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The future of Australian property prices

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tech/a said:
Spent plenty of time in all three.
The glut in housing surpasses anything
You'll ever see in Aust.
It will take at least a generation to correct.

Comparing Australia to any one of these three
Is ridiculous.
Click to expand...

Considerign the massive excess of empty rooms the houseing 'deficit" can easily change. Household formations went from 1.7M to 500K in just over a year in the USA. I dare say a similar fall back could easily occur in Australia.

We have an artifical scarcity here. Remove that and prices would drop quite readily, but as Tony has told us, it's great for current owners even if it does make it harder for the younguns, but since he fears the twitter generation are Labor voters I don't believe he has any interest in resolving this.
 
http://www.abs.gov.au/ausstats/abs@....0~2012~Main Features~Housing Utilisation~128

In 2009–10, most households enjoyed relatively spacious accommodation. For example, 87% of lone person households were living in dwellings with two or more bedrooms; 76% of two person households had three or more bedrooms; and 35% of three person households had four or more bedrooms. Over a fifth (22%) of three-bedroom dwellings, and 9% of four-bedroom dwellings, had only one person living in them.

See the below graph for just how many spare bedrooms there are out there. Pretty much 80% of the current housing stock has a spare bedroom. Tax policy is one of the major reasons for this. Too many old people living in housing too big for them but they don't want to sell and move to a smaller property because it will likely decrease the level of pension they receive and generally due to the restrictive planning laws there's not much suitable smaller accommodation in the same area.

http://www.smh.com.au/business/housing-shortage-all-smoke-and-mirrors-20120622-20szh.html

The Census revealed that the number of households in Australia is some 1 million less than assumed by the National Housing Supply Council (NHSC) in its estimates of Australia’s housing shortage.

The NHSC’s estimate of housing shortages, which is based on ‘underlying demand’, also failed to account for the fact that Australian households have responded to higher home prices by increasingly opting for shared (group) accommodation, which has resulted in a lower number of households than would otherwise have been the case.

There is certainly a shortage of affordable homes in Australia, but no housing shortage per se.

If you think unemployment wont be going up much, commodity prices will remain elevated to keep the ToT firmly in our favour, then property might turn out to be OK. I think both of these are more likely to turn nasty over the next few years. Europe is a ticking debt bomb. Japan is a bigger debt bomb. China is struggling with it's debt bomb. The USA is playing chicken with it's debt bomb. India / Indonesia have their debt issues. It doesn't mater which one goes off first, but I see that being the start of a chain reaction which will see a repeat of the 90s recession. QE and financial repression can only go so far.
 

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FxTrader said:
...I responded to your spruiking of property ......
Click to expand...

Spruiking .. ? Implies i'm selling something . Not that I've seen....

FxTrader said:
...... commenting on just how ordinary the returns are for property based on the data YOU provided.
Click to expand...

The point of my chart was to show the consistent long term trend . As you are probably aware you can improve your yield by gearing . This makes the yields much more attractive . If you add timing in a medium time frame on top of that you can improve the yield even further .

FxTrader said:
..... If you're an experienced property investor or developer then no doubt returns can be far above the average..
Click to expand...

Actually the basics of property investing are fairly simple .
My tag on Somersoft is " apprentice timing lord " . My experience is that, with a fairly basic understanding of simple technical analysis involving , support , resistance , breakout and trend following , it is possible to make significantly more than average. Anyone who has spent time studying share TA would be more than capable of doing this and getting above average results . I posted this thread a few years ago in advance of significant rises in rockhampton .

FxTrader said:
As you are a recent contributor to this long standing thread, please don't seek to lecture me or others here about what we should be getting out of this forum.
Click to expand...

If Stock Central was still the leading stock forum in Oz, I'd be one of the longest members , with thousands of posts , but Austin decided to close it... I've been an active member of Reefcap . I've been a member here since 2005 , though obviously more active as a poster recently.

I thought the aim of any forum was to provide a platform for eduction , opinions and debate. Isn't that correct or is this forum different .

I'm not here to lecture you on anything . Just to share my opinion on the subject at hand . I think that's most people expect to get out of a forum , or am I wrong.

Do you own this forum ? I know I don't . Just here to participate in the debate .

I find that by participating in debate , I help clarify my opinions . I like hearing different opinions and finding flaws and strengths in other peoples thoughts. Sometimes I learn something . Hopefully people learn from my contributions

FxTrader said:
This thread is not about past investment glory or titled "How I became a millionare investing
.
Click to expand...

Why not ? There have been many deviations in this thread , so why would that be any less valid than a deviation on the evils of property investing and how greedy baby boomers are making it impossible to get into the property market etc.....

Ten years ago myself and several friends learnt a hell of a lot from posters such as The WIfe ( Nivia Prior ) , Michael croft, GeeCee. Several of us are " property millionairs " as a result of listening to them and following their advice .

I'm sure there are people here who would be interested in that .

I'd prefer to listen to someone who has , been there , done that , than someone who is an opinionated arm chair expert who has read a book , or someone who wants to charge me $3000 to attend a weekend seminar to listen to " How I bought 135 properties in 5 years with no money down ..." .

My biggest problem with many of these is that the presenter has made their money in the begining of a cycle with a technique that is fine at that stage , but inappropriate later on when they're flogging their system eg Henry Kaye who cause untold damage in the last cycle advising people to buy OPT with deposit bonds .

FxTrader said:
You are neither the first nor will you be the last property bull to come here, boast about past success and imply this will continue to infinity.
.
Click to expand...

It's not my intention to boast , merely to provide examples of what can be done . All part of the information / education process of this forum .

I don't believe that prices will continue to rise indefinitely . I believe we are at the start of an uptrend and at some stage it will stop and then the property market will go sideways and even backwards for a number of years before the process starts again.

Maybe there will be a shift in this paradigm in the future but I'm not seeing any willingness on the government to intervene . Quite the contrary , Hockey and Abbott have come out and said they are quite happy for property prices to go up . They're going to be in charge for at least the next six years .


At some stage it will become obvious to everyone that the property market is going up ..... By then I'll be sitting on the sidelines , having cashed in some properties for a nice price while watching the rest go up with increasing rents.

sydboy007 said:
I'd say 90%+ on this forum would view property in general - as opposed to very small pockets - as over valued and not worth investing in. .
Click to expand...

You might be surprised ... From the response I've had in pm's , the main property related thing I've been told that is not worth investing in is this thread .... Given the continuing negativity , I think most of those who want to contribute an opinion which might imply there is potential in property investing give up in despair ....

sydboy007 said:
How long can an asset class continue to make income losses before enough people decide it's not a good investment and the capital growth required to make it worthwhile becomes unlikley ......
Click to expand...

Well as I don't hold an asset class I can't comment on that , but individual properties , I can .

Each property I've bought as an investment has seen significant growth within two years . I continue to buy with the same expectation . Just settling on property in Brisbane at the moment. This is based on buying bargains in troughs ( two of those ) or well prices properties at the start of an uptrend ( many ) . If I stuff up , you're welcome to say I told you so . If I don't .......well ....

sydboy007 said:
I'll keep saying, why buy when you can borrow housing at below cost? While landlords are blinded by NG and chasing the capital growth dragon renters might as well take advantage of the situation. .
Click to expand...

How about I give you an example . Purchase Price 65 K , sold 8 years later for 240 K . Same tenant when we bought and when we sold . Initial rent $ 120 . final rent $300 . As they had been good tenants , we renewed the lease for a year before we sold the property and asked the agent to sell to another investor.

So who was taking advantage of who ?

This is one of the reasons why property investing works . Returns go up while the debt stays the same.


So as someone who hasn't invested in property , are you now an expert who can tell others what to do ?

You seem to be keen to take those of us who have successfully invested in property to task for wanting to contradict your opinions .

Yes, it is possible to lose money property investing . I know people who have gone bankrupt doing it , by over extending themselves and not having adequate fall back positions .

The first house we bought went sideways for seven years before we sold it . We bought at the peak of the boom in 1988.

Every one makes mistakes . The important thing is to not make the same mistake twice and to learn from other peoples mistakes ( forums are good for this ...) . That's why I stress the importance of timing .

Since I learnt that lesson , every property I've bought as an investment has gone up significantly in the 1-2 years after I bought it . In the last cycle , all the properties I bought had doubled 5-7 years later.

sydboy007 said:
So you invested at the begining of the main part of the housing boom and made a lot of money. If you can do the same over the neext 10 years I'll be impressed..
Click to expand...

For me the next ten years is a no brainer . I think we will see the property market double before that , though I'll happily take a doubling in the next ten years . Some people seems to think that property had only doubled since 2000. It's been doing that for a lot longer than that . Given Sydney has been well below that level of growth in the last ten years, I expect it to well and truly catch up in the next ten . This is the reaon why I've " gone long " on sydney property.

We can see how things go from here.

Another example . My parents bought a house in 1969 for 25 k
If we look at what it should be worth if it doubled every ten years we get
1970 25 k
1980 50 K
1990 100K
2000 200 K
2010 400 K
What happened in reality ? it sold around 2009 for 1.4 mill , a price it shouldn't have reaches until somewhere approaching 2030 .
So the reality for the last 50 years is that sydney has more than doubled every ten years. I have seen similar examples in each market I have studied in detail . Sydney , Central Coast , Newcastle , Coastal NSW , Brisbane , Rockhampton , townsville cairns and hobart .


sydboy007 said:
* assets that are cashflow negative as poor investments - just my personal point of view.
..
Click to expand...

yes , Finally something we agree one .

That's why I like the block of units in hobart that I bought for 220 ( 2004 ) , now worth 450 and with a rental return of 600 . Our best performer in cash flow terms . One day I should go down and see them ....

I'm not a big fan of negative gearing , but I'm happy to use it at the moment . The other way to get cash flow is to take capital gain on properties and use that to pay down others . that's what I'm planning on doing in the next few years.


Actually that also makes sense

A cap on LVR in some ways also makes sense . I think the possiblity of people having multiple loans at an LVR of 95 % is reckless , but probaly no more than what some people get up to in the share market.

Cliff
 

http://www.rba.gov.au/calculator/annualDecimal.html

The purchase price of 25K is the equivalent to 267K in 2012 dollars. Do you think we can extrapolate your parents house for another 40 years? That would mean in 2050 you'd expect to get $78.4M

I don't deny property has been a pretty good investment in the past, but mainly due to financial deregulation and artificial land scarcity. I question if the House and Holes economy can provide us with the same increase in standard of living that occurred over the last 40 years. There's a few billion hungry poor people out there that can mostly do our jobs. Unless you're in a trade or a very creative industry there is no longer the kind of job security we and our parents knew. Throw in APRA is not allowing the banks to increase their overseas borrowings and I'd say it wont take much of an increase in loans before the banks are not able to fund a further increase in lending unless they raise interest rates enough to get people back into TDs, which would certainly crimp the demand for credit as well.

When i bought my property in Erskineville Sydney in 1997 the land valuation was around the 150K mark, now is valued at 500K. I'd probably be able to sell the house for 850-900K. The purchase price (inc SD etc) was $322K or $486K in 2012 dollars. Do I see the same happening over the next 16 years? Not really, purely because who will be left who can afford to buy it from me?

The minute a state Government has the cajones to stop the artificial land scarcity and to ease restrictive zoning laws in established suburbs, house prices will start to fall and further real increases will be more in line with income growth as best. Texas shows how this occurs, Germany too since they've had little to no real growth in house prices for 30 years.

If your not highly geared, have a stable income, wont have to sell unless you choose to, then the risks are manageable. Sadly too many people do not set themselves up in that way. I worked with woman who amassed a $1.5M property portfolio with her husband in the early 2000s. I couldn't understand why they were still adding more property when we knew were were losing our jobs and she was pregnant. I heard a few years ago that it blew up on them and sent them bankrupt and the marriage ended in divorce.

Too many people are blinded by NG and fail to do the basic math behind an IP. If someone has done their homework then go for it, but my hope is that those who read this thread are encouraged to do their research rather than get lured in by the spruikers, and there's so many of them out there now. The advantage of other asset classes is the easy diversity. Property is such a concentrated risk. For the deposit on a property I can gain a decent portfolio of shares and bonds and keep a bit in cash. I can also move money around pretty much instantly to take advantage of changes in conditions, which you can't do with property.

I keep thinking someone needs to build up an investment fund in rental properties, spread out over a number of geographic areas to give diversity. I'd be tempted to invest in something like that IF the yield was right. Could be a better way for many renters to get into the property market without the hassles of owning your own home, especially if that investment fund was willing to sign long term leases and provide some of the advantages of owning your own home along similar lines to say Germany where 50% of the population rent.
 
My advice is NOT House or unit rental
but INDUSTRIAL.

Forget domestic.


There will ALWAYS be a shortage of Industrial property.

Cheaper do develop.
Less maintenance
Very long term leases
More $/Square meter.
ALL outgoings covered.
Great capital growth.
Less tenant issues.

Can put in your SMSF
 
sydboy007 said:
http://www.rba.gov.au/calculator/annualDecimal.html

The purchase price of 25K is the equivalent to 267K in 2012 dollars. Do you think we can extrapolate your parents house for another 40 years? That would mean in 2050 you'd expect to get $78.4M
Click to expand...

I agree , it sounds crazy doesn't it . If I'd asked my father in 1970 I he thought someone would buy this house for 1.4 mill and then put a bulldozer through it to build another house I can imagine what he would have said . Crazy . Similar reaction from the original person who might have paid around 200 pounds . Do you think this will sell 25 k ....crazy .

I also find it useful to look at other markets to get a comparison of what might happen. There is a house on the market in sydney for 100 mill . Not sure what it would have sold for in 1970 , but 1.4 would have probably picked it up . There are several sales in the 30 - 50 mill range . I know one of those sold for around 200 k in the 60's or 70's.

In Singapore ( quote other poster who I assume posted accurately but I haven't seen the actual figures ) on of their friends sold his house for 25 mill , up from 7 mill. Apparently they're blaming some of the rises over their on the ability if super funds to invest in property .....


sydboy007 said:
artificial land scarcity ......
Click to expand...

You might make a case if you're talking about the periphery of sydney , you might make a case , but I would never recommend buying there as an investment .

I'd buy where you've bought . They can't make more land there or in manly , mosman , turramurra or wahroonga or the inner west

So I don't see that as an issue.


sydboy007 said:
Unless you're in a trade or a very creative industry there is no longer the kind of job security we and our parents knew.
Click to expand...

Agree this is an issue . Just reading a book on this at the moment and it's a real issue . People need to take their individual circumstance into account.


This is unfortunate and I know people who've had similar experiences . I also know several people who lost lots on money in shares and agricultural investments ( I still shake my head over this last one as I'm sure you would , how can smart be so dumb... )


I agree . I think if an investment needs an artificial system to make it work , then I'd avoid it like the plague . My pet hate at the moment is the NRAS scheme which provides incentives to buy cheaper properties to rent to people who otherwise couldn't afford it . A laudable ideal , but the marketeers are all over it , and many sales aren't being backed up by valuations etc . Personally I wouldn't buy one .


I seem to recall something like this being floated in the last cycle but not sure what happened . The logistics of running a business like this could be a nightmare with plenty of scope for people taking advantage of it . Also if you are buying that many properties , imagine how it could distort the market and drive prices up even further , more so than the threatened influx of SMSF money , but another interesting idea.

Sydboy . I can see that you are not just a blinkered D&G re the same way that some people are and that you have put thought into what you post I think you May be surprised at how closely are thoughts are aligned . Ditto to bugs .

Cliff
 

Hi tech

Nice to get your input . My recollection from the time we met down at the rocks is that you've made more money out of property and your business than out of shares . Is that still correct ?

My perception of industrial is that it's more specialised , position is even more important as is the lease . As some one who runs their own business I can understand you would have the skills to do this , but I know my limitations and it's outside my comfort zone .

My main concern with industrial and retail will be the long term impact of globalisation as more and more production moves off shore and more retailing moves into the Internet . That's all unknown , where as people still need somewhere to live , and vacancies when they occure ( assuming you've bought well ) will be shorter .

Maybe higher rewards , but possibly higher risk . There is a poster on somersoft ( daz ) who by all reports has done very well with industrial in Perth , but my perception is that it's his business .

Cliff
 
Cliff

Yes is still the case.
I doubt shares/futures will ever catch the other 2
Mind you the return from shares has been worth the effort.
I will be writing up a new thread shortly which will touch on
much of your and other posters/posts.
The key here for pretty well all of us is 2 things.

(1) Capital gain---rapid is better
(2) Capital accumulation for Retirement--sooner the better.

To your specifics.
Industrial covers a lot of TRADES
Builders/Plumbers/Carpenters/
Mechanics/Sure there are manufactures and many
retail STORAGE facilities.

I like Sheds--Iron Ones. I can get multiple leases on multiple sheds
400 square meters or 4/100 m sheds $ 1000 a month each.
Cost including land (Still have 3300 meters not developed (Sheded)) $320,000

I'm glad there are people like you who view Industrial as too hard!
Perhaps worth investigating?
 
tech/a said:
Cliff

I'm glad there are people like you who view Industrial as too hard!
Perhaps worth investigating?
Click to expand...

Fair enough ..

I know there are many different ways to make money . At the moment I'm looking at getting back into shares.

I've got enough exposure to property at this stage and assuming things goes the way I anticipate I won't need to do anything else .

Cliff
 

I actually thought it sounded like a fair example. I believe in Sydney that 700k is about the median house price, and a household income of 120k is well above the median household income. So that seems to be a pretty decent set of numbers to put forward.
In fact, if I was to try and buy a place in Sydney, it would be pretty similar to my set of numbers, and that is why I don't buy as the risk is way to high. Massive leverage and massive interest rate risk.
 
I'm unfamiliar with NSW, outside of Sydney, so would appreciate any informed comments about the viability of buying IP in Morriset which I understand is about an hour by train from Sydney CBD.

Friends intend moving there and are suggesting they will sell their $800K house in the Sunshine Coast hinterland and buy smaller house plus IP. They are academics and have no experience in any form of investing.
They bought at the best time (pre bubble) on the Sunshine Coast and seem to believe they will repeat the quadrupling of their investment over a decade in Morriset. Perhaps they can. I have no idea.

When I asked what % return they expected on their investment, they hadn't considered that. Suggestion is that buying a place around $300K will yield $300 p.w. Does that sound right for the area?
After expenses, tax etc, they're certainly going to need decent capital gain to make it worthwhile imo.

The further suggestion is that the area is 'about to take off' because people will be commuting to Sydney for work.

Any comments would be appreciated.
 

A quick search on domain shows you'd need a pretty special 2BR to get 300 a week, and most 3BR are going for the mid 300s a week.

Blocks of land are selling for 180K+

With the slow trains and reliability issues I'm not sure what the growth prospects are. So far in Sydney i get the feeling the younger Gen X are happy to do apartment living in the city than make the move too far out for a house. It's approx 116KM from Sydney Central station to Morisset so an hour is more realistically 1.5-2 in a car depending on traffic and the train is 2 hours at beast to 2.5 hours at worst, so I don't think it's going to appeal to people commuting into the Sydney CBD

With 800K they might be able to buy 2 properties in the area, but then you have concentration risk. They might be better buying in 2 locations, but then that takes more effort to research.

Do they still work? I'd nearly say downgrade and live there in a modest 2BR house and invest the rest in some floating rate bonds and higher yielding shares if they can hold through any market drops, but I'd say with some decent yielding 5.5-6.5% bonds they could afford to go fairly conservative
 

I agree. You couldn't pay me enough to want to do the F3 crawl 10x/week. By train it's 2 hours + each way. If you work in Sydney then you should be able to afford something on the Central Coast, which is closer and not that much more expensive.
 

McLovin said:
I agree. You couldn't pay me enough to want to do the F3 crawl 10x/week. By train it's 2 hours + each way. If you work in Sydney then you should be able to afford something on the Central Coast, which is closer and not that much more expensive.
Click to expand...
Thanks for the above - much appreciated. I'd thought maybe their estimate of just an hour to Sydney CBD was a bit optimistic.

I agree with your investment option, syd. They won't accept that, sadly. Have rejected my suggestions of diversifying into shares for years.
 
Julia said:
Thanks for the above - much appreciated. I'd thought maybe their estimate of just an hour to Sydney CBD was a bit optimistic.
Click to expand...

Have they lived in Sydney before? To put it in perspective, driving from Morisset to Sydney every day is likely to cost a couple of hundred $ in fuel costs alone/week. If someone can only afford $300 in rent/week it's a pretty unrealistic assumption to think they can afford the luxury of car travel to/from Sydney. And if they've been given a company car then it's unlikely they're in the $300/week market in the middle of nowhere. Which leaves public transport, and even then weekly transport costs will be $60/person/week. For $420/week you can get a small place in Sydney that might be within earshot of where you work.

On the other hand, Morisset might be a popular location for people who live in Newcastle. But then I wouldn't expect it to benefit from what drives prices in Sydney.
 

I read the article and couldn't help but

1 in 8 makes a loss = 7 out of 8 makes a profit. Talking about glass half empty!

And it take no account in transaction costs, holding costs, finance costs, improvements made etc.

This study is an embarrassment to the word "study".
 

Is it really so simple?

If the owner selling for a loss is the one under stress then that's 12% of the market in that condition, which is a large number.

Hollowing out of the capital base has to start somewhere.
 

That the problem when dealing with property in this country. Don't let the facts get in the road of the doubling in 7 or 10 years mantra.
 
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