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In my opinion these areas are now overvalued significantly. They would have been hot picks last year, but by the time you read about them being hot picks the horse has bolted.
Hackham West was notorious in the 80's/90's.
hw
Every buble bursts. Every bull run ends. The US is now looking more and more like a basket case. I don't think we are that we should be slapping ourselves on the back in the belief that the trouble in the US and UK will pass us by. More debt than ever, and interest rates increasing in a climate of rapid debt fueled inflation that shows no signs of slowing yet. People often mention increased immigration etc as pushing up demand. I believe its more about the rates of household formation (i think thats what the abs used to call it) where the number of households increase as people start living in smaller family groups. As rents increase and property becomes more expensive kids will stay at home and people will share. I don't think this kind of demand is immune from change.
Other newsworthy events – Mitsubishi pulls out of Adelaide to build cars in India/China. That will have a multiplier effect on related industries and R&D.
One other thing that no its worth pointing out in an uncertain climate is that no property can actually be said to have increased by 20% until it has actually settled. Until then its just numbers on paper.
This year is going to be an intersting one.
May as well share with group. The saga of my worst mistake.
We bought a rundown property in Liverpool (UK) while living in London. We did a flat conversion turning it into 1 three bed and one 1 bed flat. Given we were about 400km away it was very difficult organising tradespeople. Quotes to do the work we wanted ranged from £20,000 – £80,000.
They constantly let us down and it took twice as long as it should have. Not to mention we didn't visit the place in three months due to other committments and when we did get there found that the people who had replaced the doors had left them unlocked and all my tools had been stolen. The moron who stole them obviously didn't realise they had Australian plugs.
The major work finished and between the trademen leaving and the tenants moving in (about 2 weeks) everyone in the vicinity had taken the opportunity to use the back yard as a community skip. There were couches, old beds etc everywhere.
The letting agents we chose seemed fine. They were however largely incompetant. Messages would not be passed from one person to the other in the office and consequently unless you got every single person in the office on the phone nothing got done. Then it was the landlords fault when they talked to the tenant even though we had told them to do any work required.
Within the first few weeks we had our first maintenance call where the tenant had put some things down the toilet that should really never have been flushed. We found out that the offending material had been left in the back yard by the plumber when he unblocked the drain.
Around xmas that year we got a letter asking to terminate the lease when the electric oven exploded and the exploding shards of glass narrowly missed the tenants child. We of course said fine by us, and immediately replaced the exploded oven and the one in the upstairs flat which was of the same make.
The flat was rented again and we decided that managing something so far away was too annoying, and decided to sell.
We had recieved a request from the tenant about 3 months previous to this to fix the lights in the common area. We immediately sent something back to the agent saying do it because its a safety issue.
A week before the auction a letter arrived from the council telling us they had been contacted by the tenant about the lights in the common area (which we had told the letting agents to fix 3 months ago, but they had not done it) and that the council had taken the liberty of inspecting the property against the building code while they were there. Since they inspected it after the flat conversion and approved it, there had been several changes to the building code and the height of the banister which spanned 3 floors had to be raised by an inch, as well as some other minor things adding up to around £3,000. Just what you need a week before the auction.
Anyway sold the place and apparently the curse struck the new owner within days. I would feel sorry for him but he got it for a good price.
Anyway hope this at least entertains someone.
Positives to come out of this were that I now don't fear doing most kinds of work to a property. I got a lot of experience in managing and planning a refurbishment. I now do not trust anyone providing services until they have proven themselves although I was always a complete control freak.
I won't buy property in areas more than an hours drive from where I live.
In case you are now thinking that this is not for you we also owned another 4 properties in Australia which gave us no trouble at all.
This is a link to an interesting set of housing affordability papers. Haven't had time to read them yet, but thought some people may be interested.
In previous years when the share market has nose dived and created a corresponding boom in the residential property market there have been several other factors involved which are different this time.
1. There had been significant interest rate cuts when the market crashed. (Rates are going in the other direction this time)
2. The residential property market had been under valued preceding the crash. (Residential property is now bordering on being overvalued)
3. Mortgage lenders had not been experiencing difficulties raising finance or been under the same scrutiny from the markets about the quality of their loan portfolio. (Sub prime crisis).I have to say I am also thinking this way. There is too much uncertainty around at the moment. The sub prime crisis. The US is now in recession, the US property market is going backwards, the british property market is starting to go backwards. British lenders are starting to tighten their lending criteria (rejecting 7/10 credit card applications) and I can only think the same will be happening here. All I can see supporting the property market at the moment is the demand created by the anticipation of further capital growth. Currently I don't think we can count on another doubling of property values over the next 10 years as wages will not double and the income multiples being lent currently are at about the top of the range.
I agree that people who followed the buy, mortgage to the hilt and buy again strategy will be in serious serious trouble, particularly after another 2 interest rate rises.
hw.
Some interesting trends emerging from the UK at the moment. With some months of house price falls. OK its a different market, but one that has shown similar performance to the Australian market.
Daedalus,
Thanks for those links. I think Foundation is spot on with the discussion around Debt, Rent/Interest and Wages.
I also think you have raised an interesting point. Its all about finding the opportunity, but it always helps to know that the strategy you are working on is consistent with the market conditions.
And just for interest sake, I did have a couple of beers writing the initial post last night so SNM was right.
hw
Thanks for your response, I am aiming to stimulate some discussion, I have no preconceived notion that I may be correct.
Certainly Auction Clearance rates and Sales prices suggest 10-12, but prices are rising rapidly suggesting around 12, yeilds are falling suggesting about 1 and interest rates are raising quite fast with plenty of data to support their continued increase, suggesting closer to 3. Essentially what you are saying is that demand is too strong for the boom to end, and this is the point I am unsure of myself, how long can this demand negate the other factors.
1. Highest immigration ever, a lot of whom are either economic migrants or highly skilled immigrants.
Yes – I agree.2. Lowest unemployment rate for many years. More people in work than ever.
Maybe – Low unemployment is good, until we go beyond full employment. This puts pressure on wages and inflation (and interest Rates), watch for increased wage claims.3. Huge infrastructure projects in areas such as SE Qld.
Yes – my figures are for Adelaide, but there is probably something similar.4. Large number of baby boomers retiring which will mean that there will be even more work available
Yes – but conversely taxes must rise to pay the pension for them reducing household incomes. See table on page 31 of Steve's book 0-260 properties.5, Highest birth rate for many years which again will create a demand for additional housing,
especially on the fringes of the capital cities.
Yes – this is coming from a low base, and is symptomatic of the strong growth we have recently had and the baby bonus.You also mentioned the share market. This correction may be different as the shares getting hammered are property trusts and banks, because of their exposure to the sub prime mess. The question here is whether these investors will jump immediately out of their property related investments at a significant loss thinking I know i'll stick whatever i have left into the property market, there's a good idea.
I am aware however that this post looks a little negative, sorry but sometimes you just have to trust Newton.
