The future of Australian property prices

[wayneL]

Yup! Both these guys are exactly spot on! The hypocrisy of some posters on this issue is amazing! Personally I have used NG to invest in both property and shares in the past - I see no difference between the two. In ALL cases my aim and intent is to make money, not lose it.

Point of order.

IIRC, in any normal business where there is no intention of making a trading profit, that is a profit or loss on your trading statement, are not permitted to deduct these losses from other income.

Most housing investments and certainly negatively geared ones intentionally have no hope of a trading profit for some number of years.

Any profit during this time is on the balance sheet. Meanwhile, the taxpayer is subsidizing you.

This is special taxation treatment not available to industry, the symptom of which is overvaluation.

 

[Tysonboss1]

Correct,

But in my humble opinion, debt to equity on a margin loan generally doesn't allow interest to exceed dividend stream, if it does you're playing with fire.

Well if that is your personal investment mantra good for you, Alot of property investors share that same mantra.

However you can borrow up to 75% of the value of BHP on margin, and BHP's tiny dividend wouldn't come close to the 8.85% interest rate on the margin loan.

Also with Property you don't run the risk of directors cutting dividends, and you will also have a lower interest rate and no risk of a margin call.

 

[tech/a]

the symptom of which is overvaluation

Please explain

 

[Tysonboss1]

IIRC, in any normal business where there is no intention of making a trading profit, that is a profit or loss on your trading statement, are not permitted to deduct these losses from other income.

Compare apples with apples wayne.

you have to compare property investors with share investors and property traders with share traders.

Professial Property traders have different taxation rules to property investors just like professial share traders have different taxation rules to share investors.

Any one holding trading stock whether it be property or shares is treated differently in taxation.

 

[wayneL]

Please explain

We've been through the valuation numbers a hundred times Tech. Some accept the argument, some don't.

If negative gearing was not allowed, or only allowed if there is a reasonable prospect of trading profit within, say, 3-5 years, house prices would definitely be substantially lower.

 

[wayneL]

Compare apples with apples wayne.

you have to compare property investors with share investors and property traders with share traders.

Professial Property traders have different taxation rules to property investors just like professial share traders have different taxation rules to share investors.

Any one holding trading stock whether it be property or shares is treated differently in taxation.

One could equally argue the same about the lofty valuations of most shares. Same thing.

My argument is not a property versus shares one, rather a investment in non production versus production.

 

[kincella]

most small businesses have loans, they claim the interest as a deduction....
why is the same loan, when applied to a property investor, a tax rort...
as some on this forum suggest....
some of us have several properties, we run it just like any other business...its a business of investing in rental properties....

oh, and if you cared to check the rise of house prices for the past 50 or so years, it appears to be a very profitable business......

I note the NSW Tenancy tribunal states 1 in 4 people in Nsw are renters...

 

[kincella]

any tax incentives are offset by the govnuts...non spending on public housing....
who is better able to provide cost efficient housing to the public...the state or federal govts or private individuals..
almost no public housing has been provided since the 1970's, hence the incentive provided to individuals to provide the housing...

how many of you would prefer to live in an established house in any suburb, compared to the little ugly boxes, stacked on top of each other, as in any public housing estate....or the other ugly housing commission homes, where the whole suburb consists of only housing commission boxes...

as seen recently with the federal govnuts BER schools program....totally rorted, costing or spending up to 4 times the market price for a similar building provided by the private sector...
I know which alternative most taxpayers prefer, and renters....

 

[wayneL]

most small businesses have loans, they claim the interest as a deduction....
why is the same loan, when applied to a property investor, a tax rort...
as some on this forum suggest....
some of us have several properties, we run it just like any other business...its a business of investing in rental properties....

oh, and if you cared to check the rise of house prices for the past 50 or so years, it appears to be a very profitable business......

I note the NSW Tenancy tribunal states 1 in 4 people in Nsw are renters...

[Sigh]

It is a tax deduction providing the loan is for the purpose of facilitating a "trading" profit (as distinct from capital gains). Businesses intentionally run at a loss do not have their deductions allowed. Negative geared property is a business intentionally run at a loss for an indeterminate time.

Positive or neutrally geared is a very different matter.

BTW, if you were adept at listening you'd know that:

a/ I have a couple of piles myself over in the Old Dart and well aware of some of the advantages of property investment.

b/ I was careful to make the distinction between trading profits and capital (balance sheet) gains.

 

[wayneL]

any tax incentives are offset by the govnuts...non spending on public housing....
who is better able to provide cost efficient housing to the public...the state or federal govts or private individuals..
almost no public housing has been provided since the 1970's, hence the incentive provided to individuals to provide the housing...

how many of you would prefer to live in an established house in any suburb, compared to the little ugly boxes, stacked on top of each other, as in any public housing estate....or the other ugly housing commission homes, where the whole suburb consists of only housing commission boxes...

as seen recently with the federal govnuts BER schools program....totally rorted, costing or spending up to 4 times the market price for a similar building provided by the private sector...
I know which alternative most taxpayers prefer, and renters....

It's a valid argument. I have no problem at all with private sector supply of rental accommodation. I certainly 100% support it over social housing.

However as currently configured, it skews the economy in way that will bite us on the bum... indeed is beginning to do so now.

My opinion - over and out for now.

 

[Bushman]

We've been through the valuation numbers a hundred times Tech. Some accept the argument, some don't.

If negative gearing was not allowed, or only allowed if there is a reasonable prospect of trading profit within, say, 3-5 years, house prices would definitely be substantially lower.

A recent example would be the agribusiness MIS schemes. Most have since collapsed.

Negative gearing is no different and if it was removed there would be a substantial price correction followed be a period of deleveraging.

Simple really and you should never invest in something for a tax write off as you will pay the price when the music stops.

NG reform will never happen as NG is a sacred cow in Australia and will remain an efficient form of middle-class welfare for the forseeable future.

 

[robandcoll]

Just thought I would way into the argument with this one:-

Bleak prediction for house prices Jessica Holzer From: The Australian May 28, 2010 10:24AM 25

AN IMF economist predicts sharp falls in house prices, and estimates Australia and New Zealand have the biggest price misalignment.
International Monetary Fund economist Prakash Loungani has found plenty of reasons to remain glum.

Mr Loungani, at a National Economists Club in Washington today, presented his analysis of housing busts since 1970 in the countries that make up the Organisation for Economic Co-operation and Development.

His prediction: home prices will fall much farther and for much longer.

On average, the previous housing slumps lasted 18 quarters, with prices dropping 22 per cent from peak to trough. By contrast, the current housing slump has lasted only 14 quarters, during which prices have dropped just 15 per cent.




But the latest boom was so much bigger than the previous ones that it's logical to anticipate an even more brutal downturn, Mr Loungani argued. Prices rose 113 per cent over 41 quarters, compared with 39 per cent average price increase over 39 quarters seen in the previous booms.
Mr Loungani likened the current cycle to a rollercoaster that has roared up a steep hump and now needs to come down again.

"A lot of adjustment has taken place in house prices, so we shouldn't discount that. But it's true that we shouldn't declare victory too soon. We've now had a fresh shock from what's happening in Europe," he said after the luncheon.

Mr Loungani marshalled other evidence that home prices are still inflated.
He found that prices in OECD countries in 2009 were substantially out of whack with rents and incomes in those countries, compared to average values from 1970 to 2000. In the long run, he argued, incomes and rents will act as weights on home prices, bringing them back to earth.

Price-to-rent and price-to-income ratios were well above historical values in all OECD countries, except Japan, Germany and Switzerland, according to Loungani's analysis.

Australia, New Zealand, the Netherlands and Belgium saw the biggest misalignment with historical price-to-income values, while Canada, Sweden, Norway and Australia saw the largest gaps in price-to-rent values.

Mr Loungani said his analysis of prices and rents in US metro areas suggests that many markets on the West coast and in parts of the US Northeast could yet see prices plummet a further 30-40 per cent.

 

[kincella]

what is the problem then....tax on a capital gain after a couple of years, will far outweigh any miserly tax on the passive yearly income....its not trading income for a start....its a passive investment
the average Joe Blow with a positive geared property....earning about 10,000 net profit after costs....might pay tax of 3000 pa
or saves the same on a loss
but a capital gain can rake in 20,000 tax in one hit on a net 50.000 taxable gain

 

[Tysonboss1]

We've been through the valuation numbers a hundred times Tech. Some accept the argument, some don't.

If negative gearing was not allowed, or only allowed if there is a reasonable prospect of trading profit within, say, 3-5 years, house prices would definitely be substantially lower.

Maybe be true, But most property investors are not negativly geared.

By far the largest portion of property investors are recieving positve weekly income because their loans (if infact they have loans) are small compared to the rent income.

 

[Tysonboss1]

You see what most people miss is this,

(example of one of my properties)

I have a house worth $480,000 which currently rents at $395 / week. The average person here will say " Ha, what a bad investment, he would be negatively geared because the interest on $480,000 is $33,600 / year and the rent is only $20,540"

But if you look deeper you will see the following.

I bought in 2001 for $218,000 with a deposit of $30,000 so the loan was only $188,000 and over the space of 10 years I have reduced it to less than $130,000.

So the current interest bill is $9,100 and the rent is $20,540 so there is positive cashflow of about $10,000 / year.

So I have a $480,000 asset that requires no further capital input from me paying it's self off.

So over all I invested $30,000 + $7000 stamp duty etc and then funded the initial neg cashflow in the first three years, Now I have a steady income stream that will continue to build as the loan decreases and it will grow with inflation.

So yes property is a very sound investment

 

[cutz]

However you can borrow up to 75% of the value of BHP on margin, and BHP's tiny dividend wouldn't come close to the 8.85% interest rate on the margin loan.

Correct,

However as I previous hinted at, an astute equities investor won’t put BHP on 75% margin; you will probably find that most will stick to around 50%.

At 75% you’re dicing with a margin call the following day, at 50% income is greater than expenses plus you have a level of buffer.

 

[awg]

A question to the more informed:

re Auction numbers, as mentioned earlier in this thread around Melbourne.

figures show an increasing number of auction sales, and there has been big price rises recently

So why are more properties going to auction?

Is it because the sellers are getting desperate, ie cant sell ?

Or hopeful of a higher price ? ie bull market conditions

It was my understanding these 2 opposite forces are what drives auction numbers up, as selling via RE agents etc was the prevailing method in "normal" circs

 

[Tysonboss1]

Correct,

However as I previous hinted at, an astute equities investor won’t put BHP on 75% margin; you will probably find that most will stick to around 50%.

.

Still neg cashflow at 50%.

 

[kincella]

couple of points.....I bought a property, when everyone else shunned the property market....it is returning 30% pa in very positive income.....versus the cost price...or only 6% on the current market value price.....
the loan is sitting at 1/10th of the market value....showing 90% equity...
and some of you guys think property is a bad investment....

you would be very surprised at what sort of figures are actually out there in property land....
versus the media screaming headlines, just to sell a paper.....or the limited experience or knowledge from the average Joe Blow.....

the question about sellers....I suspect some will be cashing in on the high prices, while the foreigners are still out there with their bags of cheap money buying up, like there is no tomorrow...
those sellers will need to rent, or buy in another suburb.....they still need a house to live in...
its the down time for sales in that industry...the peaks are in spring time and prior to Easter...
otherwise I have no idea.....
but will those same sellers, be on here spruiking how they sold at the top of the market, now waiting for prices to crash, again....ps some are still waiting after 10 years, still out there waiting for the crash...
and some have been wishing for higher interest rates, to force down prices...
but history shows that is not the case....prices still rise, regardless of the rates..
have a good day

 

[satanoperca]

Dollar lower at noon on strong homes sales trends

New homes sales surged 6 per cent in April due to strong growth in Victoria, a Housing Industry Association report shows.

Meanwhile, home values were flat in April as heat came out of the housing market.

http://www.theaustralian.com.au/business/news/australian-dollar-lower-at-noon-on-strong-homes-sales-trends/story-e6frg90f-1225873534792

Prices are flat, supply is being added to and record number of auctions in Victoria in the following weeks.

This should lead to some price movement.

Agree with those that believe property is a good investment, it has proven so in the past, but we are discussing the future.

So has a peak been reached?.

Cheers