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Just another example of poor quality journalism when it comes to property news. Headline states prices dip and will fall further. The dip is 0.2% in August which I doubt very much is statistically significant. The next paragraph then goes on to state that the RP-Date Rismark hedonic index shows 8% growth year to date …
Through another discussion I found another very interesting lead on the bubblepedia website:
http://bubblepedia.net.au/tiki-index.php?page_id=27
It is an overview of historical house prices from 1880-2006 as developed by Nigel Stapledon of the University of NSW School of Economics. But since bubblepedia is biased by definition I went to the source i.e. Stapledon's PHD report (which can be found at http://unsworks.unsw.edu.au/vital/access/manager/Repository/unsworks:1435 )
I have scanned through Stapledon's report and the data (will read it later in detail), but for me there are a few main points which stand out:
(1) between 1880 and 1950 there is very little growth in house prices, annualized over the period it is 1.2% (till 1949) or 2.5% (till 1950); 1950 seems to be a discontinuity in his data.
(2) between 1950 and 2006 the annualized growth is about 8.2% and in real terms (2005) that works out to less than 2.5%
If you plot the data on a log scale you can easily see points (1) and (2)
(3) Stapledon has no real explanation for this shift in growth post 1950, but to my surprise he does not touch on the issues of demand and availability of finance in respect to this structural change
(4) Stepledon also demonstrates that their is no 'natural' housing affordability measure in terms of a 'normal' price/income ratio. I will write a separate article on that in due course as it intrigues me especially with the frequent statements from all the various international bodies and e.g. the demographia report…
I will certainly include Stapledon's work and the above points in the post on historical house prices on my website ( http://www.retireonproperty.com/propertyinvesting/research/australian-property-prices-since-1960.html )
Thanks again for your feedback.
Erik
Will have a look at ABS for median income data.
Median house price of 8 million in 20 yrs? I don't know, we might be surprised by how high it will be, but I do believe the property markets will sustain their growth in the long term but there will be some potentially significant shifts in our behavior/preferences which will reduce the median price or at least slow the growth. One thing I am sure of is that we’ll see much more medium and high density housing appear just like it has done in all of Europe. The generational changes seem to support that and I think we’ll see much more cleverly designed units where spaces can double up in functionality allowing the overall size to come down. I also expect that the concept of building townhouses around shared recreational areas (e.g. pool & gardens) will become very common.
Unmester, thanks. Will try to include a graph of house price growth versus IR, but will probably put that in a sepratae article to keep this one focused just on prices. I did make one these graphs in the past I didn’t get too much out of them after than the timing / cycle of interest up, growth down and vice versa. One issue I had was aligning the scales as the interest data I have is on a monthly basis and the growth data I calculated myself and is on an annual basis. If you don’t align the scales well then you can’t see the cycle…
Do you know a source of historical median income data as I haven’t found that yet?
Wezwaz,Agreed, slumps in the market can and will happen, in fact there is one happening right now in certain sections of the market.What just really annoys me is these economists, professors etc. making huge claims and predictions based on very thin facts and usually biased to one side of the story i.e. it's either boom or bust and you never get a well balanced review of the facts, figures and likely scenario's but then again that doesn't sell or get headlines. I don't believe in a bust in Australian property, but no boom either for quite some time. Aussie property is not cheap, but people have to view this in the context that Australia despite it's huge landmass is in fact on of the most urbanized countries and Aussie median properties are relatively large, with a lot of land content and high quality compared to other countries. I think there will be a necessary shift to more medium density developments which is also supported/accepted by the upcoming Gen Y buyers / renters. The one thing the Australian government may do is to release more land and simplify development processes / reduce development costs which I guess would reduce pressure on prices in outer suburbs.ErikRubbish article.
The concept that Australian real estate is the most expensive in the world was also outlined in the recent Demographia study, but that study was flawed in many ways: only included US, UK, Canada, Australia, New Zealand and conveniently forgot to include the very expensive markets in Europe. Furthermore these studies never take quality into consideration, a so called median property in Australia is significantly larger with more land content than a median property in many European countries.
The point that home ownership hasn’t increased in the last decade obviously has to do with price / earnings ratios, but don’t forget that even Australia is seeing an demographic trend emerging where renting is becoming a preferred choice for many – not because they can’t afford to buy. This trend has been in existence in many European countries for a long time and will grow in Australia especially with Gen X and Y now in the driving seat.
Erik
Carl,
Definately not a silly question in my mind. A very crucial one.
It depends on your strategy, if you pay off your IP's you can't deduct your interest from your tax so your are missing the opportunity to borrow money cheaply and increase the size of your portfolio. In principle the other way to get money out of your investment properties is by refinancing and living off the equity (bear in mind the money you take out for living will not be tax deductible). In the current financial environment living off equity has become quite difficult unless you still maintain a reliable income stream.
I would say that the sensible strategy is to first grow your portfolio (i.e. accumulate) and during this phase you do not pay off the loans but use spare equity to reinvest and increase the portfolio. Once you have the required portfolio size (in $ terms not property numbers) you then need to decide what your strategy will be to get the money out i.e. live off equity or sell some of the IPs and pay off (most of) the outstanding loan balances or a combination of this.
Many angles and things to think through on this one so I could write on and on …
Erik
PS Michael Carmen wrote a series of articles on this in API Magazine worth reading. You can read his articles on his on website http://www.wealth-enhance.com.au or at http://www.propertyupdate.com.au/authors/40/Michael-Carman or start at my site http://www.retireonproperty.com/whyproperty/how-to-retire-on-property.html
Hopeful1,
First of all, I am no expert so you really need to urgently seek professional support.
You have not paid 5 months on your mortgage and even though the bank has agreed to capitalize this for now, do you actually have any formal documentation showing that because of capitalizing these payments your mortgage is not in arrears? What happens if ANZ decides to "clean-up" delinquent mortgages. You will lose both properties in such a scenario, you have both loans with ANZ and I am assuming the loans are in your personal names so the bank will have cross collateralized.
I don't see how you have enough income to obtain the funding you speak of through traditional channels, especially in the current climate.
I would strongly suggest you do the following:
1. Put one of the properties up for sale, so if all else fails you can sell one of the properties, get the capital gain and keep the other rather than risk losing both.
2. Look at securing finance through other channels, like private loans for the $10k – $30k you were talking about and maybe something like an EFM (http://www.efm.info) for the loans. I have never used this nor deeply investigated it, so do your due diligence, but in essence this product will lend you up to 20% of your property's value in combintaion with a normal mortgage with no interest to pay, in return the financier gets 40% of the capital gain between when you took out the EFM and when you sell the property or after a fixed period. Might work for you or not. Whether they lend at the moment I don't know and being behind on your payments won't help. Maybe you can find a JV partner to buy into the properties if the cashflow is as good as you say. Prepare a good, professional looking project summary incl. financials and send it around. Post it here! Maybe you'll find someone willing to buy into you're project.
3. Move to wherever you have to move to get the best paying job you can get, even if it's just temporary. Without good income you will struggle to secure a loan.
4. Keep on fighting like you're doing – good on you! – and don't give up, BUT make sure you have a back-up plan and don't risk it all. I.e. make sure you sell yourself if you have to and don't wait until it's too late and the bank reposseses. Don't trust the bank's word, make sure you're on the right side of the written agreements.
Erik
Toni, Kenny,
Thanks, indeed the site is still very much under construction, it’s taking much more work than I thought it would be. It will take a few more months to get all the articles done.
I already have many more planned incl. some flash videos and free software if I can get the techi stuff to work.
If you think there is anything missing, let me know please.
Kenny, thanks for reminding me, the article on Brisbane prices is drafted, but needs to be checked and then it will be published, couple of weeks away. The graphs are correct though.
Erik
I know I should really be touting my own site, but since you have specifically asked, please have a look at: http://www.retireonproperty.com/whyproperty/property-investing-demographics.html At the bottom of the article are two useful links, one is to ABS data and the oterh to a Bernard Salt presentation. Please let me know what you think about the article and I will be more than happy to incorporate comments or suggestions. Erik
Don't remember exactly, but I think it had to do with getting and using a Brazilian bank account whilst living overseas… that said there are so many overaseas investors investing in Brazil it must be possible…also look into tax policies before you invest
85eternal, make sure you do your due diligence before investing in Brazil, a friend of mine bought a unit in one of the coastal towns off-the-plan and had nothing but trouble in terms of the purchase agreements, getting money into and out of the country etc. I never looked into Brzail myself, so thi is only hear say, just be careful and go into any deal with our eyes wide open…
Fiona, first of all I'd say that it's great to see that you're planning your financial future so early.
Don't let doom & gloom preachers deter you from executing your plans, but do you sue their challenges to ensure you have a robust plan and that you are well protected against the downside. I personally believe that Australian property will be an excellent long term investment, but in the short term the ride might get tough as interest rates will go up in the next 1-2 years and maybe quite fast. Lending criteria will continue to remain tight and property values will not rise anytime soon, but I don't believe they will drop far or fast either (except in the top end of the market where we have already seen this).
Instead of going for the $500k bracket in which you're comfortable spend some more time doing research into up and coming growth areas and consider buying something in a lower price bracket but with plenty of potential to add value. This is not a time to overstretch and if you've read Steve's books he's given some good tips about what level of LVRs you should have during different times of the economic / property cycle.
Also, have you established a 6 month emergency fund which can keep you going if for whatever reasons you encounter a reduction / loss of income (e.g. job loss) or major unanticipated costs…really a basic requirement in your financial plan especially in the current environment.
I have subscribed to their website primarily to help with increasing my understanding / knowledge of the australian property market and since I'm an overseas investor I have to do all my research remotely. I found their website valuable in that I got a lot of insight in where to find cashflow +ve property. Not only the usual suspects of mining towns, student / shared accomodation, but also certain suburbs around Brisbane. In almost all cases I was able to find the properties I was interested in at realestate.com.au and in most cases the Cashflow Capital webiste did not offer much more information. So… valuable for the first year but I don't expect to extend my subscription once it expires…
I read most of the books you mention apart from deRoos and may look that up… I also liked Michael Yardney’s “how to build a mutli-million dollar property portfolio in your spare time” as it is a good summary of a growth strategy.
How have you combined the knowledge from these books into you own strategy??
Make sure you check the current value of the studio apartment. And get a proper depreciation report for it, especially considering it’s brand new.
If you transfer the title of apartment, that is sale and you’ll be liable for stamp duty…
If you don’t go and live in the studio, but rent it out and buy something existing as your PPOR you should be able to access the increased FHOG??
David, sounds like you have set yourself up for success, well done.
I think that the next 12-24 months could present very good buying opportunities, but be careful not you extend yourself too much as I foresee a rapid increase in interest rates once we’re out of this mess and inflation catches up. For now, I would concentrate on paying off teh mortgage, develop a strategy/plan (e.g. cashflow +ve, growth, renovate), think about the holding structure (personal name, joint, trust etc), educate yourself about proeprty investing and tax and start looking. Once you have finished the 12 months on you loan refinance and buy. If you find a great deal sooner than 12 months, just negotiate an extended settlement to align with your refinancing…
Good luck!
I’ve been reading API for a while now, I do enjoy it, but must say that, the more issues I read the less interesting it becomes. Quite a bit of repetition and not a huge amount of new information. If you’re tight on money I’d stick to using the web and getting some classic property investing books (from the library)…
KFRE1810, that’s bad news losing all your IPs because of a development going wrong.
Before you go any further I’d suggest you make sure you really understand what happened and how you can protect yourself against it happening again. If you undertake a very risky development, make sure your existing assets / investments are protected e.g. using a trust structure.
But also, look carfully at the risks you took in that project, sounds like you were overleveraged? Were the risks unnecessary and could they have been better controlled?
Would suggest you create some equity first before buying anymore, especially with current lender practices.
Jolley, as an overseas investor if you want to use a trust structure with a company as trustee you do need to appoint an australian resident as director of the company.
