I don’t know if anyone has ever looked at it from this perspective, but it is something that never ceases to amaze me.
On this forum, and in the papers I constantly read posts and articles from experts who say they are “hesitant to purchase property in the current market”, or “prices have reached their peak, the bubble must burst soon”, or “the RBA must raise interest rates in the next 12 months.” I have always (ever since I first gained an interest) regarded property as a LONG-TERM ASSET, that, just like the stock-market has price fluctuations. But as history shows, each peak in the market is higher than the previous one. Which brings me to my point:
What is the problem with buying property now, (at the top of the cycle) if history shows (and history generally repeats itself if you look at the price fluctuations of almost any asset or commodity) that in 10 years’ time, (remembering property is a LONG-TERM ASSET) that property is going to be worth considerably more than it is today – especially if it is managed well??
Who cares if prices are high now? Barring radical changes to Investment Property laws from the Government, prices will go even higher in the long-term.
IMO, there is money to be made at any stage in the market cycle. With so many different properties out there, owned by so many different people, in so many different situations, there is always going to be something on the market that is below its “current value”. Who cares what these so called “experts” say???
Age doesn’t negate effort – you can never be too young or too old.
Hi Spanky
you raise some good points and i see where your coming from, i’d like to add to your comments then answer your question.
firstly the media is always against property, very rarely are the journalists investors so they have no idea.
secondly when they ask for “expert” opinions they usually consult someone from one of the financial services industries, and most often someone who is selling managed funds. These people always have a vested interest in promotion of the stock market over residential property.
Thirdly unless it changed in the past 12 months financial planners don’t even do a unit in their studies about direct residential investing- even though the residential housing market is worth a lot more than the value of the australian stock market- Its just happens that they can’t workout an easy way they can make money from encouraging direct residentail investing.Finally should we just enter the market knowing that in the long term the market will rise?
What tends to happen in the australian market is we have a cycle where the market rises quickly say doubles in 3 years then goes flat for 4 years and then the cycle repeates. As the market has risen recently if history repeats itself the next big jump is still a few year away. Personally i want to increase my wealth this year and then again next year. I wouldn’t like to have money tied up in a negative geared property waiting for the next cycle.
So while i agree that if you buy now in the future you will make money, however if your keen to increase you wealth this year there masybe better markets to be buying in. I’m still buying in NZ and recently started investing in the USA which has some fantastic possibilities.
One other final comment i agree that if you buy well you can still make money even in a flat market- you just need to be very knowledgable about the market and have a very good idea what “is” a bargain. As Robert Kiyosaki says “the profit is made when you Buy not when you sell.”regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
Originally posted by Spanky:
What is the problem with buying property now, (at the top of the cycle) if history shows (and history generally repeats itself if you look at the price fluctuations of almost any asset or commodity) that in 10 years’ time, (remembering property is a LONG-TERM ASSET) that property is going to be worth considerably more than it is today – especially if it is managed well??I partly agree with you Spanky,
Yes buying property at ANYTIME is always a good move as over time it will appreciate. The difference between buying at the top end as opposed to the bottom end of a cycle, is that if you buy when prices are up, you are paying inflated prices for perhaps the same property that in say 6 months would be more reaslistically priced by a reduced 10, 20 or 30K (a nice little saving wouldn’t you agree???) [blush2] But not everyone can buy at the low end; sometimes people just don’t have the finance available to them, hence are restricted to buying when they can and sometimes this is at a time when property prices are at their premium. All in all there is no bad time to buy, only a right time for YOU (that is, when you have the money). If you don’t have the money, then regardless of the cycle, it is the WRONG time to buy!!!
BTW….the bit about “especially if managed well” I can’t see how this has any bearing on the property value. Sure it’s important, but it will do Jack in regards to adding value. Perhaps you mean, that good management will ensure the property is kept in good order, hence not trashed by undesirable types, in which case, I agree. Aside from this I cannot see the correlation.[blink]
Who cares if prices are high now? Barring radical changes to Investment Property laws from the Government, prices will go even higher in the long-term.
As per my inference above, seasoned investors tend to “buy low, sell high” it is in their best interest to do this, for the purposes spelt out above, basically, better value for your dollar that’s all. As stated, buying is always worthwhile and the right time is when you CAN AFFORD IT.Who cares what these so called “experts” say???
That’s right “who cares?” No one is suggesting you take the “experts” words as gospel, and I think if you ask most long term investors you will find alot of them will listen to what the experts have to say, but in the end, make up their own minds, which often tends to steer them in the right direction. This comes with experience, and the longer you are in the game, the better you get at knowing what “expert” information is spot on and what is total BS (or at best, misguided).Age doesn’t negate effort – you can never be too young or too old.
Partly true (again) however, the younger you start the better off you will be. If you buy when you are 45 you only have say 20 years worth of growth before you reach retirement age in which you may like to make use of the CG, whereas had you have bought it at say age 25, the same property would have had many more years and hence made your twice the money again!!!Age does not negate effort, but it can limit the amount of CG because of the reduced time in which growth can be achieved. I say “can” because as with most things, property also has its anomalies; but these should be treated as a bonus and not banked on as they are sporadic. Thus, when considering age and investing, think of it like a bank term deposit; the longer the term that you keep your money in the account, the greater the interest paid.
Like any investment vehicle, property investing is (as you correctly acknowledged) long term, and the longer time you have to be in the game, the better your end result. Start young, research lots and often, negotiate for the best value for your dollar, and in the end, it should hopefully prove all good for you!!!
But above all…..HAVE FUN!!!! [biggrin]
Hi Spanky,
Notwithstanding the previous comments I recommend you read the Fred Johnson Story (Jan Somers – Story by Story).
Fred details major and significant events in Australia and/or the world in the last 50 years when people believed that it wasn’t a good time to buy property. Fred bought and continued to buy and ended up very wealthy indeed.
If you don’t have a copy of Jan’s book I would be happy to email the story to you.
BTW the book also has other anecdotes showing similar outcomes as well as detailing some of the successes people have had, and the way they did it, in a very short and concise manner.
Derek
[email protected]Property investment advice and researched property in quality locations available.
Couple of observations…..
Myopia, def..lack of discernment or long-range perspective in thinking or planning
This is a broad generalisation, however, people IMO are more focused on the now than a 10 year outlook, so any discernable change in the property market (PM), is likely to have a proportionately greater impact, and given the recent changes in the PM, a negative one on people’s perceptions, beliefs and therefore their actions…Self-fulfilling prophecies if you like.
Plus it doesn’t generate sales, public discussion to talk about a 10 year time horizon to property investment than it does compared to a emotionally charged headline about dropping home prices
Economics – The wealth effect, which is the variation in wealth has a significant and influence on household expenditure .. Therefore, the perception of falling house prices makes people feel their wealth is being reduced and therefore will have some impact on consumption.
Therefore given where we are today in the property cycle, and falling prices, this has a very real effect on the economy. It is therefore a newsworthy and real issue todat to discuss in the media.
Bargains
Furthermore, if you thought the market is falling, then why would you not wait until you thought the market ahd reached its new equilibrium. So maybe waiting for example 6 or 12 months may get you the same asset but at maybe a 5 or 10% discount….On the median house prices today, this approximates to stamp duty plus other incidental costs….Given that you have to finance and fund today, not in 10 years, that might be a very sound strategy….Thankyou for your interesting and varied responses. In a nutshell, what I was trying to get at was that IMO it shouldn’t matter too much if you buy in now, because (if you are a long-term investor) it’s unlikely that you are going to want to sell any recently purchased property in the next few years anyway. A few years during which property prices are expected to receed a little, or remain flat at best.
Woodsman, I cannot agree more with your comment about emotionally charged headlines about the state of the market here and now, and their ability to generate sales. Especially when it comes to the tabloid papers.
Age doesn’t negate effort – you can never be too young or too old.
beware – in the last 3-4 years property has been used as a speculative investment. people getting in and getting out to make a profit. once this occurs it changes the market. so the old addage that property in a long term investment, in this hightly charged envornoment might get y9ou into trouble.
i would hate your LONG TERM perspective to turn intop a VERY LONG TERM INVESTMENT…….if prices go backwrads or dont move for a very long time.
Everyone needs to review those old cliches because the current market is different to anymarket b4…
(im not saying buying property now is stupid – but for me it needs to stack up against the alternative uses for the money).
I am reading Jan Somers – Story by Story. On one on the chapter she said that property prices (I think in Melbourne? could be Sydney) since 1950 till 1990s on average was 3 to 4 times of average salary. If that trend to remain the same wouldn’t it be a good idea to wait since it’s likely to be flat for some years yet. If you buy a property now it will be likely to CF- and costing you money if the IP don’t go up in few years?
I don’t have an IP and like to have one but not sure about jumping into it now. I have been doing a calculation and just going to cost too much. I live in Perth that suppose to have further growth but still find it too expensive to negatively geared one now. Maybe with more reading and research I will be able to find an opportunity easier.Originally posted by Spanky:in 10 years’ time, (remembering property is a LONG-TERM ASSET) that property is going to be worth considerably more than it is today
Do yourself a favour and Google property prices in Japan. To quote myself:
“The price of land in Japan has fallen for 13 consecutive years (down 6% last year alone) and is now close to 1980 value in real terms. The nominal loss in value of house prices is 43% and commercial property 80%. Interest rates have been effectively 0% since 1999.”[thumbsup2]
Now revisit your assertion that:
“in 10 years’ time, that property is going to be worth considerably more than it is today”Is there any founding logic behind this statement? You might say that history repeats and point to the last 2 booms, but I can detail a number of factors that have influenced house prices between and since those booms which will not be repeated this time.
Also of note is the fact that residential property increases in value by less than 2% in real terms, and requires maintenance expenditure.
Have a nice day![cap]“House prices are a matter of opinion, whereas debt is real.” Merv King, BoE, 2004
ahhhh, spanky…. never a truer word spoken. well done for speaking out like you have. i too have times become a little `over’ the opinions of some who say that buying at the top of the cycle is not a good idea. for who? i am yet to meet someone, anyone who proclaims that they know the timing of the property cycle. i say as long as the numbers are right and the property has relatively sound growth prospects, GO FOR IT!!! I am sure there are plenty of professionals here, and thats great but we all need to start from somewhere.
Neo, the question is can you find a good IP that earns you a resonable rent for the price. The prices has gone out of wack that reasonable yield is very difficult to find now. I don’t know what will adjust, the rent or the price. Not an expert.
Foundation,
Are you saying that we are going to experience 10 years like Japan has during the 90’s. The differences between Japan and Australia’s respective economy’s are as vast as the two country’s cultural divide…I can’t see the relevance.
Now revisit your assertion that:
“in 10 years’ time, that property is going to be worth considerably more than it is today”Is there any founding logic behind this statement
Actually there is, 100 years of history in this country…
Also of note is the fact that residential property increases in value by less than 2% in real terms, and requires maintenance expenditure.Not sure where you get this information from.
Whilst I understand and accept your current anti-property view at this time, loosely related data and broad generalisations without facts doesn’t add to your position.
I know I am delving into what could be a very “edgy” subject here, and leaving myself open to a bit of criticism. I am, however, quite comfortable with this for a couple of reasons:
1) I don’t actually own any property yet, so I’ve got nothing to lose.
2) I am keen to learn, so I’d like to open myself up to the views of people who are already at the point where I want to be.Of course, as has been stated, you place yourself in a good position if you are able to buy an asset at a low price and sell it much higher – that is commonsense. I do not, on the other hand, see any reason for investors to completely abandon the property market or even stop purchasing more properties.
There is always going to be a “general” consensus about the state of the market. i.e. – rising or falling, good or bad, however this doesn’t mean that there are absolutley no more good deals out there – whether you are looking for high cashflow or high capital gains, or even both.
I just don’t agree with the idea that investment decisions should be made purely on the “overall state of the economy”. Like I said before, there are so many individual properties out there, owned by so many different individuals, in so many varying circumstances that there will always be one good deal on the market. On the flipside, there will always be someone out there in the position to take advantage of that opportunity. If that person is to be me, I don’t wan’t my decision to be clouded by an article on the “general” state of the market.
Age doesn’t negate effort – you can never be too young or too old.
Originally posted by zen:I am reading Jan Somers – Story by Story. On one on the chapter she said that property prices (I think in Melbourne? could be Sydney) since 1950 till 1990s on average was 3 to 4 times of average salary.
Last time I checked the average australian wage, before OT and before bonuses was $50k.
Kinda makes you wonder about current market. Mark my words there are tears ahead.
Air goes in and out. Blood goes round and round. Any variation is a bad thing
Originally posted by woodsman:Are you saying that we are going to experience 10 years like Japan has during the 90’s. The differences between Japan and Australia’s respective economy’s are as vast as the two country’s cultural divide…I can’t see the relevance.
Of course there are many economic, cultural and social differences, but my point was simple. Both Japan and Australia have seen ‘irrational exhuberance’ in their RE markets. Japan’s economy faltered and has been in the doldrums ever since, while Australia’s current position is looking increasingly shaky. Japanese house prices began to fall 13 years ago and are still falling; local prices have begun to fall and…
in 10 years’ time, that property is going to be worth considerably more than it is today.…would seem extremely optimistic.
For a more ‘relevant’ example, try the UK. Their market last peaked in 1989, and ten years later in 1999 median prices had only just surpassed their previous peak. This time around (both in AU and the UK) the bubble is even bigger and the result of the correction will be compounded by the all-time record debt bubble (including credit, home equity, personal loans & record ‘gearing’).Actually there is, 100 years of history in this country…Can you direct me to another event during those 100 years when a single asset has demonstrated the ability to inflate by similar levels as property without fundamental support? With the current levels of gearing and ‘investors’ drawn from such wide-ranging financial backgrounds? What was that asset worth ten years later? ‘Considerably more’?
Not sure where you get this information from.Between 1971 and 2004 the CPI adjusted median value of residential housing in Melbourne has averaged 1.9% per annum. The CPI figures are from the ABS and median house prices from the REIV. These figure is backed up by Macquarie University SoE research and financial commentators (reference http://www.google.com). What’s more, the 1.9% includes the recent boom, and will be lowered as the current soft landing / crash plays out. I’ll post the numbers if you so desire.
“House prices are a matter of opinion, whereas debt is real.” Merv King, BoE, 2004
Foundation, you raise some interesting points. BUT, you again revert to averages and overall results and statistics – with direct reference to Melbourne. I don’t see how the AVERAGE CPI adjusted growth rate of property in Melbourne over the last 33 years can have any impact on a single property in that market. It would mean absolutely nothing to me if I were to purchase an individual property in Melbourne.
To my way of thinking, averages are for average investors.
Age doesn’t negate effort – you can never be too young or too old.
I have posted these graphs before, but speaking of house price history, here they are again.
Interpret as you will…
http://www.vw-organics.com/real_house_prices.htm
http://www.vw-organics.com/household_debt.htm
Cheers
Hi Spanky,
I have used Melbourne data for two reasons; because I am familiar with the market and its last couple of cycles and because there is very little other reliable data to choose from.
Means & Averages are a meaningful way of illustrating my point & the very essence of statistics. Without such methods it is impossible to describe movements in large quantity of data.
So while I concede that some individual properties will fare better than the mean, this must be balanced by other poor performing properties. Also, the more exposure you have to the market and the longer the term of exposure, the closer you will achieve to the mean.I’m interested in your thought that “averages are for average investors”. I absolutely agree with the statement, but it would appear to be at odds with Buy & Hold and more aligned with the simple Buy Low, Sell High strategy.
What would be, in your opinion, a good total return on an investment over the longer term, say 25 years?Foundation – I see exactly where you are coming from, I am just trying to look at things from another perspective.
In regards to your question:
I am not necessarily looking for massive capital growth or even cashflow returns, to my way of thinking, we as investors aim to generate wealth using Other People’s Money (OPM). Let’s say an investor buys a property for $100k (to simplify things). He puts down a deposit of $10k. He borrows the other $90k on a 25 year loan. I know there are investors on here both for and against positive cashflow over capital gains, so lets say the IP starts out -geared and at the end of the 25 year term it is +ive cashflow, but overall it is neutral. The investor has not made a single dollar in the way of cashflow, but he’s not out of pocket either. Let’s also assume that the property did not grow in value, not one bit. So at the end of the day, our investor has a $100k IP that he paid $10 grand for. If he did this 10 times, he has paid $100k for $1m worth of property, and what would be earning a relatively comfortable income for many people, even though his property did not grow in value (CPI adjusted) by the 1.9% we have seen in the last 30 odd years.Age doesn’t negate effort – you can never be too young or too old.
What happens when interest rates change, tenants leave or general real life stuff happens. Does anyone remember the late 80’s early 90’s.Are you trying to say find bargains in a heated market or buy anything at a high price??. Hey Spanky Ill sell you my house at a peak price.And then buy something else when a bit more air goes out of the bubble.Why pay top dollar?? So what if you are young.If you buy the wrong property it may end up costing you more.And would have been better off leaving your money in the bank.Just because you have years to waste does not mean you should be careless with them.Im not saying dont buy property but at least think about the investment not cheerlead property at any stake
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