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The future of Australian property prices

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I currently only have property in WA also. However I have been looking at inner city townhouse in Melbourne. This is a very biased decision though becuase the only reason I am considering it is that I like Melbourne as a place to live - and there are some beutiful townhouses I have seen at affordable prices (under $700k). You can also get some older places which would suit renovation really cheaply.
The idea would be to rent it out for a couple of years then move over there :D. I am too young to live in perth :D
Over the next 5 years I dont think you will go wrong in the Pilbra.
At the moment demand exceeds supply by a significant percentage, however on whole numbers its not so raw. It would only take one or two major development in some areas to bring it back to equalibrium. In which case rents will come back, as will property prices. Its the only reason I didnt go there.
I like Geraldton atm and bought there about 2 years ago. Geraldton has been flat for about the last 3 years, following a massive spike and I think it will be pretty flat for the next 3-4 years. There are 100's of vacant blocks either on the market or proposed. So supply is exceeding demand at the moment. Interestingly rentals values have held up ok. But long term I think it will become a pretty major hub for mining companies.
My most recent purchase though has been close to the city (7kms). Mainly because it was a deal I couldnt walk away from.
 
Property has to be the only investment where people say "I made 10%" or 20% etc and conveniently choose to forget that if your property went up X, so did the place next door. It makes it hard to obtain value over the long term unless your investing in different markets.

If you make 20% on a property in say 2-3 years, you can invariably bet you'll have to pay substantially more for the next property than you would have 2-3 years earlier.

Everyone should own their own place if they can, however its a bit of a joke that interest payments on investments are tax deductible, but not on a principle place.
 
Australian properties? Blah, buy properties in China instead! Much better paradise there. But of course, the government there is looking to stop it too.

China Squeezes Property Speculators, Extends Consumer Stimulus
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By Bloomberg News

Dec. 10 (Bloomberg) -- China scrapped a tax break on property sales and extended subsidies for auto and home appliance purchases, seeking to cool speculation while sustaining a recovery in the world’s third-largest economy.

The State Council will re-impose a sales tax on homes sold within five years after cutting the period to two years in January, the cabinet said in a statement yesterday. The government will scale back some tax breaks for car buyers, while continuing to fund vehicle purchases in rural areas.

China’s property prices rose in November at the fastest pace in 16 months, a government survey showed today, reinforcing concern that record lending and a $586 billion stimulus package may lead to asset bubbles. The nation’s economic growth accelerated to 8.9 percent in the third quarter, helping Asia to lead the recovery from the global economic slump.

“The government is clearly in a dilemma,” said Clement Luk, a Shanghai-based analyst at Centaline Property Agency Ltd. It “wants to address the surging property prices and concerns of a bubble, yet it dares not to take drastic measures for fear of hitting the market too hard.”

The government’s reversal of the tax on home sales “is much milder than the market had expected,” he said.

China Vanke Co., the nation’s biggest property developer by market value, fell 0.9 percent to 11.92 yuan in Shenzhen trading as of 11 a.m. local time. Poly Real Estate Group Co. fell 0.6 percent to 25.04 yuan in Shanghai and Gemdale Corp. fell 1.3 percent to 15.60 yuan. The benchmark Shanghai Composite Index rose 0.3 percent.

Difficulties, Challenges

China’s economy faces difficulties and challenges next year, the State Council, China’s cabinet, said yesterday. The nation needs to keep expanding consumption to drive growth, it said.

“The government is refining its policy to promote domestic consumption,” Jun Ma, Deutsche Bank AG’s Hong Kong-based Chief Economist for Greater China, said in a phone interview. “The reinstatement of the property tax period to five years is an early signal that the government is concerned about speculative demand in the property market.”

China announced plans to reduce the real-estate sales tax and extend preferential lending rates for buyers of second homes in December 2008. Prices in 70 major Chinese cities fell for the first time on record that same month and didn’t post an increase until June this year, according to government data.

Prices Rise

Prices rose 5.7 percent in November after gaining 3.9 percent in October, the National Bureau of Statistics said today on its Web site. So much better there!

Premier Wen Jiabao said Nov. 28 in Shanghai that the government will support the development of affordable housing for low- and middle-income earners, the official Xinhua News Agency reported. Property speculation must also be suppressed to promote a healthy real-estate industry, Xinhua cited Wen as saying.

“The Chinese central government wants to gradually control the bubble in the real estate market,” Andy Xie, former Morgan Stanley chief Asian economist, said by phone. “At the same time, the government does not want to see a sharp fall in property prices after a rapid rise since the sector plays an important role in the country’s economy.”

The government will also scale back preferential tax rates offered for purchases of vehicles with engines of 1.6 liters or smaller, according to the statement.

Carmakers Gain

SAIC Motor Corp., China’s biggest carmaker, rose 0.4 percent in Shanghai trading to 26.04 yuan as of 11:04 a.m. local time. Chongqing Changan Automobile Co. rose 2.3 percent to 15 yuan in Shenzhen and FAW Car Co. rose 1.7 percent to 26.79 yuan.

China in January cut the sales tax on the vehicles to 5 percent from 10 percent between Jan. 20 and Dec. 31. It introduced the incentive to revive demand after auto sales rose at the slowest pace in a decade last year. The rate will be 7.5 percent next year, the statement said.

Government support helped fuel a 42 percent jump in nationwide vehicle sales to 12.2 million in the year through November, putting China on course to surpass the U.S. as the world’s largest auto market. China’s full-year auto sales may be about 13 million, according to Booz & Co., which advises carmakers and investors in China.

China will also pick five cities for trials of subsidies designed to encourage individuals to buy alternative energy and energy efficient cars, the State Council said. The government will increase automobile trade-in subsidies to between 5,000 yuan and 18,000 yuan, according to the statement.

Auto Subsidies

China will extend subsidies for purchases of automobiles, appliances and farming equipment in rural areas, according to the statement, which didn’t give a time frame for the program. China will continue appliance trade-in subsidies beyond May 2010, when they had been set to expire. Subsidies for motorcycle purchases will be extended to the end of January 2013, the State Council said.

Yesterday’s announcement came after the central government held its annual economic work meeting to plan policies for the coming year. The government said it will add flexibility to some monetary economic policies next year and rein in new investment projects after the conclusion of the meetings on Dec. 7
Click to expand...

Hey, at least the Chinese government admits there is a bubble over there.
 
SM Junkie said:
I was wondering what areas people are interested in buying property in?

Personally I've just bought a property here in the Pilbara. Why?

Although a high entry costs, properties are generally positively geared.
Karratha and Port Hedland to be developed as cities.
State Government putting loads of money into infrastructure.
No longer boom or bust for mining towns.
Increased population.
Insufficient housing to meet demand.
Expansion of Port facilities
New mines opening will continue to increase.
BHP have stopped building homes for their employees.

Where do others see potential?
Click to expand...

Personally I like inner Melb. Take a long term view and can't go wrong. Melb's population expected to surpass Sydney within 15 years - people have to live somewhere, and aspire to live somewhere else.

Know absolutely nothing about WA. Would appreciate some info
 
1q2w3e4r said:
Property has to be the only investment where people say "I made 10%" or 20% etc and conveniently choose to forget that if your property went up X, so did the place next door. It makes it hard to obtain value over the long term unless your investing in different markets.

If you make 20% on a property in say 2-3 years, you can invariably bet you'll have to pay substantially more for the next property than you would have 2-3 years earlier.

Everyone should own their own place if they can, however its a bit of a joke that interest payments on investments are tax deductible, but not on a principle place.
Click to expand...

This point is valid, but only if a) you sell and b) you buy again.
You could say the same about shares. I bought abc company made $100k, sold them for $2 each. But if you want to buy that same asset back it will cost you $2, plus you have lost tax, buying fees etc. How is it different?

Why would you sell one investment property to buy another? It doesnt make viable commercial sense.
Are you confusing investment property with personal place of residence (PPR)? PPR is not an investment.
 
1q2w3e4r said:
Everyone should own their own place if they can, however its a bit of a joke that interest payments on investments are tax deductible, but not on a principle place.
Click to expand...

Not really. The deal is that you can not have your cake and eat it too. Investment property is subject to CGT other tax (eg on the rent) your principal place is not. Therefore you get the deduction for the investment (just like shares) and not for the PPR.

Bottom line you ought to be able to get a deduction for a genuine expense that has been incurred to generate taxable income.

To change this basic fundamental would cause untold of implications.
 
TOBAB said:
Bottom line you ought to be able to get a deduction for a genuine expense that has been incurred to generate taxable income.
Click to expand...

Negative gearing does not produce taxable income, rather, a tax loss.

Suprises me the number of people that dont understand they are going backwards with negative gearing and are relying on future capital gain to offset that loss.
 
Macquack said:
Negative gearing does not produce taxable income, rather, a tax loss.

Suprises me the number of people that dont understand they are going backwards with negative gearing and are relying on future capital gain to offset that loss.
Click to expand...

OK to get technical taxable revenue. If your revenue is taxable then your expenses must be deductible. If not you will start distorting mkts in a significant way.

BTW I agree regards future capital gains offsetting losses - not a good way to go.
 
Investor82 said:
This point is valid, but only if a) you sell and b) you buy again.
You could say the same about shares. I bought abc company made $100k, sold them for $2 each. But if you want to buy that same asset back it will cost you $2, plus you have lost tax, buying fees etc. How is it different?

Why would you sell one investment property to buy another? It doesnt make viable commercial sense.
Are you confusing investment property with personal place of residence (PPR)? PPR is not an investment.
Click to expand...

With shares if you sell one block to buy another, you can sell one high and buy one low much easier than property.

Not confusing investment property with PPR. PPR is a tax effective investment IMO if you own.

TOBAB said:
Not really. The deal is that you can not have your cake and eat it too. Investment property is subject to CGT other tax (eg on the rent) your principal place is not. Therefore you get the deduction for the investment (just like shares) and not for the PPR.

Bottom line you ought to be able to get a deduction for a genuine expense that has been incurred to generate taxable income.

To change this basic fundamental would cause untold of implications.
Click to expand...

Yes, I realise that. I've owned investment property in the past. There are heaps of outgoings as you've listed, CGT on sale, potential GST, rates, land tax, maintenance, agents fees and commission when you sell along with stamp duty on the way in. Of these its the land tax, and stamp duty that get me most. The commission you have to wear as part of doing business.

What untold implications? It would affect all the people who buy investment property so they can gear it for a tax "break"?

I'm all for property, its just not a very liquid asset class and you only get the value of what someone will pay, no inbuilt intrinsic value. I'd rather live in it than invest in it. That may change though at a later date, everyone's different though. It'd be boring if we were all the same :)

I think prices in Sydney's Inner West will come back, they have really rocketed within the last 6 months.

Macquack said:
Negative gearing does not produce taxable income, rather, a tax loss.

Suprises me the number of people that dont understand they are going backwards with negative gearing and are relying on future capital gain to offset that loss.
Click to expand...

Agreed, I still haven't quite worked out the big attraction to negative gearing.
 
Macquack said:
Negative gearing does not produce taxable income, rather, a tax loss.

Suprises me the number of people that dont understand they are going backwards with negative gearing and are relying on future capital gain to offset that loss.
Click to expand...

You can have positive income and still get the tax right off from your depreciation etc..

Ie.. I have some units which are on interest only loans..
Interest $3000 a month
Rental Income $4000 a month
Outgoings about $500 a month
Net Income in the pocket $500 a month
Depreciation about $8000 per annum
Tax loss about $2000 per annum
 
Bloody Hell!

It's too sickly sweet being a property bull. I'm going back to being a bear so I don't keep getting reflux in my mouth!

Turn it down a bit FFS!
 
hello,

grab a dose of pure aussie residential RE for that reflux WayneL, will be sorted in minutes

anyone else need assistance?

thankyou
robots
 
robots said:
hello,

grab a dose of pure aussie residential RE for that reflux WayneL, will be sorted in minutes

anyone else need assistance?

thankyou
robots
Click to expand...
No thank you. I may partake across the ditch, but not Oz.
 
hello,

thats fantastic, and those who participate in aussie RE will take the ride and the glory

sure you feelin' good when a trade goes well

thankyou
robots
 
Hi,

Posted this response on another site with the thread titled

We're building towards a home construction boom

Wouldn't it be logical to see a home construction boom after the events of the last 12months.

Huge cash incentives to FHB for new homes coupled with 50years historical low IR's and a large increase in lending to the mortgage sector by the banks.

So the next 6months will see this cause show its effects, large number of new constructions. The real question is what is going to sustain this growth.

FHB have been bought forward and pent up demand released with low IR's.

So I paint this picture.

Mr & Mrs A FHB's purchase a new home in outer suburbs for $350K on %5 IR's + $20k of govnuts handouts. They more than likely purchased on %90 LVR's.

They move into their home in first quarter of 2010 and as starting to get concerned that IR's up moving up quickly.

Sept 2010 arrives and IR's are at %8.5 (not to far from the historical average) an increase of 70% on their mortgage payments. Given that the single largest household liability is paying the mortgage, this starts to hurt and they consider selling. Remembering that most people tend to borrow as much as they can.

Mr & Mrs C being from the same demographics and Mr & Mrs A start looking for a home. The only difference is that they can no longer borrow as much as Mr & Mrs A.

So they look at the Mr & Mrs A property for $350K + $17K stamp duty and concluded a few things :
1) the FHB grant has been halved reducing borrowing capacity
2) they cannot borrow enough with IR's being %8.5
3) they have the borrowing capacity but decide why pay the stamp duty and have a second hand house when they too can purchase new. This assumes that developers had inflated prices during the FHBG being increased due to increase in demand. This has been documented before that the same house and land package is now less than it was 6 months ago.

So Mr and Mrs C can get enough credit and decide they will purchase new for $350K or are willing to purchase Mr & Mrs A property but for less than $350-$17K-depreciation(second hand) = $325.

Mr and Mrs A sell and are left will nothing after expenses as they were given some free money by the govnuts. They also have a funny taste in their mouths after the experience.

Or.

Mr & Mrs C cannot borrow as much because of reduced govnut gifts and higher IR's and cannot purchase new or existing at those prices. Demand is reduced at that price level.

Mr & Mrs A start to become desperate, they have to reduce their asking price, potential placing them in negative equity. The situation has turned sour for them.

This situation then works its way up the ladder with each level having less borrowing capacity with prices having to be reduced in order to meet the market.

Yes, I can see a construction boom lasting the first half of next year, 2010. Just when interest rates are starting to peak, what will feed demand after that I cannot see but there is the chance than many FHB on new homes find themselves in falling prices and rising IR's.

This is a simple story and does not take into account many other variables such as :
Government action in the way of added grants
Credit tightening further
Government Stimulus here and around the world
Unemployment
Inflation/Deflation
Immigration
The bankers lied and we face GFC V2 but now the increased level of debt is shared by private and the public purrse

2010 for all investment classes will be interesting and property will be no different.

I will be looking at purchasing later next year again when IR's have at least got to the historical average and above. The FHB market is the one I will be watching for the first signs of weakness.

Cheers
Click to expand...
I'm upon for discussion.
 
Wysiwyg said:
So you want to prey on FHB's that can't afford to pay off their mortgage due to high interest rates?
Click to expand...

Prey? I would have thought the guvmint was the one doing the preying that were not called on to bail FHB's out of the mess the guvmint got them into.
Or would you rather noone bought the property. and let the bank reposses and sell for whatever and pursue the FHB or whoever else it is for the rest of the debt. I have seen repossession auctions in tough times , everybodies after a bargain.
Unfortunately it is not usually higher rates that causes the problem but a lack of financial acumen and an expectation that
1 Prices rise forever (never happened before prices fluctuate all the time even on a yearly basis but not noticed by most) only when one is forced to sell.
2 Job security (for both and in terms of hours worked etc)
3 Bills that suddenly appear like rates, insurance, plumber or electrician callouts that before were taken care of etc.
4 car just blew up or needs replacing, House price has gone up use te equity and never get out of debt. ie rent fro bank instead of landlord.
But as santa says higher rates are likely to be blamed by both the papers and the couple
 

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