Forum Replies Created
- DWolfe wrote:I can buy sites till I'm blue in the face but when it involves us living there it is tricky.
This is something that would weigh heavily on my mind also, and a good reason to choose Wantirna over Bayswater. However it is likely that you are buying with the end result in mind.
DWolfe wrote:fword, witches and robbers must have been at work today lolHaha, where? In Bayswater or Dandenong?
Tough choice, and no wonder you're in a bit of a pickle over this. Ordinarily, I would take location over everything else, at least to a certain extent. I also once read in an article about some 'expert' who stated that if you had to compromise because of budget, don't compromise on location. Compromise on land size.
If your family wanted to live in the place for a while, I'd also be guessing that Wantirna might be more comfortable than Bayswater, given the current existence of amenity and entertainment, and you could do up the house in the meantime. Plus, if the Wantirna house has been on the market for ages, the vendor may be ripe for negotiations so you can get a better price.
However, my suspicion is that the convenience and amenity has already been built into the price at Wantirna. Bayswater on the other hand, with a current stigma, has great potential for upside given the proposed redevelopment. People who are priced out of Wantirna and Heathmont (prices in these areas already are much increased) will probably head over to Bayswater (the ripple effect). In short, the only way for Bayswater to go is upwards, that's if current market conditions hold.
My uncle once made a joke about Dandenong when I once talked about buying there, and should have, only that I didn't have the money then. Of course, this joke is meant to taken as tongue in cheek, and not meant to offend those who live or have bought there: in a place dominated by robberies and witchcraft, things can only get better from here. And Bayswater could very well be the same.
On the topic of creating affordable housing, would increased supply of government subsidised housing help the situation?
In Singapore for example, the government owns many, many large blocks of apartments that are sold direct to the public on a 99-year leasehold period (the leasehold period applies to a large proportion of other property in Singapore).
These apartments are perfectly livable, and vastly less expensive compared to housing on sale in the private market. The whole scheme is means-tested (ie. by income, marital status, assets) and only people who meet the strict criteria can buy such an apartment direct from the government. The high density of such developments also means that heaps of people can be housed in a single block of apartments.
For the purposes of having a roof over their heads, would this be a viable option to aid those who simply need a place to live? What are people's opinions on this?
Personally I think this is helpful. An investor (or anyone who owns or controls even a portion of any other property, or owns a sizable business or share portfolio) cannot buy such apartments. Prices of these apartments will hence remain stable and affordable for the long term, and so long as the government keeps up with the infrastructure and supply of these apartments, there should be no shortage of affordable housing for the people who actually need it.
If these people subsequently become successful and want to upgrade, then they can step out into the private property market and look for something else to buy.
On that note, we need to improve the standards of public transport in order to support such a scheme. There is little point in housing hundreds of folk in an apartment block somewhere if they have no easy means to get to work. If everyone was forced to drive, we'd face severe congestion on our roads (which is already happening).
toe wrote:My quote says "if there's a crash it will be due to wider economic conditions".Agreed with this. There is an impression by some that the property market simply has to crash because the growth in property prices has so far outstripped inflation and the growth in wages, and that property buyers are simply speculating and using property as a tool simply to save on tax.
Indeed as you say, a crash has to be due to more significant negative events or sentiment in the economy, and that's logical enough. Either that, or Australia as a whole has to become so unpopular and unlivable that everybody wants to leave, migration ceases, and somebody remarks, 'Last one to leave, please switch off the lights!'
ummester wrote:So, out of interest, how many PIs from this forum are trying to sell now?Are you willing to drop prices enough to undercut similar property and get a sale, or are you determined to get a minum price?
Good question. Personally, I'm fully invested and not selling. Whatever happens, I still need a house to move into ultimately, or for retirement. I'm not fussed if prices were to drop because I need the house, or at least want it badly enough. I'd also have to admit that there is a very high emotional value on my property and the attachment is great enough to keep me hanging onto it.
Having said that, this sort of answer is probably not representative of how the majority of PIs think.
AussieHousePrices wrote:fWord – I think we've gone as far as we can with this debate. Was fun – cheers.Thanks AHP, it was a good one. There's another thread that I've been following and you might have seen this one as well:
https://www.propertyinvesting.com/forums/property-investing/general-property/4335661
It's an interesting read and there's good opinions for both sides of the story.
god_of_money wrote:Wooo… nice argument… can probably write an essayROFL I think it's hilarious too. Hope they make it a sticky.
And no, it's not an argument. It's a healthy debate. And this debate was extremely enjoyable.
AussieHousePrices wrote:You’re spending a lot of time making a point that I’ve already made – that the more expensive areas rise and fall by the biggest percentage. Personally, I wouldn’t take that to mean it’s OK to hold throughout the downturn. It could, for example, take 20+ years to get to its pre-bubble peak.No, I'm not confirming a point you've already made, much as I agree with your assessment. I'm simply saying to please, for goodness sake, read what I'm saying and stop assuming that I'm implying what hasn't been implied.
Geez! What a mouthful that was. Nevertheless, I'm not going to waste my time to explain myself any further. I do not need to further justify what's been written.
AussieHousePrices<span wrote:Sure you can make a business out of property by, for example, buying a knock-down job, re-building and selling for a profit – or even just as a full-time landlord offering shelter to tenants.Fantastic. So property venture is a business and it's perfectly ok for property to change hands at increasing prices (or decreasing prices if property becomes unfashionable)! I don't know what makes people think it is NOT ok for property prices to increase. In my line of work, we increase the fees of some of our services every couple of years and I'm sure many other companies do this. Has their level or service or what they offer actually increased when their fees are increased? Absolutely not.
AussieHousePrices wrote:But in a property boom, prices go up because …prices are going up! They are rising more than can be explained by increasing population, shortage of land, general inflation etc. Therefore, we are paying each other increasing amounts for the same thing for no good reason – with less to spend on other things and less money being investment in the productive area of the economy. It’s a Ponzi scheme and it will end in tears. That’s fine of you’re OK with that. I’m not.This is going to waste our time by going back to square one. We've debated this for the last few pages, much to the amusement I suspect, of our onlookers. I don't understand this: what makes you think that property changes hands each time for increasing prices, yet remains unchanged itself throughout? Haven't we considered what houses are like today compared to what they were like 30 years ago?
Furthermore, we need to consider the upgrades to infrastructure that is occurring all the time. This would explain why areas that were previously considered 'holes' out in the middle of nowhere are suddenly more accessible, more livable, and, you guessed it: more expensive. Perhaps you could argue that the land itself didn't change. It didn't move an inch (save for what the Geologists would tell us), and it's still a piece of dirt. But did the utility of that piece of dirt increase? Yes. Did the residential density on that piece of dirt increase? Yes as well. Did the desirability of the piece of dirt increase? Of course!
An old guy I used to work with told me about how, in his younger days, a part of Burwood in Melbourne was a church in the middle of vast fields of vacant land. Now, what do we have? Just looking around that spot, I see K Mart plaza, a petrol station, a massive highway with tramlines and yes, houses. Lots of them. And the church is still there. How can we say property never really changed at all when it changed hands from one owner to another?
The way I see it is, this is the way things work. Whether I'm ok with that or not is immaterial. The world does not stop moving for even one second, or change its course whatsoever, not for one man, a few hundred, or even a few thousand, unless, touch wood, these people died in a calamity of some sort. Then they get a minute of silence. I either decide to fight the evil scheme by abandoning the thought of purchasing property forever, and hoping enough people do the same so that property prices fall, or I buckle down and learn to ride the monster on its own terms.
AussieHousePrices wrote:You keep saying that you’re not implying that good areas won’t fall. So what is the point of the above sentence?Well, you ain't reading carefully before putting words in my mouth. Let's bring up a fictitious example for the purposes of discussion: there are 10 people out there who want to buy a 15 carat diamond, of which only one exists. And there's 100 people who want to buy a 0.2 carat diamond, of which a million of them exist. Both of these types of diamond exchange hands (in those quantities) once a year. Which is the one that is more likely to rise in value? Of course the one that has greater scarcity and the greatest demand. And say diamonds went out of fashion for a period of 2 years. The prices at which these diamonds changes hands can reduce. But which one will still see the greatest potential to increase in price when diamonds once again become popular? The big diamond of course, with its scarcity and underlying demand.
In a similar fashion, when either the property bubble bursts or property goes out of fashion, prices of all houses are reduced when they change hands. But when things pick up again, the houses in the most desirable locations will have the greatest potential to increase in price (as the graph in that PDF file you told me to read, demonstrates), because of their scarcity and demand for them. Hence the property market cycles.
AussieHousePrices wrote:No it’s not the nature of business to buy and sell the exact same thing from the same place at ever-increasing prices. Business is involved in producing something or adding value/convenience etc, and selling it for a profit.Really? Property investing is a business. Look at the example on diamonds again. Diamonds routinely change hands for ever increasing prices. Did they improve in value because the previous owner added some desirable colours or lustre to the diamond? Did they bake it in their hands to add some quality to it? No! They are the exact same thing! And it is not entirely correct to assume that NOTHING was done to a house that changes hands for ever-increasing prices. The quality of finishes may have improved, major renovations may have been done etc.
Have a look at the million-dollar mansions of today. Are you trying to tell me that these houses are the same today as they were some 30 years ago, with all the stainless steel kitchen appliances, luxury granite bench tops, massive inground pools, tennis courts, built-in plasma TVs and sound systems? How can we say that value or convenience (or both) has NOT been added to these houses?
melbournite wrote:My two cents worth… whenever there is talk about whether Australian property prices are in a bubble, those with vested interests always say we are not in a bubble, so prices will just stagnate at worst (best?).Now I had to chuckle when reading this one. That looks like a half-finished sentence. If I may continue from where you left off: '…and those who do not own property, or otherwise have a vested interest in the market crashing (so that they can finally get a foot in the market) say that we are in a bubble, and prices will crash 40% at the very least.'
See how that works? This is another occasion when I'd like to see a show of hands: How many people here who think (or know) property would crash 40% in say, the next 12 months but are still holding on to 'investment' property (ie. a house which they rent out, a house other than the one which they live in) and not planning to sell up soon? Also, how many people here who think (or know) that a property bubble does not currently exist and yet either own no 'investment' property (even though you can well afford to do so), or otherwise used to own them but have sold everything?
The results would be very revealing if we did a poll in this manner and got ONLY honest responses.
melbournite wrote:The bubble should have burst years ago, and would have burst years ago if the government had not interfered and propped up the bubble, sending it ever higher.That's like me saying that I should have gone broke years ago if I had not continued to work, generating more savings for myself. I'm tired of reading about the belief that we are in a bubble. I want to see with some degree of certainty when it is going to occur. If not, I might as well preach, for example, that the end of the world is near. Repent now or burn forever in hell. Why is it that many people do not listen to this belief that the end of the world is coming soon? That's because nobody has been able to, with any degree of certainty, say when it is likely to occur.
It's like the boy that cried 'Wolf'. The more something is spoken about without evidence to substantiate the part, the more dilute its effect becomes.
melbournite wrote:However, for anyone wanting to get into the property market, if properties continue to double every seven to ten years, then the average price will be $1million dollars soon. That means that if someone can save a deposit of say, $100,000 then they would have to take out a mortgage of $900,000, plus costs! Are wages going to go that high in the next few years?Let's talk about 'median' prices. Let's say the 'median' price in Melbourne today is $601,500 (as of Dec 2010 from the REIV). And as you say, prices doubling in say, 10 years. That brings us a Melbourne median price of around $1.2 million in 2021. Because this is a 'median', there will be prices higher and lower than this. Nobody is forcing a buyer to look at a house that is priced at (or higher than) the Melbourne metro median. There will be plenty of houses under that price point which people can buy.
To assume that a person should be able to afford something at the median price for Melbourne metro (today, in 10 years time, or in a 100 years time) is folly. Many years ago, a friend in my line of work could afford a house in Hawthorn that then sold for $320K. Today that same house is worth $1.2 million. Is it then fair for me to say, 'Hey, I'm at the same age now as she was when she bought that place, and in the same job, so I should be able to buy a $1.2 million house also.' Truth of the matter is, there are plenty of $320K houses out there still, which is what I can afford to buy, and who knows, today's $320K house could be worth $1.2 million in 20 years time.
Besides, how can we even begin to predict how high wages will indeed be in 10 years time? We just don't know, do we?
melbournite wrote:If prices do come down, then perceived wealth falls, and then jobs have to be lost, leading us into recession, and of course no government wants to be one to cause or lead us into recession, and no home-owner wants to see the price of their real estate fall either. So it is in their interest to push up the bubble, whether it means opening the floodgates wider to foreign buyers, more immigrants, more grants etc. I might sound as though I'm contradicting myself somewhat, but what I'm saying is that we are obviously in a bubble, the bubble has to burst but the government will certainly try to do what they can to keep the bubble afloat for as long as possible.I've been reading a very interesting book titled 'Unlocking the Riches of Oz – A case study of the social and economic costs of real estate bubbles (1972-2006)' by Bryan Kavanagh. This is what he says happens during a recession, and I'll quote him here for the sake of discussion:
"Swinging voters, that is, those people not permanently committed to either one of the two major parties, will usually throw the government of the day out at the next election, influenced mainly by their 'hip-pocket nerve'."
This happened in the 1974-75 recession with the dismissal of the Whitlam government, in the 1982-83 recession with the ousting of the Fraser government, the losing of an unloseable election by the Hewson-led party during the 1991-92 recession, and the loss of the Keating federal and Goss Queensland governments in 1996 when Queensland was in recession (info from the same book, the chart titled "The Barometer of the Economy").
Looking at history, can today's government afford to allow Australia to sink into recession? I don't blame them for treading exceptionally carefully in today's economic environment, because they KNOW they will lose their seats if we see a recession.
AussieHousePrices wrote:It’s clear from other countries that property booms can and do end in busts. I would need a good explanation of why that’s not possible in Australia. Otherwise, I’m going to assume that we’re no different.Of course asset booms of any sort can end in a bust, and of course it's possible in Australia. What I was hinting at was: what do you think are the reasons for the predicted property market bust in Australia? And no, 'unaffordability' is NOT a reason. Let's look at the Singapore example again. IMHO, house prices there are obscenely high. But I've never heard of a crash where property prices fell 40% or so. People don't sit around moping about unaffordable housing. They simply live in with their parents for an extended period, rent, or otherwise buy government subsidised housing, which remember, is leasehold for only 99 years.
The way I see it, there's a lot of seriously loaded people out there. If these people are always buying into the hip and trendy suburbs, prices are going to get higher as each of them tries to outbid other parties for a chance to live in these areas. But the regular Australia bloke or sheila does not need to live in these areas and can always look for cheaper housing in areas further out. It's not as though prices are so ridiculous that the vast majority of wage earners need to drive like 2 hours one-way to get to work!
AussieHousePrices wrote:You’re right – that is saying the obvious. I though there must have been more to what you were trying to say.Glad we're finally on the same page. This would have been evident long time ago if not for simply speed-reading through those paragraphs. After all, there's nothing 'between the lines', so to speak. I don't know at what stage did my words seem to imply that prices in 'good' areas cannot drop. It would have been very foolish for me to even dare to make such a claim. I'm not a property perma-bull.
AussieHousePrices wrote:I think it’s still worthwhile investigating the risk of a property crash, and not just believing everything you read in the media. That way, you can take what you think to be appropriate action. You can’t predict with any certainty if and when you are going to have a car accident, but you still take out insurance – just in case.Yes it is a worthwhile practice. It is in keeping with the famous Scout's motto: 'Be Prepared'. If that's the case, are the people who are predicting the property crash actually prepared to buy in when it does occur? Are they prepared for what they need to do if the crash never occurs during their lifetime? Are they hence, adequately 'insured' if things don't quite go the way they think it will?
The media is a funny thing. I have stopped reading the papers for the most part because I am no longer interested in what it says. Firstly, a lot of the news is old. And secondly, as you say, we can't even trust everything that we read these days.
AussieHousePrices wrote:It’s not rocket science – paying eachother ever increasing amounts for the same thing is in no-one’s best interests. It’s not good for individuals and it’s not good for the economy.This is precisely the nature of business, unless we're talking about a charitable business. That's how coffee beans worth a few cents end up in a cup of our coffee that eventually costs us $2.50 to buy. Is human greed a part of the equation? Of course. But would you rather spend your energy fighting the relentless onslaught of human greed or otherwise learn how to be a part of the game and be able to survive?
AussieHousePrices wrote:It will probably take a generation to forget the lessons learnt from this bubble.Don't be so sure about that. Knowing the speed at which the world is moving, the memories we have of the recent GFC would be merely a shadow of what it really was in just a few years time. Just looking at the stock market for example, it appears the market rebounded over a very short period of time, and this was after people were still talking doom and gloom, and when I was still hearing people say, 'Believe me, things will get worse before they get better.'
It'd be difficult to assess the situation from here since none of us get to see what your house really looks like and what sort of condition it's in. The cleanliness of a place or the neatness of the lawn is a subjective thing. For example, we could have a very lax landlord who believes 'reasonably clean' still means there is junk in the backyard and the grass is up to your shin, coming into contact then with potential tenants who absolutely want a place free of dust from the ground up, manicured lawns and nicely shaped hedges.
Personally, I believe that so long as your property manager has photographed the premises through and through and the tenants eventually return the place to you in a similar condition to what is depicted in the photos, then it's as good an outcome as you can hope for.
The statement about getting all this done for tax purposes needs to be considered more deeply. It is not necessarily wise to do something for the sake of getting a tax deduction because you're still spending money, even though the tax refund essentially makes the venture a little cheaper for you.
hschmid wrote:He might believe that the same $ could be more profitable in the business than in bricks and mortar.
Good point. To have a better chance at convincing him that property may be the way forward, you will probably have to study his business, the profitability, all the figures, the risks and potentials. Then this needs to be compared to the types of property venture you're considering. I'm not saying that there's a right or wrong, but if his business is extremely profitable and can benefit from a small outlay that you would otherwise put into property, then why not consider investing in his business instead?
Do you already own or control your own house? Or would you guys be renting at this point in time? If the latter, then consider letting the business generate some profits for use to purchase your own house. It would be less challenging to convince someone to buy their own house than to buy investment property.
duckster wrote:maybe hubby doesn't want to risk his business on your loan or risk your investment on his business . He might want to seperate his business from your property investments.
If his business gets sued by a little old lady who tripped over a carpet in his business you could lose the investment portfolio if it is in the business name or if you are also a director.Another excellent point. Considering that you lost your house previously to support the business, perhaps you could find an accountant who is well-versed with property investment who can then advise on the use of trust structures etc so that you can reduce the risks of losing everything should either one of you get sued or the bank forecloses on your properties.
It looks like you have had some success with your husband when it comes to talking about property. However there is no way to force somebody to buy in if they're really not comfortable. Money is important but a good relationship with your other half is even more valuable. I'm afraid to say this, but both parties in a relationship would probably need to understand that there is no 'you' or 'I' anymore. It becomes a 'we', and compromises may be required by both sides to ensure a better future for both.
Scott No Mates wrote:Fword, we have had that correction. Being a mug punter, I look at very simple stats & focus on my local area. Analysis of resales of properties bought in 2007 (pre-gfc) reveal about 6-7% growth over the 3 years excluding CPI, so we have gone backwards. However 10 year average growth is over 8%. What's worse, the median price (my stat & official stat analysis both give $1.5m). Prices are maintained by restriction of supply as distressed sellers are uncommon & monthly stats are variable. The stats lie & analysis is a crock.Prices in another area (in Melbourne's outer-east) that I've been following have also taken a hit in the last months of the last year (subjectively the price has fallen 5% or so), although it appears that demand is picking up again (although as you say, stats do lie). Hard to say where it's going to go from here, but it'd be very interesting to observe. Where do you think we're headed from here, at least in the local area that you're studying?
xdrew wrote:People cant compare Japan to us, their crash was different. And the US crash is caused by a severe problem exacerbated by the 'housing affordability mob'.With Japan there were loans organised that were 90 year loans, deferring risk of actual final payment of the loans to your grandchildren or worse. This allowed people to borrow amounts that even they couldnt fathom on the basis that by paying a minimal amount they wouldnt even have to pay it off within their lifetime. There was also construction mobs that would leech money off pre-purchase building sites that would mysteriously go bust. If you have ever heard of the Japanese Mob, they have as much influence over japanese construction, as the italian mob has over the US.
In the US the sheer rush towards a 'housing affordablity scheme' regardless of the ability of owners to pay has let a large amount of housing get built with concession in places where they just wouldnt dream of building. Near deserts .. in the middle of cornfields, old toxic industrial estates. They built for the concessions, they built for the money, and they built big. Thats what led to the whole toxic loans crisis. People who couldnt afford their rent were buying two or three houses, lying about their ability to support the loans and walking away from them when they couldnt pay. This wasnt one or two people, it was thousands. And the worst part about the current crisis is that the same people who wrote the bad loans are continuing with the same procedures. There is a lot to clean up there.
In Australia, we have a situation where we just didnt do anything for 20 years on housing. No proper planning, no guidelines, no centralised transportation extensions, no infrastructure improvements when required (eastlink, citilink, brislink are all public organisation partnerships with government). Now, and only since 1993 .. we have been developing high density residential, and even then, not matching it with facilities or demands. People have seen a large growth in the value of their properties. But its not everywhere. I can verify that inner CBD property has been on a slow 8 year drag on its knees to do anything. Banks for a while would want extended guarantees or better ratios on inner city property. To make an assumption that its all been going up, its just wrong. All this long term dawdling has put immense pressure on city suburban property and development. The developers are busy now soaking up this demand, but developers usually only do residential, not infrastructure. We will reach a saturation point eventually. And this in itself will suppress house and land prices. But at the moment, we've really just got started on this.
Finally, some rational wisdom. Thanks for the info, and I really mean it.
Wynyard wrote:"Just out of interest, what is the weekly rent of a place in this slumsville part of Preston?"$310-350pw. Same as the nice area just a few blocks away.
Geez, at that kind of rent for the 'slumsville' you describe, I'd be looking elsewhere.
Wynyard wrote:I'm not talking about no blue ribbon suburbs. As I said, a lot of Preston is the dogs balls, and that will still set you back about 12 x the average income of an inner city worker (plus interest!).Well, who's forcing you to buy there? Buy something that is within your means. Why do people worry about the house that they CANNOT afford rather than researching on the areas that they CAN buy into? This is the thing that baffles me to no end. For some reason, people know how to look at cars and go, 'Oh, that Aston Martin costs $300K, I really can't afford that. So I'll buy a second-hand Mazda for $12K.'
Why does this same line of thinking not sink in when we're talking about buying houses?
Wynyard wrote:The progress of places like Thornbury, where I have lived, has been so slow, that maybe in 20-30 years it will be a new hub for culture, but the problem is, everyone who can afford to live there now has no money to do anything but pay the mortgage off. The main street is still full of failing businesses. In the last five-ten years, nothing has really changed except the prices. Sure it will one day, but we'll be nearly dead by then.Haha, so is that their problem or yours? Why are you worried about THEIR problems? They chose to live far in excess of their means and so they are paying the price. That's just simple isn't it? Who forced them to buy a house that's going to cost them like $700-800K? There's cheaper houses all around. Why not look at Fawkner (median price $450K) or Meadow Heights (median price $350K)? I know, people are going to jeer, '#(&^!! I'm NEVER gonna live out there!'
Well, then choose: rent in an area you'd prefer, or buy into an area which you can afford. The choice is up to you.
Wynyard wrote:Do you really think property in under-developed inner suburban as offering value for money, right now? Would you care to explain your point of view, because I just can't see where you are coming from.No, I didn't say that property in these inner suburbs offers value for money. That's why I bought regional property. But to entertain your question, first of all, let's consider the term 'value for money'. What does this term really mean? It has different meanings to different people.
What does that term mean for you? Is it a big backyard? Proximity to a school? A train line? Shops? The beach or parks? Five bedrooms, three bathrooms and powder room, tennis court, lagoon-style pool and triple garage? All of the above? Hence, what is 'value for money' to someone is not necessarily so for you. And besides, because of price alone, not everyone can afford even a universally 'good value for money' house.
AussieHousePrices wrote:Agreed. But non-cash expenses are dwarfed by cash expenses. So, the only way that tax can turn a cash flow negative investment into a cash flow positive one is if it was on the verge of becoming positive anyway.That's besides the point. The point I was trying to make is that is is not entirely correct to suggest that tax deductions cannot eliminate a loss or generate a profit from a property venture that is otherwise costing money to maintain.
AussieHousePrices wrote:Good point. I do believe in looking at the fundamentals of Australian property when deciding whether it’s over-valued. But I don’t see the point in studying the fundamentals of another country that I’m not considering investing in.Then why bring up the point earlier that property values are crashing (or have crashed) in other countries to say there is no truth in the claim that property values will trend upwards? If we have not studied the fundamentals in these countries, we cannot draw any conclusions about the reason for their property market crash, nor make any comparisons between their bubble and ours in Australia.
AussieHousePrices wrote:How then do you explain the price crash in Toyko?Well, I don't know, and maybe you can clue me in. I would think that people researching on bubbles and such would be well versed with all this information. But of course, in tying in with the above point, I've learnt that you're not interested in finding out what has happened in other countries to cause a crash, which could give us information to predict the reasons behind the crash you believe we need to have (and which we could indeed have) in Australia.
AussieHousePrices wrote:I’m not following – it still sounds like you’re saying nice places in nice areas can’t fall in value??Frankly, I don't know how much clearer I can make this. Since when did I say or imply that prices in these areas cannot fall? I am merely stating the obvious: well-located property will always be in demand and will always sell for more, relative to properties in outlying areas that are devoid of something unique, desirable or trendy. That is of course, unless some disastrous things occur in our country to make it unlivable as a whole (ie. widespread corruption, war, riots, a tumultuous economy) or even another GFC.
To say that however is just making a very broad statement without any commitment whatsoever. In the same vein, a lot of people KNOW that the world is coming to an end SOON, in which case everything will become worthless and cease to exist. Should we then, hole ourselves up in a mountain, eat porridge all day and meditate? There is no point preaching that the end of the world is coming if we cannot predict with any degree of certainty when and why it is going to occur.
Has anyone actually thought about this: what if the property crash that you're desperately waiting for doesn't come during your lifetime? What if the end of the world that you hope for (so that you don't have to worry about house prices) doesn't come during your lifetime either? Would you be lying in your deathbed, wishing then that you had taken more risks in life? What degree of certainty does anybody have regarding WHEN a crash is actually going to come?
AussieHousePrices wrote:Personally, I would rather struggle to save a 30% deposit and buy a reasonably-priced house than easily save a 5% deposit and struggle to pay back the super-sized mortgage plus interest for the rest of my life. In addition, I’d imagine it will be tough DURING the crash but once prices have stabilised, prices will be affordable and lending should become reasonable again.Sure, that goes without saying. I'd rather save a 100% deposit and own a house wholly and not be tied to a mortgage. But is that realistic? What is a 'reasonably-priced house'? Would that be the $500K house of today (which is going to be worth $300K if prices drop 40%) or a $1.4 million house of today (which is going to be worth $840K under similar market conditions, assuming EVERY property in Australia drops at the same rate)? Or somewhere in between?
Under these conditions, there will STILL be people complaining that that $840K house is so unaffordable even though there are cheap $300K houses (worth $500K today, if I might add) sitting everywhere just waiting to be bought.
At a 30% deposit, that's $90K for a $300K house. Still quite a lot of money. And would the bank loan $210K to cover the rest of the costs? I bet my bacon they wouldn't, not in a property market crash. Going back to what was mentioned previously: to buy that $300K property under those conditions, you'd better have the $300K in cold hard cash yourself. That's provided your bank didn't wind up and pay your savings out to other shareholders, or worse, the CEO!
And whether or not affordable prices coincide with the return of reasonable lending remains to be seen. I'd be betting that reasonable lending goes hand-in-hand with 'unaffordable' prices, rather than the other way around. After all, some propose that the 'bubble' has occurred because of unreasonably lax financing. Let's imagine for a moment that all the banks shut their doors and decided not to loan any more money for the purchase of property, or less extreme: banks only loaning to the point of 60% LVR. It would slow or stop the market dead in its tracks. People cannot take out increasingly large loans (compared to their ability to service) and drive up prices.
Additionally, I'm getting the impression that 'bubbles' seem to get bigger and bigger everytime. If we had a crash, I'd be waiting for things to stabilise and the next big bubble to come.
AussieHousePrices wrote:Hi Wynyard. My guess $460,000 now. About half that in 7 years.In seven years time, we'll hear a roar of laughter coming from somewhere. Someone is going to be very wrong.
Wynyard wrote:Also, to her credit, it's a nicer part of Preston, because just a few blocks down the road and you're in total slumsville, I checked out some houses there too, and it reminded me of my time living in commission houses – not pretty, freaky neighbours, bikies, neglect, a feeling of oppression that hangs in the sky. Its not the place to bring up a kid – and I'd be paying over 1/3 of our household income for the privilege.
This is precisely the effect that location has on price of a property. There's a small number of places that a large number of people would prefer to live in. Large demand, small supply. Guess what happens next.
I think it's pretty pointless for everyone to expect to be able to live in the same desirable locations. It is simply not realistic. When people fight over such property, money obviously comes into the picture and the people with the deepest pockets will buy up. And the people who aren't as well-endowed then go around saying that property is unaffordable. Of course! How can people with a low income expect to buy into blue-ribbon suburbs? They just have to look further afield. Why not look at an area that you can afford, buy in, and wait for the place to clean itself up in the years to come?
Just out of interest, what is the weekly rent of a place in this slumsville part of Preston?
AussieHousePrices wrote:fWord – you were the one that said the majority of investors are in the business of capital gain. And in recent times, I would agree.
Sorry, you've got me confused here. Which statement are we referring to that leads you to bring up this point?
AussieHousePrices wrote:…many property investors don’t realize that a tax deduction just reduces the loss (as opposed to eliminate it, or turn it into a profit).Not entirely true. With depreciation benefits and the deductibility of losses from a property venture, it is possible to make a property neutrally or even positively geared. This is especially so for people in the highest tax bracket. It's a pity I just returned that library book, otherwise I'd be quoting that example here.
AussieHousePrices wrote:Underlying profitability is the rent less expenses. To be an investor, you would have to be satisfied with the expected profitability of the investment over the life of the investment. A speculator does not care about that – as long as the capital gains outweigh any potential loss.IMO, underlying profitability is not necessarily rent less expenses. In the line of property, we could look at underlying profitability being the eventual sale price plus rent, less all expenses. That is how you get your eventual loss or gain from the venture. There is no 'one-size-fits-all' equation that determines how we calculate profitability from every form of investment.
For example, some people buy shares in order to get dividends as a form of passive income. But consider also there are people who buy shares from companies that offer little to no dividends (and hence very little in the way of an immediate reward for the investor), but the purchaser is buying with capital growth in mind. On this note, there are some investors who much prefer to buy shares in a sound company that offers little to no dividend because this may indicate that the company would rather invest in itself and then grow exponentially, rather than feeding its investors little bite-sized rewards that in turn affect the company's profitability.
AussieHousePrices wrote:Regarding other counties – I don’t see the need to compare all of those fundamental aspects of their economy and housing market, because I don’t think property booms and busts are driven by fundamentals.Well then, if we don't look at fundamentals, how do we know when it is the 'right' time to purchase? To a certain extent, a market rebounds after a crash because enough people have looked at the fundamentals and decide things are underpriced or the market is oversold. So the fundamentals can be a driving factor in determining market sentiment or public perception. Wasn't it the fundamentals (eg. wages, inflation rates, the economy, affordability index etc) that made you (and some others) believe that property is overpriced to the tune of 40%? Without the fundamentals, how can people quote the figure of '40%'?
To ignore the fundamentals completely is probably not a wise move. I appreciate that market sentiment and public perception has a big role to play in what the market does. However, how can you look at a crash that has occurred in a country with say, a massive oversupply of houses and predict a crash of similar magnitude in a country with an undersupply?
Just going back to Singapore's property market for a moment. I personally think that prices are awfully high, however the sheer density of living and the size of the population will continue to put upwards pressure on prices. I don't see a property crash occurring in Singapore because, high as the prices are, that's just the way it is. You either decide to buy or decide to rent. That's a personal choice.
AussieHousePrices wrote:Your last few paragraphs seem to imply that desirable houses cannot go down in value. But you’ll find it’s the top houses that go up the most in an upturn and down the most in a downturn. Look at the last graph on page 1.http://www.rpdata.com/images/stories/content/pressreleases/rp_data_rismark_home_value_index_december_31_2010.pdfThe stuff I wrote in those paragraphs does not imply in any way that desirable houses cannot lose value. If you read carefully, my emphasis was on 'location' and 'area', not on prices. Well-located property will be in the highest demand relative to poorly-located property and this is irregardless of market conditions. Does a property crash make a good location less sought after? No, in fact, with a property crash, prices in these areas get even cheaper, and hence become MORE sought after. Would someone prefer to buy in an industrial dump compared to a leafy, beautiful suburb in a property downturn? Guess not.
As you mentioned, the most expensive houses fluctuate the most in value. There is the chance of a greater loss if you make an ill-informed purchase. But let's look at the flip side of it: a knowledgeable buyer also stands the chance of the greatest gain by buying this sort of property.
Everybody has a different 'risk profile'. Those who are willing to take bigger risks should rightly, be rewarded with the greatest reward if they buy right. What's a common regret that older people have? That's right. They wish they took more risks. Of course, they're referring to 'calculated risks'.
AussieHousePrices wrote:You mention banks being reluctant to lend in a falling market which is right. And this will only exacerbate the downturn. Consider this – a slight increase in deposit requirements from 5% to 10% HALVES the amount someone has available to bid on a house!More importantly, and without sounding as if I'm repeating myself, circumstances like these only make things more DIFFICULT for people wanting to buy a house. So again, does a property crash really help to improve the prospects of home ownership? If not, then why are people spending so much energy stating that property is overpriced when a property market crash isn't going to help anyway?
