more thats the problem)

Yeh, having doen the sums on a few investment apartments as of late and it appears saving cash is a better/safer investment.

We worked out we would be ahead by about 3% buying a property after 4years, but for all the hassles its just not worth it, we are better just saving the cash instead of putting it into a mortgage.

Basically it comes down to relying on capital gains, which you can get with cash in a term deposit anyway. Yes maybe not as much, but its less worries etc

 

[Tysonboss1]

Yeh, having doen the sums on a few investment apartments as of late and it appears saving cash is a better/safer investment.

We worked out we would be ahead by about 3% buying a property after 4years, but for all the hassles its just not worth it, we are better just saving the cash instead of putting it into a mortgage.

Basically it comes down to relying on capital gains, which you can get with cash in a term deposit anyway. Yes maybe not as much, but its less worries etc

I would put the invest the cash rather than try stock piling it, Cash is a terrible investment. did you take account of inflation and tax doing your calculations. You don't have to put it into an over leveraged property the stock market would do just fine.

Investing for a deposit is better than saving for a deposit.

By chance I just came accross this youtube video, which explains the way I have always thought of cash.

http://www.youtube.com/watch?v=2epTX1LtCuU&NR=1

 

[Tysonboss1]

Boo hoo, how about them savers. Sorry forgot, saving was a thing of the past, debt is King.

Encouraging people to stock pile money is not a good idea, Why should holding cash be some sort of favoured class that generates a return while also being next to risk free.

I think the way our system sort of holds saving in limbo by taking the interest back in the form of tax and inflation is good. It forces people who want their money to be productive to actually invest in productive assets.

It's not natural that money should grow from money, it is unsustainable and bad for an economy. Civilizations have fallen because of usury and the hording of the money supply.

Any one that sits on a large pile of cash and don't want to expose it to risk do not deserve to see it grow in spending power in any real terms, They deserve to have it sit and ever so slowly erode.

 

[Soft Dough]

Hi,

Being a sub-contractor and working for myself and also have associate's who are developers a few factors imo that you should consider have been missed and should be assessed :

1) Trade rates may seem high but you have to factor alot of things regarding overhead costs to a self employed person such as insurance,travel,account holding costs (materials),bad debt,public liability, licence costs,downturn in trade etc etc. the modern trade person is a mini company witha ceo that does EVERYTHING by himself. ps left out super and workcover costs.

2) Your work now is now more than ever open to scrutiny and possible litigation due to increasing amounts of product suppliers giving guarantee's regarding application and instalation protacals that must be adhere to to get a 5-10-15 year guarantee. If you follow their instructions the task/job would have a 20-50% extra cost factor that the customer isn,t prepared to absorb so a fine line of workmanship and cost is walked with every job and the posibility of the supplier sueing you for rectification is very real.

3) It is not that easy to get a trade lic, ageing population and hardly any apprentice's taken on doesn't make for a cheaper scenario also if the govt has a change of heart and relaxes regulation it would lead to disaster eg look at the instalation debarcal. More i could add but think i made my piont.

4) developers face ever increasing costs due to the govt over the last ten years waking up to the cash cow that developing can provide. eg augmentation costs, title issue costs ,the list goes on and on and it equates to a large cost component before you factor in land cost development cost and the biggie holding costs.
The local councils now also have there hand out re their cotributions to the proceess and this is another extra costs.


in summery the govt would have to change a lot of the revene stream from the above and a whole lot of cashed up tradies with the right qualifictions will have to appear from no-where before trade prices and the current land price(now maybe a freeze at the current levels) would change in the near future imo.

Points are fair, but what people fail to realise that all professions are required to do work which is not paid for, such as continuing education, and also registration fees, professional indemnity, amongst other things.

These same people are not fortunate enough to be able to set themselves up as a company, and hence do not reap the benefits of tax deductability on items used for personal use such as

mobile phones, fuel, V8 utes, clothing, home improvements.

I have brought this up on multiple occassions and have failed to EVER have an ASF self-employed tradesperson admit what is the hourly rate, call-out fees etc which they charge.

I have, however just recently seen that pay rates for electricians and plumbers are over $100 per hour ( in a newspaper over the last month or so ) How does this compare to other jobs, I mean ones that have not had their wages propped up by the first home vendors boost.

Tradies and unions have a lot to thank Krudd for..... oh and the naivity of the general public.