The future of Australian property prices

[banco]

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.

I think there are a lot more 'naive' speculators among property investors. We are not talking doctors with margin loan accounts who lose when the stock market goes into a bear market. We are talking people on $70,000-$80,000 who aren't going to take a loss lightly.

 

[sydboy007]

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.

In the prime areas of the capital cities that may be true, but then take a walk to say Oxford St, or King St Newtown in Sydney and wander past the many vacancies. I'm sure other capitals have similar once popular shopping areas now nearly deserted.

As for having no effect, the fact we're paying far higher prices for the goods provided by the foreign retailers is a pretty important one I'd think. Very high rents are probably not the sole reason, but an important one. Add in the fact that Australian management of a lot of retail companies is shockingly bad and I'm quite surprised the foreign invasion has taken so long. Will be interesting to see how DJs is performing in 2016 under new management. Wonder how long it will be before myer is taken over too.

 

[sydboy007]

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.

The only way the current Govt will be able to make any changes to NG is if they grandfather the current situation.

I don't have any problem with that.

The rumours are still vague so not sure if they will still allow NG against other income or if it will be capitalised onto the cost base and reduce CGT on sale (my preferred way forward).

Eitherway, there should be reduced demand from specuvestors on established properties, and hopefully with an increase in FHBs that will mean any newly built apartments will have to be a bit better than the crap being churned out at present otherwise it's going to be hard to rent out.

Another NG change could be to only allow it for say 80% of the purchase price. Probably easier than getting the RBA to bring in MP via higher risk weightings for > 80% LVR

 

[banco]

I'll be shocked if they do anything about negative gearing. I think the overlap between property investors and liberal voters would be very high.

 

[sptrawler]

I'll be shocked if they do anything about negative gearing. I think the overlap between property investors and liberal voters would be very high.

Your quotes seem to be contadictory, on one hand you are saying it is mainly lower income earners($70 - $80k)that will be hurt. Then you say the majority are Liberal voters.
Negative gearing when you are on $70-$80k is hardly worth it, as your marginal tax rate is so low, you only recover a small percentage of your losses.
The bottom line is, the government and it doesn't matter which party, is supporting NG to supply rental accomodation.
Once it costs more than it saves, and that is not only in a fiscal sense, they will jump on it.

 

[sptrawler]

The only way the current Govt will be able to make any changes to NG is if they grandfather the current situation.

I don't have any problem with that.

The rumours are still vague so not sure if they will still allow NG against other income or if it will be capitalised onto the cost base and reduce CGT on sale (my preferred way forward).

Eitherway, there should be reduced demand from specuvestors on established properties, and hopefully with an increase in FHBs that will mean any newly built apartments will have to be a bit better than the crap being churned out at present otherwise it's going to be hard to rent out.

Another NG change could be to only allow it for say 80% of the purchase price. Probably easier than getting the RBA to bring in MP via higher risk weightings for > 80% LVR

That is what I have read also.
Another one they could do is say that all NG losses can only be offset upto the value of the rental income, any further losses have to be capitalised.

 

[banco]

Your quotes seem to be contadictory, on one hand you are saying it is mainly lower income earners($70 - $80k)that will be hurt. Then you say the majority are Liberal voters.
Negative gearing when you are on $70-$80k is hardly worth it, as your marginal tax rate is so low, you only recover a small percentage of your losses.
The bottom line is, the government and it doesn't matter which party, is supporting NG to supply rental accomodation.
Once it costs more than it saves, and that is not only in a fiscal sense, they will jump on it.

No I'm saying that that most negatlively geared property investors are earning average wages and they aren't going to take the loss of NG on the chin. Negative gearing on an average wage may not be worth it but a lot of people still do it:

http://blog.rpdata.com/2013/05/ther...ared-property-over-the-201011-financial-year/

According to the above data there were over a million individuals who are NG and I'd still suggest that a high proportion of them (including the average income aspirational voters) are liberal voters.

 

[sptrawler]

No I'm saying that that most negatlively geared property investors are earning average wages and they aren't going to take the loss of NG on the chin. Negative gearing on an average wage may not be worth it but a lot of people still do it:

http://blog.rpdata.com/2013/05/ther...ared-property-over-the-201011-financial-year/

According to the above data there were over a million individuals who are NG and I'd still suggest that a high proportion of them (including the average income aspirational voters) are liberal voters.

Fair enough, who knows, it will be interesting to see what happens when the 'powers that be' are over the housing boom.
When it has served its purpose, it will be just another boom that has run its course.
At the moment it is the only sector that Government and RBA can control, that can keep unemployment down, without using Government money.
Bit of a double edged sword, though, because house prices put upward pressure on wage claims.

 

[McLovin]

In the prime areas of the capital cities that may be true, but then take a walk to say Oxford St, or King St Newtown in Sydney and wander past the many vacancies. I'm sure other capitals have similar once popular shopping areas now nearly deserted.

As for having no effect, the fact we're paying far higher prices for the goods provided by the foreign retailers is a pretty important one I'd think. Very high rents are probably not the sole reason, but an important one. Add in the fact that Australian management of a lot of retail companies is shockingly bad and I'm quite surprised the foreign invasion has taken so long. Will be interesting to see how DJs is performing in 2016 under new management. Wonder how long it will be before myer is taken over too.

I live 100m from Oxford St, Paddington, so I'm pretty aware of its problems. The problem isn't that the rent is too high (although it was very high) it's that it no longer has the foot traffic to support the rent. It's been sandwiched between two massive upmarket Westfields.

There are obviously people willing to pay the far higher prices because everytime I go into Westfield Bondi Junction it's packed. Commercial land prices are driven by cap rates. Cap rates are driven by what tennants are willing to bear. Unlike residential, commercial is not priced at how much borrowing capacity the buyer has.

 

[trainspotter]

I'll be shocked if they do anything about negative gearing. I think the overlap between property investors and liberal voters would be very high.

So in your theory Liberalism = Capitalism? vice versa does Laborism = Socialism?

I think it doesn't matter a fat rats clacker what political lien you have when it comes to investing in property.

 

[sydboy007]

Rumour is Triguboff has received an offer for Meriton and is considering selling up to half the company to a Chinese investor.

Maybe the new co owners will help to improve the quality of the apartments???

 

[medicowallet]

I wait in anticipation for the budget.

I expect that any middle class welfare cutback will dampen the housing market by not giving access to the geared amount serviceable by the funding given by the govt

More affordable housing would be great for the current generation and perhaps this will be another catalyst

 

[CanOz]

Well, we signed the contract on our first IP last night, hopefully the vendor signs today and in 30 days we'll own a two bedroom unit and a studio in the same complex, yielding 4.5% net....at normal vacancy.

Onto the next one! Thanks TS as well for getting us started

 

[Bill M]

Well, we signed the contract on our first IP last night, hopefully the vendor signs today and in 30 days we'll own a two bedroom unit and a studio in the same complex, yielding 4.5% net....at normal vacancy.

Onto the next one! Thanks TS as well for getting us started

Where did you buy CanOz? Any more details you might like to share? My agent has been calling me asking if I want to sell. My unit has jumped from 420k (valued in 2012) to 490k ish in 2 years. I am seriously thinking of selling but am hanging off as I have some pending travel coming up. Well done on the purchase!

 

[CanOz]

Where did you buy CanOz? Any more details you might like to share? My agent has been calling me asking if I want to sell. My unit has jumped from 420k (valued in 2012) to 490k ish in 2 years. I am seriously thinking of selling but am hanging off as I have some pending travel coming up. Well done on the purchase!

We bought in Brisbane, within 10km of the CBD. Love the weather here! It's raining in Sydney today....off to see the swans play the lions tonight at the gabba!

 

[Bill M]

We bought in Brisbane, within 10km of the CBD. Love the weather here! It's raining in Sydney today....off to see the swans play the lions tonight at the gabba!

Good stuff, good location, enjoy the game.

 

[CanOz]

Good stuff, good location, enjoy the game.

Thanks Bill, we just got the news that the vendors signed the contracts, so happy about that. We used a buyers agent this time as we were not familiar with QLD. I will post some info on them later when we get back to China but suffice it to say they were worth every penny and they did a great job finding properties for us and crunching the numbers with great detail. We also were able to pick thier brains and learn as much as possible from them...

I mentioned the central coast to him and he suggested that if the agents were calling you they must be getting short on stock to sell

Good luck if you do sell Bill!

 

[trainspotter]

Congrats CanOz ... Welcome to the property circus. It would appear that you have done your due diligence and have purchased after much consideration of the pros and cons of the real estate world.

 

[CanOz]

Congrats CanOz ... Welcome to the property circus. It would appear that you have done your due diligence and have purchased after much consideration of the pros and cons of the real estate world.

Yeah this was a great eye opener, plus we got to see two of Australia's awesome cities, the first time for me...now off to the Gold Coast tomorrow!

 

[Quincy]

Congrats CanOz ... Welcome to the property circus. It would appear that you have done your due diligence and have purchased after much consideration of the pros and cons of the real estate world.

The talk in the media over the past month or so has been about the Brisbane market being the next one to take off due to Sydney / Melbourne pretty now reaching saturation point for affordability for the "main-stream" investor.

Brisbane being cheaper (more affordable) than SYD / MEL is an obvious location for consideration.

Good luck ! Hold for another 5 to 7 years and you will double your money . . . . and so on ad infinitum.

Look out for those Black Swans however. Reports are there are few nesting around the Port of Brisbane - however Brisbane City Council is trying its best to eliminate any possibility of these black swans from remaining in the local area.

http://www.brisbanetimes.com.au/environment/battle-to-save-brisbanes-swan-lake-20131024-2w4na.html