The future of Australian property prices

[Junior]

There are two orders of wealth in this context are there not?

1. Investors with somewhere from a house + $100K of other assets through to a few $ million or small business owners.

Yes, I'm not defending the top 0.1%, I'm defending the top 20%, this group already pay the vast majority of tax in this country and create the vast majority of jobs. This group will take a further hit from the proposed tax changes, and there will be consequences for all of us.

I hope the extra tax revenue is spent wisely, but history shows this is rarely the case.

 

[sptrawler]

Yes, I'm not defending the top 0.1%, I'm defending the top 20%, this group already pay the vast majority of tax in this country and create the vast majority of jobs. This group will take a further hit from the proposed tax changes, and there will be consequences for all of us.

I hope the extra tax revenue is spent wisely, but history shows this is rarely the case.

Labor want everyone except themselves and their cronies, on welfare, much easier to control the poor just use My Gov.
The hardest thing to control in an economy, is affluent workers.

 

[basilio]

I suggest there will be major new impact on the housing market in the next few months.

The issue of dangerous/non compliant cladding has just been dramatically expanded. And it won't be good news for recent home and apartment buyers.

Cladding crisis spreads into the suburbs as nine more materials are classed as non-compliant
By James Oaten
Updated 43 minutes ago

Photo: The latest cladding ban could affect many family homes. (ABC News)
Related Story: When your home is a fire risk but you can’t afford to fix it
Related Story: Melbourne apartment buildings to be re-checked for flammable cladding in wake of tower fire
Thousands more homeowners could now find themselves caught up in Australia's cladding crisis, after authorities issued an alert banning the use of another nine types of cladding.

Key points:

• The withdrawn cladding systems are commonly used on one and two-storey buildings
• Previously, combustible cladding issues have been largely restricted to buildings above three storeys
• The Australian Institute of Building Surveyors has issued urgent advice to builders

The alert affects an unknown number of dwellings, including single-storey family homes, which had previously been largely unaffected but are now not compliant with building codes.

Until now, most of the concern relating to non-compliant cladding was focused on flammable material used primarily on medium and high-rise buildings.

The decision, by Australia's leading building product accreditation agency, to withdraw support for the cladding materials has left industry experts stunned and residents potentially facing massive rectification costs.
https://www.abc.net.au/news/2019-02-21/cladding-crisis-spreads-to-suburbs-materials-banned/10832164

 

[moXJO]

House next to me sold last week $870k
Asking $890-990.

 

[satanoperca]

As I have mentioned before, the real declines will not start until the apartment sectors starts to show rapid declines. I am expecting in the Melb/Syd apartments markets to fall at least 15% this year. The momentum is starting to gather place, with tighter restrictions on lending, Chinese leaving the sicking boat and global growth stalling, the apartment market is the one to watch. 2 Bedroom apartments $800K + is not normal.

Also note, property prices are based on massive leverage, while it is hard to loose $150K of your own money, it is even hardier to loose the same amount and still owe it to someone else.

 

[basilio]

I think apartments will come under immense pressure in 2019

1) Settlements will start to fall due and it will be clear that settlement price is out of line with current market price. As a result banks won't provide sufficient finance and/or buyers will cut their losses and renege.
2) There is a multitude of problems with cladding across new and recently built dwellings.This will throw a scare across many potential buyers and make sellers even more vulnerable.
3) The new sets of apartments being built will have almost impossible financial figures to achieve. They will be on expensive land with price projections beyond current market capacity to pay. They will have to be built far more carefully (despite the cost consideration) to avoid the cladding issues and poor workmanship that has trashed the Opal construction. And then they have to compete in a market that will see many other apartments selling at substantially reduced prices. Could get very ugly.

On the other hand I could see a creative State/Federal government offering to take these apartments as cheap housing. Would be a clever way to prop up the market and create public housing at a price that would normally be impossible. The developers might at least get away even.

 

[sptrawler]

Wait until the negative gearing rules are changed, so that existing appartments cant be geared, and investors leave the market.
That will leave only buyers who want to live in an appartment, then we will see a real fall in value.

 

[satanoperca]

Wait until the negative gearing rules are changed, so that existing appartments cant be geared, and investors leave the market.
That will leave only buyers who want to live in an appartment, then we will see a real fall in value.

No, we will see the true value of a "home" regardless if it is a house or apartment.

Negative gearing does not add to the supply, this has been proven over and over again. 90% of investors buy established properties. Just think if resources/investments are moved away from the established property market, they move into shares, increasing share prices and offsetting you soon to be lost franking credits, lol.

 

[sptrawler]

Its a bit sad but I think you will probably be proven right.lol

 

[Humid]

Wait until the negative gearing rules are changed, so that existing appartments cant be geared, and investors leave the market.
That will leave only buyers who want to live in an appartment, then we will see a real fall in value.

So your expecting a big run on before the election?

 

[sptrawler]

So your expecting a big run on before the election?

I'm expecting a reduction in buyers of established homes, when the new rules come in, which in turn should put downward pressure on prices.

 

[Humid]

I'm expecting a reduction in buyers of established homes, when the new rules come in, which in turn should put downward pressure on prices.

After the Opal fiasco the lame current government falling prices zero wage growth
Who would invest in one now
But in a years time you'll conveniently forget that and blame labors policy changes. ........hang on you already have
Lol

 

[sptrawler]

After the Opal fiasco the lame current government falling prices zero wage growth
Who would invest in one now
But in a years time you'll conveniently forget that and blame labors policy changes. ........hang on you already have
Lol

I don't disagree with you, but are you trying to say that removing investors from that market, wont have an effect. Oh of course not. lol

 

[basilio]

Once-upon-a-time an investor in property expected a gross 5% rent yield and a small steady capital gain on the property.

There was also the realisation that as long as there was a worthwhile land component there was every likelihood the underlying value of the asset would appreciate.

However since property has become a get-rich-quick scheme the emphasis has been on
1) Expecting capital gains to be steep and spectacular
2) Living with yields own to 1-2 maybe 3%
3) Encouraging foreign nationals to buy often at any price.
4) Expecting to negatively gear the property against other income to save tax
5) Using creative accountancy to achieve the maximum negative gearing.

This model only works when sufficient people chase properties and banks offer 100% credit to anyone with a pulse.

We know that has all changed now. Lending criteria are are more stringent. Property prices are falling destroying the equity of many recent buyers.
Perhaps more significantly IMV , is that most of the recent development has been in apartments . The real risks of poor quality construction are now apparent. The pain for owners and investors in correcting these problems will be immense.
Finally there is minimal land value in an apartment. If in 40 years time the units become unviable because of poor construction the individual value of the flats could be disappointingly small.
We know that new apartments almost always sell at a premium to older stock. That means that the new $600k apartment today will be worth maybe $500k next year. And after that ?

 

[moXJO]

Once-upon-a-time an investor in property expected a gross 5% rent yield and a small steady capital gain on the property.

There was also the realisation that as long as there was a worthwhile land component there was every likelihood the underlying value of the asset would appreciate.

However since property has become a get-rich-quick scheme the emphasis has been on
1) Expecting capital gains to be steep and spectacular
2) Living with yields own to 1-2 maybe 3%
3) Encouraging foreign nationals to buy often at any price.
4) Expecting to negatively gear the property against other income to save tax
5) Using creative accountancy to achieve the maximum negative gearing.

This model only works when sufficient people chase properties and banks offer 100% credit to anyone with a pulse.

We know that has all changed now. Lending criteria are are more stringent. Property prices are falling destroying the equity of many recent buyers.
Perhaps more significantly IMV , is that most of the recent development has been in apartments . The real risks of poor quality construction are now apparent. The pain for owners and investors in correcting these problems will be immense.
Finally there is minimal land value in an apartment. If in 40 years time the units become unviable because of poor construction the individual value of the flats could be disappointingly small.
We know that new apartments almost always sell at a premium to older stock. That means that the new $600k apartment today will be worth maybe $500k next year. And after that ?

This is just top of the property clock stuff. Its not new, its happened before and will happen again.
People forget all that Japanese investment back in the 80s. Couple of "white elephants" round coffs way.

We could crash hard if we get retarded policy.

They can still up immigration to intervene.
Easy foreign buying restrictions.
Relax lending.

Too many things the government could do to keep things afloat.
For now I think they have got it right. Lock up credit a bit and let the market simmer down.

 

[sptrawler]

It is just the same ending as most bubbles, they pop, at the moment the deflation is calm and slow.
It will be interesting to see, if it continues on that path.

 

[Humid]

This is just top of the property clock stuff. Its not new, its happened before and will happen again.
People forget all that Japanese investment back in the 80s. Couple of "white elephants" round coffs way.

We could crash hard if we get retarded policy.

They can still up immigration to intervene.
Easy foreign buying restrictions.
Relax lending.

Too many things the government could do to keep things afloat.
For now I think they have got it right. Lock up credit a bit and let the market simmer down.

Not sure if it happened before on the scale I just witnessed in WA

 

[sptrawler]

Not sure if it happened before on the scale I just witnessed in WA

You are spot on there humid, W.A in a lot of areas are back to pre mining boom values.
The thing I find interesting is, people still aren't buying, yet wages to house price ratios are the best they have been in 25 years. IMO
I think a lot of the issue is, the current generation are seeing that the doing without and scrimping by their parents, has in reality got them no where.
So the current generation are just spending it as they earn it, which in hindsight isn't a bad idea. IMO
There has never been a generation that travels like this generation, weekends in Bali etc, good on them I really think enjoy it while you can.
The fall out this time, is going to be massive IMO, time will tell.

 

[moXJO]

Not sure if it happened before on the scale I just witnessed in WA

90s hit hard recession wiped a lot out. Surfer's, noosa from memory were smashed pretty bad. Along with a lot of mid north coast.

Things can get a lot worse from here. But even the crash in 87 before that. I was only a kid but I always remember walking into a mates garage and finding his dad swinging from the rafter.

He was a tradie that lost the lot, a friend of the family. All I remember from that time was guys necking themselves. And no jobs.

Things can get really bad if the government doesn’t intervene in the right areas.

 

[satanoperca]

You are spot on there humid, W.A in a lot of areas are back to pre mining boom values.
The thing I find interesting is, people still aren't buying, yet wages to house price ratios are the best they have been in 25 years. IMO
I think a lot of the issue is, the current generation are seeing that the doing without and scrimping by their parents, has in reality got them no where.
So the current generation are just spending it as they earn it, which in hindsight isn't a bad idea. IMO
There has never been a generation that travels like this generation, weekends in Bali etc, good on them I really think enjoy it while you can.
The fall out this time, is going to be massive IMO, time will tell.

While I agree with your comments, need to put some more perspective into it:
Generation 20-40 year olds
Growing up, "You can be anything you want. You just have to work hard."
Taught during school, there are only winners and no losers, you are all winners.
Reality : Studied hard, went to uni, got saddled with massive debts, went into the work place, globalization has reduced real incomes in a lot of professions, jobs where hard to find, let alone well paying ones, unless your a mate of old Joe, best treasure in the world Hocking.
Want to buy a house, so far out of reach for the average you person, becomes very hard but not impossible.
Result, why save, spend what I earn and enjoy life as we told lies. You cannot be anything you want regardless of how hard you work, it is almost impossible to buy a home and job opportunities are hard to find, there are winners and losers, even more so with casualisation, and I still have to pay the uni debt off that other generations did not have to.

This is why we see young people not able to take on criticism in the work place, want a pay rise and promotion every 6 months etc