Property bust not here yet … worse to come

Have you thought about shares? The current commodities boom is going well thanks to our friends in China [biggrin]

Though it is good to diversify I am guessing you were asking more specifically about property.
I bought my first investment property a few years ago in QLD without knowing too much and just wanting to get into the game. It is going ok but I would like to be more informed and researched before buying again.
Like yourself I am confused as to what direction the market is taking. For a long time I have looked at things like the massive debt held by individuals in Australia, and that is household not just credit card. I have felt that many people live beyond their means and when interest rates increase by a few % things are going to get tough. Your post suggests the more heavily geared are already hurting. In many respects I feel the current commodities boom is a major factor in keeping us afloat as a country. I am not sure what else there is going to be when that dries up. I don’t think there is going to be some massive drop in house prices, it is more likely that the market “levels out” to allow incomes to catch up and improve affordability. How long with that take….. who knows. Interest rates always play a big part and they are certainly creeping up. I have read that by mid – late 2007 or early 2008 affordability will be improved.
I know that even in a “down” market money can be made by savvy investors but typically I believe people who play it conservative seek to invest for the long-term and reduce the debt in their portfolio. Others tell me that as the property market falls, shares often rise…. maybe those commodities aren’t looking so bad after all!

I don’t think I have been very helpful, but I think this is a great question and would love to hear what the more experienced investors on this forum think.

Cheers,
[email protected]

Hi,

as an investor and licenced real estate agent I find two things to be true.

1) there is always bargains to be had in any market. Yes they are harder to find when the market is going south, but they are still there.

2) The market is only as difficult for you as you let it be yourself…the more homework (due diligence) you do and the more self education you undertake the better off you will be regardless of market conditions.

My point is – know the market and watch where it is going, but dont let it frighten you…you can’t change the market conditions, but you can change your reaction to it and its effect on you.

The brisbane martket is apparently all over the place, but I have sold a number of properties to investors in the last few weeks because they have done their homework and know what to expect. Learn to know where to look, good properties are always there and good returns can be made with a bit of homework.

hope this helps
Grant

I would say it’s not quite that simple. If this money that you say is due to flow back into real-estate is the product of debt (and / or debt-funded bubbles), the markets historically have demonstrated an interesting, though brutal way of absorbing excess liquidity…

I gather you believe that there is some kind of contrarian ‘buy signal’ for residential real estate at this point of time? Do you disagree that currently (East coast specifically):

– The majority believe that house prices never fall, they can only stop rising at worst.
– The majority believe that house prices in the near future (anywhere from 1 to 5 years) will resume their steady upward march at rates in excess of inflation?
– The majority would rate the chances of interest rates exceeding >10% within the next decade as near impossible?
– The majority believe that in the long term, buying a house is a good investment?

Now surely a contrarian would look at these 4 indicators (and many more) as forecasting bad things for house prices? Compare that to 1991-3.

– Nearly everybody knows somebody (or of somebody) who has either had their house repossessed, sold at a loss or cannot afford to sell at a loss. Those that don’t are bombarded with hard-luck stories in the newspapers and current affairs.
– Many home-owners are prepared to lock in 5 years at 12.9 percent because they think there is a decent chance interest rates are about to rise again and they’ll be forced to default on their mortgages.
– The majority consider real estate investment to be speculative and risky.

Perhaps a contrarian might consider manufacturing… [eh]

F.[cowboy2]

I disagree about the Perth market slowing. Everyone is talking about the “bubble bursting” in the media over here in the wild west, but honesty if anything the market will just flatten.

This wont happen for a long time. Perth has a lot going for it. Its closer to Asia and the pacific to attract immigration, the resources boom as we know is fueling the boom. Countries are lining up for its resources which is creating a fantastic economy. Further to this, 800 people are moving to Perth a week! Effectively, the equivalent of a population of a highschool is moving to WA! Thats amazing stuff.

If you know Perth, you also will know how well the infrastructure is well set up for this kind of housing boom. I am originally from South Australia and I laugh when Perth citizens complain of traffic: its nothing! Comuting from Mount Lawley to Maddington for work everyday is a 20 minute drive (17ks) in peak hour – doing the speed limit as well i might add, naturally!

The city is young and cultured, and is surrounded by many trees and the swan river. The public transport system is excellent, with the constantly delayed but ever building mandurah train line due in 2007. I predict AT LEAST another 3 years before the boom slows. I know there will be some skeptics, particularly sydney and nsw investors.

I work in real estate in WA, and we have a database of over 10,000 people all looking for property in the area. The demand for land is incredible! you have to see it to believe it.

************************************************************************
In saying that, i am increasingly concerned about credit card debt in australia and the lack of baby boomers looking to invest in their retirement. We tell our clients everyday, all you need is 6 properties in 10 years and you can retire with more money than you will ever need. Its that simple, but they say “no, i cant afford to invest”. You cant afford not to, its that simple.

When the pension is gone, and their employer contributed super dries up in 10 years, 70 year old baby boomers will have to go back to work which is a terrible, terrible shame. I am bracing myself for the massive economic change we will no doubt experience and it will take something radical from the government to change the course for the boomers.

rant over, how is that for a first post lol.

[blink]

air_nitta

Even though you are in real estate, you must get your head out of the clouds. Every boom breaks. Will Perth go for another three years? My guess is that it probably won’t support rampant speculation for so long. Doesn’t mean to say it will come crashing down, but it will have a period where it remains flat. Of course, the people who rush in and buy at the top will wish they had never heard of property as an investment.

When any boom is in progress, there’s always the “I can’t see any end to it” mentality. Step back and think about it. It has to end – there’s nothing surer. Nothing grows at extraordinary rates forever. You know, whether it be property or shares sometimes there are just no more buyers left to keep pushing prices higher. Then the music stops.

Never think the property boom in WA won’t end because the resource boom is fueling it and there is “endless” growth in China to fuel resources. That’s going to have a day of reckoning as well. The best we can do is take advantage while these booms are in place.

Wes.

G’day all’

I must be doing some thing right! Going against the “herd”.
I ‘m in search of two dual – occ sites. Must be exactly to my requirements.
As more people abandon property for shares, I must be doing “good”!!
When I charged around the property scene in 1999, I bought anything I could lay my hands on. A BLOODY DISASTER!!!
A FOOL AND HIS MONEY ARE SOON PARTED. Yes I stuffed up big time.
Took three -four years to un-stuff the whole situation. And the money lost in time and selling etc still hurts like hell.

Now I buy only dual -occ sites in “the” right location. As the property prices of Sydney’s northern beaches cool, I’m out about looking, looking and still looking.

Steve Mc Knight once said that property investing isn’t easy. He got that right.
I see properties that are nearly just right (almost perfect)
but I think, careful idiot, no more stuff ups.

Foundation, yes you would most definitely need more than six properties to live off.
My strategy is direct shares, managed funds, listed property, un -listed property and of cause superannuation funds.
Property comes a long last. I’ll be dead by the time they are of any benefit to the “kids”
Investing is now a play thing for me. I’ve got mine. It’s now all about the “GRAVY ” for the “kids”.

bruham.

We could live very happily on the rent that five fully owned houses in Brisbane would give us.

Wylie

Excellent work camden….very inspiring story indeed, and likely to improve further when you get units 5 and 6 up and running. I bet your finance provider thinks you are a top customer.

Now where did you get that idea about getting off your bum and out from behind the computer and mixing it with the real world ?? Do you mean life cannot be downloaded or emailed to me as an attachment ??

Excellent thoughts wylie….I’d love to catch up with you over a cup of tea, especially to pick your brains on the self management side of things. We do it as well, but you seem to have the runs on the board…..perhaps you are nicer with them than the wife and I.

Need six properties to retire on ?? Hmmm, I reckon one big one would do it for me. I remember an older lady standing up and saying she only had one IP, but it was an office block that her deceased husband left her more than 30 years prior. It was renting for 1.1 MM p.a. nett, that’s $ 21,100 p.w. after all costs paid by the tenants. I think she was reasonably happy, and really didn’t need six of them. We really do need to get away from these average smo 3 bed houses renting for $ 180 p.w. to get anywhere. Anyone actively promoting these or similar needs to have a good hard look at themselves.

Property has been reasonably kind to us over the past good while, especially the last 2 years….yes I’m in Perth. We are looking to purchase again, probably a dirty big block of dirt. Our spirits are high, and if the WA media are talking gloom and doom, then we actually take comfort from that. We concentrate on specific contract details, both sales and leasing contracts and the nitty gritty therein. What Mr Rossen (the Prez of the REIWA) is quoted as saying, usually has very little bearing on real life out there where it’s every dog for itself.

What the “property market” as a residential median is doing…..has absolutely zero bearing on what we do.

As I’ve noted on the forum before, don’t fly up in the stratosphere looking at the “market” on a macro level…..you’ll go blind and broke trying to figure out all of the gobbledegook, with far smarter individuals with access to every piece of data coming out their ying yang trying to convince you one way or the other.

Instead, get down on your hands and knees and scrummage through the weeds, sniffing out the gems in the rough that the other more intelligent people have already “surfed” over. Sometimes they are absolute crackers.

Good luck everyone.

OK, Foundation, bring on the misery stories.

foundation,

I believe every word of your post. People are telling me stories of near forced sales due to no growth in the market. negative gearing
sucks if you have your hand continuously in your own pocket covering negative gearing costs. No capital growth. Just capital loss.
One fellow sold at a loss of eighty thousand dollars just so he could escape the tread mill.
I’ve been in this situation, so I know how he feels.
This is one of many property sob stories going around Sydney .

For you “sandgroppers” there’s a story that W.A. property is a bubble ready to explode.
I checked out some of Perth’s suburbs yesterday. The prices of property that you couldn’t give away two years ago is beyond belief.
Four hundred thousand dollars for three bedroom houses out in the sticks.
Perth is now dearer than Queensland. Now that is unbelievable !!!!
Jumping into the Perth property market is now gambling.

bruham.

many people looking at Melbourne as well(plus SA and NT still making moves)

“Money is a currency, like electricity and it requires momentum to make it Effective”

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