The future of Australian property prices

[wayneL]

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

Property was much better value in 2001.

 

[skc]

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

At $10K cash flow on $480K house yields 2.1%.

Sell the house and put $480K in term deposit may yield 6% ($28K)

Even if you pay $100K CGT on the sale, you can still have $380K at 6% which generates $22K pa.

So property is a very sound investment only when the property value goes up...

 

[Aussiejeff]

*snip* 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..... *snip*

Oh dear. AFAIK there are Joe Blows & then there are Joe Blows.

I sincerely hope you are not calling into question the experience or knowledge of our very own esteemed Joe Blow?

 

[Tysonboss1]

Property was much better value in 2001.

The price to earnings ratio is still about the same as it was in 2001,

Yes the price has gone up since then, but so has the rent.

 

[c-unit]

Our national housing market is a government subsidized ponzi scheme. Negative gearing should be abolished and only apply for new housing developments, not existing homes.

I look forward to the day our property bubble pops. Will bring a smile to my face to see all those baby boomers who took the "property prices only go up" approach and overextended themselves make big losses. I will also enjoy seeing overextended first home buyers face negative equity. Orgasmic stuff. Fiscal prudence has dissapeared in AUS, but it will return after we all get a giant wake up call.

 

[Beej]

At $10K cash flow on $480K house yields 2.1%.

Sell the house and put $480K in term deposit may yield 6% ($28K)

Even if you pay $100K CGT on the sale, you can still have $380K at 6% which generates $22K pa.

So property is a very sound investment only when the property value goes up...

You might want to re-read Tysonboss's post again and re-do your numbers. You are WAY off the mark with your calcs in the above post.

Cheers,

Beej

 

[Buckfont]

Our national housing market is a government subsidized ponzi scheme. Negative gearing should be abolished and only apply for new housing developments, not existing homes.

I look forward to the day our property bubble pops. Will bring a smile to my face to see all those baby boomers who took the "property prices only go up" approach and overextended themselves make big losses. I will also enjoy seeing overextended first home buyers face negative equity. Orgasmic stuff. Fiscal prudence has dissapeared in AUS, but it will return after we all get a giant wake up call.

Hey mate, I wouldn`t put BBers in that boat solely, because there are definitely investors from other generations who have thought prices would improve. It`s a naive comment, and if people get burnt its probably cause the greed factor took over.

 

[Tysonboss1]

At $10K cash flow on $480K house yields 2.1%.

Sell the house and put $480K in term deposit may yield 6% ($28K)

Even if you pay $100K CGT on the sale, you can still have $380K at 6% which generates $22K pa.

So property is a very sound investment only when the property value goes up...

You don't get it at all,

The $480,000 house earns over $20K in rent, but after i have paid interest on the loan of $130,000 it leaves me with $10K casflow/profit.

Resi property earns about 4%, so you will always have people make really silly statments saying that your money is better in a term deposit earning 6% but this is really flawed thinking.

 

[explod]

Our national housing market is a government subsidized ponzi scheme. Negative gearing should be abolished and only apply for new housing developments, not existing homes.

I look forward to the day our property bubble pops. Will bring a smile to my face to see all those baby boomers who took the "property prices only go up" approach and overextended themselves make big losses. I will also enjoy seeing overextended first home buyers face negative equity. Orgasmic stuff. Fiscal prudence has dissapeared in AUS, but it will return after we all get a giant wake up call.

c-unit that is a very sick attitude towards anyone, to enjoy the demise of others who were only following the big money ideas of the financial industry and government. If you were given and promised leads to financial success and excess I am sure you would follow that path too. As a baby boomer I have been conservative and safe and most baby boomers in my circle have been the same.

I get a bit obstropalis and cranky at times but never to wish anyone bad. We should and do on ASF try our best to give inputs that help us all to think things out from the ground up so that together we can all do better.

Comments such as yours are not welcome here ole pal.

 

[Tysonboss1]

If you put $100,000 in a term deposit at 6% you would earn $6000.

If you put $100,000 into resi property it would earn about $4000.

So this would suggest that your money is better sitting in a term deposit right. wrong.

Your money in the term deposit may produce more cashflow in the first few years, But inflation will raise the rent over the years to the point that the property is generating far more cashflow than your term deposit.

Secondly, Your capital of $100K will not grow so it will steadily lose buying power with inflation, where as the capital invested into the property should increase atleast with inflation over the years.

My Nanna made this mistake, when my poppy died in the 70's she sold their investment property because she could get more in interest than in rent, she sold the property for $4000 because she thought the interest would help support her. the funny side to this is she still has that term deposit of $4000 earning $240 a year.

the property would have risen with inflation and growth to be worth over $350,000 and generate $18,000 in rent per year.

 

[c-unit]

c-unit that is a very sick attitude towards anyone, to enjoy the demise of others who were only following the big money ideas of the financial industry and government. If you were given and promised leads to financial success and excess I am sure you would follow that path too. As a baby boomer I have been conservative and safe and most baby boomers in my circle have been the same.

I get a bit obstropalis and cranky at times but never to wish anyone bad. We should and do on ASF try our best to give inputs that help us all to think things out from the ground up so that together we can all do better.

Comments such as yours are not welcome here ole pal.

Perhaps a little "sick" and generalising, but the concept is what is important. But unfortunately nothing will change until people experience some short term pain. The best thing for this nation is for the property bubble to pop and the housing market to be cleansed. Whilst I will, and do, pursue avenues of financial success and excess (as you mentioned), I would have enough sense to remain within the limits defined by my own financial situation. Those who used common sense with their investments should not be influenced too terribly from a housing correction. Only those who went too far.

Daily people in the financial industry (bankers in particular) have to put up with being labelled greedy capitalists with no moral purity etc, and quite often the ones criticising greedy financiers are the ones with numerous negatively geared property investments and are themselves as hypocritical and as greedy as anyone. Why doesn't the mainstream media get stuck into main street Australian greed?

Do you pity the investments banks, Mac, Citi, Lehman etc for their circumstances during the financial crisis? But they were only following big money promised by the government and financial sector? I bet you don't. But accordingly we should pity property investors who borrowed too much to finance their own investments in a house of cards housing market?

 

[trainspotter]

Still lauging at the house of cards housing market statement c-unit. Has not corrected just yet .... this is your opinion and not a fact. Do we feel pity for all those people who got sucked dry by the finance gurus telling us to put our money with the likes of Storm Financial Group? I don't for a start because they got greedy. Do I feel sorry for the ones that placed money with Tim Johnston and Firepower? Nup - Would I feel sorry that someone actually showed some kahunas and borrowed some money to buy a second property to try and get ahead the old fashioned way of bricks and mortar. Probably .... depending on their circumstances. I still cannot believe in this day and age that people never listen. "If it is too good to be true then it probably is !" It's all a game of chance and you have to limit your exposure. Fortunately the volatility has not hit the housing sector unlike the share market. Let us pray that it does not over correct and prefers to stagnate for a looooong period of time.

 

[c-unit]

Still lauging at the house of cards housing market statement c-unit. Has not corrected just yet .... this is your opinion and not a fact. Do we feel pity for all those people who got sucked dry by the finance gurus telling us to put our money with the likes of Storm Financial Group? I don't for a start because they got greedy. Do I feel sorry for the ones that placed money with Tim Johnston and Firepower? Nup - Would I feel sorry that someone actually showed some kahunas and borrowed some money to buy a second property to try and get ahead the old fashioned way of bricks and mortar. Probably .... depending on their circumstances. I still cannot believe in this day and age that people never listen. "If it is too good to be true then it probably is !" It's all a game of chance and you have to limit your exposure. Fortunately the volatility has not hit the housing sector unlike the share market. Let us pray that it does not over correct and prefers to stagnate for a looooong period of time.

Mate, house prices are no longer based on fundamentals, they are now priced as a function of access to debt, which is the concern. My sis (a 25 y.o nurse) was offered a first home buyers loan up to $600k ffs. Fortunately she has common sense and borrowed less than half that. Lending standards have deteriorated rapidly in this country. Like the US, if we see a contraction in the economy and some job losses then POOF goes the housing market.

 

[robots]

Our national housing market is a government subsidized ponzi scheme. Negative gearing should be abolished and only apply for new housing developments, not existing homes.

I look forward to the day our property bubble pops. Will bring a smile to my face to see all those baby boomers who took the "property prices only go up" approach and overextended themselves make big losses. I will also enjoy seeing overextended first home buyers face negative equity. Orgasmic stuff. Fiscal prudence has dissapeared in AUS, but it will return after we all get a giant wake up call.

hello,

what a great day today, was working on Royal Pde, Parkville, a beautiful tree lined road, many birds enjoying the trees too, fantastic

i say ban NG from society as well, i agree c-unit, let developers build new places and those with existing can just go for the ride man

85sqm apartments this year, 82sqM apartments next year, 79sqM apartments the next year, no parking the following year

gee, you can tell GPHC has closed down

thankyou
professor robots

 

[trainspotter]

Mate, house prices are no longer based on fundamentals, they are now priced as a function of access to debt, which is the concern. My sis (a 25 y.o nurse) was offered a first home buyers loan up to $600k ffs. Fortunately she has common sense and borrowed less than half that. Lending standards have deteriorated rapidly in this country. Like the US, if we see a contraction in the economy and some job losses then POOF goes the housing market.

c-unit, your sister must be on some phenomenal money to be able to qualify for a 600k loan amount as a first home owner with ZERO peripheral debt. She would be required to be on a minimum wage of $100,000 minimum to get anywhere near this amount?? Does a nurse get this much these days?? Last time I checked the banks were tightening and certainly not throwing money out the door willy nilly ?? We are not the US of A !! We have a completely different banking systme in Banana Republic Land. We do not have any non recourse loans available to the general public. We have Lenders Mortgage Insurers covering any loss of sale due to insolvency.

This thread has gone full circle. This must be the third time I have explained this already.

 

[robots]

hello,

yes, i think we need Explod to post up one of his jokes just to get everyone to relax, laugh, chill out, take it easy

thankyou
professor robots

 

[satanoperca]

Getting back on to the topic of the future of Australian property prices.

Flood of property listings to hit Melbourne market

http://theage.domain.com.au/real-estate-news/flood-of-property-listings-to-hit-melbourne-market-20100531-woh9.html?autostart=1

The Real Estate Institute of Victoria is predicting 1210 auction listings over the next two weeks, the most on record for that period

Interesting, plenty of stock available,maybe there never was a real shortage.

"The six interest rate rises totalling 1.5 per cent are now impacting on the market," said REIV CEO Enzo Raimondo

Oh, FFS, it is only 1.5% increase from historical lows. If this has an impact, the market is as inflated as possible with debt given we still have relatively low levels of unemployment.

A 50 per cent increase of new home listings expected over the next three weekends comes as auction clearance rates begin to falter on pricier home loans and weaker buyer confidence.

That would be referred to as a flood of supply, can the smart money (aka investors) soak up this supply to hold prices. Hmm we will see.

Home loans, however, have slumped for the six months to March, to hit a nine-year low, as rising interest rates and the expiration of last year's First Home Owners Grant boost cut slowed the market's momentum.

Telling sign, no one is willing to take on more debt or excessive levels of debt to keep the momentum flowing of property prices.

What is a crash, 20% fall this year. No, call that a small correction as it is only coming back to prices in Victoria in 08/09 and a smart investor would be able to easily cope with a fall of the size.

However, there are 150K FHB last year, I wonder how they are coping with 40% higher IR's and the possibility of shrinking equity.

So the question is, what percentage of property owners (PPOR & IP) does it take to sellout to cause a fall greater than 20%.

Cheers

 

[trainspotter]

Why are they selling out ? Australia has an internationally high rate of home ownership (around 70 per cent at the time of the 2006 Census). Yet we also have amongst the lowest mortgage default rates in the world with just 0.66 per cent of the five million borrowers with a loan materially behind on their repayments. This is nearly one-tenth or one-quarter of the default rates observed in the US and UK, respectively. I really do not believe we are ready to have a "lemming off the cliff" style exodus from the property market. The Real Estate Agents are doing their job and obtaining listings. If they don't sell at auction how do we know this is going to cause financial ruination? Why don't they hang onto the home and DOH ... I DUNNO rent it out if it is an IP. If it is their PPOR why are they selling it again? To upgrade or downgrade or leave the country? If they don't sell the home just stay living in the damn thing. Because we do not know the circumstances behind the sale we cannot soothsay (unless it is the 0.66 per cent of the five milion who default due to financial stress) that this is the end of the line for property.

GOSH !

 

[satanoperca]

Why are they selling out ? Australia has an internationally high rate of home ownership (around 70 per cent at the time of the 2006 Census). Yet we also have amongst the lowest mortgage default rates in the world with just 0.66 per cent of the five million borrowers with a loan materially behind on their repayments. This is nearly one-tenth or one-quarter of the default rates observed in the US and UK, respectively. I really do not believe we are ready to have a "lemming off the cliff" style exodus from the property market. The Real Estate Agents are doing their job and obtaining listings. If they don't sell at auction how do we know this is going to cause financial ruination? Why don't they hang onto the home and DOH ... I DUNNO rent it out if it is an IP. If it is their PPOR why are they selling it again? To upgrade or downgrade or leave the country? If they don't sell the home just stay living in the damn thing. Because we do not know the circumstances behind the sale we cannot soothsay (unless it is the 0.66 per cent of the five milion who default due to financial stress) that this is the end of the line for property.

GOSH !

You ask why, I have two words : FEAR & GREED.

Why not rent it out, because rental returns are dismal at the moment and if there is little chance of capital gain, why hold especially on the prospect of even higher prices.

Property has become no different to shares, there are those that invest and those that speculate (trade). What % is speculation, have a guess as I have no idea.

Just like the share market, fundamentally sound stocks can be effected both up and down by speculation.

Interesting times ahead.

Cheers

 

[trainspotter]

You ask why, I have two words : FEAR & GREED.

Why not rent it out, because rental returns are dismal at the moment and if there is little chance of capital gain, why hold especially on the prospect of even higher prices.

Property has become no different to shares, there are those that invest and those that speculate (trade). What % is speculation, have a guess as I have no idea.

Just like the share market, fundamentally sound stocks can be effected both up and down by speculation.

Interesting times ahead.

Cheers

70% home ownership is up there internationally. I don't believe that people buy homes as a PPOR as a speculation? I thought they wanted to live the Australian dream of home ownership. The increase in value over time is the bonus as they "unintentioanlly" build up equity during the course of the home loan. I think on average a home loan lasts between 7 - 9 years before it is refinanced to gain access to the equity in the property to purchase "other" things or just plainly debt consolidate. OR they just simply sell due to financial pressure or change in circumstances, or possibly they sell to buy something bigger or smaller which frees up that person who just sold to go and buy something else. Different financial tiers and a knock on affect as well.

Agreed we have interesting times ahead in the property market. Interest rates have plateaued for the time being. Auction clearance rates have slowed. People are listing and not selling. Looks like to me a market that has run out of puff. Having trouble wrapping my tiny brain around a colossal meltdown in prices of 20% across the board. YES there will be some attrition due to people selling for lower prices for reasons outlined above. Hardly a bubble IMO !