Hi everyone,
been a little while since I have posted here as I have been on another forum (shares) lately. Anyway I recently came accross a couple of posts on the shares forum about the property market… SO I thought I would post it up here and see what all your coments are.
here it isTITLE: I have given up buying a house
This will be a hot topic….I have been living at parents place – free rent, or my mates place free rent!
I have decided to give up on the Great Australian Dream, turn my back on it and deposit extra money into my superannuation.
Housing is the most un-affordable it has been in 20 years according to many experts.
The government gives first home buyers $7,000, but is very happy to take back up to 25% of total monies deposited into housing as taxes.
House prices are now stable, or going down, expect for a very small amount of suburbs in a few cities. So it does make for a bad investment in the short to mid term.
I am able to gain access to the free $1,500 super co-contribution, each year, and every year, so this will be over-time a better investment than the poxy one off payment of $7,000 for the first home buyers grant.
I have also decided on gearing my superannaution, which is exactly the same as buying an investment property.
and here are the returns…
1 Year % 58.66%p.a.2 Years % 55.76%p.a.
3 Years % 55.76%p.a.
5 Years % 48.14%p.a.
7 Years % 21.07%p.a.
care to discuss?
There is obviously alot more said in that thread then the main post I just quoted so below is a link to the ‘I have given up buying a house’ thread.
http://www.aussiestockforums.com/forums/showthread.php?t=3709&page=1&pp=20Also here is another post by the same person on that forum which is sort of along the same lines.
TITLE: I.R. Laws will crash the housing market
I reckon this will be the the straw that breaks the camels backIf you look at the collective union agreements, the bargaining power gained workers the largest pay rises and the best working conditions.
Then came the AWA’s, these have gain workers half the amount of wage rises than what collective agreements achieved.
….and now we have the I.R laws handed down, which have effectively stripped workers of up to 30% of their take home wages.
OK so now we have take home wages on thier way down, house prices in almost all parts of Australia stable or on their way down, global higher interest rates and record fuel prices.
get my drift….care to comment?
heres a link to that one http://www.aussiestockforums.com/forums/showthread.php?t=3698
Hope this isn’t too much but i thought it was necessary to post both of his threads in order for you to gain an insight to his views.
Would really like you to comment on these.
Do you think the market is going to crash further? would it be a better idea to put money into super?cheers
PS: I am not going to put my views here as I would like to hear your views, however mine can be read at those links.[exhappy]
Mint Man[king]
Any investment vehicle can be used to make or lose money
Any investment vehicle can be geared to accelerate the making or losing of money
Everyone can chose the vehicle that works best for them and can easily criticise those that do not
Im only average at shares and derivatives, I dont trust super as I cannot access my money yet the govt can change the rules and Im only average at property investing.
I guess I need to try some alternate vehicles!
Originally posted by The Mint Man:Would really like you to comment on these.
Do you think the market is going to crash further? would it be a better idea to put money into super?In regards to the residential real estate market, generally speaking, yes* and yes*. Especially with the now added bonus of zero tax on monies out of super during retirement, compared with the losses incurred when selling an IP.
“Oh, but gearing is so much better in property!”
Yup. Works both ways though, and its clear where Eastern seaboard house prices are headed! Plus the example above is presumably a geared share fund (I’d guess at CFS geared Australian) which is, well, geared.
“Oh, but real estate is the best performing investment class in the last 20 years!”
Almost right. It’s actually listed property, but if you pick the investment class with the highest recent valuation growth right at the peak of the biggest bubble in financial history, average the returns out over a cycle or two, chances are it will look like a good long term investment.* and * There are, and will continue to be both people and houses that are exceptions to the rule, who do their own thing and do it well. But the now estimated 400+ thousand Australians currently in negagive equity would not appear to be amongst them. Some could not sell for more than 85% of what they paid, and at the same time have lost both their deposit, stamp duty, and tens of thousands of dollars a year in interest payments… [blink]
But they’ll be alright, houses double every 7-10 years, that leaves just… uh, 3 1/2 years to go! And the real estate industry has been saying that the new boom is just beginning! Oh goody.
Fast forward ten years of unimproved house prices and do the maths. Super is looking pretty good, huh?F.[cowboy2]
This post is generally bull in nature and should not be considered specific investment advice. Or whatever. Sue me.I am a cynical watcher ( oh yes I have property, but not quite the ones in the usual box, a land bank and a commercial one high growth other high return) and have to agree.
My own son is doing exactly what the poster is doing as are many of his friends, also is canvassing work opportunities out of Sydney.
Agree that in any cycle shares or property can be made to look wonderful, but draw out the time frame and the more equal they become.
Factor in inflation and all of a sudden you wonder why people get excited.
Yes, we had an extraordinary boom, but the soft market on the East Coast is having a extraordinary decline (usual decline occur when rates go up, rate rises so far have not reached rates of a few years ago)
What will happen, don’t know, but sentiment is turning full circle.
All my client discussions latley is on selling property not buying.
For me this would depend on age.
As I am 30, I have no intension of puting alot into super, but as I get older I will. Money I can access now if more important for me.
As for property, each city, town, suburb etc has its own factors and as some markets rise some will fall.It will be harder to find the “Deal of a Lifetime” but they will still be there.
CATA
Asset Protection Specialist
[email protected]Originally posted by gmh454:(usual decline occur when rates go up, rate rises so far have not reached rates of a few years ago)
A good point here gmh… interest rates are still low by historical standards.
This is why I have a ‘bit of a cack’ when people tell me that over the ‘long term’ house prices always double every 7-10 years. “What’s long term?” I ask. Apparently it’s around 30 years. So what is the average standard variable interest rate over the last 30 years? It’s 10.4%.
Grab a monkey! That’s pretty high, sure, but so is the ‘long-term’ (30 year) average of 7% house price inflation per annum (although adjusted for inflation and increases in size/luxury a touch over 1%)…
So I’m 30 years old, if I’m investing for a comfortable future at 60, do I spend $300,000 on a house expecting it to double, double, double to $2.4 million in 30 years? Of course I’ll need to factor in 10.4% average interest rates and remember that they’ll need to get higher than that at some point in order to balance the current low rates… It will rent for a hefty 4.2% gross yield or $240pw…
Hang on! If interest rates average 10.4%, then a quick ‘back of the fag packet’ calculation shows an average $600 pw interest cost! Yeah, ok, I know that’s not a very accountanty calculation, but it’s still some $360 less than the average interest cost!
Hmm, IO loan will cost average $18,700 out of pocket per year, minus the tax, plus rates, insurance, pm fees, repairs and property tax, say $15,000?
Let’s be super-generous and assume 6% pa rent increase. After 15 years this baby is paying its way!
Big picture is – after 30 years:
$2.4 million house
$300k debt
~$227k surplus rent after income tax and interest compounded @ 10.4% are applied
~$500k capital gains taxAfter selling costs, capital gains tax and debt repayment I’d have around $1.6 million in cash with no way to wedge it into the tax-free super heaven…. darn.
Of course I could have put exactly the same amount into superannuation, in a safe cash option and ended up with $1.3 million, available at any time to be withdrawn tax-free or left at a low (<15%) interest rate for as long as needed!All told, either option is going to come out roughly equal, yet one is a VERY LOW RISK strategy, and the other carries a MUCH HIGHER RISK
Ok, I can almost here the groans and sighs… “Interest rates are not going to get to 10.4%, so the loan will be cheaper (better) and interest on deposits will be lower (worse)”.
This situation is not normal. It represents an absence of sensible risk-pricing brought about by excess money creation. I could discuss this for hours, but I digress.
If you believe that this imbalance of risk pricing and easy money will continu, then fine, but don’t come to me crying that your investments didn’t double every ten years. And don’t come crying when the governments’ new IR laws prevent the 6% annual wage increases that would be required to sustain 6% per annum average rent increases. And most of all, don’t come crying to me when in 10 years the proportion of working adults of voting age and without access to affordable housing is greater than the proportion of adult Australians with a house or two or six or 130 – because they’ll be angry. And they’ll be bitter. And they’ll have more than enough political power to place crippling taxes at entry, exit and annual points of house ownership beyond the requisite ONE… or perhaps two, if they’re feeling a bit sentimental for the oldies. You get the drift. It’s a zero sum game.
If you’re going to play the game, at least be realistic and creative about it.
Cheers, F.[cowboy2]
What guarantee do you have that the super rules are not changed in the future when the baby boomers have taken all their tax free lump sum payments out. Also Super is taxed at 15% on earnings accumulating in the fund. I have taken a break from property at the moment and have found the stock market in the last 3 weeks to be really challenging with its 10% correction.
Originally posted by Duckster:What guarantee do you have that the super rules are not changed in the future when the baby boomers have taken all their tax free lump sum payments out.
Only that they will no longer have the political ‘balance of power’.
What guarantee do THEY have that WE won’t change the Negative gearing / CGT / Means testing / property taxes / pensions etc, once we have all the power? (I’m 30 FWIW)Also Super is taxed at 15% on earnings accumulating in the fund.Yep, noted, and accounted for in my original calculations.
have found the stock market in the last 3 weeks to be really challenging with its 10% correction.Tell me about it! I’ve had some shares fall from ~220% what I bought them for to as low as 125%!! It’s been a good lesson in seperating my emotions from my investment decisions. The portfolio is still sitting on 31% paper profit since December though, not counting profits already taken (~+15%). Today should be kind to gold, oil and farm commodity related stocks though.
Good luck,
F.[cowboy2]Foundation’s post got me thinking about things.
As a very rough exercise, I picked just one IP.
Paid $155,000 nine years ago
Put $30,000 into it (re-roofed, a/c, new kitchen, huge back deck etc)
Worth $550,000 (perhaps a little more)I did a very rough working by adding 10% to the $155K and adding it on. Did that to the total for ten years growth at 10% and came up with about $420K. I didn’t recheck it and it was pretty rough, but I think this house has done better than if I had put $180K into shares.
I’d be curious to hear what $180K in shares bought nine years ago would be worth now to see how my figures look.
We don’t hold any direct shares but have considerable superannuation so for me that is my shares.
Bottom line is that we are very comfortable with houses, but not shares, so for us, houses are our investing vehicle of choice. I think you have to do what feels right for you.
Wylie.
Wylie, to answer your question…
If you’d bought an all ordinaries balanced portfolio worth $180k in 1997 and reinvested the dividends annually you’d be looking at around $650k I believe (based on 76 ‘units’ of XAO in ’97, 5% dividend = 124 ‘units’ of XAO in ’06).If we’re looking back, how’s buying an $18k piece of dirt in 1999 and selling it for $120k four years later? Nice money for a minor outlay and no effort, but what’s the chance of the same outcome if I repeated the same steps today? (Hint: Nix).
But the really, really, very big advantage now is the exit-tax-free status of superannuation, versus the expenses of property. Of course, those of us who wish to retire before 60/65 will need to hold some investments outside super or incur tax.
Cheers, F.[cowboy2]
I must be the only guy in Australia that managed to lose money on shares this financial year. oh well – can write it off the property profits I suppose. I’ve said it many times before… never touching shares again
Paid $155,000 nine years ago
Put $30,000 into it (re-roofed, a/c, new kitchen, huge back deck etc)
Worth $550,000 (perhaps a little more)Hi Wylie,
With your 185K rising to 550K in 9 years, you’ve achieved compounded capital growth of 12.85% p.a. I’d be very happy with that – well done indeed.
That of course ignores rental income, so your total return is higher still. You’re onto a winner there.
Hint for everyone else confused about how to work out the compound growth of your assets, try this ;
1. Get the end value (550)
2. Get the starting value (185)
3. Divide 1 by 2 (2.97)
4. Get the time component in years (9)
5. Take the 9th root of 2.97 (If you have a bog standard calculator without a x(root) symbol you are pretty much stumped at this point).
If you have a scientific or financial calculator type in 9_shift_xy_2.97_=
6.This will give you an answer of 1.12856
7. Get rid of the 1 to the left of the decimal point, and shift the decimal point two to the right.
8. 12.85% – hey presto.
Hope that helped rather than confused y’all… [eh]
Interesting stuff for sure. AUSPROP, there is two of us if it makes you feel any better. anyone with a bit of spare money should look at the South Coast NSW for property now, as it is a buyers market!. Shares seem to be almost gambling unless you stick to the top 200 type and buy at troughs, unless you really know what you are doing and have hours and hours on end to research them. If I was to ‘do’ shares again it would be via a managed fund. Still got a bit in shares, but going to try and get another one or two cheaper cashflow neutral type IP’s (yeah, CF+ would be good, but not eash to find) and see how they go. Interesting viewpoints guys/girls, so now you have mine too! Take care…. [suave]
yeh I have gone into some managed funds in an attempt to diversilfy. let’s see if the experts can pick it better than I can! a heck of a lot less work for me too.
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