When I look at the extraordinarily high percentage of money most people have in property compared to other assets and what has effectively been a Govt. backed, risk-free, capital gains bet on property that successive Govts. have propagated, I think many of us probably have seen sense in his words for some time.

However, once you have misproportioned the bulk of people's wealth into a ponzi-like scheme, it is pretty hard to back it out and it will take a major event or an as yet unknown entity in Australia, namely a brave forward-thinking and planning Govt as the article indicated.

With a few notable exceptions, most politicians are about as astute an investor as the general public, which is logical, but sad (and definitely scarry) and not advantageous to Australia.

I am only loosely across it, but I did read that the Fed Govt. did an investigation and in theory very few instance were detected compared to the hype that it was prolific. The Aussie dollar is now making it less attractive for parents to send their kids here from OS as housing is expensive and fees similarly compared to somewhere like the USA where their dollar is being deflated.

No, not true at all. I think you will find a significant proportion of successful investors will hold real property (often commercial), but will not be limited to it and are very active in all other asset classes. That is how they make money and maintain the velocity of their capital by investing in other asset classes as they move higher compared to others.

The stats show there are ~174,000 millionaires in Australia (~0.8% of the population) – a millionaire is defined by $US1m or more in tangible assets like cash, property and equities outside of the family home (eg, junk like cars, boats and jet skis are not assets). What this stat importantly tells us is that 99% of the population have recognised assets of less than $US1m excluding their home, which is not necessarily considered by some to be a lot of money to comfortably survive many years of retirement.

Match that against a recent article in The Australian which said 72% of the wealth of those over 60 is in the family home. With a median house price in Melbourne and Sydney at roughly $600K this means the average couple has only a few hundred thousand in Super, etc, at best, so don’t have much money to throw around in the main.

Someone said elsewhere they believed that grey power was splurging their huge Super funds as families were not attending house open inspections.

If that was proved true when they already have on average over 70% of their wealth invested in property and really need cash flow in order to eat and have fun, not debt, how much further at risk are they placing themselves and what does it say about the need to understand about other asset classes to ensure you don’t make a similar mistake?

I don't know about you, but I consider there is unwarranted downside risk if I act, only understand the same things, and invest like the 99%.

You can get 6.4% in plain old U-Bank at call account, over 7% if you go for a longer term term deposit and if you understand hybrids (bonds, etc) you can easily average +8% on low to medium risk with additional capital gains upside and more again for those higher risk entities like Healthscope at 11.25%. Some equities like commodities will still keep going up whilst uncle Ben Bernanke is printing money, and good money will still be made out of selected shares over the next ~6-8 months if one maintains an itchy exit trigger finger.

Using the Rule of 70, that means you can roughly double your money every 8.75 years at 8% (70/. Of course most people don't look at diversifying into multiple asset options as you have to take the time to understand and manage them occassionally to ensure you get the required outcome. Everyone knows that property is risk-free and guaranteed to do the same thing without having to worry about too much really.

Of course if you can't find any investment that works financially for you, you don't have to do anything – sometimes you make more money that way.

Hi Andy

A good article and your comment about ever decreasing numbers of buyers made me think of an analogy in the share market. I enjoy trading in the share market as well as property (no point limiting your income streams) and shares actually do trade sideways (plateau) quite often, but not in a dead straight line as you say, but within a tight price range (up and down within a horizontal channel).

If it happens when the price of a particular share has increased considerably, it can be what is known as distribution of shares. This distribution is when the smart money (the big instos) sell to the mums and dads etc who have just latched onto the idea that the share is going up big-time. The instos sell for a while until the price drops to a certain level and then they stop selling. The suckers then come in and drive the price up again to the top of the channel. The instos sell down again and then stop at the bottom of the channel and because there are limited numbers of shares available for sale again, surprise, surprise, the price goes up again.

Once the instos have got rid of most of their shares at the highest price they can, all interested buyers have nearly dried up as well as this distribution process usually takes place over a 3 or more month period. Then surprise, surprise, this time the price starts dropping and usually does for some time until it reaches a low point where the smart money again believe it is a value proposition and start the whole process over again (this time called accumulation) so they can eventually drive up the price again.

The distribution process is usually quite a calm and orderly process, the aftermath not quite so once the price drops below the bottom of the channel that the share price has so successfully and safely stayed above for months, due to the fact there are no more buyers to support a higher price. All the recent buyers have been expecting the price to go through the top of the price channel and ever upwards to greater riches, because that is what this share always does (like property always does perhaps).

If the same analogy is applied to the property market, it is at a wonderfully high level at present and if we do see a flat market in property for a while, could it be the smart money exiting as happens with shares?

That in share terms is one of many tactical parts of the market and where fear and greed meet. If you can read it correctly and mitigate risk, you can make money or limit your losses.

It is possible we could see something similar in terms of property at some point; and like shares, only time will tell as the pattern develops. As you point out, nobody rings a warning bell, but like shares and how the smart money gets rid of large numbers of unwanted equities to the unsuspecting public, the signs might have clearly been there had you taken a good look.

Cheers

Peter

Hi thecrest

If when you say 'I feel a pause or plateau', etc…, does it really mean that you are in deep doo-doo financially if something else happens so are hoping for the best? If so, then it does not mater what anyone else thinks.

What investment scenarios do you personally have firmly in place to ensure you get out financially intact should the worst case happen, not what you just hope or think might happen?

Cheers

Hi Toe

An interesting article in the Australian today might help crystalize the conversation:

http://www.theaustralian.com.au/business/wealth/sharing-the-spoils-more-australians-are-looking-to-access-the-equity-in-their-homes/story-e6frgac6-1226008336351?referrer=email&source=AusBus_Morn_email_nl&emcmp=AusBusMorn&emchn=Newsletter&emlist=Member

This article quotes that 72% of the total wealth of those
aged 60 and above is in their home compared to Super and the article canvasses
the home equity loan issues surrounding the fact most people have few assets
outside of their home. The oldest Boomers are now 65; the youngest around 50.

As the saying goes, people don't plan to fail, they just
generally fail to plan. If something does not normally happen, such as a
significant housing market correction for example, then why really bother about
all the associated risks? In fact most people wouldn’t bother even if they were
check-listed for them.

If the 72% figure quoted is accurate, that puts stable house
pricing high up on the list to enable people to retire successfully, ignoring
any IPs some may have.

I like evaluating risk when timing into an investment.

If one takes the 72% figure and thinks about it, it means
that most people are speculators by default, not investors, because they have little
diversification in their portfolio. Should something go wrong with the property
market, most will be holding a highly illiquid asset that is dropping in value,
possibly at an alarming rate.

If we now think about the average IP owner, their idea of
diversification these days is to negatively gear in different suburbs. If you own
cash flow negative IPs only, you either have the cash on the side doing
something different that you can use to fix any possible bank loan calls, or
you are an at-risk speculator similar to those 72% of home owners, not an
investor.

It usually takes some economic reason to trigger a significant
financial event and considering how many people have much of their wealth tied
up in housing, our government is going to try and move heaven and earth to stop
property falling. Did not help the Yanks, but ours will most surely try, just because
it is not their money.

But if we consider that Australian consumers are amongst the
most highly geared in the world, appear to have a propensity to speculate
instead of investing and are now heading in large numbers to retirement, it may
not take too much at some point to change that wealth equation.

I think that like the USA, most people sitting on good
capital gains at present will at some point be sighing, ‘If only’. Active investors
will have taken prior action and use their capital to take advantage of
whatever the new situation offers.

Hi again Gary

Remember this always, contracts are not a one way street, REIV prepared or otherwise, or just for the vendor's benefit. If you don't like something in it or want to add or delete, you have that right (the other parties might disagree, but you can still propose changes).

If everyone agrees, you need to get intiials of all parties against the changes along with the main signatures, but don't be bluffed into thinking you have no choice but to bend forward and grab your ankles.

Always be nice, but at the same time assertive and keep control as much as you can.

Cheers

Peter

I always find this crash/no crash discussion in property really interesting. 

I don't have a clue what the market is going to do, but I apply the following risk-reward logic to an asset being considered for investment:

1. What is the probability of the asset gaining as much as it has over the past ‘x’ time as opposed to going sideways or falling?

2.  What is my financial risk across all assets; am I exposed too heavily to one asset class and therefore risking everything if the 'impossible' happens to that asset class?

3.  Is the asset cash-flow positive and therefore able to withstand a possible downturn; in other words is the portfolio properly balanced? Does my investment strategy heavily rest on just attaining a capital gain, and if so, how exposed am I to financial risk?

4.  What is my exit strategy should the investment not go as planned and what is my likely advantage or point of difference if that is the likely simultaneous exit strategy of many others?

This video possibly captures the average Aussie's view on the housing market…

http://www.unconventionaleconomist.com/2010/12/now-i-understand.html