The future of Australian property prices

[sydboy007]

What about the small issue of servicing the debt?

mm. The banks don't consider it to be too much of an issue, the Genworth IPO (LMI monline) coming out somewhere around book value seems to indicate investors don't see it as an issue, APRA is still letting the gang of 4 game the system by fudging their internal models for capital adequacy so not an issue there, RBA still has interest rates at historic lows and arguing against MP so no problem there either.

Seems there's no debt servicing issue, just moral hazard bubbling away for the mother of all bank bailouts.

 

[satanoperca]

The only way to get spending levels back to what they were to fuel growth (not saying that's a good idea, but hey, this is the economic system dependant on perpetual growth) we need HOME prices to increase and provide the wealth effect.

Yes, continuing inflation of property prices will provide sustainable spending levels. lol

How about people create something other than buying into this myth. All going to end badly.

Cheers

 

[kid hustlr]

market top?

http://www.smh.com.au/entertainment/tv-and-radio/the-block-winners-chantelle-ford-and-steve-odonnell-pocket-736000-20140409-36dgp.html

 

[sydboy007]

market top?

http://www.smh.com.au/entertainment/tv-and-radio/the-block-winners-chantelle-ford-and-steve-odonnell-pocket-736000-20140409-36dgp.html

There's 65 million Chinese loking to buy overseas property. How can there be a top

It's the new growth engine for the Australian economy. Construct substandard chicken coup apartments, sell them to foreign investors who leave them empty and keep the pressure on the locals via higher land prices. A real boon to the RBA and Government, massive productivity killer though

 

[CanOz]

There's 65 million Chinese loking to buy overseas property. How can there be a top

It's the new growth engine for the Australian economy. Construct substandard chicken coup apartments, sell them to foreign investors who leave them empty and keep the pressure on the locals via higher land prices. A real boon to the RBA and Government, massive productivity killer though

Yup, and count us in too!

 

[sydboy007]

2 graphs that sum up why NG needs to be changed. 95% of specuvestors buying pre-existing properties and there's been pretty much no growth over nearly 2 decades in new dwelling investment by specuvestors.

 

[CanOz]

There are still allot of property investors that are not NG'd. If you want to engineer a property crash, possibly throwing the economy into a recession, then go ahead and make hasty changes to a key part of the economy...

Whatever they do, they need to do some careful unbiased research first.

 

[Wysiwyg]

2 graphs that sum up why NG needs to be changed. 95% of specuvestors buying pre-existing properties and there's been pretty much no growth over nearly 2 decades in new dwelling investment by specuvestors.

Reason 1) New properties are out of town, further from established schools, shops, hospitals etc.
Reason 2) New properties are marked up in price so all involved make a profit from land developer through to real estate salesperson.

 

[banco]

Reason 1) New properties are out of town, further from established schools, shops, hospitals etc.
Reason 2) New properties are marked up in price so all involved make a profit from land developer through to real estate salesperson.

Neither of which negates the fact that one of the defences for NG (encourages more building) used by the used car salesmen doesn't hold up.

 

[FxTrader]

Reason 1) New properties are out of town, further from established schools, shops, hospitals etc.

True in general, and for this we can thank planning and zoning restrictions and the "not in my neighbourhood" attitude to higher density development.

Reason 2) New properties are marked up in price so all involved make a profit from land developer through to real estate salesperson.

It's the land component of the price that's the culprit here thanks again to your local council and planning authorities and land banking by the large developers. Even so, investors are simply outbidding other buyers for established property in areas were captital growth or rental returns are attractive.

 

[Wysiwyg]

It's the land component of the price that's the culprit here thanks again to your local council and planning authorities and land banking by the large developers.

I was hoping someone would note that fact. Housing estates with house blocks 700sq. m. for 250 - 260k. After building, first unimproved land valuation for council rates setting comes in at 220k. Good for lower rates but someone pocketed a nice profit on the dirt.

 

[sydboy007]

True in general, and for this we can thank planning and zoning restrictions and the "not in my neighbourhood" attitude to higher density development.


It's the land component of the price that's the culprit here thanks again to your local council and planning authorities and land banking by the large developers. Even so, investors are simply outbidding other buyers for established property in areas were captital growth or rental returns are attractive.

Pretty much all the increase in housing prices is land. The value of the dwellings hasn't really changed - in theory they should fall over time due to depreciation and need to spend on renovations.

NIMBYism and extremely long times to get any development through the approval process don't help. Restricting supply while pimping investor demand gives us what we have today.

Below chart from SMH. Not sure if they mean the full purchase price or not. My last valuer general rating was $500K for approx 128sqm or $3.9K/sqm which would probably nearly double if the house was included.

Ho we're expected to be able to be globally competitive with land prices like this I don't know. Business rents are probably double or triple most of our competitors, especially in the retail space. Wages HAVE to be higher or the mortgages and rents can't be paid. It's taking longer than I ever expected, but when the crash comes it's going to be huge.

I wonder what the pain point is for a lot of the specuvestors with highly NG property? How much cash flow do they have to lose before they have to sell??? The stats say the majority of NG properties are owned by people earning less than $80K so wonder what kind of buffer the most marginal ones have, say the most fragile 10%??

 

[DB008]

I got burned (crucified) last time I said this, but l'll go out on a limb and say it again.

Get rid of NG, investors will put money elsewhere (like shares and not into building more property) = less supply, same demand (renters), prices go up. And (as usual, any) costs get passed onto renters.

Didn't they try to get rid of NG in the 80's?
What happened then?

 

[sydboy007]

I got burned (crucified) last time I said this, but l'll go out on a limb and say it again.

Get rid of NG, investors will put money elsewhere (like shares and not into building more property) = less supply, same demand (renters), prices go up. And (as usual, any) costs get passed onto renters.

Didn't they try to get rid of NG in the 80's?
What happened then?

* rental growth over the period when negative gearing was last quarantined was nothing special, with periods of higher rental growth recorded both prior to and subsequently.

* 4 major city markets had increased rental growth, 4 had falls.

Now if there's less investor demand what happens to the price growth of residential realeastate?? I'd say it will slow to turn negative. renters will be able to be come FHBs in that scenario.

Why should tax payers subsidise cheaper rents? rents can only be set to a level that renters can afford. Removal of NG does not mean rents have to rise - they might but only if the market can afford them and with low to negative real wages growth I'd say landlords will have limited ability to raise rents. Too easy for gen y and younger gen x to move back home.

If NG is for new builds only that will make it easier for FHBs to buy pre-exisiting housing as the specuvestors will not be getting a taxpayer subsidy of 30%+.

 

[DB008]

* rental growth over the period when negative gearing was last quarantined was nothing special, with periods of higher rental growth recorded both prior to and subsequently.

* 4 major city markets had increased rental growth, 4 had falls.

Now if there's less investor demand what happens to the price growth of residential realeastate?? I'd say it will slow to turn negative. renters will be able to be come FHBs in that scenario.

Why should tax payers subsidise cheaper rents? rents can only be set to a level that renters can afford. Removal of NG does not mean rents have to rise - they might but only if the market can afford them and with low to negative real wages growth I'd say landlords will have limited ability to raise rents. Too easy for gen y and younger gen x to move back home.

If NG is for new builds only that will make it easier for FHBs to buy pre-exisiting housing as the specuvestors will not be getting a taxpayer subsidy of 30%+.

I agree with your points. I have used NG in the past and will probably continue to do so in the future, if the law says I can. Why should I pay more tax for a bleeding hearts? Learn to manage your money wisely.

It seems crazy that you can book a loss, then be rewarded for it. In regards to fixing NG, it's almost in a 'too big to fail' category and when someone (Gov, Lib/ALP) goes to fix it, it will turn ugly for a period.

 

[FxTrader]

It seems crazy that you can book a loss, then be rewarded for it.

Just as the interest on a margin loan to buy shares is tax deductible, so is mortgage interest on investment property. Depreciation on plant and building allowance are allowed deductions for income producing property assets. These combine to determine whether the cash flow on a property is positive or negative. A negatively geared property investment is not necessarily cash flow negative.

Just as a capital gains are taxable, capital loss offsets future capital gain. This is part of the business of property investing, nothing crazy about any of this. The taxation system creates incentive for taking on investment risk. However, if key goals of property related taxation policy are to stimulate construction activity and create more affordable residential rental accommodation then such policy has clearly failed. Further, if such policy has the unintended consequence of contributing to the unaffordability of residential housing then it seems clear the policy must be changed.

 

[McLovin]

Ho we're expected to be able to be globally competitive with land prices like this I don't know. Business rents are probably double or triple most of our competitors, especially in the retail space. Wages HAVE to be higher or the mortgages and rents can't be paid. It's taking longer than I ever expected, but when the crash comes it's going to be huge.

Judging by the number of foreign retailers building huge new stores in Sydney and Melbourne, I'd say it's having no effect.

I think you need to read more than just MB, syd.

 

[sptrawler]

it's almost in a 'too big to fail' category and when someone (Gov, Lib/ALP) goes to fix it, it will turn ugly for a period.

To my way of thinking the Government are big winners if it fails.

From memory, the last time NG was stopped only 13% of residential property was NG, now it is near 40%.

If it is stopped what happens?

Those that are overgeared have to sell. Which should put downward pressure on prices.
Those that can afford to hold, will be more motivated to ensure it is rented. Which should put downward pressure on rents.
If it causes a collapse, there is a lot of cheap welfare housing for the Government to pick up, or the next generation of landlords. You have to remember these are suplimentary houses, not PPR.

The only real issue is the shock it would cause to the banks and the $A. But once the dust settles, the banks still hold the properties, their share price halves and the dividend dries up for a couple of years. Then the merry go round fires up again and the $A is too high anyway.

Sorry but I can't see any downside for the government, maybe you can enlighten me.

 

[banco]

To my way of thinking the Government are big winners if it fails.

From memory, the last time NG was stopped only 13% of residential property was NG, now it is near 40%.

If it is stopped what happens?

Those that are overgeared have to sell. Which should put downward pressure on prices.
Those that can afford to hold, will be more motivated to ensure it is rented. Which should put downward pressure on rents.
If it causes a collapse, there is a lot of cheap welfare housing for the Government to pick up, or the next generation of landlords. You have to remember these are suplimentary houses, not PPR.

The only real issue is the shock it would cause to the banks and the $A. But once the dust settles, the banks still hold the properties, their share price halves and the dividend dries up for a couple of years. Then the merry go round fires up again and the $A is too high anyway.

Sorry but I can't see any downside for the government, maybe you can enlighten me.

I'm for getting rid of negative gearing but it may have a flow on effect to consumer confidence in the short term. Lots of pissed off speculators who are now poorer and are less likely to spend.

 

[sptrawler]

I'm for getting rid of negative gearing but it may have a flow on effect to consumer confidence in the short term. Lots of pissed off speculators who are now poorer and are less likely to spend.

Speculators get burnt all the time, they have a sook for awhile, then before you know it they are getting a margin loan.

It may cause a minor ripple, or it may cause a surge in consumer sentiment, when people actually see house prices falling.

The losers, investors who have geared into property with a capital gain being the sole underpinning rationale.

The winners, the government, tenants and prospective home buyers.