I’m an inexperienced investor and fairly new to the forum as well, so forgive me if this question has been posted before. I have looked but haven’t found anything on this particular topic.
I was on holidays in Forster (NSW) last Christmas. I went to a few real estate agents to find out about the state of the market. I found out that an average house, not too far from the beach, costs at least $400k, and rents for maybe $250.
Apparently, prices have doubled over the last few years. From what I could find out the area attracts lots of retirees, but the economy does not produce a lot of jobs besides tourism. It seems that most of the expensives houses are not bought by locals.
This puzzles me. How can house prices keep rising without incomes in the area rising as well?
The only answer I can come up with is that prices can’t possibly go up so far ahead of rents sustainably. Does that mean that prices are likely to stall in the next few years? Unless there is something driving the market that I’m not aware of, I don’t how prices can keep rising in the next few years.
I would like to hear your thoughts on what you think is happening is coastal areas. Maybe you can provide some insights on what is driving the market.
Cheers,
CarLover.
Hi car lover
it is actually a world wild phenomoneun this incredible demand for coastal properties especially ones with views.
i think a lot of it has to do with the generation approaching and reaching retirement, many have made large amounts on there own homes in Sydney and Melbourne and with thought of retirement they think where is a nice place to live and obviously the beach stands out.
These values might seem high but when you consider some are selling a home in Sydney for say %800k and buying a coastal proerty that is superior with fantastic views for only $500k they think they are getting a bargain.
will it end? No i don’t think so, why? because aussies have a great love affair with the beach.
Its interesting where i’m living now in NZ is close to a popular (but cold) seaside town called Kaka Point, recently American as well as other foreigners have started paying what locals think are ridiculous prices. I went to an auction Today and a beachfront block with sensatioal views went for 121k (approx) what locals consider is huge yet its a joke compared to the same properties in OZ.No i think this demand for sea views will be long lasting. and the prices might seem high to you but there are some very wealthy people out there all after the same thing.
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]
Hi CarLover
I agree with westan that it is a worldwide phenomenon and that Aussies have a love affair with the beach. Many city slickers do sell up their $800K semi in Syd. or Melb. and buy a coastal property for $500K and think they have biught a bargain. At this point I would depart from westans proposal that the trend will continue. I think that coastal properties will always be in demand but find that the price increases that have occurred during the last few years of boom are unrealistic and cannot continue. Many retirees and close to retirees have bought in coastal areas without doing due diligence and have overpaid in a big way. They almost always buy because they fall in love with the place and make irrational decisions. They think that these $500K properties are a bargain because they are used to paying $800K but in fact these coastal properties are probably not worth $300K. Here is where the problem comes in. If these retirees end up not moving to these properties in a short timeframe (< 2 years) then they will be heavily subsidising these properties (even if it is through opportunity cost) and as such eating away at their retirement savings. This will be further exacerbated by the rise of interest rates.So I think that the prices in coastal areas will also fall back into line with returns of about 3-4%. I consider a return of 5-6% to be a yield that is fairly sustainable in the long term but know that most retirees would probably settle for less because their buying decisions are more based on emotion than on business principles.
i agree with westan and housesonly
rememeber the majority of babyboomers have still yet to retire. this is a generational trend that is here to stay for a few decades…
i also reckon with terrorism, sars, and the fact that people are a bit ‘travelled out’ we aussies will be looking more in our own backyards for holidays. also its cheaper than overseas travel.
Hi Carlover,
There are many reasons that the price could rise – lack of land available near the water is also a reason and people still want all the luxuries of the city so places where the infrastructure is in place will be the first to be taken – HousesOnly i feel is correct that there will be a downturn as people realise that they want to do more than just live in their house for the next 20 years and so prices might be seen to stablise for the mid term but who knows when that mid term will start?
just my two cents
cheers,
bluecatDo today what you want to do tomorrow
I agree with most of the above.
However, as someone who has spent a lot of time in nice retirement areas, I believe many baby boomers wanting the sea change will get burnt.Many of them retire to areas where services are a long way away. i.e. hospitals, GPs, social outlets, family.
THen, all it takes is for them to have a heart attack or develop a sore knee, hip, or back, and their remote beachside life becomes untenable.
They soon hightail it back to Melbourne Sydney Brisbane to be closer to their kids and decent medical services.
Further, they live asset rich cash poor lives. And end up on long public hospital waiting lists, unable to afford private health insurance and that total knee replacement.
However, I am sure there will be a steady stream of self centred baby boomers seeking Nirvana on some beach miles from the city for another 20 years.
My view is that if you are going to buy beach front, get it close to where your kids live or within an hour of a big city with all the services. And if you are going to move away from family, make a lot of friends very quickly after arriving.
Bruce
Mooloolaba, QldI’ve been lurking here for a while now and I was very pleased that someone raised this topic. My partner and I are currently looking to buy an investment property (negatively geared I’m afraid but we have our reasons) in a particular small coastal town. We’ve been really worrying about whether this is a good idea but after reading these posts I think I feel more confident about it. The town is 50km was a fairly large regional center and there is an aged care facility in the town itself. We’re confident we can get a house with water views and/or a short stroll to the water for a very good price (well, compared to Brisbane!). The town is starting to grow quite significantly and I know a lot of retirees continue to make the move there. We’re banking on very good capital growth over the next ten years as the rent isn’t that great given the number of single parent/retiree/non-professional people living there. Are we nuts??? My gut instincts tell me no but who knows…
rcenrig
The price you pay needs to be about 25% less than the average for the same sort of property for you to be buying with a fair degree of safety, imo. If not, I think you need to be willing to consider if you can subsidise for quite some time and wait for the peak of the next boom (7-8 years) before you will realise a good CG. I believe that these coastal towns will go into a holding pattern for the next 3-5 years in terms of price and maybe even drop a bit in the next 2-3 year as interest rates take their toll. Do consider your exposure to risk if you need to get out of this investment before the 10 year timeframe (e.g 5 years) and the market has not recovered yet. I am in property for the long run but always want to know that I can get out at any time without making a loss!housesonly
thanks for your reply. Did you mean the property would have to be 25% less than a similar property in a larger town/ capital city? We think we can get a subdividable property near the water (if not with views) for about 200-250K. There’s no way we’d get a place in Brisbane for that kind of money unless we went right out into the outer suburbs. Rent would be about $180 a week. I also should have mentioned that at the moment the number of prospective tennants totally outstrips the number of available rentals so occupancy rates are excellent even if the rent isn’t. We know that we would be looking at subsidising the investment at about $5-6000 a year so we need the capital growth to make up for this. We are also considering maybe moving into the property further down the track. Sorry to take up so much discussion about a negatively geared investment
rcenrig
No I was not meaning 25% less than similar properties in another location but rather in that location. In other words, unless you can get this property well below the market value, I would forget it. Dont compare what you can buy in Brisbane with this deal because this property is not in Brisbane. This is the same old mistake that people from Syd. and Melb. make when buying in Bris.to the first bruce – i blve you will see more infrastructure being built in baby boomer areas. more hospitals, more cafes, better transport etc
HousesOnly
okay, now I understand. I guess the challenge is working out what the market value is.The other thing to keep in mind when considering where people will want to live in the future is that we live in ageing society so I think we’ll see more and more people moving to the smaller regional areas, whether they are coastal or otherwise, that offer a comparable level of services to those in larger cities. Just my opinion…..
Originally posted by aussierogue:to the first bruce – i blve you will see more infrastructure being built in baby boomer areas. more hospitals, more cafes, better transport etc
Yup, and Virgin Blue’s new carrier, Pig-Air is being launched next week!
Seriously, where are the state Govt’s going to get the funds for these hospitals/transport etc? I know in Sydney our transport is in dire need of a lot of money spent on it, the hospitals need lots of money thrown at them, our infrastructure cannot cope with our level of growth (ie. no dams being built for more water supplies) so if they have no money to spend on these things in the city, where are they going to get the money to build the transport system, hospitals, infastructure you talk of in the regional/coastal towns?
Maybe it’s different in other states, I don’t know.
‘Eat rich food, barbeque a yuppie’
rugby fan
yes mate and the sky is falling in…
im surprised sydney wont be in the third world in a few years….
if the system works, money goes to areas that need it!
thats why we have elections!being a rugby fan you probably vote liberal(federal) so theres where you can start!!!
aussie, I gotta come down on Rugby’s side a bit. I worked at Hervey Bay and Nambour Hospitals and I can say that Qld Health doesn’t place a lot of priority on improving services to people who intentionally choose to go and live in an area where the services are compromised already. Certain government depts take note of the ratio between government support dollars going into a region versus tax revenue from that region. Regions where the former figure exceeds the latter are not priority spending areas. This includes many areas of prime retirement.
In the future, governments will prioritize servicing the employment centres with dwindling tax revenue.
It is a big mistake for anyone to believe that governments will have enough revenue in the future to keep expanding government services in regional Australia.
Further, Byron Bay is a classic example of property prices going so high that the service industry cannot be sustained. Service workers cannot live in the town permanently, and commercial leases tend to be taken up by naive urban refugees.
Bruce
Mooloolaba, Qldbruce
what you say makes sense. lets see what happens. in victoria however we seeing better transport infrastructure mostly roads servicing regional areas. see the geelong rd and hallam bypass and extension of the eastern freeways as examples.
also more younger people are moving to the country. bendigo, ballarat and geelong have +ve pop growth.
babyboomers are living longer and healthier plus they will have the size and wealth to be a major loby group. lets see what happens
but yr points cannot be ignored
cheers
Originally posted by thefirstbruce:aussie, I gotta come down on Rugby’s side a bit.
It is a big mistake for anyone to believe that governments will have enough revenue in the future to keep expanding government services in regional Australia.
Bruce
Mooloolaba, QldThanks for the support Bruce.
Aussierogue, whoever I vote for at the next election will not change the fact that we are currently seeing a decline in health and transport services in Sydney. They may not be in crisis (as is the journalist’s popular catch cry), but certainly need big money injected. As the collective state governments collect something like $13 billion a year in stampduty (mostly property) and NSW earn close to $6 or $7 billion of that each year, you would think there should be money to build regional infrastructure. After all that is only one tax that we pay to the State Government.
Victoria may be different, but here it is not all as rosy as it could be.
‘Eat rich food, barbeque a yuppie’
CarLover,
I used to live in Forster, NSW until about a year ago. Nice place to visit but difficult to get professional employment unless your are a teacher or other public servant. Had to leave to pursue my career elsewhere. Even retires have difficulty settling down over there unless they have an extended family or friends. Services are also poor for retires. No hospital in town. Prices have doubled but there is plenty of land around, especially on the way to Taree. So I don’t expect the high prices to hold up for long.Wow! What a response.
Thank you all for contributing your thoughts and providing some insights on this subject.
A very interesting debate.
Cheers,
CarLover.
Aussie, I take on board what you say about Vic.
Roads to me are a essentially a one off capital expense, with some minimal ongoing maintenance.
Hospitals and other aspects of a public health system are ongoing costs. And I’ll let you in on my twisted little bit of insider knowledge.
Hospitals only exist if you can get specialists to work in them. If there are no specialists, the hospitals are just too costly to keep open, as they are just way stations for minor day surgery and A&E.
If you visit Aussie country hospitals, at least in NSW and Qld, you’ll find the specialists have an African or indian accent. And these guys can be great. But the Aussie colleges make it really difficult for them to get a full qualification. So they work along with temporary licences, and have to suffer ridiculous exams that Aussie specialists wouldn’t pass. It puts a lot of good men off.
But I digress.
I understand the Vic regional towns are growing. But I wonder how much of it is via public spending (colleges, unis).
As for baby boomers being cashed up, that is my point. They spend a lot on PPOR and then are cash poor. Further, I tend to agree with RBA chief Ian McFarlane that we risk serious social unrest in the future as the baby boomers lock up capital in their lifestyles, while their children and grandchildren have no real security. This is an unsustainable situation, and it concerns me deeply.
Bruce
Mooloolaba, Qld
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