The future of Australian property prices

Uncle Festivus said:

Then the back-up interview with the 'property guru' who then proceeds to list all the suburbs that are about to EXPLODE because the next boom is about to start! I've seen more sincere and trustworthy speils from side show hawkers and used car salespersons.

See, even the sheeple can 'do' property.....it doesn't really take any brains does it?

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It's kind of started already, read this today.

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THE dark clouds over Australia's depressed housing market will lift next year - and Sydney will be leading the property boom.

The rest of the story at this link:http://www.dailytelegraph.com.au/realestate/buying/sydneys-west-to-lead-housing-boom-next-year/story-fndbpo91-1226542264918

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kincella said:

oh dear, so a fixed income analyst, a competitor in the 'grab for cash', your cash, industry writes an article with graphs to show how bad it is for the average bloke to buy a home, put a roof over his head.
He wants your cash, simple, no more no less, so of course he will put up a scathing argument against housing.
...
...

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Fine.

So what are you thoughts on the analysis then?

I just can't see how property prices can increase much faster than earnings growth now.

Australians have geared up to their necks - presently around 155% of income.

It seems each time it reaches around 160% that it would then fall back a bit. It's the great joke of the Howard Government that they paid of their debt because a large proportion of the Aussie public went out and spent more than they earned for a few years and drove the value of housing to be near the most over valued in the world.

Considering most people are a lot more wary about debt after the GFC, and there's a bit of worry about how the economy will fare in 2013 I just can't see a general housing recovery for years to come. Either prices have to fall, or they stagnate for quite a few years until incomes rise enough to improve the affordability.

It will be interesting to see how long it takes the boomer generation to decide the negative gearing of property ain't such a good idea when there's little to no capital growth.

I know this is a stocks forum but there's still some highly rated corporate bonds out there paying 6.5 to 7% yield and I'd take that over an investment property any day (I have in my SMSF). There's also still a reasonable number of shares out there paying 5%+ fully franked dividend yields with hopefully above inflation growth of the capital and income over time. To me a diversified share portfolio with quality corporate debt is less risky over a 5+ year time period than a single house that provides no diversification.

I ask anyone thinking to buy a property, why would you buy when someone is willing to lend it to you at maybe 4.5% of it's value, and you have nothing else to pay, while the landlord is going to see up to 1% of their gross yield disappear in holding costs, and is probably paying around 5.5% interest on the loan. I know there's a lot of non financial reasons to own your own home, but to me the economics these days don't stack up too well.

full disclosure - I was lucky to buy before the boom, but there is no way I would put myself through a 700K loan now.

Curious as to whether anyone thinks that this time there might be some fundamental changes to the way the economy works and property in particular? Is this the start of the Ponzi collapsing? Will there be growth in 3-5 yrs? 5-7 yrs?

Personally I think the two major reasons property has held up so well wince GFC was the flow on effect of wages from the mining investments and the unrelenting belief that was hammered home about how Oz is different and prices will not fall here.

Hi,

Just back from a few months travelling in Asia, investigated property prices in four major cities, Phnom Penh, Ho Chi Minh, Kuala Lumpur and Shanghai. It would seem that if you wanted the same sort of properties that are available in our major cities and taking into account average salaries, our property prices don't seem that expensive.

Two things while away came to my attention, that I hadn't given a great deal of thought to when evaluating Oz property prices :

1) Our population increased by approx 2% this year. Those extra people need somewhere to live.
2) Australia is the best place to live in the world. While my statement might be seen as bias, it seemed that every traveler that I met wanted to migrate to Oz and the locals all asked how they can get to this great country, the lucky country. This desire is hard to determine as a metric and use in analyzing whether we do have inflated property prices. It did however make me realize that if Oz property does start to decline due to the inability of Australians to take on ever increasing debt then the govnuts will simply open the flood gates to wealthy immigrants who will readily take up any slack. Believe me the world is a big place with millions of millionaires willing and wanting to come and live in Oz. This alone has changed my belief that we will not see any major crash and at best a small correction followed by years of stagnation.

I did also see the effects of the GFC in all the countries that I visited. Many places have seen rapid growth and expansion over the last decade, largely due to the easy availability of credit and cashed up/debted up westerners wanting more material goods which they don't need and tourism. The tourism side had seen a substantial slow down and locals do not have the money to take up the slack.

The other area of our economy that I cannot see ever recovering is manufacturing, which I am involved in. Due to low wages, the availability of the same technologies we utilize, the ability of westerns to easily travel fast and efficiently to these countries and the increasing use of English as a language. So we better hope that China and other Asian countries continue to need our resources as we will for the foreseeable future have a two speed economy.

As for tourism in this country, all travelers that I meet all loved Australia and wanted to come here more often but all stated that it had become way to expensive and I have to agree. As for Australians wishing to holiday in this country, why would you. You can take the whole family away for a month and live like kings for the same cost as a week or two in this country. Plane travel has become cheap due to increased competition.

In conclusion, I'm still unwilling to purchase property in Oz until the full effects of GFC 1 and in progress GFC11 become apparent. I do see and feel that there are some good buys on property if one is willing to research and be astute. It is still cheaper to rent than purchase property even with extremely low IR's.

Cheers and happy new year to everyone

satanoperca said:

Hi,

.....

1) Our population increased by approx 2% this year. Those extra people need somewhere to live.
2) Australia is the best place to live in the world. While my statement might be seen as bias, it seemed that every traveler that I met wanted to migrate to Oz and the locals all asked how they can get to this great country, the lucky country. This desire is hard to determine as a metric and use in analyzing whether we do have inflated property prices. It did however make me realize that if Oz property does start to decline due to the inability of Australians to take on ever increasing debt then the govnuts will simply open the flood gates to wealthy immigrants who will readily take up any slack. Believe me the world is a big place with millions of millionaires willing and wanting to come and live in Oz. This alone has changed my belief that we will not see any major crash and at best a small correction followed by years of stagnation.

.....

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Thanks for providing a world perspective. You did mention some possible scenarios but some of these can easily be quite different.

One of the reasons the property prices are higher in some of these cities is that their population is greater than or approaching that of Australia. Also the spread of the type of properties and wages is significantly higher than Australia. Our wages are very tight around the mean (this is from anecdotal evidence so please correct me) which is very different from most countries but definitely developing countries. Moreover a town-house in inner - west Sydney or south east Melbourne is in the 20-40 percentiles of property here. Something similar is more closer to the 2-4 percentiles in their respective cities.

As for the million of millionaires, most of them will have the same or greater exposure to the global economy that investors here have. If they are not hit hard they surely won't want the risk. Moreover for a lot of immigrants in this situation, Australia is treated as a holiday house with cheap world class education and good healthcare. Are they actually contributing to the economy except for pushing up house prices? I think the politicians will be weary of this.

Last but not least, and speaking from some people I got to know a while back due to my fathers business, one of the reasons people want to come to the "lucky" country is because we are perhaps one of the last of the welfare states. Also due to mining opportunities but these are fast disappearing. People that can actually afford to leave here (the millionaires that you referred to) don't actually want to. They have a much better lifestyle in their home countries and find Australia a very expensive place to live and do business.

satanoperca said:

1) Our population increased by approx 2% this year. Those extra people need somewhere to live.

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as much as logically it makes sense, population has very little statistically significant impact on property prices. The nature of housing composition, demand/supply cycles, people per household etc trumps the basic population up = property up argument

FlyingFox said:

Last but not least, and speaking from some people I got to know a while back due to my fathers business, one of the reasons people want to come to the "lucky" country is because we are perhaps one of the last of the welfare states. Also due to mining opportunities but these are fast disappearing. People that can actually afford to leave here (the millionaires that you referred to) don't actually want to. They have a much better lifestyle in their home countries and find Australia a very expensive place to live and do business.

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I spend 4 to 6 Months a year living overseas, mostly in Asia. The people I talk to there, (hundreds of them locals) want to come to Australia to work. They just want that chance to build up wealth like you and I and millions of other Aussies have just by having decent jobs with decent salaries. Getting paid $15 a day and working 6 days a week as a bank officer or a policeman kind of brings that to light. None of them make a mention of getting welfare here, they just want a job with Aussie salaries and Aussie rights. Most of these people would be happy to work as kitchen hands or cleaners for $16 per hour.

I agree, the millionaires I've met don't really want to live here, they are very happy where they are and why wouldn't they be.

I think migration from any of the above would have minimal effect on house prices.

Bill M said:

I spend 4 to 6 Months a year living overseas, mostly in Asia. The people I talk to there, (hundreds of them locals) want to come to Australia to work. They just want that chance to build up wealth like you and I and millions of other Aussies have just by having decent jobs with decent salaries. Getting paid $15 a day and working 6 days a week as a bank officer or a policeman kind of brings that to light. None of them make a mention of getting welfare here, they just want a job with Aussie salaries and Aussie rights. Most of these people would be happy to work as kitchen hands or cleaners for $16 per hour.

I agree, the millionaires I've met don't really want to live here, they are very happy where they are and why wouldn't they be.

I think migration from any of the above would have minimal effect on house prices.

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That is true as well Bill. A lot of people do want jobs and a chance to build wealth and I agree that this does not pose a problem to house prices.

I was speaking from my experience and apologies if this sounded like a generalisation.

However on the issue of salaries, Australia is perhaps the exception, not the norm.

Bill M said:

...Most of these people would be happy to work as kitchen hands or cleaners for $16 per hour...

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As would many of the currently unemployed Australians!

My apologies to the thread for being a little off topic.

cynic said:

As would many of the currently unemployed Australians!

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+1.
We have many Australians who have paid into the tax system all their lives, who have been retrenched due to the current and worsening downturn, and who are unable to access the meagre unemployment benefit of around $240 p.w. until they have used up all their savings. Often they will lose the homes they have saved for because they're unable to come up with the mortgage repayments.

If you are someone who has diligently saved for your retirement, eschewing other than compulsory contributions to Super, with the intention of providing for your own retirement, and are made redundant at, say, 50, you are in a dreadful position.
Let's worry about these Australians before we get too concerned about providing jobs for immigrants.

And ditto Cynic's apology for being off topic. I just get pretty upset about this gross unfairness.

No one can forecast what will happen, that would be speculation...
But from my point of view the market is spilt into a few points
1) first home buyers / first time renters: the amount of young people opting to share is increasing, because of cost of living being so high most first time people wil move out in a group of three, so he demand for homes is already decreasing
2) investing in property: rates, property management fees, water rates and insurance cost are increasing each year so yields are getting lower and lower
3) the biggest issue in my opionion is this, negative gearing, great way to create wealth when the economy is flying but once things slow down allot of Investors will own the bank more then what they paid the property for

Also investors always say I'm getting between 6%to 7% return on yeild from rental income , but how can some one say they are getting a return when most properties are negative geared???

psailagroup said:

Also investors always say I'm getting between 6%to 7% return on yeild from rental income , but how can some one say they are getting a return when most properties are negative geared???

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First of all to say that MOST properties are negatively geared is a huge assumption that you will find is incredibly incorrect. There would be quite a few, but certainly not most. I wouldn't be boasting a 6% return either.

Julia said:

+1.
We have many Australians who have paid into the tax system all their lives, who have been retrenched due to the current and worsening downturn, and who are unable to access the meagre unemployment benefit of around $240 p.w. until they have used up all their savings. Often they will lose the homes they have saved for because they're unable to come up with the mortgage repayments.

If you are someone who has diligently saved for your retirement, eschewing other than compulsory contributions to Super, with the intention of providing for your own retirement, and are made redundant at, say, 50, you are in a dreadful position.
Let's worry about these Australians before we get too concerned about providing jobs for immigrants.

And ditto Cynic's apology for being off topic. I just get pretty upset about this gross unfairness.

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I sympathise with you on the above Julia, but I'm afraid the portion of australians that it applies to would be quite small? My partner works in recruitment, for the doll, and the amount of unemployed people that claim payments, and have no intention of working, or even looking for work is astronomical. It infuriates me to hear the stories she brings home. Some of these people can be labelled professional doll bludgers, they know the system inside-out and ensure they're payments will never be cut regardless of whether they look for work or not.

To think that there is so many of these people leeching off our tax dollars, and there are those you point out that are forced to draw down savings or are ineligible for payments for some obscure and stupid reason is a huge injustice.

Bottom line, a lot of those are unemployed because they want to be, and couldn't care less if jobs are given to foreigners.

psailagroup said:

No one can forecast what will happen, that would be speculation...
But from my point of view the market is spilt into a few points
1) first home buyers / first time renters: the amount of young people opting to share is increasing, because of cost of living being so high most first time people wil move out in a group of three, so he demand for homes is already decreasing
2) investing in property: rates, property management fees, water rates and insurance cost are increasing each year so yields are getting lower and lower
3) the biggest issue in my opionion is this, negative gearing, great way to create wealth when the economy is flying but once things slow down allot of Investors will own the bank more then what they paid the property for

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The top 2 points are a couple of the dozens of reasons why the current bubble will return to trend, especially when the resource sector growth lowers.

But your third point makes little sense. Yes, still a little, but I think the primary concern for people with negative gearing will be diminished cash flow, long before capital loss becomes truly apparent (as is quite evident from this forum, property owners live in a disneyland world where their property's value could never be influenced by the general market performance as theirs is "different"). Capital loss is occurring, but the paydown in debt that is occurring is due to cash flow realisation atm.

MW

PS where is Robots?

Bill M said:

I spend 4 to 6 Months a year living overseas, mostly in Asia. The people I talk to there, (hundreds of them locals) want to come to Australia to work. They just want that chance to build up wealth like you and I and millions of other Aussies have just by having decent jobs with decent salaries. Getting paid $15 a day and working 6 days a week as a bank officer or a policeman kind of brings that to light. None of them make a mention of getting welfare here, they just want a job with Aussie salaries and Aussie rights. Most of these people would be happy to work as kitchen hands or cleaners for $16 per hour.

I agree, the millionaires I've met don't really want to live here, they are very happy where they are and why wouldn't they be.

I think migration from any of the above would have minimal effect on house prices.

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I think any increase in population above the capacity of the building industry to cope increases house prices.

I agree that the skilled people want to come over here to work, but as evidenced by reality, a lot of the unskilled people who come over here want our relatively generous welfare system.

MW

young-gun said:

To think that there is so many of these people leeching off our tax dollars, and there are those you point out that are forced to draw down savings or are ineligible for payments for some obscure and stupid reason is a huge injustice.

Bottom line, a lot of those are unemployed because they want to be, and couldn't care less if jobs are given to foreigners.

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You're quite right, of course. It's the inequities in the system that so irritate me. We should be a lot tougher on those who have no inclination to work.

medicowallet said:

I agree that the skilled people want to come over here to work, but as evidenced by reality, a lot of the unskilled people who come over here want our relatively generous welfare system.

MW

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Agree. Viz the family from the Middle East I quoted a few days ago with thirteen children. The whole family exists on welfare.

Julia said:

......

Agree. Viz the family from the Middle East I quoted a few days ago with thirteen children. The whole family exists on welfare.

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There are many many similar tales. Not helped by previous governments handouts for wanting a "BIG" Australia.

Anyways apologies all for digressing from the thread. I take blame for my initial comments. To try to bring the thread back on track I will ask my initial questions again.

"
Curious as to whether anyone thinks that this time there might be some fundamental changes to the way the economy works and property in particular? Is this the start of the Ponzi collapsing? Will there be growth in 3-5 yrs? 5-7 yrs?
"

Julia said:

You're quite right, of course. It's the inequities in the system that so irritate me. We should be a lot tougher on those who have no inclination to work.


Agree. Viz the family from the Middle East I quoted a few days ago with thirteen children. The whole family exists on welfare.

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I have a family of 5,
my parents, a family of 8,
both grandparents 10 each.
A previous generation had 14.


But what has that got to do with "Australian Property Prices":topic

burglar said:

I have a family of 5,
my parents, a family of 8,
both grandparents 10 each.
A previous generation had 14.


But what has that got to do with "Australian Property Prices":topic

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medicowallet decides to do some work

he has a family of 5

he earns $40000 per year


Mr unskilled comes over

he has a family of 8

he costs $30000 of welfare


Australia is worse off, but with a larger population..... of course this, and other examples of poor immigration policy affect house prices.

The only winner is student X who votes, with limited understanding of the real world, but he/she has a warm fuzzy feeling because he/she is going to change the world, heck, let's put a tax on carbon dioxide too while we are at it.

MW

PS Where is Robots

FlyingFox said:

Curious as to whether anyone thinks that this time there might be some fundamental changes to the way the economy works and property in particular? Is this the start of the Ponzi collapsing? Will there be growth in 3-5 yrs? 5-7 yrs?
"

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Thank you flyingfox for bringing the thread back on course. My opinion on your question is that nothing will seriously change over the next 3 to 7 years. Some areas where there is not much demand will probably see prices go down. Some areas in high demand where there are more people than units available will probably increase, how much is another question.

I invest on the Northern Beaches in Sydney. My property is walking distance to the beach, shops, transport and clubs. I never have a problem renting it out and it is a popular area that people want to live and they will pay higher rents to live there.

Right now I am looking at buying a 2 bedroom unit there. I know the area very well, street by street. I have lived there most of my life. I can tell you without any doubt that in the last 3 years (when I moved out of that area) that a good 2 bedroom unit with all the facilities I want as described above have gone up in price. It is very hard to find what I want. These units have gone up and I must pay more now than what I would have 3 years ago. I can't really see prices coming down in that area, however I can not speak for any other areas of Australia. Just my opinion.