Forum Replies Created
- JamesSampson wrote:
I have friends who say what the media tells them, that property is unafordable and out of reach. I believe what the article says that they can afford property they just cant afford the property they want.
This is an important point that I wished more would-be buyers would try to understand. Truth of the matter is that they have to take baby steps and get started somewhere. There is no use hoping in vain to buy that lovely $1.5 million dollar house in a well-heeled suburb when they obviously have no ability to either put down the cash for it, be able to take a loan for that amount, or be able to service that loan. What do they expect? A cash handout to fall from the sky once they have complained enough, so that they can buy the house?
When I bought my first property, I didn't have the mindset that property was too expensive. My mindset was that my salary was too low, and that I needed to find a job with a higher salary so that I can either buy more property or otherwise service a bigger loan and hence buy a more fancy house. If people thought in this manner it would propel them to do greater things and be a healthy change overall. Because let's face it: the vast majority of people could do with more money. They just need to figure out how to earn it.
Is it true that property prices have increased at an unreasonable rate and hence look expensive? Or is it because people's income has not increased in the manner that it should have? The latter is an important consideration. With increasing competition and the number of people looking for jobs, some employers have the luxury of picking their employees, and then pitting them against each other till the weaker ones drop out. The stronger ones hold on to their jobs but still don't get paid as much as they should be.
Consider that, as an example, a graduate veterinarian in the 1980s was able to draw a salary of some $20K. As such, in 2011, a new graduate vet should be able to walk into any job and draw $80K per annum. These were the words of a very old veterinarian who started work in the 1980s, not my words. However, I can tell you now that a new grad vet would be lucky to draw $40K per annum these days. And even after 3-4 years in the business, they'd be hard-pressed to see $65-70K per annum. We have more vets than before who are graduating and looking for a job. Can we truly expect their wages to go up?
Now take that example and apply it to almost every other profession and the problem becomes blindingly obvious.
So you have two big issues compounding the situation: population growth creates intense competition at the work place and reducing everyone's wages, and population also puts pressure on the housing market, with people wanting to live in a handful of desirable areas because nobody wants to live an hour away from their workplace.
The result: masses of people who cannot afford a house. This does not mean that all houses are unaffordable. It merely means that property that is located in a desirable location become too expensive for most to be able to buy.
AussieHousePrices wrote:Investors focus on the potential cash flows of the investment (e.g. rent / profitability / dividends). Of course, they might also hope that the value of their investment will go up as the potential future cash flow improves. Speculators aren’t as interested in the potential for cash flows. In fact, when it comes to property, they are happy to lose money and get a tax deduction, in the hope that capital gains will more than offset their loss. Therefore, they are speculating that the value is going to go up, regardless of what the underlying profitability of the venture is.Hmm…your statement seems to imply that people who put money into property do not focus on potential cash flows, or that "the value of their investment will go up as the potential future cash flow improves". Historically at least (emphasis on the word "historically"), house prices have risen and rents have similarly also risen. Yet the size of the loan that a buyer draws down for the purchase of a house stays the same (unless they refinance). Therefore, their cash flow actually does improve. So how can we conclude that people who buy property are actually speculating? Is the POTENTIAL for cash flow there? Certainly it is.
Furthermore, why is there the assumption that people are "happy to lose money and get a tax deduction"? IMHO, the deductiblity of a loss from a property venture is icing on the cake. No wise man on Earth has ever advocated buying property for the sake of making a loss so they can reduce their tax. This is counterproductive. Sure, you reduce your tax, but you also reduce your effective income (even if, because of the tax deductibility, your effective spending power is actually increased). For some folk on the very highest tax bracket, they might see a temptation to do it because their tax appears lower each year, plus they have an asset that historically (again, emphasis on 'historically') has grown in value and this growth is not taxable unless the owner decides to sell and take profit, in which case there is CGT.
Finally, how do we predict what the "underlying profitability of the venture is"? Based on historical (once more, emphasis on the word 'historical') performance of course. Historical performance is not an indication of future performance. But would it be more reasonable to predict the occurrence of an event based on what has happened historically, or what has yet to happen in the future? Hence, property buyers ride on the information that they DO have, believe the venture to be profitable, and hence put money into it with the expectation of a return. So, just to add more fuel to the fire, who is to say that property prices will not trend upwards indefinitely and property purchasing becomes a very unwise venture?
AussieHousePrices wrote:I would sum it up as: fear and greed, sentiment and the herd mentality.nicolas_b wrote:Everything boils down to MARKET SENTIMENT.Of course. But what I meant was, how do their economies compare to ours? What is their level of supply and demand? What about population growth or decline? What about their rates of employment and unemployment?
AussieHousePrices wrote:I think we need to see minimum 40% to get back to long-term trend, and to get back to historical norms of multiple of household income and rental returns.To be realistic, we'll have to entertain this possibility. It would be foolish to say that certain things would NEVER happen. However, this is a bold statement. We're talking about today's $500K house going on sale at $300K, and a finer $1.4 million house selling at $840K. If we're talking about a 40% decline in property prices across the entire board, regardless of location, then this is something I'd like to personally witness. It would take a big hit to our economy to see a drop of this magnitude. That is, Australia has to become horridly unpopular as a place to call home.
It is conceivable that prices in mortgage belts (or places with a large proportion of investors as opposed to a strongly owner-occupied area) could take a huge tumble when these owners default under high interest rate conditions and unemployment, but for the people with greater holding power who control property that is well-located, a downtrend in the market would probably cause such owners to hold back from even selling. Stock will thin out, and maybe till the point that nothing goes on sale such that it does not matter even if there buyers.There would simply be no willing sellers. My opinion is that for the most part, people would rather grit their teeth and hang on rather than sell out and still be stuck with no place to live.
Seriously, if I had, for example, an opulent mansion fronting the sea in a thriving area that is such a joy to live in, I have no reason to sell up even if prices dropped. If I did, where else could I buy? EVERYTHING else would have similarly dropped by 40%. I do not wish to downgrade by buying into some landlocked area. And if I want to upgrade, it would still require an additional outlay of cash. If that's the case, I'd rather stay put.
Therefore, when prices do take a tumble, the properties that are desirable to EVERYONE who wants to buy in are still going to remain in demand, are going to be in extremely short supply because the vast majority of owners will choose not to sell. At the end of the day, the doom & gloom folk will be left complaining about unaffordable housing all over again because they cannot buy into an area which they had never been able to afford in the first place.
And we can be well-assured that in the environment of a property crash, no bank will, in its right mind, loan money to people to buy property. This is assuming the banks haven't already gone out of business and thrown the rest of the economy into turmoil by winding up and taking people's savings and deposits with them. IMHO, a property crash does not solve the problem of home ownership. So unless you have an individual (or family unit) that is cashed up enough to put up $300K in cold hard cash for an average house in Melbourne during the purported crash, the prospect of home ownership will not get any better for these folk. Even if they can, they will still be lamenting about that beautiful $840K house (once $1.4 million), well-located in a wonderful environment, but is is still so unaffordable.
AussieHousePrices wrote:If that’s the case, they are not investors, they are speculators and many will get burnt when capital gains dry up. When people are buying simply because prices are rising, not because the investment is sound, that is a pretty good sign that there’s a bubble. It’s the greater fools theory and it works – as long as you’re not holding the investment when greater fools run out. Do you not find it strange that a loss-making investment continually goes up in value?This one made me chuckle a little. Certainly there is a degree of speculation with any form of investment. Taking a step away from property for just a moment, and not referring to anything in particular: Shouldn't a sound investment deliver a gain that eclipses the rate of inflation? Does anybody here actually invest money (and time) into something that is knowingly going to be worth less than what they paid for it? Anybody who does this needs to get their head examined. A lot of us put money into a safe and fuel-efficient car, clothes, basic furniture etc, all of which are things that depreciate and are worth less than when we bought them. To a large extent these are necessities, but people do not invest money into them.
Why would I buy shares, property, gold, silver, sheep skins, pig ears, or any manner of other commodity in order to lose money on them? Not unless I'm feeding the pigs ears to my dog or putting the sheep skins down in my living room to be used by my visitors. Of course, I invest in these things to get some sort of return, whether immediate or in the future. But if that's the case, is there an investor out there that does not speculate when they buy into some form of asset?
I typed the word 'speculate' into Google and got this:
"Invest in stocks, property, or other ventures in the hope of gain but with the risk of loss"
Then I typed the word 'invest' into Google and this was what I got:
"Expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture"
The point at where Google got it wrong was that they failed to mention the risk of a loss with investing. Where then is this fine line between investing and speculating? In both cases you hope for a gain but there is the risk that you could lose. In life there is no free lunch. If you want a result that is above ordinary, you have to take some risk. Then again, people could hole their money in the ground and risk their dog eating it for breakfast.
AussieHousePrices wrote:Prices are crashing in many countries around the world. 20 years ago, prices in Toyko started falling and have still not recovered to their bubble prices.Yes, prices have crashed in these countries. Why is it so? Are there an overwhelming number of similarities we can draw between Australia's property market and those of which have crashed? And believe me, I'm not touting that the Australian property market cannot falter. In life, we can only expect to be surprised. What I am interested to know is: what is it that caused other markets to go from gangbusters to disaster and what conclusions can we draw from them?
AussieHousePrices wrote:In reality, markets move in cycles and what goes up beyond inflation and wages must come down.Of course. That's why it's called a 'cycle'. The question is, what is the 'downtrend' that we're likely to see? Is it really going to be a crash where the property market falls flat on its face and prices tumble 40% like some pundits have talked about? Or are we more likely to see a 10-15% correction? If it's the latter, then that's a perfectly reasonable assumption to make.
When we talk about 'perceived value', shouldn't we perhaps ponder over the 'perceived value' of money itself? After all, are sheets of plastic and bits of metal really worth that much?
It might boil down to supply and demand. If people continue to want to live in certain areas, the prices there will probably rise. For example, I'm unlikely to give up a house by the beach even if the price dropped a great deal. Why? Because I want to live there.
There is a perception by some that land, being mere pieces of dirt, shouldn't be worth much money. The key issue that is often missed in these instances however, is where this piece of dirt is located. This piece of dirt on which people live on directly impacts the quality of their lifestyle. A comparison between extremes will bring this to light: a pieces of dirt in the middle of a polluted industrial hub versus a piece of dirt of the same size but located fronting the beach. Which would people prefer?
It's the preferences that drives the prices. These preferences are deeply ingrained into most of us, and it explains why people would gravitate towards certain locations, and it probably also explains why the vast majority of us prefer to sit in an empty row of seas on the bus rather than share it with someone else. Human nature is an interesting thing.
EDIT: OOPS, the perceived value of money was an issue already mentioned before me. Pardon the repeat. It was purely coincidental, I promise.
Paullie wrote:Shelley D. wrote:Tip I send my tenants a $50.00 gift voucher every time I get a good inspection report or after tax time – They love it and I love them for looking after my property.Is that tax deductible? lol
It is, I suspect, considering it's a gift to tenants.
AussieHousePrices wrote:One other thing fWord, we get bombarded with claims that prices always go up, and advice that if we don’t buy now, we’ll be priced out forever – from the media, from the property industry, the banks and even from friends and family. You might not have declared your beliefs but everyone else has! So I think it’s unfair to ask us doomsayers to cop it on the chin and keep quite.Fair enough. People love to blow things out of proportion and indulge in sensational material (and this applies to both sides of the story). This is the exact same thing I've been told, and in all honesty it weighed in heavily in my decision to buy something. However, is there some truth in them saying that property prices will always go up? Perhaps. Inflation alone will push property prices upwards. The demand for limited space in 'trendy' or desirable areas will always be there. Will supply necessarily increase to keep up with that demand? Perhaps not.
If someone owns a block of land in a fabulous area, can you force them out of their pad, pull down their house and then build apartments for those who want to move in? Maybe, but only if you start a war and win, or if the country were extremely corrupt and things were in absolute disarray.
But let's take a step back and look at the concept again: action vs inaction.
What is the likely consequence of people claiming that property prices will ALWAYS go up? It is likely that, playing on people's fears, it will force people into action to buy, which then becomes a self-fulfilling prophecy that drives prices up. This is directly beneficial to the people who own property and proclaim that THEIR investment always increases in value.
What then, is the likely consequence of people claiming that property prices are overvalued and set to tumble to the order of 40%? If anybody thinks this will directly cause a crash and drive property prices down, then speak now. If, on the other hand, they agree that simply talking about a crash doesn't bring on a crash, then I rest my case.
Honestly, people can only attempt to predict the future based on what has happened in the past. It is because of this that I believe people consciously or subconsciously make certain decisions in life, or place bets, if you like. For example, if I was fined for running a red light in the past, I would clearly try to avoid doing it again. I'm not going to run that red light by betting I won't be caught this time around! If, however, I had run several red lights in the past and was never fined, I would bet on not ever being caught.
It is impossible to predict if a property crash will occur. It just seems easier to make bets on what is likely to occur, based on what has happened in the past.
AussieHousePrices wrote:I agree that landlords are not out to sqeenze tentants dry. But I also wouldn’t call them ‘generous’ for providing a roof over people’s heads. Investor’s are (rightly) in it for themselves and they simply get the best rent they can, as the market dictates.Then it is the market dictating the cost of renting, is it not? And why should an investor charge rent that is under market value? I have even been advised by my accountant that you could get pulled up by the ATO if you undercharge in rent while claiming your regular deductions. In fact, I've been advised that the ATO will limit your deductions based on how low your rent is in comparison to the rest of the market.
Based on what I've read (ie. comments on articles and at forums), some people have the mistaken belief that investors have many properties and have a massive income from their rents. This would be less than a percent of your Australian wage earner. I'd dare say that, on the contrary, the vast majority of the investors on this forum are actually losing money on their investments every year. However, without sounding cliche, they are in the business for the capital gain (which they predict will occur), or otherwise ensuring they have a foot in the market so that they will have a house to move into when they finally want to stop renting, or if they are young and eventually want to leave the nest and live in their own home.
On an unrelated note: from time to time we hear of tenants absolutely thrashing a house to make it unlivable, or otherwise cause undue damage to a property that was rented to them in good faith, and then absconding without paying for the damage. Why do these bad tenants do this? Is it because they live like slobs? Maybe. Or is it because they damaged the property out of spite? Or out of the fury and frustration and thought that their landlord is actually filthy rich and owns multiple properties while they themselves are renting? That's a big 'maybe'.
So for those who have an axe to grind with 'property investors' as a whole, I implore you to please consider that these 'investors' are just like almost everyone else, trying to make a living and ensure a comfortable lifestyle in the fairest possible way. And if you're renting, please look after our (sorry, the banks') houses as best as you can. I'm not pointing fingers at anybody, but wow, the comments I sometimes read on some articles are just caustic.
AussieHousePrices wrote:One thing I don’t understand is that you seem to approve of the concept of delayed gratification (as I do) when it comes to investors, but when it comes to home owners, inaction is frowed upon – i.e. you seem to encourage everyone to buy NOW. What about those people who are renting cheaply, saving hard, not asking for hand-outs and will buy a house when they can afford to do so, without going into debt that will put them into mortgage stress from day 1? That “inaction” is still a form of controlling your future. If you buy beyond your means because you buy the line that house prices always go up, true there’s no landlord to kick you out – but the bank certainly can if you can no longer pay the mortgage. Just look at how the American dream to own your own home can turn into a nightmare.I don't believe I actually said anywhere that people should buy into property NOW, and neither am I suggesting people to overextend and take a loan that is beyond their means to service. If I did, then I must apologise because I wasn't thinking clearly.
The thing I urged was 'taking action'. And if saving, renting cheaply etc is what they're doing, then that's good. That's 'taking action'. When we talk about inaction, we specifically talk about the people who preach the topic of 'overpriced housing' continually and don't seem to have the drive to take a step forward. We advise these same people about WHERE affordable housing can be found, and that's where they COULD be buying, yet all they do is slump back into their seat and lament about 'overpriced housing'.
Does preaching about unaffordable housing ever solve any issues? Their time would be better spent doing the research on where they could buy, budgeting, working out finances, speaking with mortgage brokers, their accountant, reading as many books as they can to seriously prepare themselves for the day an opportunity does surface. And when that happens they should be ready to strike immediately.
And that's what I probably should be doing too, rather than trying to preach 'affordable housing is there if you look' to people who derive more joy from complaining about the state of the market! Let's just say I derive much amusement from engaging in such discussions outside my full-time job.
AussieHousePrices wrote:It is possible to have a view of where the market will be in the future while understanding that the market isn’t there yet. Think of it this way, if you think your investment property will double in 10 years, would you try to sell it for double NOW?Good point. I'm not trying to sell a house for double the price now (instead of 10 years time) because nobody would believe me. That is exactly the same reason why you're not hopping down to your next OFI and dropping in an offer that's 40% less than the asking price. But am I sitting around whinging that nobody believes my house will be worth double the amount in 10 years? No! I'm going to wait and prove myself right, and then I'll be laughing all the way to the bank. If my predictions were wrong, no big deal. I never publicly declared my beliefs so there's no chance I'd be embarrassed. And all the doomsayers should do the same: bide their time and wait for time to prove them right (or wrong).
And regardless of what happens to house prices, I'm just happy to have a house I can eventually move into and call my own. What emotional value do people put on a place they can call their own and nobody can remove them from their place of residence? Very high I presume. Hence the concept of the Great Australian Dream.
However the bottom-line I've been hinting at all this while is that, as with everything in life, there are two choices: action or inaction. We can choose to be proactive and take actions to have a chance to control the situation to steer it in a direction that is favourable to us, or we can just sit around and mope, which achieves nothing. For example, me complaining that a Ferrari is so expensive doesn't ensure that I can buy it at a lower price. What I should be doing is to find means to either save up more, hunt around till I find someone willing to sell it to me at a price I am willing to pay, or otherwise stick to driving my Corolla.
In property market terms, offer the vendor an amount for a property that you believe is fair value and see what the response is. If the vendor declines your offer and you think the house is too expensive, then look elsewhere and keep looking till you find something you're happy to pay for. This is like teaching people to suck eggs of course, because this is exactly what people should be doing whenever they're buying something that has a price which is negotiable.
AussieHousePrices wrote:I don’t doubt the government and RBA will do everything in its power to keep the bubble alive, but like every government around the world, they are powerless to force people to spend in a falling market.Sorry, just to clarify, do you mean the government has no power to force people to buy property in a falling market? The government has no power to force people to spend on anything. We are experiencing first-hand the effects of interest rate rises – the slow-down of retail and cutbacks on discretionary spending, people spending their money overseas on vacations or shopping online. There is a current complaint about how online shoppers are evading import taxes by purchasing in this manner (based on the limited amount I've read anyway). In reality, the real problem is the strength of the AUD. There will be fewer people willing to take a vacation here or send their kids here to study. Other nations would prefer to buy their products from elsewhere to avoid the costs associated with currency exchange.
AussieHousePrices wrote:Depends what they’ve done with the money they’ve saved while renting.Doesn't matter. If the property market does crash, virtually none of these guys will buy property because they will be too afraid. Or their perpetual mind-set that property is overpriced will continue to hinder their every decision to buy a house unless they get themselves into gear and start moving fowards. More likely, they will simply take joy in seeing they were right in predicting the crash. Or perhaps they'll be too busy predicting that prices will tumble another 40% and wait on the sidelines to buy. Furthermore, no bank in their right mind would loan money for property purchases to the people who need it most. In this case, a property crash doesn't necessarily bode well for those who dream of owning a house.
Let's say an average house in Melbourne that's currently worth $500K tumbles 40% to be worth $300K in the next number of years. The vast majority of working folk will NOT have this in cold hard cash to buy a property outright. They will NEED to take a loan from banks that will be absolutely unwilling to lend or are in the process of going out of business while the entire Aussie economy is in turmoil.
How many INDIVIDUALS here under the age of 30 (ie. Gen Ys, the people trying their hardest to move out of home, or who have already done so and don't yet own a house) actually have $300K of their own CASH sitting in their accounts accruing interest? I'd like to see a show of hands! If you do, very good, you are either a good saver, have an incredible job that pays you well each year (in which case, be thankful), or you came upon an inheritance.
A property crash is like a kiss of death to the dream of home ownership, not the solution to the problems that would-be buyers actually face.
In Singapore, I've observed this as a means of improving the prospects of home ownership: government subsidised housing. The government owns blocks and blocks comprised of hundreds of thousands of shoebox apartments that are sold direct to the public and on a 99-year leasehold (ie. at the end of that 99 years, the property goes back into the hands of the government and if you're left holding the hot potato at that time, it's value goes to zero and you get no compensation). The process is means-tested so that only select people will be successful in their application. Those who don't qualify have to buy these same apartments from private sellers who are on-selling them in order to upgrade to something else. And prices on the private market are some 30-50% more than government pricing.
These shoebox apartments are considerably less expensive compared to other private housing. They can be priced in the $300-400K range (in the 'suburbs') compared with a small terrace house in the 'suburbs' that fetch over $1.8 million. In Singapore's 'inner-city' areas, you could triple or even quadruple those prices. If the government in Australia is intent on adopting a similar strategy, they better get building now and build fast, like there's no tomorrow. But let's consider those prices for a minute. A shoebox apartment in Singapore costs $300K when in Australia you could get a nice detached house on a big block of land for that price. Is Australian property really overpriced?
AussieHousePrices wrote:The crash isn’t the problem – it’s the (albeit painful) solution to the problem of rising house prices. A bit like chemotherapy is to cancer. So I do wish for the crash to get underway, but I can see that it won’t be pretty.Even if it is the solution to the problem, but at what cost? This is akin to saying we should proceed with genocide so that we can boast of being a people united by one law or one religion. The solution to unaffordable housing is not a crash or a recession. The solution is increasing supply, using government subsidised housing as suggested above.
AussieHousePrices wrote:Not sure if you’re referring to other posters but I certainly don’t see home ownership as a right. Your comparison of a $200k house to the average rent of $360 p/w might have been a bit misleading. The rent on that $200k place would be more like $150 p/w. Finally, your last example seems to highlight just how over-valued property is, how much property investors are losing, and the benefit of renting. So I agree with you there!That's good. We agree that home ownership is something to be earned, not something given to us as a 'right'. Actually, the rent range of the $200K house I mentioned is closer to $180-260 pw (conservatively). What I was trying to prove however, is that for the people complaining about sky-high rents, there is a solution: buy a $200K house and pay it off on a 30-year P&I loan. For 30 years you will have a roof over your head that nobody can take away from you, and at the end of 30 years (or even less if you're able to pay off faster), you have a house that is unencumbered and entirely yours.
Haha, no, my point on investors losing money is not to highlight that property is over-priced. If that's how you interpret it, well and good, your opinion is as valuable as mine. What I meant to prove was that landlords are not out there to squeeze tenants for every drop of their blood and to house them up in shonky living conditions. Where would renters be without our generous, loss-making landlords and the 'over-priced' housing they own? Do we seriously believe the govenment is going to provide loss-making property for us to live in?
The vast majority of these landlords are renting these houses out with the intention of moving in eventually. There is a growing number of disciplined young folk who have taken to buying their 'dream house', not to stay in it immediately, but to rent it out while they are still living with their parents, or while they are renting cheaply with a bunch of other mates. Hence, these small-time landlords are about to prove to all of us what 'delayed gratification' really means – giving up the thought of buying life's luxuries now in exchange for a luxury that few people of their age would eventually have.
Truth of the matter is that a large proportion of these young folk would rather move out early, party at the clubs twice a week, mope about high house prices and then go out and buy a sports motorbike when their parents already gave them a car, or even buy a $3000 bomb and spend another $5000 tarting it up so it sounds like a sports car, or otherwise spend hundreds of dollars a month smoking, drinking, buying hair extensions and makeup or on a gym membership that they do not even use!
So going back to the most important point in all of this: we have to choose between action and inaction. If we want to be inactive, then stop complaining and be happy with what we have. If we want to actively control what happens in our lives, then similarly stop talking and get cracking!
A real life example is that of a colleague and myself: both of us knew we would not be able to afford a house if we stayed at our current workplace, which we dearly loved and had worked for over 3 years, BTW. So we stepped out of the comfort zone, are now working in new places, having to learn all the ropes again and build friendships and rapport with both colleagues and clients from scratch. My traveling time to work has also doubled (and for my friend, more than tripled). In exchange for this inconvenience we are drawing higher salaries which we know will put us well on the way to securing a house.
Progress was never achieved through inaction. And inaction is like quicksand. The longer you stand in it, the deeper you get and the harder it is to get out.
AussieHousePrices wrote:fWord – that’s a ridiculous idea – to put in an offer 40% below current market value, because of the expectation that prices will be 40% cheaper some time down the track. Although if I wanted to buy, I would definitely be putting in offers around 5% less than 6 months ago. You could possibly argue that property bears could put their money where their mouth is by shorting the property-related market such as the banks.What's so ridiculous about that? Importantly, something is only worth as much as a buyer wants to pay for it. And there's a bunch of folk out there now that are touting that property prices need to come down 40% or so before we are at true market value. Indirectly, they are bemoaning the fact that they can't afford to buy a mansion in the inner city because they are on $40K salary a year, and therefore the property market MUST crash and EVERYBODY else must lose money so that they can finally buy their house.
It reminds me of that famous saying, "It's not enough that we win; everyone else must lose."
So…problem meet solution: offer the vendor how much you think property SHOULD be worth and let the vendor decide if they want to accept the offer.
AussieHousePrices wrote:If prices do fall by 40%, there won’t be any queues outside your place. Unemployment would have risen, sentiment would have collapsed and deposit requirements would be much higher – so if you were a distressed seller, I’d imagine you would take what you could get.Well, I'm no expert. However my opinion is that even the government would be playing lap dog for the banks and doing everything they can to prevent house prices by collapsing in this manner. This is because if the property market crashed the effects would be widespread and the folk that are rubbing their hands in glee and waiting to buy bargain houses will not even be able to get finance to buy. More to the point: if the property crash did occur, these same fence-sitters would be spending the time making water in their pants rather than taking action to buy.
So these doom & gloom soothsayers will do nothing during a property crash. Prices eventually trend upwards again because people with some guts will buy, and these same soothsayers will be complaining again during the next boom. In effect, what have they achieved? They essentially watch 7-10 years of their life drift by and they are STILL left with nothing.
Besides, do these soothsayers realise that they too, would probably lose their jobs when the property market crashes, and as you say, unemployment rises? All I can say is, be careful of what you wish for…you could get more than what you bargained for. And on that note, never eat anything bigger than your head and don't try to look at a complex issue with a simple mind.
Digressing for a few minutes:
So often we read about home ownership being a 'right' that everybody has. Frankly, in today's world, I'm not sure what 'rights' there are anymore. There's certainly more 'wrongs' than 'rights' as far as I can see.
However, for a moment, assuming that home ownership is indeed a 'right', it's key to remember that there are houses out there for less than $200K, which virtually anyone can afford, with a degree of will power and a willingness to make sacrifices. Realistically, can anyone even hope to own something worth a few hundred thousand dollars without some degree of sacrifice? Haven't we learnt from young that we need to scrimp and save to buy a toy worth just a few dollars? Or that a teenager similarly needs to save in order to buy their first car that's worth a few thousand dollars? Why then should home ownership be any different?
Or perhaps when they were young, people bought absolutely everything for them and they never learnt the meaning of 'saving up'?
And no, these $200K houses are not a shack in a slum that is light years away from civilization and employment. They are nice, solid houses on a family-sized block of land and part of a region bustling with over 280,000 residents and about an hour's commute to the Melbourne CBD. And yes, you can take the train even if you didn't have a car!
And let me spell out the figures for the benefit of anybody who bothers to read this far:
Assuming that even if you borrowed the full $200K to buy such a house and cover the closing costs, and then did a principle & interest loan fixed for 3 years at 7.2%, we're looking at repayments of roughly $312 a week. Considering there are people willingly paying $360 a week (and usually more) to rent a similar house in the outer-eastern suburbs of Melbourne (which is more expensive than the outer west, BTW), suddenly the repayments on a $200K house don't look like much at all. At the end of 30 years, you OWN the house outright.
Who says people had to rent for the rest of their lives? Renting however, is way cheaper than owning.
Consider that the rent on a Melbourne outer-eastern suburb house is $360 a week and the landlord is paying the mortgage on a house worth $450K (assuming an 80% lend and hence a mortgage of $360K on a 7.2% fixed rate for three years). Even without adding in the agent's fees, rates, repairs, insurance etc, the landlord is out of pocket to the tune of $7,000 per annum.
Yes, that's right. Before all the bitter and angry-envious renters think the landlord is ripping you off and having high-tea by the bay, remember that your landlord is subsidising your housing, so that you have a roof over your head! In essence, they are doing what the government SHOULD have done. However we know that parliament is affected by the same inaction that plagues our doom & gloom soothsayers, so don't hold your breath for a solution from them, or you will die!
If people WANT a 'right' to home ownership, get off your butts and EARN the 'right' to do so. Either that, or rent. Besides, what's so bad about renting??
*Note: If the figures above are false, by all means correct me.
NEWSFLASH: To all the folk who believe that property prices will tumble 40% – prove it! Go to your nearest open-for-inspection tomorrow and drop in an offer at 40% less than the asking price, together with all your documentation that supports your theory.
Who knows? The vendor might accept!
It's been said before: talk is cheap. There are people out there who believe property prices will go in cycles but trend upwards and they're betting their entire portfolios on it. In essence, they walk the talk, and you should too. So, if you're betting property prices will fall, then put in a reduced offer that reflects what YOU believe to be true market value. Stop talking and get with the program!
BTW, if property prices tumble 40%, you can drop me a line and I might just be distressed enough to sell at a 50% discount to current values. But hey, you gotta get in line and get in quick!
It appears to me that the interest rates were increased merely in an attempt to control the rise of property prices, and they did this under the cover of trying to control inflation. If they keep raising the interest rates higher and the AUD continues to strengthen, we could very well see a recession. When the money stops moving, Australia will slow to a crawl.
I keep fish as my only pets and I'm glad to have 'cheap' pets in times like these. But on that note, the fish shop that I used to frequent used to be bustling with people, and now it's dead quiet on each of my visits. The owner used to buy little fry (baby fish) from me to on sell to the public but he's stopped this practice because of difficulty clearing his own stock!
Indeed, discretionary spending cutbacks have been the cause of great distress to local retailers, who in turn are blaming international retailers and websites (eg. ebay) for their loss of income. The truth is that with the increase of interest rates, people are simply spooked and less willing to spend. Those who can still fork over the money for luxury items would rather buy from overseas, considering the strength of the AUD.
People from overseas on the other hand are less inclined to buy from us or even take a vacation here because the exchange rate has become exorbitant. Tourism suffers, and so does education with less students willing to study here. It's probably only the banks and the miners that are making money in these times, because like it or not, people still have to pay their mortgage, and developing nations still need Australia's resources even if it's costing them a fortune.
The only piece of good news I've been told is that petrol prices would apparently be a lot higher if not for the strong AUD. IMHO that's the biggest crock <moderator: delete language> I've ever been forced to stomach. Back in the days when oil prices went down, we never saw cheaper petrol, and now they're trying to convince us that petrol ain't getting more expensive because our AUD is strong! What utter nonsense! Last week I remember seeing petrol at $1.41+ a liter. That seems more expensive than what we experienced in the past.
xdrew wrote:I've been watching too much CSI:Miami … I think if you check the age of the maggots you can probably work out which tenant is missing and for how long.I've been lucky .. i have seen most of the impossibles with rental property. The cupboard which opens to streaming cockroaches, the tenant with 9 cats who decides to leave them all behind .. in a kitchen cupboard. The guy who claims his carpet smells … and after steamcleaning we realise its HIM who needs a shower. The 20 yr tenant nicotine smoker who has the nicotine LEACHING out from the walls … you paint .. and the nicotine comes thru the paintwork 2 days later … THAT BAD.
There was also the sub-letter. Oh sure .. its a two bedroom flat from the outside .. but there were definitely 4 sleeping bags per room. Is it possible for eight tenants to happily live in the one 2BR apartment? You make the sitcom for that one.
Dont ever assume how bad crazy can get for a tenant. It can be worse than that.
Whoa, if you could tell me where these properties are, I'd be staying away from them. Even if there is money to be made, some things are just not worth the added stress. Just when I was thinking my job could give me an aneurysm, geez.
The strength of the Aussie dollar is to blame, at least in part. It's becoming a more expensive venture for people looking to migrate to Australia. If the dollar was allowed to exert its strength in a continued fashion, it would have profound deleterious effects (if not already) on retail, educational institutes and immigration rates.
Importantly, do you believe in the Residex estimate based on what you know about other properties for sale in the area, and recent sale prices? Would you consider putting in a lower offer instead of paying the full asking price?
Based on personal experience, my bank required that I have insurance on the house (and even insured to their set value) before I can get a loan from them. This is in Victoria.
DWolfe wrote:Property development is not 9-5! So I can make time if I am passionate about somethingYep totally slack, I should be a billionaire by now lol.
D
Yeah, REAL investors don't frequent these forums on a regular basis.
Get out there and get cracking!! YIKES! Maggots coming through the carpet? Sounds like something out of a horror movie. Are the tenants sure that they're not termites? Has your property manager had a look at the house? Have you had a look at it personally? Was the place clean before they moved in? Is it clean now or is it just filthy and unkempt? This would determine who's responsibility it is.
Obviously if it's termites, it would be the landlord's responsibility. If it's maggots, and the place has been thoroughly soiled by the tenants, then the tenants are responsible for their own hygiene and the costs of the pest controller, IMO.
For example, my tenants suspect a bee's nest in my roof void. This is my responsibility to rectify as the bees came in through no fault of theirs, and it's my property to maintain to ensure safety of my tenants.
Wynyard, I tried dropping you a private message but found you were not accepting any of those. I noticed that you wanted to go coastal eventually and from what I understand, you can get a loan of $350K and have around $25K of savings? If this is the case, be very careful about taking the full loan of $350K from the bank, even if they're happy to approve that amount for you. If you buy a house with a loan at this level you would probably also be looking at lender's mortgage insurance, which you wouldn't be able to recoup in the immediate future, at least until you sell the house, I believe. Have you tried looking for a mortgage broker to help with your choice of loans? I have a contact, if you're interested.
I assume you're living in or around Melbourne at the moment and would rather buy than rent? Have you considered any of the suburbs around Geelong? For example, there's North Geelong (median price $273K) and Norlane (median price $189K). In the latter case, there are definitely 3 bedroom houses on the market for under $200K or just a little bit more. Look for something near the train station, so that you can easily catch a train to the city if you're working in that area.
These might not be the prettiest suburbs of coastal Geelong, however they're not all that far from Geelong 'CBD', where you might also be able to find a job. Both suburbs have recorded an average of 10% growth per annum over the last decade, so you wouldn't be buying an absolute dump that doesn't appreciate in price over the years. Of course, to 'escape' from it all, you could always hop back on the train down towards Geelong itself and then have picnics or walks along the beach. If you're the coastal sort of person, this would be very invigorating. I lived in a landlocked suburb myself but thoroughly enjoy driving for more than an hour and a half down to Geelong's waterfront. The sea just makes me feel alive and the atmosphere there is just magnificent. There's also St Helens park and Rippleside Park that you could visit, which are even nearer to Norlane/ North Geelong.
If you borrow say, the full $200K and get a fixed rate of 7% interest-only payments for 3 years (which you can get at ANZ for example), your loan repayments per year would be roughly $14000. Would this level of loan repayments be affordable for your family? Also, when buying any property, leave a buffer of about 6% of the purchase price for other closing costs such as stamp duty, conveyancing, pest/ building inspection etc. The reason why I suggest a fixed loan is because rates are likely to go higher in no time at all, and 7% is not dramatically higher than the 6.88% you were offered by CBA. Bear in mind that you might also quality for first home owner's grant of $7K…not sure if it's any more if you buy existing regional properties but check it out.
Moreover, if you're going to be sensitive to rate rises, better to fix and be able to sleep better at night. The drawback is that you won't have an offset account with a fixed rate and any spare cash you do have left over would then accrue interest that is then taxable.
Another key issue is that a Uni degree is NOT always a plus point for employment. It may open up some avenues for employment but with the major HECS debt, that can be a bit of a setback. Would HECS debt affect how much you can borrow and put added pressure on your loan repayments? People here who work in the trades who do very well and you don't need a Uni degree for that.
On the other hand, there are people like my colleagues who spend 5 years in Uni doing an expensive course (a la veterinary science), wind up with a massive HECS debt, and then start on a wage of less than $40K per annum in a stressful job (with high suicide rates) that doesn't even pay an amount commiserate with the level of skill expected. I'm not encouraging you to drop out of Uni, but if you can find something more lucrative that you enjoy doing, and can get the job without a degree, then just do it.
I congratulate you on taking steps to look for your first home.
PS: And oh, one last thing. Can you find a close, like-minded friend (from Uni or otherwise) who would be interested in buying a similar priced house to yours and live in roughly the same area? Then you each buy a house, and rent out to each other (that is you live in his/ her house and he/ she lives in yours). Each of your rents helps your friend pay off their mortgage. If there's any shortfall against costs of running the house, each of you offsets that against your income to get some tax benefits. Have a think about it.
michaelandre70 wrote:It could be 15 – 25 % at best.
And 25% would be a good drop, turning a $500K property into a $375K bargain. And I'd like to believe this is possible. If such property is not in mortgage-belt areas and is in well-established suburbs with adequate amenity, those fence-sitters would do very well to buy.
Good day folks, great to see people are active in the property scene and also have much of a life outside of property. In case anyone would be interested to read this, here's my short story:
Currently two months into a new job and things are settling down a little after what was a very busy time last year. In 2010 I moved out of my place in Melbourne's outer-east after being there for 7 months, turned it to an IP and now staying with parents (ie. back to square one). This IP was rented to a friend for 6 months before I found other tenants in November. I also successfully completed a year-long correspondence course in veterinary behavioural medicine which has proved invaluable in my career, even if it didn't raise employment prospects all that much.
On 18 December 2010, the weekend before Christmas, I bought myself the best Christmas present ever. sinking further into debt by getting another IP in Geelong. Settlement is due only in March but we're getting a tenant in ahead of time. Both properties have given me some headache and stress since the beginning of time, which just adds to the top of whatever stress there is at work. But as they say, no pain, no gain.
They also stretch my 'decision muscles' and have forced me to grow up, and do so quickly. Considering nobody in my family has ever had investment property in Australia before, a lot of decisions had to be made on a 'try and see' approach. There was really nobody to ask, even if my parents were willing to help as much as possible.
In essence then, being fully committed, 2011 will be a more quiet year, a year spent focused on my tenants (keeping them happy and hopefully keeping them long-term), getting more competent in a new workplace, finding time for photography (once a big hobby that nearly died out with the advent of work and property purchases), spending time with parents, and hopefully finding a like-minded girlfriend to subsequently marry and share my debt with (only joking).
And of course, I'm waiting for that property market crash that so many are talking about. But as you can see, I'm betting big. I'm betting my property portfolio and financial future that there is NO bubble to burst.
Get out there and get cracking!! 
