Forum Replies Created
While a little off-topic ([cap]), the Perth residential market has some interesting points.
Perth’s annual growth is currently just under 10%, but slowing. The growth of median established house price has been roughly:
2000 – 155k – +3%
2001 – 160k – +3%
2002 – 182k – +14%
2003 – 208k – +14%
2004 – 249k – +20%
2005 – 275k – +10%
Perth’s boom began later than Sydney & Melbourne’s. Part of the continuing support there must surely come from the fact that a house there looks cheap when compared to other cities.
Perth’s rental yield has increased by 15% over the last 12 months to an average of $185pw for an ‘average’ house. Vacancy rates have fallen slightly to just over 2.5%. This indicates that population growth and/or increasing incomes are contributing to the growth.
However, the average yield on a house in Perth & suburbs stands at around 3.4%. This can only mean that current investors (excluding PPOR buyers) are buying on the expectation of further capital gains.
Also of note, the latest RBA statement on monetary policy records that the ratio of median house price to annual average wage for WA has increased from 4x from 1995-2002 to around 5.3 currently. This contradicts the notion that ‘fundamental support’ / population pressure is wholly responsible for recent growth, but leaves WA cheaper than all other states except for perhaps TAS.
In balance, while Perth’s growth appears to have been somewhat more rational and supported by economic fundamentals such as population growth and the commodities boom, prices have overshot, and are likely to (in my opinion) correct at some point either by falling or stagnating while wages and rental yields catch up.Cheers, F[cowboy2]
Originally posted by grossrealisation:Sydney is the second most expensive city in the world to live in.
This could very well indicate that Sydney has currently the second most over-valued real estate market in the world…
it has had one of the highest growth curve of all developing cities in the world ( except saudi).
The growth of sydney compared with the other states can’t be compared.Sydney also has has also seen the highest ‘loss curve’ (more like a near vertical straightline, depending on the x-axis resolution) recently. The median house value has fallen by a little over 7% in the last 18 months alone!
I still expect to see an additional 25-35% fall in real value from peak to trough.
Cheers, F.[cowboy2]
Originally posted by shake-the-disease:1) Owning cost = CG – M – (G – N)
2) Renting cost = GLets look at a median priced house in Melbourne, the figures look like this:-
1) Owning cost = 8% – 7% – (3.5% – 2.5%) = 0%. Yes, this means effectively it is free to own a property based on those figures.
2) Renting cost = 3.5%
Therefore you should buy.Actually, the CG figure for Melbourne is not currently 8% pa. Nor was it during 03/04…
From the REIV:Jun 03 – $363k
Sep 03 – $376k
Dec 03 – $386k
Mar 04 – $371k
Jun 04 – $371k
Sep 04 – $368k
Dec 04 – $370k
Mar 05 – $348k
Jun 05 – $363kSo the average capital gain in Melbourne over the last 2 years has been 0%.
Your equation becomes
Owning:
0 – 7 – (3.5 – 2.5) = -8%
vs
Renting
G = 3.5%Which is fine, but it doesn’t make any sense. A holding cost of -8% is surely better than 0%? Imagine how much better off you’d be buying a house that dropped in value by 20%![blink]
Please explain?
Good post though.
F.[cowboy2]Ross Gittins article on Vendor Duty changes
It’s reassuring to occasionally have economists draw the same conclusions as one’s self![blink]
The irony is that, to the extent that the evil vendor tax was discouraging investors from selling, it was – by holding back the dam – helping to hold up the price of investment properties and housing generally.So its removal is likely to hasten the fall in Sydney property prices. Which may be a good thing ultimately but will have a high immediate cost if it touches off an avalanche.
Also:
Another Ross Gittins article on Vendor Duty changesRegards, F.[cowboy2]
Originally posted by Qlds007:If you were to sell the property you will need to live somewhere by either paying rent which is dead money
We’re talking Sydney here… renting a similar unit should cost around half of the current interest payment. In this case, selling up, breaking even and renting will save Appless half the dead money currently being p***ed into the bank’s coffers.
My advice, balance the benefits of staying put against the potential savings (and problems) of renting. Changing the property from PPOR to IP would have all the negatives of both without the benefits.
In my opinion.
Regards, F.[cowboy2]3 years worth of the kind of value loss & slowdown currently being experienced in Melbourne would effectively wipe out their equity and make their properties difficult to sell… leaving them with a 4.2 million dollar hangover that they can NEVER AFFORD TO PAY FOR! [blink]
A 1.0% rise in interest rates would see them lose the lot, while half that would at best see them eating gruel once a day and twice on weekends.
Oh to be so rich.[rolleyesanim]F.[cowboy2]
Here in Victoria an incredible number of grants have been repaid, with interest and other costs. Checking with neighbours, gas & electricity companies etc have been used – not just to see whether the services are connected and you are living in the new house, but also to see whether they have been disconnected & you have moved out of the old place.
Can’t find the link, sorry, but the warning is clear. Beware.
F.[cowboy2]As I said before, I think it will make the decision to sell a property easier, but will not effect buyers. Only lower prices will entice buyers back.
F.[cowboy2]Dazzling & GrossR,
I’m not saying (never have) that there is no way to make money in real estate, even with the current outlook. Development (particularly large scale ie 19/20 units!) can be one very good way, providing you know what you’re doing and have the ability to weather the inevitable issues…
On the other hand, buying a house or a unit – almost any house or any unit – to “sit on it for 5 to 10 years and hopefully get a decent profit.” is an absolute mug’s game at this point in the cycle. Yes, I’m being broad brushed, very deliberately so. Every two horse town in this country has seen house prices spiral up to unprecedented heights over the last few years, but if somebody can point me to an area where house prices have not appreciated at least 40% since 1998 I’ll happily admit that area may not be horribly over-valued… as for anywhere else…Anyway, to answer your question Dazzling, I’ve invested in the repayment of all my debt over the last 18 months. Spare cash is invested in oil, base & precious metal shares (currently just BHP, ROC & GDM), physical gold & silver.
I have my eye on an approximately 45,000m2 property with subdivision potential (stca & rezoning) on the Victorian coast, but it would require a 30% drop in asking price to make the reward / risk ratio more appealing. Very little else in the residential real estate does or would interest me except for perhaps a mountain retreat for personal use during the snow season.And for what else it’s worth I believe 30-40% off the ‘current value’ of my own 2 houses would bring them back to fair value, and that I’m not immune from what is happening. Besides, that’s all it cost me to build them… [eh]
Cheers, F.[cowboy2]
I would not be surprised if this occurred. However, I would be surprised if the following 2 situations did not:
1) The removal of another disincentive to sell adds to the over-supply problem in Sydney.
2) House + flat prices continue to fall at increasing speed thanks to supply growing as demand continues to shrink.
Excellent news for those cashed up and ready to pick up the bargains.
Dire news for those who have already maximised their ‘leverage’ and find themselves in the negative equity trap.It is important to understand that while the vendor tax has not helped push up demand and prices of houses in NSW, it is not the cause of house price deflation. The re-adjustment in values is simply the inevitable result of rampant speculation pushing values up too fast, to a point that they could not be sustained.
Whenever real estate agents or their spin agents / institutes blame vendor duty for the sorry state of the market, it pays to remember that they are payed primarily for sales turnover, not sale price. If this disincentive to sell is revoked, they will benefit from increased properties on their books, and if this leads to lower prices, the likely increase in turnovers will be the icing on their cake.Regards, F.[cowboy2]
Cheers, F.[cowboy2]
Originally posted by Beast:Im hoping to buy property while the market is down and sit on it for 5 to 10 years and hopefully get a decent profit.
So you’ll be buying in two or three years then? We are currently at or just past the peak of the biggest speculative bubble in history, and residential real estate is still considerably over-valued in relation to wages, rents and historic trend. Make sure you understand your own plan. I’m still backing 30-45% falls in REAL TERMS over the next 10-12 years for most parts of resi real estate around this nation.
Cheers, F.[cowboy2]
Originally posted by grossrealisation:here to help
That’s great, but I couldn’t understand a word of it. Probably best to read over what you’ve written before you hit the ‘Post New Reply’ button.
In regards to the question, I think some such people (debt junkies) are simply beyond help. I wouldn’t get involved unless it was a close family member. Letting financial Darwinism run it’s course and the family learn their lesson may be the best approach.
Cheers, F.[cowboy2]
The State Revenue Office in Victoria has raised the possibility that all Victorian real estate over $20,000 held in a trust structure will be subject to land tax.
Be aware & beware.
Link Here
F.[cowboy2]Originally posted by RichardRoper:Why would any body Take up a wrap ?Perhaps for hedging reasons? If the house appreciates in value they can pay out the wrap and refinance, but if the house loses value they can walk away, leaving the vendor with the negative equity much more easily than they can with a bank.
And if the vendor persues them for losses, it’s ‘Hello, I’m Naomi Robson. Tonight we feature an unscrupulous preditor making millions selling overpriced houses to ‘Aussie Battlers’ at repayment rates they can’t afford to meet….”Cheers, F.[cowboy2]
Originally posted by munjy:
the central banks increasing liquidity would have to be a fairly way out idea.With our gross domestic product growing at what, an average of around 4% pa and our broad money measures increasing by 10-14% pa over the last 6 or so years* do you not perhaps think this may already have been occurring? Is this not the likely cause of rampant house price inflation & malinvestment?
Cheers, F.[cowboy2]Originally posted by munjy:
For those who believe that such a collapse will be as severe as predicted, in what way will you be insulating yourself? Buying gold? Buying a farm?Gold of course, but also property. Many, many houses, as highly geared as possible. Triple digit inflation would (at least) halve your debt in a year… Yield would not be so important – you could accept food stamps as payment.
But more seriously, I think this article is fairly over the top. I have no doubt there is pain to come in the form of major global economic readjustments as the US cannot indefinitely accumulate debt – they already have more than they can afford to repay or even maintain. This has been supported largely by Asian nations buying back that debt in exchange for continued favourable export conditions, but a change is in the air. China’s revaluation / partial float of its RMB may be the tipping point where values of all major currencies adjust to more balanced levels, most notably a fall in the $US. Australia’s current account deficit combined with low interest rates* would likely see our dollar plummet also.
High levels of inflation in goods and services would follow. Wages would not. With our major exports already at or near capacity, the main (only?) mechanism available for Australia to prevent an inflationary spile is interest rates. Given the US federal reserve bank’s recent reiteration of their intention to maintain ‘measured’ increases in their base rate, we would likely be forced to match or better their rate.
So, in my opinion, are we headed for a major worldwide depression? Doubtful but possible. Higher interest rates? Almost certainly. Home loan defaults and repossessions? Most likely. A dramatic reduction in the standard of living in all first world consumer-culture-economy countries over the next few decades? Guaranteed. In only my personal opinion of course.Regards, F.[cowboy2]
PS – Even if there’s only a 1% chance of this article being 5% correct, a couple of ounces of gold stashed safely under the mattress/ buried under one of the standard iceberg roses is a reassuring insurance policy. 50oz is even better. Oh, and it’s pretty… oh so pretty…. shiny, mmmm…
[blink][guilty][suave2]Interest only loans are a great way to increase the cashflow…. of your mortgage broker. Their trailing commission is set at a percentage of the loan balance for the life of the loan. If a mortgage broker ‘advises’ you to take out IO over a PI loan they are:
a) Acting in their own interest.
b) Possibly breaching laws pertaining to financial advice.Yet it happens all too often.
Regards, F.[cowboy2]
Originally posted by MichaelYardney:BIS Schrapnel seems to get lots of publicity for their forecasts which is curious since they are invariably wrong.
<snip>
Have a look what they said last year and the year before and how they predicted huge drops in property values in Sydney and Melbourne – these haven’t occurred.Ok, will do. Last year:
August 6, 2004
Melbourne property prices are tipped to tumble about 8 per cent over the next two years, slicing nearly $29,000 off the price of a median property after inflation.
<snip> The twice-yearly PMI survey is conducted by property and economic forecasters BIS Shrapnel.Source The Age
10-May-2005
Melbourne’s median house price dropped 4.9 per cent over the March quarter to $352,000 down from $370,000 in the December quarter 2004.Source REIV
Originally posted by MichaelYardney:they predicted huge drops in property values in Sydney and Melbourne – these haven’t occurred.
[blink] Uh… I think if anything their predicted falls are looking rather conservative.
The last time one of their predictions was right was the end of the property boom in 1989.A pretty crucial correct prediction then. What did residex predict? They didn’t exist then did they?
Then have a look at the forecasts by Residex and you will see they have an enviable track record.Residex produce the most laughably incompetent ‘analyses’ I’ve ever read. They do provide – for an enourmous price – information that should really be freely available, but which can be quite useful providing their ‘growth predictions’ are ignored.
F.[cowboy2]
Well, I think your ‘aha!’ moment for today should involve the lesson Don’t believe everything you read on the internet![biggrin]
Cheers, F.[cowboy2]
How can a young couple getting married afford to buy an average house for $350k. Well thats what you need in surburban Melbourne.…which may go some way to explaining:
Bankruptcies rise by 10 per cent
July 08, 2005
From: AAPWHILE key indicators point to a booming economy, the latest bankruptcy figures show a rise of almost 10 per cent.
The insolvency and trustee service department today released the provisional bankruptcy figures for the June 2005 quarter which revealed there were 5,649 bankruptcies in the quarter, up 9.7 per cent on the same time last year.
