The future of Australian property prices

[Bill M]

As Bill Gross recently said 'The days of getting rich quick by leverage are over'

And it's all about the appetite of Chinese investors for Oz property with leveraged yuan?

A similar thing happened 30 years ago with the Japanese buying up all and sundry on freshly printed yen, and we all know how that turned out.....and so too will the Chineses succomb from within as their economic model is terminally flawed.

I'm out then, putting a Melbourne unit on the market for now, see how we go........Brisbane & then Sydney to go....

There is a lot of holes in your argument. Yes the Japanese lost a lot back in the 80's but what were they losing it on? It was sugar cane farms in the north of Queensland that they were hoping to develop into Golf Clubs but it all fell to pieces. It was also Gold Coast property, sounded good at the time hey?

To compare that with with Sydney and Melbourne is ridiculous. We don't have cane farms to sell, it is not FNQ, it is Sydney and Melbourne, totally different and with a big shortage of decent property, particularly of new apartments.

The Chinese investment now is in predominantly new dwellings, no requirement for approval from the FIRB. The thing is that there is bugger all stuff available in these 2 cites to buy. Tell me how that a brand new site can sell off the plan in 3 hours in these cities? How is it that in Gosford CBD a site was sold off the plan in 1 Month, total, all gone?

I am a buyer too, I want an apartment walking distance to a railway station, near shops, near water and I will pay what it takes to get it. The thing is there isn't enough stock around to fill our appetites. This is where real estate is lacking and what is available is expensive.

Back to the Chinese, I totally understand what they want, hey hang on it is the same as me. I can't say I blame them, most of them are citizens of Australia just like you and me.

End result, not enough supply in the good areas and this will force prices up.

 

[Uncle Festivus]

To compare that with with Sydney and Melbourne is ridiculous. We don't have cane farms to sell, it is not FNQ, it is Sydney and Melbourne, totally different and with a big shortage of decent property, particularly of new apartments.

To say that the Japanese were only buying Queensland cane farms and Gold Coast is a bit narrow too? They were buying everything as I recall. Then they realised they bought at the top and also had to pay the debt back, which they are still doing 25 years later. So too will the Chinese...

I am a buyer too, I want an apartment walking distance to a railway station, near shops, near water and I will pay what it takes to get it. The thing is there isn't enough stock around to fill our appetites. This is where real estate is lacking and what is available is expensive.

? You admit it's expensive yet you are desperate to buy? Sounds like a mania to me.

In my view the meaningful downturn (bust??) will come when the only thing holding oz prices up, Chinese investment, is curtailed because of problems with their own property bubble.

Property is but a dream for the average Australian resident.

As for lack of supply, you only have to look up to see the huge pipeline of new units going to come on stream over the next year, especially in the Melbourne CBD, Southbank etc and around Sydney between the CBD and the airport etc. An agent (who only deals with the silver spooners) I spoke to said the 'banker types' are actively selling their IP's now - insiders knowledge??

The RBA won't be cutting rates anymore with inflation heading higher so essentially this is as good as it will get for locals. Sometimes you just have to simply take your profits and patiently wait for the next cycle..........for now for me it's Melbourne, Sydney will still have a bit to go....

Again, when the Chinese sneeze we will get bird flu.......only the timing is unknown, but their economy is already showing signs of contraction.....

 

[Mrmagoo]

There is a lot of holes in your argument. Yes the Japanese lost a lot back in the 80's but what were they losing it on? It was sugar cane farms in the north of Queensland that they were hoping to develop into Golf Clubs but it all fell to pieces. It was also Gold Coast property, sounded good at the time hey?

To compare that with with Sydney and Melbourne is ridiculous. We don't have cane farms to sell, it is not FNQ, it is Sydney and Melbourne, totally different and with a big shortage of decent property, particularly of new apartments.

The Chinese investment now is in predominantly new dwellings, no requirement for approval from the FIRB. The thing is that there is bugger all stuff available in these 2 cites to buy. Tell me how that a brand new site can sell off the plan in 3 hours in these cities? How is it that in Gosford CBD a site was sold off the plan in 1 Month, total, all gone?

I am a buyer too, I want an apartment walking distance to a railway station, near shops, near water and I will pay what it takes to get it. The thing is there isn't enough stock around to fill our appetites. This is where real estate is lacking and what is available is expensive.

Back to the Chinese, I totally understand what they want, hey hang on it is the same as me. I can't say I blame them, most of them are citizens of Australia just like you and me.

End result, not enough supply in the good areas and this will force prices up.

Try just getting an ordinary job and getting a 75k a year salary, starting from scratch, today, not with 20 years of experience behind you. That gives a better indication of the true state of things.

 

[Bill M]

You admit it's expensive yet you are desperate to buy? Sounds like a mania to me.

I am not desperate to buy. The point I was trying to make is that there is very little new apartments in good areas available to buy. I want to buy it for my wife and I to live in, it is not for investment. This will mean only one thing, unless we get more supply we will need to bite the bullet and just pay current asking prices.

This is what I call a good development and there isn't enough of this kind of stuff. I am talking about Sydney in particular. (My bolded parts)

---
In five hours on Saturday, Sydney property developer Legacy Property sold 90 off-the-plan apartments at the opening of a new tower in Bondi Junction.

But it is not cheap. Studio apartments start at $575,000, equivalent to the median price of a house in Sydney.

Buyers pay, on average, $14,500 per square metre and for the best, up to $17,500 per square metre.

Mr Hyder said supply was the issue.

“Waverley Council fought us tooth and nail over this project but the public are starved of stock,” he said.

http://www.afr.com/p/business/property/off_the_plan_goes_off_apartments_PMvEZShdYTtTtfuH2iDCpJ
---

In my view the meaningful downturn (bust??) will come when the only thing holding oz prices up, Chinese investment, is curtailed because of problems with their own property bubble.

Not only you but many others have been calling a bust for a long time ago. 2 years ago, 5 years ago and 7 years ago.... we are still waiting. Sydney property went up around 13% last year, they reckon that it might jump another 10% this year. If I had listened to all the doomsday marketeers over the last 35 years of investing I would have got nowhere in life.

Property is but a dream for the average Australian resident.

You can still buy a house/villa/unit on the Central Coast for $250,000, only an hour from Sydney. You got to start somewhere, people need to live where their incomes dictate. I started off in a 1 bedroom flat, built equity in it and traded upwards. I live in the Central Coast now, all my neighbours are average Australian residents, simple people in ordnary jobs, most of them are paying off their houses and building equity. No Chinese buyers up here.

As for lack of supply, you only have to look up to see the huge pipeline of new units going to come on stream over the next year, especially in the Melbourne CBD, Southbank etc and around Sydney between the CBD and the airport etc.

Sydney, on the way to the airport, no thankyou. That is exactly the area I do not ever want to live in. I am looking at the Manly Warringah area or on the North Shore somewhere decent like Hornsby, St Leonards or even Gosford, not much new stuff going up around those areas.

 

[Bill M]

Try just getting an ordinary job and getting a 75k a year salary, starting from scratch, today, not with 20 years of experience behind you. That gives a better indication of the true state of things.

What has job seeking and salaries got to do with the future of Australian property prices? You might want to start a new thread on that.

 

[Mrmagoo]

What has job seeking and salaries got to do with the future of Australian property prices? You might want to start a new thread on that.

Salarie have everything to do with it because they're what people use to buy houses

 

[Bill M]

Salarie have everything to do with it because they're what people use to buy houses

Well magoo how about saying something about property then, you made no mention of it. I thought I was on the "How to find a job that pays 75K a year" thread.

Oh yeah you are the person who said this.... nothing more needs to be said

A housing investor is no better than a drug dealer, pimp or stand over man.

 

[Smurf1976]

What has job seeking and salaries got to do with the future of Australian property prices?

It's not direct, due to the influence of interest rates, demographics etc but there's a definite link between incomes and property prices.

At the extreme, if incomes went nowhere for the next 20 years then that's not conducive to property price growth since few could afford to pay double current house prices on today's incomes. So there's a link, albeit not a direct one.

If unemployment were to rise significantly, or if interest rates, income tax rates or essential living costs (food, transport, power etc) greatly increased then we could see rather a lot of people unable to afford their current mortgages.

Income tax? It's not something we've seen in recent times but given the state of government finances I wouldn't rule out a rise in tax rates at some point. It could happen and in the absence of corresponding wage growth it's effectively a cut in take home pay for the average worker.

 

[sptrawler]

What has job seeking and salaries got to do with the future of Australian property prices? You might want to start a new thread on that.

I personaly think it has a lot to with property prices.
Over the last 20 years wage inflation and the tax breaks afforded to property investment, has resulted in a rapid rise in both.

Now we find ourselves in a low inflation period, with resultant low wage increases. This limits the amount of money people can pay in rent and borrow to purchase.

The people such as yourself, who can afford to pay excessive prices will reduce and the market will contract.IMO

Also the idea that a tax break of $14b a year being sustainable, is questionable. Especially when the Government is saying the age of entitlement is over. Very hard to justify.IMO

Time will tell.

 

[Mrmagoo]

I think it is obvious.... when youngsters today can't easily make a 75k a year coin... who is going buy all of these overpriced properties ?

I tell you this much. I can pay $160 a week to live in someone else's house or I can pay sometimes $75 a week or more in fees alone plus roughly 1.2 time the rent in just interest payments.

So to buy a place for say... 350k I'd be looking at a minimum $21,400 before even touching the principal then you've got LMI and stamp duty.

I don't know who is buying these houses, but it certainly aint people working for a wage !

Once the liberals crush the union cartels tradies on 120k a year will be few and far between. Interesting times ahead.

 

[Mrmagoo]

Oh yeah you are the person who said this.... nothing more needs to be said

I think it is a perfectly fair quote. Both make money off of the suffering of others and from making society a much worse place.

 

[ftw129]

I think it is a perfectly fair quote. Both make money off of the suffering of others and from making society a much worse place.

So MrMagoo,

We can take that as your declaration, that you will not be investing in property. Even if the "predicted" housing crash happens.

I also wonder if your good conscience, stops you from buying imported goods from 3rd world countries, such as the clothes you're wearing and the appliances you use in your $165 per week rental.

You know, human suffering and all?

How else do you contribute to making the world a better place? You could even enlighten us on what stocks you buy. I'm sure they're all focused on healing the world too.

C'mon enlighten us and share the love.

 

[Mrmagoo]

So MrMagoo,

We can take that as your declaration, that you will not be investing in property. Even if the "predicted" housing crash happens.

I also wonder if your good conscience, stops you from buying imported goods from 3rd world countries, such as the clothes you're wearing and the appliances you use in your $165 per week rental.

You know, human suffering and all?

How else do you contribute to making the world a better place? You could even enlighten us on what stocks you buy. I'm sure they're all focused on healing the world too.

C'mon enlighten us and share the love.

I don't care about people from other countries. You need to understand. I cannot just go and work and live there. This where I can work and live so this is where I care. Most Australians don't understand that. This is our home. It is our only home so we need to take care of it.

I would never invest in ANYTHING I saw as harming the long term prosperity of Australia.

 

[trainspotter]

I think it is a perfectly fair quote. Both make money off of the suffering of others and from making society a much worse place.

Cry me a river What utter BS I have ever read in my entire life. Try working for a living and start at the bottom. The sheer arrogance of asking for 75k per annum straight off the bat is exactly what is wrong with the Australian society right now. Waaaaaahhhhhh like a spoiled kid with not enough toys to play with. Try living in another country with poverty and NO government handouts to assist you just to put food in your belly. No jobs either, so be thankful you are employed and paying rent.

There will always be people who rent, ERGO there will always be people who invest in property. How about this for a scenario:- No investors who own property then tell me where are you going to rent/live then? In the street under a bit of cardboard? Now that is suffering. No wait ..... this is already happening in many countries in the world. Go to Lisbon and get hit upon by beggars at least 20 times a day asking for 1 Euro and they all sleep in the park and huddle together to keep warm. Go to Surabaya and look at how 60 Javanese can live in a hut no bigger than 120m2 and live on $4 a day. Now that is suffering.

You acquaint drug dealers to property investors so thusly you are suffering because you are renting and society is a much worse place? So the roof over your head which is owned by a property investor is causing you such grief in your life why don't you move out? Or would that make society a much worse place to see you and your bit of cardboard looking for a park to sleep in?

RANT OVER


Statement by Glenn Stevens, Governor: Monetary Policy Decision

At its meeting today, the Board decided to leave the cash rate unchanged at 2.5 per cent.
Since the Board's previous meeting, information on the global economy has been consistent with growth having been a bit below trend in 2013, but with reasonable prospects of a pick-up this year. The United States economy continues its expansion and the euro area has begun a recovery from recession, albeit a fragile one. Japan has recorded a significant pick-up in growth, while China's growth remains in line with policymakers' objectives. Commodity prices have declined from their peaks but in historical terms remain high.
The Federal Reserve has begun the process of curtailing stimulus measures but financial conditions overall remain very accommodative. Long-term interest rates and most risk spreads remain low. Equity and credit markets remain able to provide adequate funding, but for some emerging market countries conditions are considerably more challenging than they were a year ago.
In Australia, information becoming available over the summer suggests slightly firmer consumer demand and foreshadows a solid expansion in housing construction. Some indicators of business conditions and confidence have shown improvement. At the same time, with resources sector investment spending set to decline significantly, considerable structural change occurring and lingering uncertainty in some areas of the business community, near-term prospects for business investment remain subdued. The demand for labour has remained weak and, as a result, the rate of unemployment has continued to edge higher. Growth in wages has declined noticeably.
Inflation in the December quarter was higher than expected. This may be explained in part by faster than anticipated pass-through of the lower exchange rate, though domestic prices also continued to rise at a solid pace, despite slower growth in labour costs. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time.
Monetary policy remains accommodative. Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments. Credit growth remains low overall but is picking up gradually for households. Dwelling prices have increased further over the past several months. The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy.
Looking ahead, the Bank expects growth to remain below trend for a time yet and unemployment to rise further before it peaks. Beyond the short term, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate. Inflation is expected to be somewhat higher than forecast three months ago, but still consistent with the 2–3 per cent target over the next two years.
In the Board's judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates.

http://www.rba.gov.au/media-releases/2014/mr-14-01.html

So there you have it folks ....... steady as she goes skipper

 

[Smurf1976]

It is certainly a lot harder for a young person to buy a house today than it used to be and fundamentally that comes down to house prices being higher, relative to wages, than used to be the case.

In the past it was fairly straightforward. Get a job, save a deposit, buy a house and start paying the mortgages. With relatively high inflation your income would increase within a few years to the point where the mortgage becomes a relatively minor expense. It's all fairly easy when inflation erodes the real value of the debt.

Today, house prices are roughly double what they used to be relative to wages and that's a massive problem. There is also much lower inflation, meaning that you actually have to repay the debt rather than seeing your income rise rapidly thus eroding its' real value. And of course it is much harder these days to get ongoing, secure employment too.

I own my house outright but I don't doubt for a minute that it is very much harder now for someone in their mid-20's trying to buy their first home. Gone are the days when simply paying 3 times their annual wage / salary bought a modest house and when strong wages growth soon enabled moving to a better house. It's much, much harder now.

Also, there is limited option these days to earn higher income through harder work. The decline of manufacturing means that for most tradies and manual workers it is no longer a matter of simply choosing to do shift work + overtime for a few years and pay off the mortgage. You can't just turn up at the office of a large factory these days and expect to be given a job on good wages. And if you go down the uni route well then you've got a HECS debt and you're still stuck with the problem, in most professions, of relatively slow income growth in the years ahead.

In short, house prices are simply too high relative to wages and that transfers wealth from one generation to another. And so far as inter-generational conflict is concerned, it's a reality that it's Boomers, not gen Y, who made the decisions which brought us to this point. How many Gen Y's were on the boards of companies who moved manufacturing offshore? How many Gen Y's were part of the governments who privatised just about everything? Not one single Gen Y had any say in the matter due to age at the time and yet they are the ones stuck with the consequences so it's easy to understand some anger.

Solutions? Removing the barriers to land development would see a surge in supply and a fall in prices. I suggest a hefty tax on the holding of residential zoned land that is not either developed or actively in the process of being developed for housing. That ought to fix the problem there and then. Buying up huge amounts of land then sitting on it is doing nothing other than creating an artificial shortage and driving up prices.

Another problem is the ridiculous amount of red tape which stands in the way of housing construction. Each individual item might seem minor, but collectively there's a huge barrier to actually building anything these days. The various taxes are another problem too.

Another issue is the charges for water, sewage, power etc connection. In the past they were paid by the whole of society whereas today they are paid at the time of land development. Whilst I can see the point that it is fair to charge at the time of development, it is equally unfair that one generation had a free ride and another doesn't. There needs to be a compromise on this one.

Whilst there is a shortage of land in the inner city areas of Sydney and Melbourne, that certainly isn't the case in places like Adelaide, Canberra, Darwin, regional towns or the entire state of Tasmania. Something is seriously wrong when a house in a small town in Tas ends up costing $350K. Very wrong indeed as the intrinsic value of the land itself is close to zero in such places.

 

[Smurf1976]

Cry me a river What utter BS I have ever read in my entire life. Try working for a living and start at the bottom. The sheer arrogance of asking for 75k per annum straight off the bat is exactly what is wrong with the Australian society right now. Waaaaaahhhhhh like a spoiled kid with not enough toys to play with.

Trouble is, the Boomers actually did get this once you adjust for inflation and there's the problem. You can't blame today's young people for wanting the exact same deal the previous generations had, especially given that it's the older generation they have to hand the money to in order to buy their houses anyway.

The Boomer generation really seems to struggle to understand just how good they had it. House prices today, relative to wages, are literally DOUBLE what they paid and that's the problem.

 

[Mrmagoo]

Crazy old people that no longer work for a living are usually not very good at understanding what working for a living actually means.

They'll just spout mean spirited pointless nonsense. Best ignore them.

I stand by what I said it is incredibly difficult to get a 75k a year salary and that won't get you into an entry level property :

<que fictional boomer math on affordability>

 

[Mrmagoo]

Trouble is, the Boomers actually did get this once you adjust for inflation and there's the problem. You can't blame today's young people for wanting the exact same deal the previous generations had, especially given that it's the older generation they have to hand the money to in order to buy their houses anyway.

The Boomer generation really seems to struggle to understand just how good they had it. House prices today, relative to wages, are literally DOUBLE what they paid and that's the problem.

Look you might as well triple or quadruple it.

In many situations the living conditions are this :

Wages have halved and the house prices have doubled.

Once you factor in the cost of living, renting and other assorted expenses the wage of many workers for house buying purposes is essentially zero. They can't save a deposit fast enough and they can't get enough surplus income to save for investments because of the cost of living.

These are not unskilled workers either.

Even if you do save 10 or 20 grand ? Big deal. It is still not big enough for a deposit. Prices have already risen by more than that anyway.

 

[Smurf1976]

I stand by what I said it is incredibly difficult to get a 75k a year salary

In a profession it will happen but not straight away. 4 years of uni, then a graduate position. Eventually you'll get there in most professions but not quickly.

For trades and manual workers it's nowhere as easy as it once was. Considering it locally around here, in the past you could always just get a job at EZ, ANM etc, put your hand up for overtime and add the annual bonus to that and Bingo! There's your house. An awful lot of people did just that, then went to work somewhere easier (that is, without the requirement for shift work) once the kids were in school and the mortgage was paid off.

That doesn't work today however, those places are swamped with applicants whenever there's a vacancy and they sure aren't handing out heaps of overtime and bonuses as was once the case. It's no longer a case that anyone can earn a solid income simply by putting in some effort. With the general decline of manufacturing, there's been a huge loss of higher wage, stable jobs and their replacement with lower paying, less secure work in service industries with far fewer opportunities for career advancement or even simply working longer hours.

 

[sptrawler]

Look you might as well triple or quadruple it.

In many situations the living conditions are this :

Wages have halved and the house prices have doubled.

Once you factor in the cost of living, renting and other assorted expenses the wage of many workers for house buying purposes is essentially zero. They can't save a deposit fast enough and they can't get enough surplus income to save for investments because of the cost of living.

These are not unskilled workers either.

Even if you do save 10 or 20 grand ? Big deal. It is still not big enough for a deposit. Prices have already risen by more than that anyway.

Yes things have changed a lot, especially regarding the relative cost of a house.
In the early 1990's the two big costs to consumers were a house and a car.
Generally a car was a years salary and a house was three years salary (talking bread and butter car v bread and butter house)

Well the Basic Commodore, back then was $25k and had nowhere near the equipment, of the new Commodores.
Yet the new Commodore can be bought for mid $30k.
http://www.mynrma.com.au/motoring/reviews/car-reviews/holden/commodore-vr.htm

Back then in Perth, the 'bread and butter' houses $100k, now they are $450-$500K.

So in real terms, it is only house price growth, that has far outstripped wage growth.
To feel the problem can't be solved, is very foolish.
One just has to ask the questions, what is supporting it and how long is that support needed.