Anybody interested in the article above that was published by the Sun Herald on Nov. 9, 2003? Quite interesting report by David Pott.
I could post it here but it’s a long one and I lost the link.Should anybody want to read it and if the Admin agrees I could paste it here.
Let me know.G’day Benny….
How about you cut it in half.. post as Part 1 & 2
I’d enjoy reading it as I have banned myself from the “Wrappers” forum….. for a little while.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]Good on you Bill [8D]
Admin ok? Here is it then, enjoy!
What’s blown up always goes bang
Author: By David Potts
Date: November 9 2003
Publication: The Sun-Herald (subscribe)Don’t worry about last week’s interest-rate rise pricking the property bubble.
It was imploding already.OK, worry about interest rates, too. A 0.25 per cent rate rise is like the sound of one shoe dropping; you know another is coming.
At least it’s reassuring that jacking up interest rates to a level where they’d do a lot of harm would, well, do a lot of harm. So it won’t happen.
While the Americans keep interest rates down and the relevant authority, the Federal Reserve, says it will for a “considerable period” which, in the slow-moving world of central bankers, is even longer than waiting for the plumber to arrive the Reserve Bank has little room to move even if it were so inclined.
It’s generally agreed among analysts and lenders that it would take at least 2 per cent or eight more rises to squeeze the pips out of borrowers. Fortunately, that won’t be necessary.
Although the Reserve Bank maintains that the housing market “continues to be buoyant”, in truth it already has started to crack.
The Melbourne property market peaked almost a year ago in most areas. By the June quarter prices were falling. The median prices at Southbank, Docklands and the fringe of the city dropped 4.5 per cent.
No one likes to admit it, but it appears that Sydney is peaking as we speak. Even before last week’s rate rise, CPM Research reported the auction clearance rate of home units had slumped from 76 per cent in August to just 59 per cent.
Brisbane, in the true spirit of daylight saving, is not expected to peak for a while yet.
“There are fairly definite signs of softening,” CPM Research’s John Wakefield said.Even some of the median price rises recorded in the September quarter were illusionary distorted by the fact that demand by first home buyers has been drying up, the natural consequence of the earlier spending spree running out of puff and the fact that prices have risen beyond their reach in any case.
As action at the lower end of the market dries up, that naturally makes the average, since all that’s left is middle and higher priced properties changing hands, look higher.
Loans to first home buyers have dropped to only 13 per cent of the total advanced, well below the levels that were prevailing before the first home grants were introduced and indeed the lowest since the 1980s.
In Sydney the annual rate of prices growth has dropped from 27 per cent in August last year to 5 per cent last month.
“There must be spots of price declines already,” Wakefield said.Sydney city unit prices have dropped 30 per cent in the past 18 months, according to Peter Kelaher of PK Property Search & Negotiators which, unlike real estate agents, represents buyers.
Since the property boom is cracking under its own weight, the question is by how far prices will fall.
The sharemarket’s reputation for volatility and irrational mood swings is well earned, but don’t think the property market is immune. You’d be surprised how quickly sentiment can change.
“The market can change in two to three months from hot to cold,” Wakefield said.
“I can see it dropping 10 per cent; that’s extremely probable” he said, adding that’s about the magnitude of the drop, now forgotten, in the run-up to the Olympics in 2000. Some areas dropped 20 per cent in three months, but we’ve forgotten because they then picked up again.
A crash more than a 20 per cent drop would require forced selling. The only place that’s likely to happen is in inner city apartments in Sydney and Melbourne among buyers who used deposit bonds and haven’t had to pay up yet. By the time they do, they’ll find rents nowhere near what they had bargained for because of the over-supply of these units. When they realise that negative gearing is a mug’s game in anything but a raging bull market, you won’t want to be anywhere near the exit.But this oversupply also will push up vacancy rates, depressing rents and making it harder for property investors in other areas.
Speaking of supply, we’re in the spring selling season with a lot more properties for sale than normal.
There’s even a threat from left field: the sharemarket.
The bear sharemarket, along with low interest rates, helped create the housing boom to begin with.
It stands to reason that as the sharemarket kicks off, investors will weigh up the two markets and at least some will return to shares. Not that it will be an easy decision both markets are arguably pricey and due for a correction.
“Clearly there is a risk that investors eventually will divert their attention to another asset class, causing house prices to falter as occurred between 1989 and 1992,” said Shane Oliver , chief economist and head of investment strategy of AMP Henderson Global Investors.
“With rental property market conditions becoming tougher, residential property now offers lower yields than Australian shares,” Dr Oliver said. “Given the improving outlook for share markets, the risk that investors start to look elsewhere must be growing.”An even stranger at first glance effect on properties will be the strengthening dollar. A strong dollar makes it less attractive for expatriates or foreigners to buy Australian property, although you’d have to say the currency still has a way to go before that’s a realistic problem.
No, the more far reaching impact could be on the level of immigration. In the past few years of dollar doldrums, immigration has been running at a record level, as Australia looked cheap and attractive.
Home owners
Unless you lose your job or there’s some other trauma, your house is safe from the rate rise. Or a price fall.Paying the mortgage will be a bit harder and you should start planning now for at least another 0.25 per cent rise, probably just before Christmas.
If you don’t have to sell, it doesn’t really matter what prices do. You could consider refinancing at a lower interest rate yes, it’s still possible. Most borrowers are on the standard variable rate of 6.57 per cent, about to rise to 6.82 per cent. But did you know there are variable rates which are a good 0.5 per cent below that? Even after last week’s mooted rises.
Or you can fix with your existing lender for one or two years at below the standard variable rate. To avoid the loss of flexibility of early repayments, it might pay to just fix a proportion.If you used the equity in your home and borrowed extra to buy an investment property you’ll be more worried, but unless you face a cash squeeze you’re almost certainly better off hanging on. If you’re going to sell, do it sooner rather than later.
Investment buyers
If you’re a buyer, time is on your side. Especially if you’re looking at units.
Avoid auctions this is now a buyers’ market so you’ll do better by haggling with the vendor.The unit market is the one the experts warn will have big price drops. But even then, it depends on the area. Prices in the inner city of Sydney and Docklands /Southbank areas of Melbourne are falling now. Prices in middle suburbia are holding up.
Whether a house or unit will be a better investment depends on the price, the yield you can get and the value of the land component.
Since buildings depreciate but dirt doesn’t, the higher the land value component, the safer, and potentially more profitable, the investment is.
By the same token, a new place has the furthest to drop and is more likely to be trumped by an even newer development.It also pays to look outside the three main capitals for bargains.
But remember if you treat property as at least a seven-year investment, as you should, then as long as you’re not paying over the top, you don’t need a bargain. More important is the return you’ll get from it the rent and long-term capital gain.
You also need to take into account that vacancy rates are unusually high, about double the long-term average. So consider locking your tenant into a longer lease even if you have to sacrifice some rent. Better that than no tenant.
Home sellers
Well, what are you waiting for? The market won’t be going any higher.If you sell now, it might pay to rent for a while and wait for prices to cool down or even fall before you come back in.
With interest rates more generous, you’ll also get a better return on your savings after taking inflation into account, which if anything is expected to get even lower.
Investment sellers
Inner city unit owners need to decide whether they should cut their losses before things get worse, or wait for the market to recover. The scariest prospect is negative equity where the size of your mortgage is greater than the value of your property.It sounds awful, but in fact you’re only in strife if you’re forced to sell.
So hang on like hell. If you’re being squeezed, cut back other expenses first, and shop around to see if you can refinance at a lower rate; perhaps fix part of it.One consolation for landlords is that rents tend to rise with interest rates as home buyers, priced out of the market, become renters.
Renters
If you’re renting, you’ll be in the box seat for a while yet. Landlords almost certainly will offer long leases; you’ll probably get away with a rent freeze.But it won’t last. So save like mad to be prepared for something that seemed impossible only a week ago lower home prices next year.
G’day Benny…
You are great at researching.
It looks like something that I have written. Maybe it should be posted in the “Wrappers section” with my name on it… but I’m not realistic according to those clowns …just negative.
Seems we may have lost an intelligent voice in Kay Henry ( I hope not )… she’s had a gutfull of the pathetic Wrappers that can’t fathom simple mathematics. Wonder who’ll be next? If they could only read a handfull of the 1100 emails I’ve had since late September, they may realise that perhaps they are misguided after all.
No Benny… you can’t amend my post
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]Ok you buggers,
Convince me again NOT to sell my house.
I weighed up Alf’s logic 2 weeks ago, and felt the same as he. However, Bill you are adamant that I should ride it out.
I’m thinking if I had cash in the bank to be set for an opportunity in say 18 months time, I would have enough cash to borrow far less than 80% on another PPOR then. This would afford me a LOC. The balance I could then use for diversification in the stock market.
Convince me to stay put guys, else I have a 2 storey townhouse on offer before I miss the boat.
Kind regards, Phil
Yes, it reminds me a little to you mate when I read the article.
But I haven’t seen the word “Wrappping” in there Bill[
]. Take it easy mate, you’ve done enough and you meant it good!Yes, it’s a shame if Kay is leafing this Website. I’ve always enjoyed reading her intelligent comments!
Kay, are you here, please don’t go.Interesting journalism.
What is a “sharemarket” ?
I’ve heard of a “share market” [
] but a “bear sharemarket” made me giggle. The author obviously has absolutely NO idea about equities.G’day Phil…
Don’t be so bloody impatient… sit tight and cool it. Real Estate is Long term.
If you own… HOLDIf you’re considering buying ..WAIT
If you’re considering Selling.. NOW
If you’re a Wrapper…………1-3 years ago
If you’re a Wrappee…………1-3 years agoCheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]Hiya
Kay Henry leaving???? [
] What is this news? Is it true? I really enjoy reading everyone’s input and Kay is one of them.Very interesting reading Prop16…Thanks
Bill – I get all hooked up in the idea of still searching for an IP at the coast, but then I read your comments and advice and it brings me back to earth… Although I did check the number of rentals in the area and there are hardly any on offer, isn’t that a good sign!?
Jet[8D]
G’day Jet…
The title of this Post is timely and True!
We all like activity and hate sitting on our hands, and waiting. If we don’t we willregret it.
Profit is made, When & Where we purchase.
As for tenants/vacancy… make sure the Agents are not hiding the reality like here in Cowra. In any case, the vacancy rate is only one factor. Very few areas will be spared in the downturn underway.
It is not like the Share Mkt that goes down like an Elevator. It will take many months before Vendors face reality and drop prices if they must sell. Even then, don’t forget that properties are on averaged sold at 94% of their listed price.
Oh.. Kay Henry leaving? Just a rumour I started.
Cheers
BillBill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]It does seem to me that there might be bargains to be had in the future, in the Aussie market – probably when the next 0.00004 interest rate rise (hehe) snowballs into even wider-scale panic and loss of confidence than we’re seeing now.
If you are buying now, you’ve got to figure out if your property is worth it – it might be overpriced! Figure out your returns with rent – capital gain -(which you might not be able to count on) – how big your buffer is – if you have other emotional reasons for wanting to buy – if the property is rare i.e. beachfront or whatever.
personally I am only buying CF+ve properties yielding 20 percent or more which gives me comfortably enough to maintain, pay rates, pay the rental manager, and have enough left over for 10 percent actual income in my hand, or else enough to borrow and then a bit more.
I agree with the sentiment that negative gearing is a mug’s game in all but a raging bull market, and so….if you’re in that position then maybe it’s a good time to sell.
OR – buy in a market that’s still got lots of legs in it….
cheers-
miniBill,
Yeah I know about the impatient bit .. but ..
I don’t understand the contradiction between holding as an owner, yet selling if considering.
I feel like a fence sitter on the strainer post with choices in 3 directions.
1/ Stay put & refinance reserves if equity allows
2/ Stay put, go to work, pay the mortgage
or
3/ Sell up, prove the market, bank the cash for a downturn opportunityAware of the costs of selling and buying, are you now suggesting that the market might not drop by up to 20%?
Sorry mate, had to ask.
Kind regards, Phil
MiniMogul :o)
You get 20% on cf pozz IP’s. So is that 20k return on a 100k IP? Do your 100k IP’s get a rental of 400 bucks a week? Or is it commercial or other property you have invested in?
kay henry
G’day Phil…
I meant if you are going to sell… better now than after Xmas.
I did not mean that homeowners should start “trading” the market. Even if Canberra does drop 20% the cost of buying and selling won’t justify selling.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Kay… I think Mini is refering to $120pw on a cheapie in NZ ?Cheers
Bill
Bill O’Mara
Real Estate,Mortgages, Option Writing & Forex. [email protected]hi kay,
bill is right, and after doing a lot of research, i found that the more expensive the property (generally) the less the yield.the properties at the bottom of the market (actually any market) will likely have the best yields, because the rents in any area seem to be in a far narrower band than the purchase prices.
Often a house might be more expensive because it has more land or whatever, but that doesn’t necessarily compute to rental $$$.when i first started looking I had about 80K to play with and it was January. I was looking in NSW thinking at least it’s driveable if i want to renovate. There were still CF+ve opportunities for around 80K in places like Bathurst (which i’ve been to, and I loathed it – i found it ugly and and it seemed to have an unusually high proportion of drunken louts. nevertheless i know of people who have found good deals there, but i just didn’t ‘vibe’ it.) and Campsie – Kempsey – I don’t even remember now – which i’ve never been to. So i wasn’t getting that excited. then i decided to look in NZ and not only were the prices heaps more affordable but they were in places where you could get capital gain as well as CF+ve. After having heard Steve talk about investing in places such as Traralgon etc when he started out, I started looking for the NZ equivalents of Traralgon – one of which turned out to be only half an hour out of a city. there you could buy the most lovely villa in good condition (nothing to do) for 27.3 and it immediately rented for 110 per week. 20 percent return.
Next I found a lovely dump with sitting tenant for 16K rented for 90. (29 percent). Unfortunately the tenant moved on and the true dumpiness was revealed, and I fixed it up and did a total reno for 9k. A new tenant moved in and although the reno didn’t capitalise into much more rent (95 per week) the yield is 19 percent now and at least I know this house will always attract a tenant because it looks nice, plus the tenants are the kind who have planted 18 trees and refenced the property and put a new gate on in return for 2 weeks rent so i couldn’t be happier really. Also I know there’s not going to be any nasty maintenance surprises because I attented to absolutely everything off the builder’s report, as my aim is buy and hold i just want to end up with a property that lasts for many years as a rental income-producing asset.third house was 19, spent ten on it, rents for 115 per week, also a 20 percent return, and because like the second one it had everything done to it, it should last me many years as a rental.
I am probably going to pick up another one of these kind of deals in the near future as the real estate agent i bought two off is kind enough to show me all the new listings before he puts them on the web, hehe, so this whole thing just gets easier and easier!
in fact I just passed on a deal today for 36K with sitting tenant for $120 per week. that’s 17.3 percent return just on the list price, not even negotiating it down a little! A thousand people will tell you the deals aren’t out there for every one that’s saying ‘they are’ – but I would bet a thousand bucks with every single one of them that I’m right and i’d win. cause the deals are out there – zillions of ’em! they’re falling out of the sky! they’re piled up! they’re abundant!
mini
MiniMogul,
Can i ask did you encounter any unusual problems with buying in new zealand and how did you obtain the confidence in purchasing so far from home?
Dom[]hi Dom,
it wasn’t unusual for me because my parents are there and i nip back several times a year anyway. Also i know the country pretty well having toured it lots of times. I was extremely hesitant about investing sight-unseen and I was finding deals on the net for months before making a move, driving myself crazy with how good the numbers were, but not confident to buy without seeing. What swung me was two things. one was, that over summer I looked in person at a zillion houses (in nz) – found ‘the one’ – CF+ve plus three major Dolf de Roos ‘twists’ – but it turned out a dog from the builder’s report. That made me realise that as a time-money study it didn’t work for me to physically look every time I bought a house – because i couldn’t really tell a good one from a lemon (which a professional BR can.) I don’t love looking that much, find it a bit of a chore, cause you’re not looking at ‘lovely houses you can see yourself living in’ necessarily so it doesn’t give you emotional satisfaction like buying houses for yourself might, i imagine. emotional attachment and deal analysis don’t really go together in my opinion. The second thing that swung it was talking to Steve McKnight. As a purchaser of Wrap Secrets Revealed i was entitled to a year of email mentoring and boy, I had the burning question ‘am i crazy thinking of buying sight unseen subject to builders’ report?’ (i had photos.)
Steve said ‘no, if you can still do your due diligence.’ DavidU who used to post here a lot said the same thing – he owns several properties he’s never been to and probably might never. He doesn’t need to – they are fully property-managed.So that’s the confidence part. it’s still possible to make mistakes, such as i did, buying the house next door to the local gang member. hehe. yeah, watch out for that one!!
But don’t forget you have the building inspector, the rental manager (not from the same firm as is selling you the house, if possible!) and the lawyer (if you use a local one to where you are buying, which i would recommend) to bounce ideas off and who have local knowledge and brains to pick. There are ways to buy without going and seeing it. Whether everyone would be comfortable with this, i don’t know -up to you.recently I took a member of this forum over for a week of looking at properties in NZ. She is confident about buying there now that she’s been there, i think, even a house that she didn’t look at – because by going there the vibe of NZ has been demystified. I would recommend going there actually, and many from this forum have done exactly that.
It’s made me consider running a NZ propertyinvesting tour, actually, next year. Taking a mini-van or busload of people around to look at properties and get a feel for an area, using the wonderful contacts i have over there already. Maybe I’ll do it.
cheers-
miniPS there are specific things like get your money sorted out so you can fang it over when need be, touch base with a lawyer before you make an offer who can explain the legal side, LIM reports and the like, make sure you have a fax machine,
etc, but I don’t think it’s that muh different to hereDear Mini,
Thanks for your comprehensive answer to my question :o)) I know this would have been answered elsewhere and I could do an archive check, but… does one get the same tax benefits as one might in Australia if one buys in NZ? and does one have to pay CGT etc upon the selling of IP’s in NZ?
kay henry
Thankyou for that, i am going in NZ in june to visit friends in invacargal (i think thats how you spell it) for two weeks and hoping to purchase sight seen. I prefer to buy that way as i have a friend whom bought sight unseen and had $8000 to spend including his own work just to make it liveable. I know the population has not increased very much at all in NZ and thats why i will be cautious. I also know that a large part of the country is bought up by overseas investors and tht they are starting to clamp down on this problem. These are not bad things but i will step in lightly.I have not been their but what i have heard is all good, hope its all good for me.
Dom[]PS I also have arthritis all over
[email protected]Mini,
Another question for you :o) If the costs of the houses are so low, and the tenants are paying around 20% rent, why don’t they buy it themselves? A loan for them, over 25-30 years, would see them paying similar rental as mortgage repayments. Does the FHG exiast in NZ?
kay henry
]. Take it easy mate, you’ve done enough and you meant it good!
] but a “bear sharemarket” made me giggle. The author obviously has absolutely NO idea about equities.
] What is this news? Is it true? I really enjoy reading everyone’s input and Kay is one of them.
]The topic ‘What’s blown up always goes bang’ is closed to new replies.
