The Future?

I was not thinking of the wrapers rather those who had been wrapped. they paid a high price for the property (If it is theirs) and are paying a high rate of interest. Often working in unsecure jobs which traditional means would not give finance. These jobs may be lost unable to keep up payements the “wrap” may fall in a heap especially if those wrapped feel their hose is not worth what they are paying (A fall in the market) The property goes back to the wrapper, I would think in poor condition (annoyed feeling ridded off people rarely take good care of things) then unable to rent it out as it is the wrapper has to renovate and rent it out or sell at a reduced rate in a poor market.[V] I guess that is why they charge a preiminum to the wrapee who eventually ends up a loss in this instance.

mini,

I reckon you’ll find that rents move like (but not necessarily with) house prices, some years they will increase, some they will stay the same and sometimes they may even decrease. Long term they they probably do go up with inflation but short term many other factors will have an effect.

I wouldn’t count on $10 per week every year.

regards,

Rod.

westan,

My own experiences of Melbourne agree with your assessment.

We bought our first house in Melbourne for $84K in 1987. It was probably worth about $125K a couple of years later. It was sold in 1996 for $110K and would now be worth around $220K. This was a typical 3br suburban home.

Certain segments of the market may have seen a 30% drop but there wasn’t 30% falls across the whole market. I can see a few years of sideways movement and some “downward drift” but without some major external event I think across the board massive drops are unlikely.

regards,

Rod.

Westan
The stats you have shown may apply to the whole of Melbourne and for particular timeframes. Please understand that nature of statistics is that with the correct subset of data one can probably show any effect or justify any argument one likes. I like stats but feel thaw without a good volume of data over a prolonged time, one doesn’t get a proper idea of the trends. The fact that stats can also be manipulated are also a worry. These stats that you are seeing do not show the real effect of inflation, interest rates etc over these periods of time. These other factors had a very direct affect on the value and affordability of property at the time.

Let me explain. If one were to have bought a home at the median price in Melb. in 1989 for $167K and one bought a property which for whatever reason was more affected by the downturn through to 1995 one may have actually seen a decrease in value to say $120K which is a 28% decline. This could have been quite common at that time. Furthermore, if interest rates during this period rose to say 18% and inflation was running at say 5% (not sure these are realistic) then this would influence the value of property as well, but that is another topic.

The point I am making is that sure the whole market in Melbourne may not drop 30% but there will be a significant number of properties that do. This really means be very careful about what properties you own or buy at this time. If you feel that your IP’s are not likely to be as affected (due to scarcity etc) then you may only see a 5% decline or even prices just stagnate for some years. However if you feel that you are in a low demand area with high supply (maybe far from the CBD) it may be time to sell up now and avoid the potential 30% drop in that area or that particular property.
It is however not easy for most people to look at their own properties and make this kind of subjective value assessment.

My advice right now is that if buying, unless the property has some amazing attributes such as being on absolute waterfront etc, then do not buy at the asking price. Pay well below the asking price (say 20-30% less) and you will be able to ride through the worst-case scenario downturn. Remember to factor in 2% increase in interest rates to be on the safe side as well.

What qualifies as a bust? Does 10% qualify or does it need to approach 20% before it is termed a bust?

Others input would be appreciated.

btw – my opinion of a bust is when prices drop by more than 10%. If one buys well, one can easily handle a drop of 10% especially if it is over a few years. But when drops of 15-20% occur this is likely to start affecting the yield as rents start to decline accordingly even though the rent to selling price relationship is not one that tracks in a constant and linear fashion.

Hi all

housesonly, i’m not sure what the definition of a bust is, but certainly not 10%. the stockmarket moves up and down by that amount every year and its not a bust. If the market went to 3000 points unless it happened overnight it would never be considered a bust. Likewise a 10% increase in my opinion is not a boom. i don’t know if there is an official definition but clearly the tech stock bust was a Bust.
regards westan

I find +ve cashflow deals in New Zealand which I sell to other investors. To be on my database send an e-mail to [email protected]

My thoughts are that if a decrease in property values exceeds the short term growth the area has experienced then you would class it as a bust. What is everyone’s thoughts on this?

My example would be, somewhere that has increased in 40% over 12 months and then decreases by 20% surely couldn’t be classed as a bust because the net effect is still a 20% increase.

This would most likely be caused by properties being overvalued in a sellers market. Therefore the value decrease might be better seen as a price correction rather than a bust in my opinion. If this is the case, then much like a share investor values a company, a property investor should be able to see when an area is undervalued, overvalued – or heading that way, and either a) take advantage of that, or b) invest somewhere else. If the prices fell below their short term values then I’d be looking at is as a bust.

I think there’s even more to look at than just the market (or markets within the market) also. The situation of the individual investor is crucial to how they are affected in the event of negative growth. i.e. An investor who bought 10 years ago using a buy & hold strategy will most likely have a much different opinion to someone who just bought 5 off-the-plan properties with the intention of on-selling them in 12 months! Investor 1 rides the tide of the property cycle, investor 2 speaks to a solicitor regarding his bankruptcy options!!

Leigh

What would you suggest to a first time prop investor looking at investing in a 1 bed unit in east suburbs…expected retnal yield is 5.3% (i.e. -‘nve gearing) but with depn on building there should be only a small gap to finance myself. Would you hold off to later in 2004 and look for the bargains or get in now with a view to hold for the longer term?