The future of Australian property prices

[wayneL]

My gut is telling me, my lazy money in the term deposit, might be deployed into property in the next 12 months, I might be wrong but my tummy says geared up property owners strap yourselves in.

I've resisted for a long time but I am starting to warm to the idea of an Austrian crack up boom.... Not just high inflation but a crack up in the true sense.

If so it would seem to me that hard assets including property will be a good idea.... Not so sure about the relative returns but certainly in hedging sense, yes.

I'm kind of thinking some sort of productive land also... And still ruminating on exactly what shape that might be.

 

[moXJO]

Price rises with inflation must be having an affect on people's ability to pay. I have noticed everyone jacking prices up in sync. Once it reaches a point people simply stop buying.

I'm guessing all the frivolous expenditures are about to get the arse.
Gyms, nails, electronics etc. Those in turn can't make payment and it flows down the line.

 

[qldfrog]

I understand that hedging bit,if you have property it stays there and will not be eaten by inflation at 10% or more a year BUT
With labour and watermelons soon back, in a world of wokeness and universal income, do you want to own a rented unit/house?
Please look at what happens in europe or woke US states with IP to get a view at what's ahead here.
So industrial property? But you need some businesses to fill it!
Maybe ok if you have a couple of millions and buy a medical center or one with a woolies or IGA..but not your SME warehouse...
Holiday unit? When people have trouble putting food on the table,they do not splash on holidays or week ends away for the anniversary
Productive agricultural land..yes but not easy
Lastly, there is nothing more inflexible than land and RE.
And i do not even mention the nightmares of ownerships
Historically, this is what you lose in upheaval times. Wars, revolutions or just depressions due to taxation, seizure or sheer destruction.
I hope we will have a burst up as i intend to decrease exposure to RE which are too big a component of captive wealth for us.

 

[Smurf1976]

Price rises with inflation must be having an affect on people's ability to pay. I have noticed everyone jacking prices up in sync. Once it reaches a point people simply stop buying.

I'm guessing all the frivolous expenditures are about to get the arse.
Gyms, nails, electronics etc. Those in turn can't make payment and it flows down the line.

That essentially is the classic recession setup.

Essential costs rise rapidly > non-essential spending is cut > workers laid off or businesses collapse outright > down we go.

 

[sptrawler]

Price rises with inflation must be having an affect on people's ability to pay. I have noticed everyone jacking prices up in sync. Once it reaches a point people simply stop buying.

I'm guessing all the frivolous expenditures are about to get the arse.
Gyms, nails, electronics etc. Those in turn can't make payment and it flows down the line.

That essentially is the classic recession setup.

Essential costs rise rapidly > non-essential spending is cut > workers laid off or businesses collapse outright > down we go.

Both my daughters are talking about budgeting, I've never heard them say those words before.

 

[sptrawler]

I understand that hedging bit,if you have property it stays there and will not be eaten by inflation at 10% or more a year BUT
With labour and watermelons soon back, in a world of wokeness and universal income, do you want to own a rented unit/house?
Please look at what happens in europe or woke US states with IP to get a view at what's ahead here.
So industrial property? But you need some businesses to fill it!
Maybe ok if you have a couple of millions and buy a medical center or one with a woolies or IGA..but not your SME warehouse...
Holiday unit? When people have trouble putting food on the table,they do not splash on holidays or week ends away for the anniversary
Productive agricultural land..yes but not easy
Lastly, there is nothing more inflexible than land and RE.
And i do not even mention the nightmares of ownerships
Historically, this is what you lose in upheaval times. Wars, revolutions or just depressions due to taxation, seizure or sheer destruction.
I hope we will have a burst up as i intend to decrease exposure to RE which are too big a component of captive wealth for us.

I think there will be a major property bust, not boom and I think it will happen soon, interest rates up, cost of living up, statutory costs up, ability to meet the mortgage down.

 

[wayneL]

Much food for thought,. Great discussion gents.

It might sound a little bit contradictory but I am on board with both the bust and crack up boom hypotheses. It's just a matter of time frame.

But 100% agree with @qldfrog re "cash" returns on both resi and industrial. I think that those relying on those incomes will probably be taken to the woodshed.

More ruminations for me.

 

[moXJO]

Government splashing cash again is of course the great "can kicker".

 

[JohnDe]

My gut is telling me, my lazy money in the term deposit, might be deployed into property in the next 12 months, I might be wrong but my tummy says geared up property owners strap yourselves in.

The market is crazy. If governments do nothing the price could easily keep going up for years due to current circumstances. However, if the whispers going around are true and governments restrict the number of properties investors can have in their portfolio there could be a an increase of stock released.

I'm hoping for the later, I'm not greedy and have no plans to have 10+ properties

 

[wayneL]

The little things that I have in the back of my mind, which others have mentioned above, is that almost all politicians are property investors.

To me this explains why they have so aggressively propped up the property market in past crises.

Do we have any reason to believe they won't do so again?

 

[moXJO]

Well we haven't been running in immigration like we have been. So that's got to dampen the market. Watching immigration intake in the 'new world' will give a guideline. We still have overseas students to fully come back yet. That's most likely to add pressure to rentals.

 

[basilio]

I 'm still bewildered by the property market.

There are still hundreds/thousands of apartments being built and finished. Yet we have had no immigration for 2 years now . International students are still not returning in the pre covid numbers. I suspect our Chines overseas students will never return to previous levels given the political climate. The current world wide economic pressures induced by the Ukraine war is also going to affect O/s students.This will depress demand for inner city apartments as well as economic activity overall.

So where is the effective demand coming from? I can certainly see a big move to the country which is putting upward pressure on regional prices. But back in the cities I can only guess that a small section of very affluent people are driving up demand and prices. What could be happening is that this small wealthy sliver is pushing up headline prices for property and the less affluent are desperately cobbling together whatever they can to get into the market. What happens when interest rates rise by 1% (which is effectively a 50% jump on the current 2% rate) doesn't bear thinking.

Currently ordinary people are being badly squeezed by petrol prices rises and general increases in food, insurance and groceries. This can't be good news for business and banks.

Frankly I think the economic fall out from the floods, rising fuel costs and any rise in interest rates is going to be savage.

 

[JohnDe]

I 'm still bewildered by the property market.

There are still hundreds/thousands of apartments being built and finished. Yet we have had no immigration for 2 years now . International students are still not returning in the pre covid numbers. I suspect our Chines overseas students will never return to previous levels given the political climate. The current world wide economic pressures induced by the Ukraine war is also going to affect O/s students.This will depress demand for inner city apartments as well as economic activity overall.

So where is the effective demand coming from? I can certainly see a big move to the country which is putting upward pressure on regional prices. But back in the cities I can only guess that a small section of very affluent people are driving up demand and prices. What could be happening is that this small wealthy sliver is pushing up headline prices for property and the less affluent are desperately cobbling together whatever they can to get into the market. What happens when interest rates rise by 1% (which is effectively a 50% jump on the current 2% rate) doesn't bear thinking.

Currently ordinary people are being badly squeezed by petrol prices rises and general increases in food, insurance and groceries. This can't be good news for business and banks.

Frankly I think the economic fall out from the floods, rising fuel costs and any rise in interest rates is going to be savage.

Demand is coming from adult children leaving home and looking for homes with room to overcome lockdowns. There is also overseas Aussies returning home, a lot more than you think. And then there are the investors, buying up anything because they get loans easily.

Property developers own a lot of homes and land, they demolish and build slowly so as to not flood the market. Apartment blocks get built but they don't sell all the apartment's at once, they release 3 or 4 at a time to keep pricing high.

 

[moXJO]

So far there's always been something that saves the property market. Rentals round Sydney, Newcastle, Wollongong are near impossible to find. It still seems like a seller's market.

 

[TechnoCap]

Employment and affordability will drive property prices quite simply supply and demand at play. I'm a Buyers Agent and see no softening occurring in solid investable locations and they consist of strong regional markets.

 

[sptrawler]

The market is crazy. If governments do nothing the price could easily keep going up for years due to current circumstances. However, if the whispers going around are true and governments restrict the number of properties investors can have in their portfolio there could be a an increase of stock released.

I'm hoping for the later, I'm not greedy and have no plans to have 10+ properties

I would think that the easiest way to make property investment sensible, would be to only allow the interest component to offset against the income generated by the property, then the cost to the Government is minimal while still making rentals a valid financial investment. The current system is such, that the rental value of the property which is the only actual reflection of true value, is not even taken into consideration the only reason people are buying investment properties in Melb/Syd is for guaranteed capital gain.
Whereas the system is supposed to help investors carry the loan, until it becomes positively geared, which will never happen therefore the loan is speculative and the interest should only be able to be offset up to the amount of income it generates, the rest shouldn't be a deduction against other tax obligations. IMO

 

[MovingAverage]

restrict the number of properties investors can have in their portfolio

I'm still not convinced property investors amassing properties is the root cause of the recent price growth. I know people always like to blame investors, but in my inner Sydney suburb the dominate agent in the area tells me almost all sales over the past two years are going to owner occupiers.

Appreciate that my local agent does not speak to all of Australia, but certainly my area is one of those that has seen massive growth in recent years. Would love to see some data that shows property investors are the problem.

Only reason a political party would do this is because it's some easy political point scoring because everyone loves to blame property investors and negative gearing.

Just my 2 cents worth.

 

[sptrawler]

I'm still not convinced property investors amassing properties is the root cause of the recent price growth. I know people always like to blame investors, but in my inner Sydney suburb the dominate agent in the area tells me almost all sales over the past two years are going to owner occupiers.

Absolutely agree, I just think that property investment should be based on sound reasoning, which is that it shows a sensible return on capital. I think the only reason property in Syd/Melb is bought is with the expectation of a capital gain and the rate of income return isn't a factor.
Yet the bigger the loss on income, the bigger the tax offset, it just doesn't make for a rational market. All it does is develop into a ponzi scheme that the tax payer funds the losses.
From a NSW, Vic perspective it is great, because the stamp duty collected is proportional to the price gain, it is very much like the casinos the more punters put in, the more the State government get.
The problem I see is that the tax payers in the less fortunate States, that don't have the fabulous property price gains, it is their taxes as well that cover the Syd/Melb speculators tax offset.

 

[MovingAverage]

Absolutely agree, I just think that property investment should be based on sound reasoning, which is that it shows a sensible return on capital. I think the only reason property in Syd/Melb is bought is with the expectation of a capital gain and the rate of income return isn't a factor.
Yet the bigger the loss on income, the bigger the tax offset, it just doesn't make for a rational market. All it does is develop into a ponzi scheme that the tax payer funds the losses.
From a NSW, Vic perspective it is great, because the stamp duty collected is proportional to the price gain, it is very much like the casinos the more punters put in, the more the State government get.
The problem I see is that the tax payers in the less fortunate States, that don't have the fabulous property price gains, it is their taxes as well that cover the Syd/Melb speculators tax offset.

I can definitely see your point on that. Regarding your point on stamp duty collected by the government—here in NSW the government is allowing owner occupiers to opt for stamp duty or an annual land tax. To me that speaks volumes about their view of the future—sales will drop off so too will their cash cow that is stamp duty. Of course the more people move to a annual land tax means they get their money regardless of whether house sales drop off

 

[MovingAverage]

I'm a Buyers Agent

Over the past two years what have you clients been--owner occupiers or folks looking for an IP?