The future of Australian property prices

Prices are still going fine in my area. Eastern subs Melbourne. One place I was watching went for $116k over the listed price at auction last weekend. I am not seeing any bargains here.

NewOrder said:

Prices are still going fine in my area. Eastern subs Melbourne. One place I was watching went for $116k over the listed price at auction last weekend. I am not seeing any bargains here.

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I live in the west but work in the east (Richmond). I thing i noticed in the east (espically the inner east) is that people have more money then sense

Dowdy said:

I live in the west but work in the east (Richmond). I thing i noticed in the east (espically the inner east) is that people have more money then sense

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Probably true given the high prices still being demanded by vendors in the east for unrenovated shacks. The dynamic in the eastern suburbs continues to be that well presented, quality properties in good neighborhoods sell at or above their asking prices with almost everything else going stale and sitting on the market for months. Buyers are picky but will open their wallets wide for a nice property. The days of just dumping a shack on the market and expecting it to sell quickly for a top price ended months ago.

moXJO said:

Or another way you could look at it is Asia going through a boom, our dollar dropping and our investments snapped up.

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From Reuters Sept 23 2011
Insight: Hard lessons for Vietnam as property slumps
Like many hoping for easy cash in Vietnam's property market, Nguyen Thu Huong borrowed 500 million dong ($24,000) from a bank in April to buy a new flat she didn't need and planned to flip. The only question, she thought, was how big the profit would be. Five months later, she is lucky if she can sell it at all.
Vietnam's real-estate market has stalled, beset by soaring inflation, sky-high interest rates and sharp lending curbs. Developers are halting projects or delaying new ones. Prices have fallen from dizzying heights in 2006 and 2007 and brokers are bracing for more losses ahead.

So yet another country's property bubble bursts. But how can this be? Particularly as it is ...in one of the world's fastest-growing economies.... And even they can't stop their property bubble imploding? Bugger.

"We could have sold the flat immediately for a 200 million dong ($9,600) profit but we hoped to get 500 million dong ($24,000) by waiting a few months," said Huong, who works in Hanoi at a government agency involved in the real-estate sector.
Meanwhile, she keeps doling out 7.5 million dong ($360) a month in interest, a large sum in a country where the average annual income is about $1,100. A second installment of 500 million dong is due soon.
"I can't afford to make the payments anymore," she said


Why couldn't she see this was a classic property bubble? Why does this property hysteria affect everyone in every country on the planet, until it doesn't? What is it about debt and greed that blinds people like her? $24,000 for a flat in a country where the average income is $1,100? That's like 22 times income. Freaking ridiculous!!! She says she could have flipped it immediately for $9,600 profit? So she could have made almost 9 years of the average annual wage, but she tried holding out for 22 years average income? Freaking unbelievable!!!

And what is the reason for the Vietnam property bubble imploding? In one of the fastest growing economies in the world? Yep, you guessed it, credit growth is slowing. All the talk about increasing population, increasing wages, economic growth, its different here, etc etc etc don't mean ****. It's about credit growth, stupid. Its about eternally-increasing debt. The central bank in Vietnam raised interest rates to fight inflation, and pop goes their property bubble.

Before the crash:
In the past four years, credit growth averaged 35 percent a year...

Yep, that pretty much explains it:
A boom in credit growth equals a boom in house prices.
A slowing of credit growth equals a stagnation of property prices.
A reversal of credit growth (credit shrinking) equals a collapse of property prices.

Think of what happened in the US. The world's largest economy. Property booming. Then Lehmann Bros collapses. Interbank lending seizes up. Credit stops growing and starts shrinking. Property bubble pops. The exact same thing happened in Ireland, Spain, Greece, Latvia, Japan (in the 80s) etc etc etc. It ain't brain science or rocket surgery!!!!

Vietnam's probably a good pre-cursor for China. Booming Asian economy with high inflation. So interest rates have to go up. So credit growth shrinks. So property deflates. Unfortunately the central Chinese govt is trying to raise rates, whilst local Chinese governments are borrowing more through shadow banks to keep the bubble going. Its not going to be pretty.

So the future of Australian property prices? Check credit growth in Australia. It grew heaps for more than a decade. So did Aussie property prices! What a co-incidence, hey? Then the GFC hit. Interbank lending slowed. Credit growth slowed. So our government borrowed billions to stimulate. Stimulate what? You guessed it again, credit growth! Now the stimulus has run its course and this year credit growth in Oz has been slowing. And guess what's happening to Oz RE? Its stagnating. Man, these coincidences just keep coming, don't they!

greebly24 that is a sick post man. We are different in Auz, no worries

lolliepops, sunshine and nice trams down St Kilda Road, new 500 unit developments to go up soon, vacancy rates rising in the Docklands. Confidence man because

botty said so, all good as he is the

$onfessor Bhd, REIV (Hons) and a Ba B in ppp

And that last is not "property property property" either, its in the pocket

Dwelling turnover rate at 16-year low

By Gavin R. Putland
The RBA's quarterly Statement on Monetary Policy is usually good for at least one killer graph. Here's the latest winner:
The bottom curve shows that in Q3 of 2010, the dwelling turnover rate ”” that is, the turnover of dwellings expressed as a percentage of stock per year ”” fell below the “GFC” minimum. In Q4 of 2010 it fell again, to its lowest point since the sequence began in 1995. That record was broken in Q1 of 2011. The turnover rate was then down by more than a third from the peak in Q3 of 2009.
Considering that neither the mining boom nor the First Home Owners' Boost could restore the turnover rate to the heady heights of Q2'01 to Q3'03, one is left with the distinct impression of a market running out of greater fools.


http://blog.lvrg.org.au/2011/08/dwelling-turnover-rate-at-16-year-low.html

Here's a not so recent report i only just read, both interesting and ammusing:

http://www.moneymorning.com.au/reports/mm-aussiehouseprices-2010.pdf

Brace yourselves.

explod said:

greebly24 that is a sick post man. We are different in Auz, no worries

lolliepops, sunshine and nice trams down St Kilda Road, new 500 unit developments to go up soon, vacancy rates rising in the Docklands. Confidence man because

botty said so, all good as he is the

$onfessor Bhd, REIV (Hons) and a Ba B in ppp

And that last is not "property property property" either, its in the pocket

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Hello,

any data up from todays effort, Explod, MW anything?

oh well, great post-up there Explod keep em coming brother, amazing and to think i get a 3 pointer for using capitals

thankyou

professor robots

"Saturday 8th October 2011

Buyers, owners and sellers may have welcomed the decision by the Reserve Bank to keep interest rates stable this week but it was not reflected in an improvement in buyers confidence or the clearance rate this weekend.

The clearance rate is 54 per cent compared to 65 per cent this weekend last year.

There have been a total of 484 auctions reported of which 260 sold and 224 were passed in, 162 of those on a vendors bid.

Next weekend the REIV expects 720 auctions to be held.

Enzo Raimondo
CEO REIV"

I see another massive 484 auctions reported for a 54% clearance rate.

funny thing is, I thought they were expecting many many more than 484 auctions this week, what, being after a week off.

Interesting times,

Sunshine and lollipops and ever decreasing bubbles,

MW

PS how is that gearing treating you Robots? Sold yet? any taps on the shoulder yet?

Hi all

I'm here to ask for advice. Not investment advice just hypothetical advice in the Geoffery Robertson tradition.

I have some capital to deploy into Australian real estate.

I plan to pay cash with no leverage.

My choices are as follows:

a) Buy land now, construct and minimize costs like stamp duty (off-the-plan) as well as other concessions etc...?

b) Buy an established property in a good location(dodgy foundations, lemons, RE spruikers etc..)

c) Wait it out and earn 6% plus interest and save more by the inevitable tanking of the real estate bubble... there's more tanking to go.... Or is there?

d) Buy land in Australia and build a holiday house when you want to retire.

e) Invest in North Asian property (China/Japan/Korea). They all have a dynamic economy and little leverage compared to Australia.

f) None of the above because you're an ex-pat and you don't know what will happen domestically within Australia. China Slowdowns/European bank failures etc...

Thoughts?

GumbyLearner said:

Hi all

I'm here to ask for advice. Not investment advice just hypothetical advice in the Geoffery Robertson tradition.

I have some capital to deploy into Australian real estate.

I plan to pay cash with no leverage.

My choices are as follows:

a) Buy land now, construct and minimize costs like stamp duty (off-the-plan) as well as other concessions etc...?

b) Buy an established property in a good location(dodgy foundations, lemons, RE spruikers etc..)

c) Wait it out and earn 6% plus interest and save more by the inevitable tanking of the real estate bubble... there's more tanking to go.... Or is there?

d) Buy land in Australia and build a holiday house when you want to retire.

e) Invest in North Asian property (China/Japan/Korea). They all have a dynamic economy and little leverage compared to Australia.

f) None of the above because you're an ex-pat and you don't know what will happen domestically within Australia. China Slowdowns/European bank failures etc...

Thoughts?

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I think the reason why this thread goes around in circles is because none of us knows what is going to happen.

That is why no advice is (or should) be given to people, and others (may I speak for them) and my POV are just that, and not offered as advice.

I can, however tell exactly what will happen with the RE market, over the next 10 year period, but will only be able to do that in 2022.

MW

PS Perhaps Robots will one day offer a "prediction", he is, afterall, a self professed professor.

medicowallet said:

I think the reason why this thread goes around in circles is because none of us knows what is going to happen.

That is why no advice is (or should) be given to people, and others (may I speak for them) and my POV are just that, and not offered as advice.

I can, however tell exactly what will happen with the RE market, over the next 10 year period, but will only be able to do that in 2022.

MW

PS Perhaps Robots will one day offer a "prediction", he is, afterall, a self professed professor.

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I suppose if you watch your p's and q's you can say whatever you like on ASF.

As long as your adjectives don't offend anyone, you can rampathon whatever you like?

And of course with qualifications? What qualifications? For example -> RoboREIVCop also known as Robots on ASF.

GumbyLearner said:

Hi all

I'm here to ask for advice. Not investment advice just hypothetical advice in the Geoffery Robertson tradition.

I have some capital to deploy into Australian real estate.

I plan to pay cash with no leverage.

My choices are as follows:

a) Buy land now, construct and minimize costs like stamp duty (off-the-plan) as well as other concessions etc...?

b) Buy an established property in a good location(dodgy foundations, lemons, RE spruikers etc..)

c) Wait it out and earn 6% plus interest and save more by the inevitable tanking of the real estate bubble... there's more tanking to go.... Or is there?

d) Buy land in Australia and build a holiday house when you want to retire.

e) Invest in North Asian property (China/Japan/Korea). They all have a dynamic economy and little leverage compared to Australia.

f) None of the above because you're an ex-pat and you don't know what will happen domestically within Australia. China Slowdowns/European bank failures etc...

Thoughts?

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Theres houses going pretty cheap in the US at the moment im curious if you were buying to hold for a number of years the eventual appreciation(obviously not going to happen over night with the way things are) combined with either a strengthening US dollar over the coming years(or a weakening aussie dollar), would possibly not only see capital growth on the house but you'd profit on the exchange rate if you sold at the right time(when our dollar is at 80 cents to theirs or so)? i dunno.

This is just a thought, i have no idea if it would be that simple or if it would work

NewOrder said:

Prices are still going fine in my area. Eastern subs Melbourne. One place I was watching went for $116k over the listed price at auction last weekend. I am not seeing any bargains here.

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Still going fine? Not according to Mr Edwards of Residex....

VICTORIAN homeowners have lost more than $290 million over the past three years selling properties for less than what they paid for them.

Alarming figures that point to a hidden crisis in the property market reveal 5427 vendors lost an average of $54,000 on investments gone wrong in the three years to July.

The Melbourne CBD, Southbank and Docklands are the state's leading loss-making suburbs.

One out of every 20 properties sold in those locations had lost their owner money, according to the data from a property research firm.

But the losses are not limited to the flats-dominated inner-city market, with the figures also showing vendors losing millions in popular family areas.

These suburbs include Point Cook, Roxburgh Park, Frankston, Reservoir, Carrum Downs, Glen Waverley, Hawthorn and Elwood.

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and....

Mr Edwards, who has monitored the nation's property market for 25 years, said the pain for Melbourne home owners was far from over.

By the time the market bottoms at the end of next year, Residex expects the city's median house price to have shed 15 per cent. Families living in a $500,000 home can expect to see $75,000 wiped from its value.

"The adjustment process in Melbourne is just beginning," Mr Edwards said.

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http://www.heraldsun.com.au/news/more-news/home-owners-300-blow/story-fn7x8me2-1226162101573

Hmmmm.....

Another pressure that is going to be applied to the property market, is going to be the downsizing of the baby boomers.
They will probably want to realise some of the value in their houses to help fund their retirement.
Also as they are going to be buying a cheaper house it won't be as imperative that they get top dollar.
The push for top dollar is also more driven by purchasers trying to achieve loan limitations when upsizing.
Therefore with the banks having tightened their lending criteria and vendors not being under pressure to obtain absolute top dollar. I would think that prices will continue to slide. IMO

sptrawler said:

Another pressure that is going to be applied to the property market, is going to be the downsizing of the baby boomers.
They will probably want to realise some of the value in their houses to help fund their retirement.
Also as they are going to be buying a cheaper house it won't be as imperative that they get top dollar.
The push for top dollar is also more driven by purchasers trying to achieve loan limitations when upsizing.
Therefore with the banks having tightened their lending criteria and vendors not being under pressure to obtain absolute top dollar. I would think that prices will continue to slide. IMO

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do you think this shift would be enough to sustain apartment prices or perhaps units and town houses? imo i would still expect to see losses, probably not as great though..

In W.A, especially the Perth, Mandurah area there appears to be an oversupply of appartments, they have taken a big hit already.
Also people are being warned to check with a bank before signing for an off the plan appartment, as banks are really tightening their criteria for these types of developments.
My feeling is there has to be a drop in prices to sustainable levels or an extended period of no price movement.
This would allow inflation to sort out the problem, however I think we will all know the answer by christmas 2012. To my way of thinking 2012 looks like a big year one way or another.

Re: Post #6470 - Gumby Learner

You did not say if it was for investment or PPOR purposes nor the amount of capital you wish to deploy hypothetcially. And why does it have to be RESIDENTIAL if it is to be for investment purposes hypothetically. Anybody heard of COMMERCIAL property ???

Out of all of the imaginary scenarios that you have proposed, in this current climate I would be opting for a) ...... mainly due to the lack of parameters that have been set for this task. Deploy 1/3 of your capital, purchase vacant land and leave the rest in the bank. This leaves you several options:

a) Do nothing at all and wait for the market to turn either up or down DEPENDING where you have purchased. Keep gunpowder dry and all that stuff.

b) Use the block as security to purchase property and have a small mortgage on "new" purchase (whatever that may be)

c) Construct new home at a later date on parcel of land for investment purposes and claim the GST on the building contract, depreciation schedule blah blah blah (depending on how you are structured) and rent property out for period of time then move in and claim it as your PPOR.

d) Sell property/land in future depending on circumstances.

e) Go to casino and put the lot on black 13.

BWTFWIK ....... propety is gonna fall 40% and we are all doomed don't you know. Just ask Steven Keene ...... he knows everything.

Sydney house prices to go up more 20% apparently. Good God, who the hell would want to live there at those prices.

moXJO said:

Sydney house prices to go up more 20% apparently. Good God, who the hell would want to live there at those prices.

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Wealthy Chinese?

LOL.