We all know there’s been CG all over Australia over the last few years. But now that the boom *may* be ending, have people’s strategies changed?
This post is about looking past previous CG (which many of us have had) and looking towards the market for the next couple of years. What’s the future of property?
Can one still achieve CG if one starts now?
(This post might be of interest to newbies who are just starting out).
For all investors, pretend you have no CG and are starting out with a 20% deposit. What would you do in the property market now? What would you buy?
kay henry
Quote:good question.i think i would buy a block of land under market value. then build a 4×2 cheapie on it. as long as u can service the loan whilst building and renting somewhere to live. i reckon u could create some equity to start investing.but remember when real estate goes gloomy there will be plenty of c/flow properties everywhere to take advantage of. im hunting for more equity so i am ready for when prices drop to buy c/flow houses.thats what i love about this game creative thinking.cheersBeerboy
At the moment doing the same building equity in current PPOR ( cheapest and easiest ways to do this is renovations etc, doing the work yourself -then re-value , also re-value your other properties if it hasn’t been done for a while )
Still searching for properties and wish i had more time, expect rates to go ‘up’ again in next couple of months, would ‘Love’ to get a + geared property before then.
There will alwaysbe areas where property get’s good growth, even in bad times, it’s just finding the next ‘Boom town’ or ‘suburb’
Also looking at hedging my bets and balancing out my investments by investing in some shares ( other than what my super fund does- and happy the papers expect Super to achieve around the 7% return in upcoming year, be nice after the – growth)
B+ is not just a blood type- it’s an attitude [
]Wouldn’t buy a block of land and build here ( WA ), you’re looking at 12-14 months to get your house built lately… shortage of bricks or something
REDWING“The man that thinks at 5o as he did when he was 20 has wasted 30 years of his life”
8 years of 15-20% CG’s p.a. which are 10-15% above the long-term trend should mean a very large correction is required. The above translates into 160% increase in prices over this period or 120% higher than the long-term trend. In order to return to a normal CG situation, prices would need to at least halve. I dont expect price to halve though but rather expect a 20-30% downward adjustment. I think this will occur during late 04 or early 05. Whatever the correction, many people will not be prepared to hold onto properties which cannot delivery CG’s as well as declining rental returns due to oversupply.
I will be looking carefully during 05 for good value (50% lower prices than now).
A word of caution, dont think that if prices drop by say 20% that you are in for a bargain as these properties will still need to drop a further 30-40% to represent values near the long-term trend line.Personally Kay, I think there is a time to stay out of the property market ( that is new purchases ) and that is now.
Rental returns need to improve and capital growth in most areas has probably done its dash.
I’m not saying there will be no growth in the future, all I’m saying is entry into the market may be better timed in a year or two.MJK
Hi Kay Henry,
For all investors, pretend you have no CG and are starting out with a 20% deposit. What would you do in the property market now? What would you buy?To be honest first thing is, out of that 20% deposit, i would buy last sundays newspaper. As it has areas of 2004 predicted for capital gain. They also predict, even with interest rate rising, it will not affect the market much or that property prices will go down.
I would invest that 20% cash deposit into a -ve geared property, just for the moment, in predicted CG areas, and then if the property produces some quick capital gain. I would then invest that equity into a +ve cashflow property at 105% finance.
In doing so, this would be using the Offset Gearing Principle, but its puttin you into a finanical position of Market Control, but also puts you in a position to be ready to purchase your next investment property.
cheers,
s.i.sThanks for your replies :o)
Do you think the market will truly flatten once the boom ends? Or do you think the boom will never end?
If, as HousesOnly discusses, there will be a major price correction (downwards), will people be able to continue with their strategy of accumulating more property? With a price correction, equity will disappear, and so will buying power!
kay henry
HousesOnly,
I dont expect price to halve though but rather expect a 20-30% downward adjustment. I think this will occur during late 04 or early 05. Whatever the correction, many people will not be prepared to hold onto properties which cannot delivery CG’s as well as declining rental returns due to oversupply.
What if the property price is not downward? What if the price is not downward at time you suggest? what will you do from now to your prediction date? would that be best to look for +ve gear property?For me I don’t care whether property price going up or down if I can find +ve gear property then I will buy it. May be I don’t look hard enough that is why I can’t find any +ve gear property at this moment.
Kind regards
ChanDollars
[Keep going, you’re nearly reach the end of financial freedom]In early December Helen and I spent a quiet weekend in Nelson Bay, resting and reading. On the same day I read the finacial Review, dooming & glooming on property. Nowhere to go but down !!!
Sydney Morning Herald predicted next year, thanks to their source, the REI, that units would go up 5% and houses 11%, presumably Sydney or NSW.
Guess which paper survives on paid advertising (RE ).
I believe the Wentworth Courier (Sdney east Suburbs )in October had enough real estate sales that it looked more like a telephone book than a paper.
A lot of ppl have a vested interest in keeping the prty juggernaut rollingAll booms are always followed by a bust. This has never not happened in history. To think that property will suddenly defy this rule is totally naive. The extent of the bust and the timing are the only things up for debate really.
+ve IP will also be affected by the cycle and prices will decline when there is a bust. Too many factors affect rent prices to discuss in this thread, suffice is to say, I think they will not increase or decrease much. If the bust is not just in the property market but also in the job market, then +ve IP will be seriously affected as people move from rural to urban areas in search of work. If the job market stays strong then +ve IP will be even better than now imo. This is however the million dollar question!
Most of you will remember Billfromoz – he’s predicting a fall in prices similar to 1994 in Canberra. He suggests that it would be best to wait until 2005 before considering purchase.
FYI, Bill is planning to start his own forum late January.
Shirley
Houses Only
<<<The extent of the bust and the timing are the only things up for debate really.>>>>
What do you expect interest rates to be during this bust. Thats my largest exposure as with most people.
Do you expect rates to fall to stop the slide? In comparison to rates now, do you expect them to fall or be higher?
I am of the belief that interest rates are the driver of property. If we can maintain similar low interest rates over the medium to long term, then there is no reason why we cannot maintain a soft landing.
Cheers
Andrew
Yack
It all depends on whether the economy is strong or weak. If it is strong then I predict interest rates to increase to about a max. of 9-10%. If it is weak then the RBA will have to stimulate it and in those circumstances the rates will only get to about 8% before again reducing down to where they are now. All of this is dependent on the world economies doing exactly what they are now which is unlikely – so I guess it is anyone’s guess.There are indeed some interesting times ahead. The bulging US trade deficit and a change of sentiment towards the US $ will most likely see it devalue significantly. The rising aussie dollar will become a political and economical hot potato and will tie the reserve banks hands to prevent them from raising rates too much further. People also forget that the next terrorist attack could be today or tomorrow – but I wouldn’t like to be in shares when it happens.
When evaluating property I would look at home affordability indexes and population projections. Demographics will also see an increased demand for low maintenance homes etc etc
If you want to wait and hope that prices will fall then good luck. If it happens I will expand my portfolio as well and will be happy about it. In the mean time I am looking to acquire quality property as fast as possible.
Shirley,
If I wait another year to get an IP, that’s another year out of my old life! [
] I only have a certain amount of working life left. Whilst I continue to work, I can continue to invest. “No work, no buying of toys” (IP’s) is my strategy.Hence, I wouldn’t put off buying for a specific amount of time- there will always be bargains; there will always be opportunities- no matter what the market.
kay henry
Kay
I agree that there are always bargains in any market but I also think that a lot of people are fooled into believing that 5-10% discount off the current market value is a bargain. What if you buy now and negotiate a 7% discount off the asking price but in 2 years time the market value is 30% down on now just like happened in the past. Would you still think you bought a bargain?
Always consider the long-term trend currently which indicates that almost every property for sale today is overvalued by about 100-150%!well it happened once when they abolished negative gearing, which incidentally sent rents soaring. Can you please quantify how you have calculated that property is over-valued by 100 to 150%? If you could prove it to me I will liquidate my portfolio today.
oh, i remember that story about how they abolished -ve gearing and how quickly the government had no choice, but to allow investors to -ve geare.
Very much doubt they will ever take it away.
cheers,
s.i.sHousesOnly,
This is why I posted elsewhere that I don’t want to buy in places that have demonstrated huge CG
*now * or in the past- I wanna get pre-boom rates and get value for money. I know my price range and what I can afford. I have to stick to that- it’s not much of a choice)Getting 20% discount on an OTP oversupplied apartment doesn’t seem good value to me. I can’t afford the initial price anyhow. Hence, my budgetary constraints mean that I am forced to do much more research (which i love) and put much more thought into the practice of buying.
People are discussing their strategies as if they’re millionaires and we all are. But some of us are just working class people who are excited by property.
kay henry
Hi Kay Henry,
I share your same views too.
Sorry what does OTP stand for? im just racking my head and no words are coming to mind.
cheers,
s.i.s
]
] I only have a certain amount of working life left. Whilst I continue to work, I can continue to invest. “No work, no buying of toys” (IP’s) is my strategy.
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