The future of Australian property prices

[Julia]

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.

Good points, McLovin, thank you. They have accepted jobs in some obscure radio station with the capacity to use the facilities to further their own music careers. I gather the financial rewards are minimal at best, but they're in love with the idea and somewhat blind to some of the realities of their proposed plan. At least they can both fall back on private practice if it all falls over, I guess.

 

[sydboy007]

Good points, McLovin, thank you. They have accepted jobs in some obscure radio station with the capacity to use the facilities to further their own music careers. I gather the financial rewards are minimal at best, but they're in love with the idea and somewhat blind to some of the realities of their proposed plan. At least they can both fall back on private practice if it all falls over, I guess.

Ouch. I think that is the problem with a lot of the boomer generation. They have a she'll be right mentality I'll never quite get.

I've always found and excel spreadsheet to work wonders on those trying to ignore reality. A few euqations and you can show them the differing scenarios.

SD alone will set them back $13500 on a $420K property (inc purchase costs) which will be lucky to get them a 3BR property in Morisset. At least the land values would be low enough they're not up for land tax on a rental property, but I don't see the point of spending $400K on an asset that provides maybe $18K a year in rent, but then loses $3k a year for council water insurance simple maintenance each year. Net yield of 3.57%. Woop Woop. Can do that with a TD and less stress. Can do that with an ILB and get CPI added to the capital value each qtr.

You can lead a horse to water....

 

[FxTrader]

Ouch. I think that is the problem with a lot of the boomer generation. They have a she'll be right mentality I'll never quite get.

This may be your perception but it's not reality. As a member of the boomer club I will say in general that we are a resilient lot who have lived through the peaks and troughs of economic cycles and most realize that the last decade was a boom cycle.

SD alone will set them back $13500 on a $420K property (inc purchase costs) which will be lucky to get them a 3BR property in Morisset. At least the land values would be low enough they're not up for land tax on a rental property, but I don't see the point of spending $400K on an asset that provides maybe $18K a year in rent, but then loses $3k a year for council water insurance simple maintenance each year. Net yield of 3.57%. Woop Woop. Can do that with a TD and less stress. Can do that with an ILB and get CPI added to the capital value each qtr.

The problem with your argument is property investors would correctly counter that the yield is derived from borrowed money (bank leverage) since that is the only way they can acquire the asset. If the property is cash flow positive then they are better off (capital gains aside).

If you had $400k in cash to invest then yes, TDs may look more attractive but a property investor would view such an amount as an opportunity to borrow another 2 million from the bank to acquire more investment property.

 

[sydboy007]

This may be your perception but it's not reality. As a member of the boomer club I will say in general that we are a resilient lot who have lived through the peaks and troughs of economic cycles and most realize that the last decade was a boom cycle.

The problem with your argument is property investors would correctly counter that the yield is derived from borrowed money (bank leverage) since that is the only way they can acquire the asset. If the property is cash flow positive then they are better off (capital gains aside).

If you had $400k in cash to invest then yes, TDs may look more attractive but a property investor would view such an amount as an opportunity to borrow another 2 million from the bank to acquire more investment property.

I understand that, but with gearing we are talking a WHOLE different level of risk compared to fully funding with cash which is what Julia's friends are planning to do. Admittedly if they are willing to take on extra risk and gear up they could buy more properties, but by the sounds of it they need the income so gearing up is probably not something they can afford to do.

As for people in generally realising the last 10-15 years has been a boom period, I think not. The general perception out there is property prices will continue to make their above real gains. Too many people still believe in property doubling every 7-10 years depending on which MSM you trust the most for you investment mantra.

I'd love to know how many people hitting retirement still have significant levels of debt and are using lump sum super to pay it down and then maximise their pension. Perfectly legal, but a stoopid and very costly loophole to have left in the system, but as Gottie said today the political party willing to close it will likely be voted out of office. If they could get Gen X and Gen Y onside by showing how income taxes could be lowered by removing this incentive to gear up and let the tax payer wear the costs it might have a chance at rewarding the political party with the cajones to tackle this issue.

If taxpayers have to put in billions a year for super tax concessions, then it should be set up to tax any lump sums so people are encouraged to use their super for day to day living costs, not spending it to maximise their pension entitlement. I was reading a question to one of the money advice sites and the individual was advised to use the lump sum to make repairs etc on their home then immediately go back to centre link with the reduced level of assessable assets so as to get more pension.

With a super and tax welfare system like this, no wonder the budget is going to be in deficit for years to come

 

[FxTrader]

As for people in generally realising the last 10-15 years has been a boom period, I think not. The general perception out there is property prices will continue to make their above real gains. Too many people still believe in property doubling every 7-10 years depending on which MSM you trust the most for you investment mantra.

I was referring to asset prices generally, not just property, but I agree that many property investors (as evidenced in this thread) presume the "trend" will continue and the past is a reliable guide to the future for property prices.

I'd love to know how many people hitting retirement still have significant levels of debt and are using lump sum super to pay it down and then maximise their pension.

As I said in the Superannuation thread, most boomers don't have enough money saved in super to do anything else other than construct a plan to draw the aged pension. Pay off debts, no mortgage and adjust assets accordingly. Not a plentiful retirement perhaps but a perfectly adequate one and many see it this way. This is the primary reason I don't think there will be a glut of property coming onto the market from boomers selling up to downsize.

More to the point of this thread, I believe it's quite possible for property prices to continue rising given the main factors contributing to rising prices (low rates, SMSF entry, planning rules, unlimited tax incentives to investors etc.) remain in place and unlikely to change in the short term. Do I think my home will be worth $1.4 million in 10 years (double)? No, but I acknowledge it's possible and would be very happy indeed to sell at that price.

 

[Julia]

Ouch. I think that is the problem with a lot of the boomer generation. They have a she'll be right mentality I'll never quite get.

I don't think that's exactly the case here, syd, more just financial naivete. They've both always had high incomes but have largely just spent most of it. Even the current property they're selling at the Sunshine Coast was bought with an inheritance.

I've always found and excel spreadsheet to work wonders on those trying to ignore reality. A few euqations and you can show them the differing scenarios.

SD alone will set them back $13500 on a $420K property (inc purchase costs) which will be lucky to get them a 3BR property in Morisset. At least the land values would be low enough they're not up for land tax on a rental property, but I don't see the point of spending $400K on an asset that provides maybe $18K a year in rent, but then loses $3k a year for council water insurance simple maintenance each year. Net yield of 3.57%. Woop Woop.

And then there will be tax, presumably at their marginal rate. I thought of raising the idea of having the property in a SF to minimise the tax but don't think they'd be up to the administrative responsibilities of running a fund.

You can lead a horse to water....

Exactly. And beyond that, it would be intrusive.

FxTrader: no gearing involved. No contemplation of gearing. I wouldn't even suggest it.

 

[tech/a]

I was referring to asset prices generally, not just property, but I agree that many property investors (as evidenced in this thread) presume the "trend" will continue and the past is a reliable guide to the future for property prices.

Well duckenomics dictates that in times like now--unless there is a reason for a price rise in an area.

Lack of supply
New Freeway/Railway/bus line
Property improvement or Development
lower than current accepted market price.

Prices are likely to remain stagnant or fall
IF there are reasons for the price to fall.
Oversupply
Lack of demand
(which can be a result of temporary in balance in pricing).

BUT
Property will rise in Chunks (and is likely to fall in chunks).
rather than a prolonged rise or fall.

Property Investment isn't that hard, provided you understand the above.
There really is no need to complicate it.

Similar can be said of most investments.
They have set reasons for rising or falling
and will rise or fall in chunks (generally)

Simple Duckenomics.

 

[FxTrader]

Property Investment isn't that hard, provided you understand the above. There really is no need to complicate it. Simple Duckenomics.B]

There are of course many other reasons why property can rise of fall, let's not oversimplify. There were quite a few "duckies" in the U.S. (a few I know personally) that generally followed your duckenomics and found their balance sheets full of buckshot during and immediately after GFC duck shoot. Whether property prices fall in "chunks" or not, the point is they can and do fall - the "trend" is not always your friend.

 

[13ugs13unny]

If they could get Gen X and Gen Y onside

LOL. no, I don't see that many y & X geners leveraging up with debt on mass, with a confluence of insecure factors coming together, like outsourcing, low wages, sky-rocketing living costs, etc. It doesn't add up on my spreadsheet.

 

[tech/a]

There are of course many other reasons why property can rise of fall, let's not oversimplify. There were quite a few "duckies" in the U.S. (a few I know personally) that generally followed your duckenomics and found their balance sheets full of buckshot during and immediately after GFC duck shoot. Whether property prices fall in "chunks" or not, the point is they can and do fall - the "trend" is not always your friend.

Me too.

I have good friends in the US of A and Britain and Spain.
All hold considerable property
2 are retired
All are " living the dream "

The trend is always your friend its when its broken it can hit you.
Every investment I have known in 40 yrs. of working for myself will have a drawdown/s.'

Burying your head in sand flipping your feet and beak about wont help you.
You have to make decisions and handle the consequences of those decisions wether they prove to be right or wrong.

Learn how to MITIGATE RISK in ALL investments.
Evidently 95% of the population wont be able to self fund their retirement.

You'll be able to recognize them---the ones who don't fly high enough (Risk mitigation) to avoid Buck Shot.
Still flapping their beaks in 10/20 yrs time---about how the world is about to end financially.
One day they WILL get it right.
In the meantime--why wait to get shot!

LOL. no, I don't see that many y & X geners leveraging up with debt on mass, with a confluence of insecure factors coming together, like outsourcing, low wages, sky-rocketing living costs, etc. It doesn't add up on my spreadsheet.

Mine neither--in your case.

 

[13ugs13unny]

Mine neither--in your case.

.....and a vast majority. We are not the eggs in your basket to hatch into your world of ducklingonimics, just because of your pro property bias. It would have been better to accept there many that don't see it your way.

 

[tech/a]

.....and a vast majority. We are not the eggs in your basket to hatch into your world of ducklingonimics, just because of your pro property bias. It would have been better to accept there many that don't see it your way.

Not only accept but agree in many cases.
There is a time and place for everything.
For many now is not the time and place for property.
For some it is fine.
I have developers on my books selling off plan subdivision house and land packages as fast as they can release them.
Not the "many" your talking about I agree but not everyone is without opportunity.

 

[qldfrog]

Not only accept but agree in many cases.
There is a time and place for everything.
For many now is not the time and place for property.
For some it is fine.
I have developers on my books selling off plan subdivision house and land packages as fast as they can release them.
Not the "many" your talking about I agree but not everyone is without opportunity.

In that case, they are the ones using/abusing the suckers..Not exactly the mainstream...

 

[tech/a]

In that case, they are the ones using/abusing the suckers..Not exactly the mainstream...

Infact they are meeting demand.
These are subdivisions at the end of new freeways
Railways.
The house and land packages are targeted at entry
Level $270000 for both.
Hardly call that abusing suckers.
Believe it or not there are people who can easily afford
These opportunities to get out of the rent roll.

Not investors just normal people doing a normal
Thing --- buying a house.

In the whole of this thread I've not seen a RIGHT time
To buy property. Evidently there isn't!

 

[prawn_86]

In the whole of this thread I've not seen a RIGHT time
To buy property. Evidently there isn't!

It is definitely the right time to buy a property here in the US (with a few exceptions obviously). Prices appear to have stabilized, and there are positive net yields available on 95% of properties. I would argue that in the last 5 years there hasn't been a right time to buy a property in Aus (on average)

 

[tech/a]

It is definitely the right time to buy a property here in the US (with a few exceptions obviously). Prices appear to have stabilized, and there are positive net yields available on 95% of properties. I would argue that in the last 5 years there hasn't been a right time to buy a property in Aus (on average)

In general terms I agree
but like everything there are exceptions and those who do well out of property will find them.
Joe Average --- will find that he is NOT one of those who will find those exceptions.

 

[13ugs13unny]

In that case, they are the ones using/abusing the suckers..Not exactly the mainstream...

In general everyone becomes a sucker, new freeways, transport, schools and all services all have to be paid by the taxpayers to over reach outer areas the only winners are the developers who make a fast buck and disappear once the lots have sold and packages built. This concept was fine in the 1980's where they were built up against existing suburbs and services with little extra reach. Now they are built much further out.

These type of properties are fine if you have to nest cheaply where local day care can take care of the littlies for the first few years.

Then what?

 

[tech/a]

In general everyone becomes a sucker, new freeways, transport, schools and all services all have to be paid by the taxpayers to over reach outer areas the only winners are the developers who make a fast buck and disappear once the lots have sold and packages built. This concept was fine in the 1980's where they were built up against existing suburbs and services with little extra reach. Now they are built much further out.

These type of properties are fine if you have to nest cheaply where local day care can take care of the littlies for the first few years.

Then what?

I'm interested in your town planning/solution/s.

How are you placed in the market?

What would be YOUR "Then What?"

 

[moXJO]

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.

median is roughly $383K
3 month growth 21.8%
12 month 2.4%
3 year 7.8%
5 year 5%
10 year 3.9%
median advertised rent $350
gross rental yield 5.7

I don't know the area and I am just quoting figures. There is a massive push into certain areas out of Sydney with wanky Sydney siders pushing up prices and pushing out locals.There are a few towns sprucing up their own little CBDs and are now attracting more people with money.


For me at this moment, prices have moved in the areas I was interested in. So now its renovate, sub-divide and develop. Property is selling off the plan at premium prices atm. I will probably cycle out of some property over the next 12 months. There are plenty of areas still a buy, but I'm interested in a couple of other sectors atm.
NSW business also seems to be coming back pretty hard. The last month is as if someone flicked the switch and work has been pouring in (perhaps the death of labor). There were a lot of desperate people this time last year. Hasn't been like this in a while and will be interesting to see if it continues.
Small business may be back in vogue and about bloody time.

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In general everyone becomes a sucker, new freeways, transport, schools and all services all have to be paid by the taxpayers to over reach outer areas the only winners are the developers who make a fast buck and disappear once the lots have sold and packages built. This concept was fine in the 1980's where they were built up against existing suburbs and services with little extra reach. Now they are built much further out.

These type of properties are fine if you have to nest cheaply where local day care can take care of the littlies for the first few years.

Then what?

Have you ever owned/made money out of property?

 

[13ugs13unny]

median is roughly $383K
3 month growth 21.8%
12 month 2.4%
3 year 7.8%
5 year 5%
10 year 3.9%
median advertised rent $350
gross rental yield 5.7

I don't know the area and I am just quoting figures.
NSW business also seems to be coming back pretty hard. The last month is as if someone flicked the switch and work has been pouring in (perhaps the death of labor).

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Have you ever owned/made money out of property?

Are you so bullish because your a liberal voter?, one week before the election budget emergency, doom & gloom next minute huge boom -everywhere. in the famous words of our queen "*please explain*"?