The future of Australian property prices

[Ves]

Her point is that real estate is a 'real' or tangible asset

I'm sure there is something in your portfolio that is has part of their business within 20km radius of where you live. How can anyone say that businesses are less "real" than property?

 

[ROE]

Thanks, i have used most of your arguments! Her point is that real estate is a 'real' or tangible asset, she says that our shares could become worthless and we would have nothing, whereas even if the property market crashes we would still have the property.

You can agree with her yes some shares can becomes worthless but you don't have one share you have 15-20
so it really less than 10% of your money goes up in smoke if it ever will....probably same risk as having a bad tenant that trash your place...

she probably understand better when you explain behind every share there is a business with real people....yes the ticker price go up and down every second but it is unlikely a business behave like that...most business just don't pack up and fold it has to suffer serious fraud or great mis-management of the business.

but with careful research you can mitigate a lot of this misfortunes and then if misfortune still comes it only happen to a few stocks ...it highly improbable that you lose all 20 stocks invest in solid business.

 

[galumay]

How can anyone say that businesses are less "real" than property?

You haven't met my wife have you?!

You can agree with her yes some shares can becomes worthless but you don't have one share you have 15-20
so it really less than 10% of your money goes up in smoke if it ever will....probably same risk as having a bad tenant that trash your place...

I have discussed these points with her, ROE. I think its like Julia said in her reply earlier, a lot of people can't get past the fact you can stand on your land and touch your building - its very tangible and real to them in a way that a share of a business can never be.

I suspect there is also some history there, family members buying Poseidon at the top or something!

Anyway thanks to all who have responded to my query, I do appreciate it and if nothing else it reinforces my world view!

 

[craft]

You haven't met my wife have you?!

Maybe trying to argue using numbers is not the best approach.

Some years ago my wife suggested that we should buy some investment properties. I said what a great idea - YOU should definitely go for it - it will be great to have a passion for investing in common, you with houses me with shares.

We still don't have any IP's - never even came close.

ps

Be careful of being too supportive - I found buying a copy of 'rental properties and taxation' as a birthday present was as a tad too much support.

 

[galumay]

Maybe trying to argue using numbers is not the best approach.

Some years ago my wife suggested that we should buy some investment properties. I said what a great idea - YOU should definitely go for it - it will be great to have a passion for investing in common, you with houses me with shares.

We still don't have any IP's - never even came close.

Thats a great idea, i suspect the outcome will be the same.

ps

Be careful of being too supportive - I found buying a copy of 'rental properties and taxation' as a birthday present was as a tad too much support.

GOLD!

 

[sydboy007]

this article from MB shows why house prices are unlikely to take off any time soon

http://www.macrobusiness.com.au/2013/09/the-rbas-nominal-recession

Relevant points:

The June quarter National Accounts revealed that the nominal economy expanded at an annual average rate of 2.5% in the 2013 financial year. This represents the softest outcome since the last recession, when nominal GDP grew by less than 2% in 1992. And it is well below trend growth in nominal GDP, of 5-6%.

the household saving ratio continued to creep up and has averaged more than 10% for the past five years, a level not seen since the mid-1980s.

Despite a modest 0.8% rise in the June quarter, unit labour costs have stagnated over the past year, the first time this has happened since 1999 (ex the financial crisis). The guidance comments from the ASX200 companies in the reporting season suggest that growth in unit labour costs (and inflation) will remain well contained, providing scope for the RBA to further ease policy.

-----------------------

If incomes ain't increasing, the household savings remains stable to slightly increasing, then I'm not sure what can drive future house price rices? I'm hoping for the best of a sideways crawl in the market with a slow deflation in real terms of a few % each year, but even that won't help the affordability issues for a decade or more

 

[satanoperca]

If incomes ain't increasing, the household savings remains stable to slightly increasing, then I'm not sure what can drive future house price rices? I'm hoping for the best of a sideways crawl in the market with a slow deflation in real terms of a few % each year, but even that won't help the affordability issues for a decade or more

Called SMSF's and baby boomers getting a low return on term deposits and frightened off the share market.

It is a frightening amount of savings/capital that can be be leveraged up significantly sitting there with the sharks smelling blood (all vested interests in property - so 70% of the population). I foresee the last gasp of air and a rise in property prices short term due to this. The interesting thing is, that the yield is no better than the banks and the higher prices go the inverse for yields. I cannot see any rent increases for the foreseeable future.

So what will see a major property correction, a minor one first showing the baby boomers aka SMSFs how leverage works both ways and while the returns in the banks are low, they are guaranteed, not like property. A small scare, small correction in the market will see many rethink the investment philosophy on property and start to sell than see there capital get hit.

In all that has been discussed over the last few days, I have to say, there is no easy way of making money, one must look for opportunities and jump on them or be happy with the bank interest returns.

I personally have move my money in shares and property into new business start ups this year, as I believe I will be able to achieve better yields and capital appreciation running my own/some with business partners businesses for the next ten years. But that is a personal choice.

Cheers

 

[sydboy007]

A nice little propaganda piece in the SMH today - http://smh.domain.com.au/real-estat...rtment-market-heads-north-20130906-2tan6.html

100 square metre apartment they bought through Savelle Property Group for $645,000 in The Tempo development in Mascot.

''I've done my research and, over the past 10 years, there has been a huge amount of growth in the Mascot area,'' Mr Chua said. ''It didn't make financial sense to keep renting in an area where you are paying $400 a week for a one-bedroom apartment.''

The median price for an apartment in Mascot has increased by 77 per cent over the past ten years to $580,000, according to figures from Australian Property Monitors.

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lets put the 77% growth into perspective

In nominal terms the median price has gone from 327,683 to 580,000

Inflation eats ~27.2% of that growth so real purchase price has gone to a CPI adjusted purchase price of 416812

Holding costs for strata / water / council rates over 10 years in real terms would probably be $30K

So the purchase price is now at 446812

Now interest rates over the last 10 years have avergaed around 7%, but net rental yields have been lucky to be 4% so lets say you borrowed 90% of the purchase cost then I dare say you might have paid an extra 70K for buying the property in terms of interest than renting.

So your purchase costs are now 516812.

A 90% loan would have required you to pay for LMI - probably around $12000

So we're up to 528812 as the purchase costs.

There's probably some others costs like conveyancing or legals, and any loan application fees but i'l leave them out for now.

So you've made roughly $5200 a year in real terms by taking on a lot of leveraged risk. I suppose you could argue you more than doubled your equity over the period, but bonds and shares would have beat the return by a long margin, with a lot less risk.

 

[Macquack]

If incomes ain't increasing, the household savings remains stable to slightly increasing, then I'm not sure what can drive future house price rices?

Sydboy, sorry if I am taking the piss, but I agree, people eating a lot of "rice" is the only way to drive house prices higher.

 

[Macquack]

Called SMSF's and baby boomers getting a low return on term deposits and frightened off the share market.

I think of "bricks and mortar".

The interesting thing is, that the yield is no better than the banks and the higher prices go the inverse for yields.

Very under-estimated point.

I personally have move my money in shares and property into new business start ups this year, as I believe I will be able to achieve better yields and capital appreciation running my own/some with business partners businesses for the next ten years. But that is a personal choice.

I remember reading your posts and "highly rating" your opinion. So, please don't tease me and at least give a hint of the nature of your business interests.

 

[sydboy007]

Sydboy, sorry if I am taking the piss, but I agree, people eating a lot of "rice" is the only way to drive house prices higher.

I had a flashback to primary school report cards

"Must watch spelling"

2 minute noodles might be a suitable alternative too.

 

[satanoperca]

I remember reading your posts and "highly rating" your opinion. So, please don't tease me and at least give a hint of the nature of your business interests.

1. A signage and promotional company focused on delivering innovative product for instore marketing and promotional campaigns. A graphic design and product design center that is located in South East Asia. Most product is sourced from China. Both traditional products and digital products and services are supplied. This is the key business and is developing into a brand management business. Very exciting and after almost a year into it, have picked up some excellent clients to work with.
2. Website development, SEO and mobile phone application partnership with a company that has offices in Malaysia, Indonesia, Singapore and recently opened Mayanmar. A change in business model to a rental/lease arrangement allowing business to better control there cash flows. Will be developing the Australian operation and assisting with expansion into the developing Asian countries.
3. Ecommerce business to work as a category killer for a bespoke products. Forecast, one year before can see a return on capital. An exercise in creating a turn key business. Will be heavily focused on SEO optimisation and google Adwords to drive business. Supplying product throughout Australia.
4. A new product aimed at the two key supermarket groups, Woolies and Coles. Developing product in Australia for overseas production. Half way through development, a simple product that has huge application. Expected product turnover is in the millions annual but a very low unit rate. Joint partnership.
5. Sports and Team photos, online ecommerce, an established business that I purchased as the old owner had done little to expand it and systemise it.

So business range from local clients, to Australia wide, to South East Asia. Both services and products are sourced from countries in South East Asia. I have little reliance on local service and product providers.

Cheers

 

[sydboy007]

http://smh.domain.com.au/real-estate-news/a-vote-for-real-estate-20130907-2tc02.html

Nock down house I practically back onto sells for $890K

Prob not a bad deal judging from the size of the property. My 127M of land is valued at $500K so I dare say they've been able to buy at near the land value.

But then this highlights the issue where it's the price of land that has caused most of the house price inflation over the last couple of decades.

 

[Tano]

What do you guys make of this? Some marketing scam or is there alot of property investment from cashed up overseas buyers?

http://www.news.com.au/realestate/a...ng-their-budgets/story-fncq3era-1226714027139

 

[Julia]

Prob not a bad deal judging from the size of the property. My 127M of land is valued at $500K so I dare say they've been able to buy at near the land value.

But then this highlights the issue where it's the price of land that has caused most of the house price inflation over the last couple of decades.

Unbelievable! Just 127sqm. What do you have on that? Must be a very small dwelling.

 

[DB008]

As I said a few months ago, the Sydney market is moving.

 

[sydboy007]

Unbelievable! Just 127sqm. What do you have on that? Must be a very small dwelling.

I have a 2.5 story house with 3 bedrooms. It's a decent sized house at around 150 sqm living space. Even have parking out front which in this area is a rarity.

Helps the house was only a yr old when I bought it

 

[13ugs13unny]

"A plain house in an average suburb has sold for $2.385" is the news heading.

'average' suburb, do banks lend this much for 'average' now do they?

 

[moXJO]

As I said a few months ago, the Sydney market is moving.

There is a ripple effect in certain areas out of sydney as well. It is a fairly hot market for good property at the moment. Iv'e been trying to snap up land that has development potential but prices have gotten to far ahead again for the numbers to be worth it.

 

[sydboy007]

The Home Investors Prayer (copied from a poster at MB)

Now I lay me down to sleep,
I pray the RBAs neg gearing to keep,
If prices slide before I sell,
I pray new buyers be lured to hell,
May capital gains offset the rent,
And bless me in retirement.
Amen.