It has been visited earlier on in the year on this forums, the question of whether or not the australian property market can sustain 10% growth which we have experienced since the 90's. Affordability levels are still declining, and growth at this rate will see us reaching even more unrealistic levels in 10-15 years. So bad so that figures say that people will be spending 70% of their before tax income on servicing loans, leaving little money left to live by. On the other hand our mining industry is still forging a strong economy through large exporting to China and LPG to Japan etc, Will we see a pacier rise in wages soon, and will this off-set housing affordability or push the economy into a recession?
What do some of you people think about the prospects of property, will we hit a national slump and a fall in prices like we have seen in the UK or USA in the past? What sort of strategies are you people implementing to your investment portfolio? Do we need to concentrate on reducing personal debt, rather then taking on more? Are people worried for no reason? I'd love to hear the opinions of some people who have a good feel / knowledge for our economy and housing affordability.
Hi Stumunro, this is what I would do, if we have a bust, no worries, I will be buying more properties at wholesale. What happens with the ones that I own if there is a bust?, I know the market moves in cycles, I would sit tight, reduce debt, enjoy life with the family, and I wont try to change the sun and the sunshine…the interest rates, the government, the neighbors, etc, etc…If there is no bust, I would do the same…. Happy Investing
Big correction has already occured in chunks of Western Sydney (I have seen buyers dropping 20-30% on properties purchased in 2004) but is easing back, leaving a trail of broken bodies behind
Short version of my view:
*the boom is largely a function of (a) massively increased levels of debt, (b) made possible by lenders increasing LVRs and relaxing credit standards, (c) the expanded risk appetite of mortgage insurers and the international capital markets, and (d)comparatively low nominal interest rates.
*(b) and (c) are essentially reverting back to previous levels
*the size of (a) has made (d) meaningless
*considered together, assuming future buyers won't be able to borrow, in relative terms, what contemporary borrowers can, a significant correction/stagnation will occur.
The Western governments and their respective reserve banks have given us a taste of their intent – that of being the White Knight in any impending crisis. The Fed swiftly cut rates by 0.5% while the Bank of England bailed out Northern Rock, which otherwise would've folded under a bank run. You can bet that little Johnny or Kevin for that matter will use their might to cushion any financial or housing crisis when it happens in Australia, and so they will intervene and while not averting disaster, will buy time, as the US and UK have bought time.
I am heavily leveraged into high capital growth property. I have an eye towards the worst case, however I am walking a tightrope and am open to further property acquisitions so long as the fundamentals of supply and demand of housing shows no signs of changing whereby supply of inner-city housing remain well under the demand. Time will tell if I make the right moves.
more about your situation scarecrow, how leveraged are you? are you using equity to service debt?
Hi Stumunro,
Coincidentally I tallied things up and it's about 65-70% leverage across my property portfolio. Not quite at the stage of using equity to service debt however I am open to another property acquisition in the next 12 months which will push things higher. I understand the risks of debt if taken to the extreme, however I'm at a stage in life where it's right to take a few calculated risks. I do not turn a blind eye to the doomsayers, but the way I see it, it's probably only a 20% chance that 2008 will be a down year for property in Australia, > 50% chance my portfolio will add to its paper profits, and therefore I am planning to be aggressive for another 2 years or so, then buckle down and maybe even liquidate a bit sometime in 2009/10. As previous post says, the first few shocks is likely to play out over a 12-18 month period and the govt in power will be keen to cushion the blows(after all which PM in power would like to be the bad guy in spoiling a 16 or 17 year economic growth.prosperity party?).
What are your own views?? All my comments are personal views and by no means expert, but hey every investor should form a view of the macro world when they invest. And the levels of leverage is also personal, there is no right or wrong levels across time(ie should be highly geared when the conditions appear low risk, and the converse when conditions are shaky). After all, if Trump was ever shy of extreme leverage, I don't think we would know who he is today.
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