Ben,

I totally agree with you. It all depends on our strategy.
My strategy is to hold long term and rely on my strong personal cashflow, hence I am not too concerned with CGT and equity.
I am more focused on low purchase price, rental return, low maintenance and location, location,location.

So I select a few post codes with robust price increases. Then I record all the sale and rental advertisements for a each postcode for a specific period of time.
Just to add more calculations to your hefty calculations, I calculate the average rent per bedroom, property price per bedroom and property price per sqm.
So I know which area’s got the better return and the next time an interesting property come up, I know whether it is overpriced or a good buy.

Just my 2 cents, :)
Catts

Hi Weatjess,

Firstly, the situation you are in is Negative Equity, rather than Negative Gearing. Both can happen to a property and at the same time.

My suggestion is to find a property agent who is willing to let the property by the room. So Letting is by room rather than the whole house. Good location usually means students or, like Long John suggested, nurses / doctors for the hospital.  Room letting usually gives you more money, and hopefully eventually it’ll bring you out of the negative equity side.

But you need to put in some basic furniture like bed and wardrobe, some cookery, etc.  Depending on your target market, you may need to strategize. For example, if it is student / single nurses / locums you buy single bed rather than double, etc.

Just my 2 cents.

Catts

Gee… sorry to hear your story, mate.

I’ve never been in your position nor know anybody who is. But theoretically these are the procedures (same for all banks, not ING specific):
– ING will claim the difference from LMI.
– If there is no LMI, or not enough from LMI they’ll come after you.
– They’ll talk to you, negotiate, try alternative payments etc. Stop interest (they are legally obliged to stop interest if you apply – I think you need to use some government agency to do this)
– Still not happy with that, they’ll continue pursuing you, trying to get their hands on whatever assets you have car, watch, jewellery, anything. But they cannot touch your super unless you take it out. So if you decide to take your super out, be mindful on how much you take out and what you do with it.
– Next step is ING will either outsource or sell your case to a debt collector who will contact you.
– At one of the above stages, depending on how much they think they can collect from you, they will start amortising your loan. Meaning in their book they write off your loan. But this has nothing to do with how they chase you. They still ask you for the full amount, just in case you win a lotto. Basically they won’t stop until you either pay in full or declare bankruptcy even if your loan has been fully written off in their book.
– If outsourced, you are chased by the debt collector acting on ING’s behalf. So ING is still legally responsible for their conduct. All funds collected go to ING and the debt collector gets a fee or a cut.
– If sold, the debt collector act on their own. They pocket whatever money you pay them. ING is not legally responsible for their conduct.

Hope this helps, and good luck.
Catts

Hiya,

Interesting topic. I do think about this as well. I think it signals that the economy is not doing well, possibly worse to come.

These are my thoughts:
In the short term, there will be more people who can buy properties,
In the short – medium term the possibility of losing one’s jobs are getting bigger.
So even if the people who buy property have been careful, there could still get into trouble.

Back in the 1990s-2000s it was easy to borrow because economy was booming, lending criteria was laxed.
This time round, lending criteria is tight however the low interest rate makes people borrow more.
Like in the 1990s-2000s period, people may get into trouble because they lose their jobs. The difference is: the probability is much bigger now because the economy is not doing well.

The key to overriding this period is also liquidity – having enough cash flow. The 1990s-2000s period liquidity problem came from high interest rate, living beyond your means using credit card, etc. People have their jobs, but simply cannot pay their expenses.
This coming period of 2010s is about job losses, reduced income and shouldering family and/or tenants who lose their jobs.

Implication for those thinking of buying
1. Make sure the property is in area where there is jobs, so tenants (for IP) and yourself (PPOR) have a better chance of keeping their jobs. These Job centre towns must be supported by
a. various industries offering jobs, not just say tourism or manufacturing. The more the better.
b. The industries must be robust / resilient, meaning really needed by a lot of people or subsidised by government. For example, the army.

2. The property value will go up or down depending on the demand ie. no people buying, prices go down. Where there is jobs, there will be property demand and prices will respond accordingly.

3. Cash buffer is more important than ever because tenant (for IP) or you (PPOR) may lose his job, but you still need to pay interest and other costs. In The 1990s-2000s one can wing it and hope for the best. Not in 2010s.

Implication for those who are selling
1. Depending on your location, ie. job centre or not, you may want to sell now.

The adage location, location, location still holds true.

Cheers,
Catts

Lack of cash flow in Oz?? With the interest rates coming down, I am now in positive gearing category.

Agree with subdividing (being a lot of work) and mining towns (risky).

3-5% pre-tax ceiling?? Seems like you know more than me. Would appreciate further info?

Hi London,

Interesting thing you are trying to do there. So you are in HK, wanting to buy in London. So why asking on this forum? Seems odd.
So how do you know which area you want to buy in. Or are you planning to just trust the developer?

Having said that, I am an Oz currently living in London, wanting to buy in Oz. Have looked around in London, but still think Oz is better investment.
I don’t mind answering your questions if you want. I am not a lender or mortgage broker or accountant offering services to you. I am an accountant and works for a bank, but if I answer your questions it will be on personal level rather than commercial / professional level.

Never heard of Grosvenor International. They probably use another name here in London? The areas they showed on the website are ok-ish areas meaning low to medium middle class. I’ve looked at some buildings similar to the ones they are showing. And IMO the interior is usually not good quality. From my searches, I concluded that new buildings are not good as they are usually over priced – given low quality interior, poorly finished skirting, low quality kitchen appliances, etc. Art deco conversions can have the same problem but at least the building themselves are more robust.

Hope this helps.

Cheers
Catts

Be nice guys… it's his money, his life. At least he's not on the dole, not costing us any money.

Your equity would be from the price increase.

So if I buy at $1 mil with a deposit of $200k, my equity is $200k
A year later I order a valuation and it is valued at $1.2mil, then my equity becomes $400k.
This assumes price increase. When market crashes you can end up with negative equity.

But I also share your scepticism. But my concern is more towards the end of the mortgage term when I have to repay all loan amount.

Cheers,
Catts.