The future of Australian property prices

[Tysonboss1]

It remains to be seen if it is a safe investment, backed by nothing more than the
belief by the general public that 'property prices never go down", and aided by flawed government policies ie immigration, subsidies and NG? And the banks contribute the most by indebting a large swathe of the population to mortgage stress. And a little bit of supply and demand imbalance again caused by flawed gov policies? Plenty of cheap land in better lifestyle regional areas.

"hedged against inflation" - that would apply only if the return is above inflation? You don't see property investors subtracting out the loss from inflation when they do their sums on how much money they made from an investment?

I think the sweet spot for property (low rates, foreign investment, gov subsidies) has passed and is on the top taper now (blow off tops from the stragglers buying), the stress wave is working it's way up from the bottom, as it did just before the GFC.

The income stream is very safe, The tenant pays weekly and you are in control so there is no risk of a company director slashing dividends.

the rent will also increase over time atleast in pace with inflation and the capital you have invested will also increase atleast with inflation.

So if you were to compare putting $300K into a rental property Vs $300K into a term deposit, over time the rental will perform better due to the fact assets increase with inflation so your weekly income and the capital value is protected where as with the term deposit invested capital and income remain the same and steadily lose buying power.

 

[Tysonboss1]

Sorry.

Couldn't help this one. Too much bile rising....

No-one is backing up with FACT.

Dear kincella - direct from the National Archives Currency Converter...http://www.nationalarchives.gov.uk/currency/results1.asp#mid

1.00 pound in 1985 = 2.01 pounds today

So, 800 Million purchase in 1985 is actually worth 1.608 Billion today.

Throw in fees, taxes etc....??

So, FACT = He sold at a relatively LARGE LOSS OF MONETARY VALUE after 25 years.

Please, do research before posting.

Thankyou.

Goodbye.

To know the true return on investment you would have to know the cashflow return it has received over time.

You can't tell whether an investment was viable based solely on it's capital gain. It may have been returning an income steam of 10% being a commericial property.

Now if I owned a piece of real estate that was returning 10%p/a in rent that increased with inflation, while my invested capital was keeping pace with inflation I would consider that a great investment.

 

[drsmith]

The income stream is very safe, The tenant pays weekly and you are in control so there is no risk of a company director slashing dividends.

the rent will also increase over time atleast in pace with inflation and the capital you have invested will also increase atleast with inflation.

Safest of all income stream investments are Treasury CPI indexed bonds.

http://www.aofm.gov.au/content/statistics/transactional_data.asp

These like any other investment can become overpriced.

Would you accept a yield of 2.7% on such a bond ?

 

[Tysonboss1]

Would you accept a yield of 2.7% on such a bond ?

To be honest I don't know much about the product.

However I think I would rather accept a little bit more market risk and double my yield to 5.25%.

 

[explod]

To be honest I don't know much about the product.

However I think I would rather accept a little bit more market risk and double my yield to 5.25%.

Since 2006 gold is up 200% and there are a lot of other investements that have done much better. To have a family home and own it is an entirely different matter. However in the wonderful rise of property over the last few years and the leveage of cheap money it has been excellent but as it begins to turn sour, those who thought they had a great deal in the furture could be very quickly disappointed and in quick sand.

 

[medicowallet]

hello,

yes thats right Kincella and its a given for the rest of our lives

fantastic posts by the way, yes maybe bad news for some tomorrow but thats why me and you brother make our own path

get to kick back, spend time with family, educating and helping the community,

thankyou
robots

Oh yes, please print more money. That would make inflation rise, and with that, interest rates will rise.

 

[trainspotter]

Go into a bank and try and borrow some money. First words out of their mouth is "Do you own your own home?" ... residential security ... wins hands down. 60% Low Doc loans ... no income man ... but I have a green title. Banks will lend. I have cash and shares ... not interested. Sell them and put DEPOSIT into RRE and bingo ....... Utopia .... manna from heaven. Banks give you the money. Hello?

 

[medicowallet]

Go into a bank and try and borrow some money. First words out of their mouth is "Do you own your own home?" ... residential security ... wins hands down. 60% Low Doc loans ... no income man ... but I have a green title. Banks will lend. I have cash and shares ... not interested. Sell them and put DEPOSIT into RRE and bingo ....... Utopia .... manna from heaven. Banks give you the money. Hello?

That is misleading, and the kind of misrepresentation you tend to get from people who don't understand why this is so. I am sure you do and are framing your argument for the sake of your position.

Banks like to hold mortgages over houses for the money that they lend you as it is easy to sell if you go broke. Cash on the other hand is poor security for a loan, as it can be transferred.

Banks would lend 100% LVR for cash if they could have a mortgage over it, so it is actually the mortgage, and not the asset class which offers the bank security.

 

[Bill M]

You're right Bill, property will not crash over 2 weeks, but over a much longer period. Remind us how well property performed from 1989-1999.

I honestly don't know why you even asked me this question, we all know house prices went up during that time. Maybe you just wanted to give me some homework.

In 1989 average house prices were 162k and in 1999 they were 219k and that is from a Government source. You may click this link here to check.

 

[Bill M]

To know the true return on investment you would have to know the cashflow return it has received over time.

You can't tell whether an investment was viable based solely on it's capital gain. It may have been returning an income steam of 10% being a commericial property.

Now if I owned a piece of real estate that was returning 10%p/a in rent that increased with inflation, while my invested capital was keeping pace with inflation I would consider that a great investment.

Spot on Tyson, I own in a unit in Sydney and I have no mortgage on it. I pull $420 per week rent from it. In the 6 Months I have been renting it out the unit has gone up 30k in price. The capital gain is a bonus and unexpected and I won't be selling this investment any time soon.

 

[trainspotter]

That is misleading, and the kind of misrepresentation you tend to get from people who don't understand why this is so. I am sure you do and are framing your argument for the sake of your position.

Banks like to hold mortgages over houses for the money that they lend you as it is easy to sell if you go broke. Cash on the other hand is poor security for a loan, as it can be transferred.

Banks would lend 100% LVR for cash if they could have a mortgage over it, so it is actually the mortgage, and not the asset class which offers the bank security.

I am sure you are a very good Doctor but a lousy analyst. In what way was this misleading? Banks do not take mortgages over cash or shares. FULL STOP. They take mortgages over houses, green title, commercial property, strata title, farm land, dirt, bricks and mortar ... ad infinitum.

Not the asset class that offers the bank security, it is the mortgage? WTF ... no seriously WTF? The mortgage is worthless without the asset class medicowallet. Now before everyone gets on their high horse and says BUT what about chattel mortgages over plant and equipment and motor vehicles etc blah blah bloody blah this is the case of course. Remember we are talking about what the banks would lend against. Homes or cash. Homes win hands down.

 

[kincella]

Trainspotter, spot on.....and another wee hint why the banks dont want your term deposit as security for a mortgage......they need to maximise their earnings, and require an asset that increases with inflation over time....
or to put it another way....that does not devalue..
cause rather than house prices going up as the 'crowd' understands.....its the reverse....the devaluation of the dollar...that is behind it....

thats why the banks prefer to lend over other asset classes, or risk it with derivatives, anything but reliance on your cash deposit to generate a return...
cause the cash deposit keeps losing its value, bit by bit, every day, and has less buying power against inflation...
most home loans have an average life of about 15 years....thats when people pay them out....not the initial 25-30 years as the contract states...
so if a bank expects to lend against an asset that covers a decade or more, it really wants to be able to recover any debt on a current dollar basis after inflation...
it will not get that security from cash...cash will be worth less than half the value after 15 years....

 

[cutz]

Go into a bank and try and borrow some money. First words out of their mouth is "Do you own your own home?"

Yep,

That's why property is the collateral of choice for funding the dream, the fact that it’s not marked to market daily is a bonus, LVR is harder to track and the banks hold the title so it’s win win .

Stock can be used as collateral but generally used to fund more stock not the dream. A lot easier to hedge but max LVR can’t be exceeded.

Whatever rocks your boat I guess.

 

[So_Cynical]

Go into a bank and try and borrow some money. First words out of their mouth is "Do you own your own home?"
... residential security ... wins hands down.

Yep,

That's why property is the collateral of choice for funding the dream

All very true of course but what else is there. :dunno: the big run up in profits for the Aussie banks over the last 25 years has been mostly due to housing and the increasing price of housing.

I mean its not like the banks could expect borrowers to have Bullion deposits or some sort of royalty income...our modern banking system is built around borrowing for housing and the only realistic collateral for that is property/housing.

 

[Investor82]

Banks do not take mortgages over cash or shares. FULL STOP.

Not 100% accurate. Banks will take a "cash security bond" and lend 100% against cash.
Normally the funds are placed into a fixed deposit account - and is controlled by the bank, so you have no access to the money.
It is not commonly used because you earn about 3% on the cash but pay about 8% on the loan - so you are -5%, it doesnt often make sense.

When I was in the bank though we used it when the cash holder and the borrower were not the same person/company. As an example there was a partnership developing some land, and one of the partners was very cashed up. We put his money on deposit, and lent to the partnership. If the development fell over, he would lose his money. If the development succeeded (which it did) he kept his cash seperate to the partnership.

There are many different forms of secuirty which banks use. After cash - residential security is the most common form, and provides the highest LVR.

Cheers
I82

 

[gooner]

I am sure you are a very good Doctor but a lousy analyst. In what way was this misleading? Banks do not take mortgages over cash or shares. FULL STOP. They take mortgages over houses, green title, commercial property, strata title, farm land, dirt, bricks and mortar ... ad infinitum.

Not the asset class that offers the bank security, it is the mortgage? WTF ... no seriously WTF? The mortgage is worthless without the asset class medicowallet. Now before everyone gets on their high horse and says BUT what about chattel mortgages over plant and equipment and motor vehicles etc blah blah bloody blah this is the case of course. Remember we are talking about what the banks would lend against. Homes or cash. Homes win hands down.

Banks WILL lend against cash and shares. But, you are right they do not take mortgages over them. With cash, they will simply freeze the cash deposit to stop you paying it out. With shares, not sure how it works as have never got a margin loan. But they regularly check you are below you maximum LVR. If not, and you do not put up cash, BANG, there go your shares

 

[trainspotter]

OK OK OK ...... I might have fudged the FULL STOP bit. YES banks will take a "lien" over cash and shares. My big sorry to all and sundry. BUT they will freeze the asset so therefore it is no longer liguid. Reduced LVR as well I might add (correct me if I am wrong gooner) When you propose to lend from a banks point of view then residetial real estate WINS hands down. Up to 95% I believe. 60% on commercial. 30% chattel mortgage over stock, plant and equipment yadda yadda yadda.

Bwahahahahahaaaaa ... no wait .... Bawaahahahahaahaha ... Me thinks robots has got it right. No funny money going on here ! Real estate is the only TRUE economy when it comes to lending.

 

[medicowallet]

I am sure you are a very good Doctor but a lousy analyst. In what way was this misleading? Banks do not take mortgages over cash or shares. FULL STOP. They take mortgages over houses, green title, commercial property, strata title, farm land, dirt, bricks and mortar ... ad infinitum.

Have a read of what I posted.

The reason banks will lend vs a house is because they have a mortgage over it and you cannot sell it without their approval.

Cash can be shunted around and that is the reason why they do not lend against it as freely.

Banks would prefer cash over property any day as it is a face value asset, which carries no transaction costs and has no time delay.

In all they don't care about it being a house. All they care about is their control over their new asset (mortgage = they have control)

 

[trainspotter]

Have a read of what I posted.

The reason banks will lend vs a house is because they have a mortgage over it and you cannot sell it without their approval.

Cash can be shunted around and that is the reason why they do not lend against it as freely.

Banks would prefer cash over property any day as it is a face value asset, which carries no transaction costs and has no time delay.

In all they don't care about it being a house. All they care about is their control over their new asset (mortgage = they have control)

So therefore you are in agreeance with me that the asset is more important than the mortgage? After all I am using your words for asset to mortgage control from a banks point of view.

You wrote "Banks would lend 100% LVR for cash if they could have a mortgage over it, so it is actually the mortgage, and not the asset class which offers the bank security."

So which is it Doctor?

 

[medicowallet]

So therefore you are in agreeance with me that the asset is more important than the mortgage? After all I am using your words for asset to mortgage control from a banks point of view.

You wrote "Banks would lend 100% LVR for cash if they could have a mortgage over it, so it is actually the mortgage, and not the asset class which offers the bank security."

So which is it Doctor?

NO

You obviously cannot understand what I am saying. The asset does not matter, it is the fact that the bank mortgages it readily that matters. As long as the bank has rights to the asset, it does not matter what it is, and as a previous poster outlined, you can get 100% LVR for cash. This confirms your original post misleading.

Banks need to approve sale of a car under finance.

So are you saying that a car is a good investment?

Diagnosis: myopia

It is easier to get a loan against a house, but that does not make a house a better asset to take a loan out against, just more convenient.