The future of Australian property prices

Tyler Durden said:

Question is, where are the Chinese getting all their money from?

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I've been working with some Chinese developers who tried to explain at least why some of the property was being bought up. They mentioned that cash bribes had been cracked down on and the companies get around it by sending the kids of those on the take to an aussie uni and paid for a unit. There is a ton of money flowing in and they landbank for a long time. Its only in certain areas though so I doubt it would have much effect beyond inner city.

medicowallet said:

an account opened in 2005.

Resurrected now.

how is it Robots?

MW

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Hi MW

Sorry if your confusing me with someone else . There will probably be people on this forum who know me in real life . I use the same nick on all forums. If tech A is still around he has met me .

I was a regular back on Stock central and then Reefcap and joined here soon after it was set up , but back in those days it was fairly quiet .... How things change .

I've spent most of the last ten years concentrating on property and do all my property chatting on Somersoft.

we've been gearing up in property in Sydney since about one month after the GFC hit ( good buys then ) and was looking at getting back into shares.

No hidden agendas or identities or anything like.

Cliff

Smurf1976 said:

What's the problem with that?

Nobody ever said you need to read every thread on the whole forum. I don't see a problem at all with a property thread on a stock forum - just only read the stock ones if you aren't interested in broader economics or property investment.

As for why it's the longest, that's easy to answer. There's a separate thread for every stock on the ASX versus one property thread covering every city, suburb and town in Australia.

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Hi Smurf

No problems with that and wasn't meant to indicate that , I thought it was more ironical that I've left my normal hangout ( somersoft , a property site ) and come to a share site and the longest thread is on property .

Cliff

See Change said:

Hi Smurf

No problems with that and wasn't meant to indicate that , I thought it was more ironical that I've left my normal hangout ( somersoft , a property site ) and come to a share site and the longest thread is on property .

Cliff

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Welcome back plenty of info here, use search and hang around long enough you should be able to find out those that has similar mindset and strategy to your and you can just participate in their stock selection and you can ignore
The one that you don't agree rather than start a flame war -

I only use a dozen or two threads the rest I have no interest ....I keep my focus sharp on certain subject and filter out the rest -

ROE said:

.. rather than start a flame war -

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Wasn't trying to , however I know how easy it is for people to misinterpret posts inparticular if it's a poster that people aren't familiar with .

Cliff

My thoughts on where Property market is heading.

Sydney up . Has started moving strongly in last few months . People I know were buying in Mt Druitt over the last few years for around 170-180 . Now selling for mid to high 200's and more . I don't track that market closely enough to know exactly what is happening there . Given that market peaked around 240 at the top of the last cycle and the market roughly doubles each cycle , I expect prices to hit mid 400's at the peak of this cycle in 2770.

We bought two units in Mosman shortly after the GFC hit and we're looking at over 50 % gain since then .

We bought two units in Manly in our SMSF around 18 months ago and sitting on nice gain in capital growth and rent . Paying for themselves at this stage . Tried to buy more in lower northern beaches in last few months but got gazumped on one and saw a grotty unit in the worst street in Manly Vale go for around 50 K over agents expectations in bidding frenzy after one week on the market . Only value we saw was in an OTP development in Dee Why called cobalt and one member of the family bought into that .

We didn't see any other value in the area so moved to buying in brisbane . Central area was hot with most going under offer fairly quickly . We ended up buying in the manly wynnum area which , while it had recovered from it's recent low was still below it's 2010 highs . The market wasn't frenzied so we were able to pick up a couple of well located town houses and a waterfront unit which are all giving good returns considering their postion.

The middle ring of Brisbane still seems to be offering good value .

There seems to be a feeding frenzy in good central areas in Melbourne , though the perennial under performers in Melb , docklands and southbank seem to be performing to expectations. At some stage they have to improve , but at the moment , in property investing circles , they're are as popular as telstra was five years ago ....

This thread gives an idea of where people on the somersoft forum think prices will go

Cliff

sydboy007 said:

Unless the ultra restrictive building practices in Australia are wound back then the issue of affordability will never be addressed.

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The recent surge in property prices is largely being driven by investors (in particular SMSFs) as noted in The Australian today...

"THE Reserve Bank has warned that an $80 billion plunge into the property market by self-managed superannuation fund trustees risks pushing up house prices and undermining financial stability."

"The Reserve Bank also said home buyers hoping to reap big capital gains were likely to be disappointed and should entertain "realistic expectations", noting the jump in investors' share of new housing loans to a decade high of 40 per cent, thanks mainly to a jump in activity in NSW."

http://www.theaustralian.com.au/news/diy-super-funds-take-80bn-property-bite/story-e6frg6n6-1226727261613

Unleashing SMSFs (and the bricks and mortar investing bias of their trustees) onto the property market has led to a predictable outcome. This will undoubtedly lead to significant losses for some, poor returns for many and an ever greater burden on the taxpayer through tax deductions on property related losses. This at a time when economic headwinds should see property prices subdued. Asset bubbles continue their inflation.

FxTrader said:

........Unleashing SMSFs (and the bricks and mortar investing bias of their trustees) onto the property market has led to a predictable outcome. This will undoubtedly lead to significant losses for some, poor returns for many and an ever greater burden on the taxpayer through tax deductions on property related losses. This at a time when economic headwinds should see property prices subdued. Asset bubbles continue their inflation.

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And for that, one can blame Government for allowing it. It has generally been that way with Governments bending to pressure groups, such as, the SPAA, and other such interested parties with wonderful ideas in which SMSFs should be permitted to invest. Generally, these groups have their hands in the pockets of SMSFs but dumb trustees usually don't know it.

FxTrader said:

Unleashing SMSFs (and the bricks and mortar investing bias of their trustees) onto the property market has led to a predictable outcome. This will undoubtedly lead to significant losses for some, poor returns for many and an ever greater burden on the taxpayer through tax deductions on property related losses. This at a time when economic headwinds should see property prices subdued. Asset bubbles continue their inflation.

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So would you advise every one to buy in shares in their SMSF's . I have met numerous people who did that and have had to delay or change their retirement plans. We were in cash at the time of the GCF and it was the best investment decision I made .

There are always winners and losers , If you buy well positioned properties eg Manly , you will always have tenants

Personally I wouldn't buy in lesser areas in my superfund.

The reality at the moment we are not seeing a bubble even in Sydney . Prices have been relatively subdue since 2004 and it has only just started moving and breaking new highs . ( you wouldn't call that a bubble on the share market ) Even amongst property investors , they're only just starting to buy in their SMSF. We bought our first two less that two years ago , and at that stage almost every one we dealt with said ' Now be patient , as I haven't done one of these before ... " .

We are starting to see movement within the PPOR market and the market in Good areas in Sydney is moving up to around 1.5 and now over , and very few , if any of these are within SMSF . We just bought a new PPOR ( turramurra ) and the people we were competing with were looking for new homes.

My perception is that this is the RBA firing a warning shot . They can't increase rates at the moment to stop the property market as it would damage the rest of the economy . The only thing they can do is tighten up LVR's but this could have unintended consequences . It would affect First home buyers the most , and end up creating more renters , putting pressure on rents , increasing returns and making it more attractive for those who can buy to buy, so we would end up with a property market more driven by returns than by capital growth . Personally I have no problems with this as we are looking at going from a growth phase to a return phase in our investing . It would flatten growth for a while , but after a few years of saving , the First home buyers will have saved a deposit ( or been gifted it by parents or grandparents ) or be stuck as perpetual renters . For the perpetual renters there will be political pressure to increase / bring back the First home owners grant .

For longer term investors like myself , we're already only buying at 80 % LVR rates so it would have no impact and if I can get increased rents as a result of the increased pool of tenants I'll be happy.

Cliff

See Change said:

...We were in cash at the time of the GCF and it was the best investment decision I made ..........

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Yep, agree. It was happy time for me as well. Wesfarmers @ $13.50, CBA under $30. Bargains everywhere. Pure joy.

See Change said:

So would you advise every one to buy in shares in their SMSF's . I have met numerous people who did that and have had to delay or change their retirement plans.

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I advise nothing of the kind. If you want to hold out property as some kind of GFC hedge and invincible asset class then one only has to reflect on the property crash in the U.S. and how that contributed to the GFC to realize that the Australian experience was primarily good fortune - thank you China.

If the GFC had succeeded in bringing down the global financial system, and it came uncomfortably close to doing this, property investors in Australia would not be crowing about how wise they were in hindsight. Unlike in the U.S. where you could walk away from your mortgage debt, jingle mail does not help the property investor here.

We were in cash at the time of the GCF and it was the best investment decision I made.

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To be more precise, that would be a risk exposure decision not an investment decision, a non-investment decision perhaps.

There are always winners and losers , If you buy well positioned properties eg Manly , you will always have tenants

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Tenants perhaps, but weather you make money or not depends on many factors including the tax breaks.

I note the heightened activity of property spruikers at present and regard this as a warning as much as what the RBA is putting out at present. The value proposition of and returns available on residential property (commercial property already in a significant decline) at present is poor and unlikely to improve unless rates stay low for a prolonged period and economic conditions improve.

The churning of established residential housing stock at ever higher prices provides little economic benefit while driving up household debt and rents. Such investing is non-productive, an economic burden to society and needs to be curbed.

So FX trader

The churning of property for ever increasing prices is not not defensible and the churning of shares and futures for ever increasing prices is ...

My recollection of the GFC isn't that the property was the problem , but the securitisation of property by merchant. Bankers into things that they were not was the problem . Along with over building etc.

Australia is a different market , we have a chronic under supply of property ......but I'll leave you to your opinions. They obviously differ from mine .

Cliff

See Change said:

So FX trader



Australia is a different market , we have a chronic under supply of property ......but I'll leave you to your opinions. They obviously differ from mine .

Cliff

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starting to sound like robots more and more

See Change said:

So FX trader the churning of property for ever increasing prices is not not defensible and the churning of shares and futures for ever increasing prices is

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That would be established residential property, not your generalization. Shares are a form of business ownership, and many businesses produce something for profit that represent productive use of capital that generate economic activity, employment and benefit for society. There is no comparing the increasing profitability of a business and it's increasing share price to the non-productive use of capital deployed in churning established residential property.

My recollection of the GFC isn't that the property was the problem , but the securitisation of property by merchant. Bankers into things that they were not was the problem . Along with over building etc.

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Actually it was reckless and criminal lending by the shadow banking sector as well as the CDO packaging but that's another topic.

Australia is a different market , we have a chronic under supply of property...

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That is a highly debatable and disputable statement. My point remains, regardless of the market, the churning of established residential real estate is unproductive use of capital and very costly to society as a whole.

Great to hear your thoughts Cliff, nice to get your point of view. As you can probably tell this thread generally has a bearish view on property at the moment. Maybe because Im on the north shore myself so I'm a little biased to that area.

I do agree with you on the Sydney market, it is definitely hot at the moment and those who purchased some 12-18-24 months ago are probably feeling quite good about themselves now.

I gather you are more comfortable holding the 'blue chip' properties in your SMSF as opposed to say, some of the more rural areas? Is this because should a downturn occur, you feel those 'nicer areas' or inner city type living areas are less likely to experience serious falls?

kid hustlr said:

Great to hear your thoughts Cliff, nice to get your point of view. As you can probably tell this thread generally has a bearish view on property at the moment. Maybe because Im on the north shore myself so I'm a little biased to that area.

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Is that a shares vs property thing or a considered opinion that now is not the right time to buy property . Currently many of the property investors I know are gearing up aggressively and thinking now is a once in a decade time to invest ...low interest rates , pent up demand , low supply are key drivers , along with memories of being burnt in shares and super in the GFC

kid hustlr said:

I do agree with you on the Sydney market, it is definitely hot at the moment and those who purchased some 12-18-24 months ago are probably feeling quite good about themselves now.

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Sydney has been warm for a while , but the last few months it's been taking off . Interestingly the western sydney outer area is taking off at the same time if not earlier that many central areas . A house has just sold for over a mill in Fairfield and this has doubled in the last 2-3 years . Personally I wouldn't buy in places like that unless the market was earlier in the cycle .

kid hustlr said:

I gather you are more comfortable holding the 'blue chip' properties in your SMSF as opposed to say, some of the more rural areas? Is this because should a downturn occur, you feel those 'nicer areas' or inner city type living areas are less likely to experience serious falls?

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When I first started in property investing , the nice areas had already gone up , but we did very nicely buying in Logan , rockhamptom , Townsville Hobart which were all out of favour .

This time the nicer areas hadn't gone up significantly , so I'd prefer to buy there.

We may buy in lesser areas if they haven't gone up in around 1-2 years .

Cliff

See Change said:

Is that a shares vs property thing or a considered opinion that now is not the right time to buy property . Currently many of the property investors I know are gearing up aggressively and thinking now is a once in a decade time to invest ...low interest rates , pent up demand , low supply are key drivers , along with memories of being burnt in shares and super in the GFC

Cliff

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To be honest I'm not sure, I personally don't have a view, but the general tone is definitely negative in this thread. I assume many would argue on a valuation basis (performance over the last 40 years has been very strong, debt to income ratios, yields, etc etc) that property is overvalued.

Personally I'm of the view that you gotta keep dancing til the music stops and right now I think the beat is loud and clear.

kid hustlr said:

Personally I'm of the view that you gotta keep dancing til the music stops and right now I think the beat is loud and clear.

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I'm a bit the same . The reality is that the property market has roughly double every ten years and in that time frame sydney has well and truly under performed .

Currently there is a very strong sentiment out there that is driving the market , pretty well sydney wide . So it's not just me ..... And historically sydney leads the rest of Australia , and already the central parts of Brisbane are following in the same path . It's great to say it's not supported by the fundamentals , but the same came be said for any big share price rises .

Cliff

FxTrader said:

The churning of established residential housing stock at ever higher prices provides little economic benefit while driving up household debt and rents. Such investing is non-productive, an economic burden to society and needs to be curbed.

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Why we ever started to view teh family home as an asset, but that's the problem we have now. Household debt approaching GDP, sky high rents, an economy growing under mortgage debt and Government too afraid to remove negative gearing from current assets so it bleeds around $30B a yearfrom probably more productive purposes.

It will be fun till the music stops, and then it'll be like the late 80s where tens of thousands, probably hundreds of thousands this time, will be wiped out as the debt house of cards is blown over.

See Change said:

SAustralia is a different market , we have a chronic under supply of property ......but I'll leave you to your opinions. They obviously differ from mine .

Cliff

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The USA pre GFC was running at approx 1.7M household formations, well above the 1.2M average.

After the GFC hit it dropped to just 500K. The undersupply quickly turned into oversupply.

There's a massive amount of spare rooms out there. Demand can dry up very quickly when you can't afford to pay the rent any more. Lets see how truly exception Australia is during the next recession. I doubt our housing bust will be much different to any outher countries, except maybe in size and length.