I became interested in property investing some years back after reading the book Rich Dad Poor Dad by Robert Kiyosaki.
It awakened something inside me and i started to think differently about my future and about how to become financially independent. I then went on to read most of Robert's other books too.One of the strongest messages coming out at me from his books was basically that the only way to go is to invest in positive cashflow property deals. As he puts it … if purchasing the property doesnt put money in his pocket from day 1, then its not an asset (its a liability) and so he doesnt buy it…
From reading his books and reading the forums linked to his website (similar to this one) on richdad.com i learned that property prices in the US follow a cyclic behaviour where each cycle lasts approximately 7 to 8 years. Currently the property market there is in a downward phase, and this allows investors to buy relatively cheaply. Cashflow positive deals are pretty commonplace.
By contrast, Australia's property market is 'abnormal' in that it generally doesnt have down cycles. There have been some corrections though, for example in parts of Sydney, but this is really only a correction to compensate for the ridiculous rate of price increases during the previous years. In general, property prices have continuously climbed in Australia for the last 30 years, and have only really plateaued inbetween. There havent been any 'down cycles' as is normal throughout the rest of the western world.
The reasons for this is quite simply the fact that the government has not released enough land – at a quick enough rate – to satisfy the demand for land. Demand has (and continues to) FAR OUTSTRIP supply …
This is an artificially created situation – created by the government – and is causing the greatest housing affordability crisis in Australian history.i heard on the radio the other day that homes in the US and UK are about 3 times the annual household income, whereas in Australia it is 6 times! I also heard on radio yesterday that people without mortgages (in Australia) at the moment don't ever see themselves owning a home – yet the price of housing is still rising! This is all owing directly to the supply/demand crisis created by the government through retarded land release.
Because of this it is very likely that property price rises will continue to outstrip inflation five-, six- and even seven-fold!
So eventually an average house will eventually cost ten times the average yearly income! This despite interest rate hikes.With all this in mind, how do all of you – as property investors – and potential property investors feel about property investing in Australia? Is it just me, or is it much harder here to make money through property investing?
Another factor here, which doesnt help too much is the much higher tax burden.In the US one doesnt have to pay capital gains tax if you reinvest the sales proceeds into another property within a certain period of time. Also, on your primary residence, interest payments are all tax deductable! In other words, you pay for your mortgage with before-tax dollars! Also, on your primary residence, municipal rates and taxes are completely deductable from your federal tax bill, which basically means that you dont pay extra tax for your municipal account as you do here – it all comes back to you. These measures are all done to encourage people in the US to own property as opposed to renting property, because generally – a citizen who owns his house is a good citizen.
Neilvs,
Great posts and good questions.My answer buy a property if you can and stay their.Because its not going to get any better.
Dom
Good post neilvs. I have read articles by "economic experts" eg. Robert Shiller who steer away from property and look at other investments such as the stock market etc. that provide better returns. The suggestion is that property only provides a return of 1.8% pa, which is obviously lower than the rate of inflation. They don't suggest that you can't make money out of property just that there are better options. These maybe all relevant to the US but how relevant are they to the Australian property market.
You make some valid points about how high can prices go? Will property in Australia outstrip inflation? Will there be a significant downturn? All good questions. Yet very hard to determine.
neilvs wrote:By contrast, Australia's property market is 'abnormal' in that it generally doesnt have down cycles. There have been some corrections though, for example in parts of Sydney, but this is really only a correction to compensate for the ridiculous rate of price increases during the previous years. In general, property prices have continuously climbed in Australia for the last 30 years, and have only really plateaued inbetween. There havent been any 'down cycles' as is normal throughout the rest of the western world.May I politely suggest you broaden your reading a bit, and do some analysis of the historical facts, then form your opinions?
Quote:The reasons for this is quite simply the fact that the government has not released enough land – at a quick enough rate – to satisfy the demand for land. Demand has (and continues to) FAR OUTSTRIP supply …Not according to the facts. Here's a comparison between construction in the USA (where everybody agrees there is an oversupply), and Australia:
Quote:population: http://www.census.gov/popest/states/NST-ann-est.html
dwellings: http://www.census.gov/popest/housing/HU-EST2006.htmlUS:
2001 US population: 285,226,284
2006 US population: 299,398,4842001 US dwellings: 117,858,349
2006 US dwellings: 126,316,181Population growth 01-06 : 4.97%
Dwelling growth 01-06 : 7.18%We can therefore calculate the percentage overbuilding as (Dwelling Stock Growth – Population Growth)/Population Growth. This gives an overbuilding figure of 44%
Australia
2001: http://www.censusdata.abs.gov.au/ABSNavigation/prenav/ProductSelect?newproducttype=QuickStats&btnSelectProduct=View+QuickStats+%3E&collection=Census&period=2001&areacode=0&geography=&method=&productlabel=&producttype=&topic=&navmapdisplayed=true&javascript=true&breadcrumb=LP&topholder=0&leftholder=0¤taction=201&action=401&textversion=false
2006: http://www.censusdata.abs.gov.au/ABSNavigation/prenav/ProductSelect?newproducttype=QuickStats&btnSelectProduct=View+QuickStats+%3E&collection=Census&period=2006&areacode=0&geography=&method=&productlabel=&producttype=&topic=&navmapdisplayed=true&javascript=true&breadcrumb=LP&topholder=0&leftholder=0¤taction=201&action=401&textversion=false2001 AU population: 18,769,249
2006 AU population: 19,855,2882001 AU dwellings: 7,790,079
2006 AU dwellings: 8,426,559Population: 5.78%
Houses: 8.17%We can therefore calculate the percentage overbuilding as (Dwelling Stock Growth – Population Growth)/Population Growth. This gives an overbuilding figure of 41%
And here's a very nice long-term chart of real house prices in the US and Aus, just so you can get a clear perspective on how different the two are:
You're right! It's different here. Our bubble is much, much bigger than theirs ever was, and it's still getting bigger, while the USA one has already popped and continues to decline at a rapid rate (they have a long way to go before they hit the bottom).
Cheers, F. [cowboy2]
Like everywhere, there are good and bad areas to invest.
I don't agree that property is 3 times the average income in the US. In some places like LA, you can't get a decent 2 bed unit for under $500k, a house for under about $1 mill.
Meanwhile, in Buffalo, they can't give em away, and vacancies are high.
We have friends in Pittsburgh who are looking at buying a really nice 3 x 2 house for around $120k. In the last 12 months, the value of that house has not moved; the population is going backwards, so there is little cap growth; sub-prime slump notwithstanding.
The US also has yearly property taxes at around 1.5% of the property value.
While the prices in Aus may be high in many areas, the reality is that the demand is less then the supply. This is a good sign for long term growth.
Also, there are many markets, so a generalised statement on the radio or tv by a commentator is usually wildly inaccurate.
I love them; they scare off the competition when the news is bad, and when the news is good, the value of my properties goes up.
foundation wrote:You're right! It's different here. Our bubble is much, much bigger than theirs ever was, and it's still getting bigger, while the USA one has already popped and continues to decline at a rapid rate (they have a long way to go before they hit the bottom).Cheers, F. [cowboy2]
Foundation sorry you will have to excuse my ignorance but what is the x axis? Is that mean/median value, groth etc? wHAT IS IT?
Foundation – thank you for the interesting observations and facts.
I based my opinions of a land/housing shortage on
1. what i've heard on the radio comparing the rate of influx of people compared to rate of building of new dwellings in South East Queensland. The ratio is not at all good.
2. i've heard similar arguments presented on television, and not just for Brisbane. Melbourne and Perth and other capital cities are also exeriencing population growth outstripping housing supply by a large margin.
3. i've witnessed and often hear about open home viewings (especially for rentals) where anywhere between 20 and 150 arrive for the inspections!All indications are that the supply of housing is nowhere near keeping up with the influx of people (due to immigration as well as moving in from other parts of Australia) in South East Queensland.
If there was an oversupply of properties we definately would not be seeing the ridiculous increases in house prices and rents that we have been seeing…
Brisbane experienced over 20% price growth in 2007 on average. This despite the highest interest rates in 12 years causing people to spend disproportionately large portions of their income on a roof over their head.
I have often heard that there is an oversupply of housing in the US, and this makes sense and explains why housing is far more affordable there.
According to the numbers you quoted, there is a similar scale oversupply of housing in AU as there is in the US …
The simple market forces of supply/demand determine pricing, and the continued property price inflation in AU doesnt support there being an oversupply at all.blogs wrote:Foundation sorry you will have to excuse my ignorance but what is the x axis? Is that mean/median value, groth etc? wHAT IS IT?It's a price index. The average value of a US house and an Australian home have been set to 100 in 1890 to enable comparison.
What it shows is that in real terms (adjusted for inflation and quality improvements), house prices went up and down, but did not exhibit a rising trend in either country until the middle of last century. Since then, US house prices doubled (then recently began to decline) and Australian house price tripled. Why did they start rising in real terms and just keep rising for so long? Because of this:
We've experienced a 50 year credit bubble. It's unsustainable – that is, it cannot continue to grow forever.
Cheers, F. [cowboy2]
neilvs wrote:I based my opinions of a land/housing shortage on…Since this thread is titled "…Australia Vs US", I should point out to you that exactly the same "shortage" headlines were common in Florida, the Bay Area of Cali, etc in 2005. I've got clippings of some of them.
It's up to you whether to believe the MSM or fact-based analysis. Don't feel that I'm twisting your arm. [wink]
F. [cowboy2]
foundation wrote:It's up to you whether to believe the MSM or fact-based analysis.
I prefer to work on facts, and am therefore fascinated by the facts you've supplied here.
My question though is how can the prices in Australia be explained if there is indeed an oversupply of properties about and not an undersupply as the media is reporting?
neilvs wrote:foundation wrote:It's up to you whether to believe the MSM or fact-based analysis.
I prefer to work on facts, and am therefore fascinated by the facts you've supplied here.
My question though is how can the prices in Australia be explained if there is indeed an oversupply of properties about and not an undersupply as the media is reporting?
SImple-how many arm chair overnight expert proprty investors are there out there now!!!! Once they all start to feel the pinch and sell there will be plenty of supply lol
neilvs wrote:My question though is how can the prices in Australia be explained if there is indeed an oversupply of properties about and not an undersupply as the media is reporting?Just the usual credit-fuelled speculative bubble, in my humble opinion. Note that I never claim "over-supply", just "sufficient or better". [wink]
Look up an article on the RBA website by Luci Ellis (under Research). She explains very neatly how an increase in dollar demand pushes up prices. Pay not so much heed to her final speculative thoughts though. I think in light of recent developments in the US (and looks like the UK too), her conclusions there may need a re-think.
And please, please, please, if you intend to be a successful investor, expand your reading way beyond the Kiyosaki/spruiker books!
Cheers, F. [cowboy2]
foundation wrote:And please, please, please, if you intend to be a successful investor, expand your reading way beyond the Kiyosaki/spruiker books!I hear you on that front! Last year I stumbled across some disturbing facts – at least they disturbed me – which basically came down to the fact that his so-called 'rich dad' was/is an imaginative character – simply there as a 'teaching aid/prop'…
After that i stumbled upon Steve and his books and realised this is more what i'm looking for!By the way – who/what is 'spruiker'?
Spruiker/Tout/Spiv…
Somebody who is on the surface offering you something desirable (in this case riches) while hiding his/her true motives (in this case, their own riches). I classify most popular investing literature as spruiker-wares. Also, investing seminars, packages of dvd/audio etcetera. The aim of the people producing these is primarily to reap income from their sales, not to make the purchaser richer. I can find no other explanation for the numerous inaccuracies, misinformation and dangerous advice contained within the overwhelming majority of them.
Another sign to look out for (apologies Steve) is a guru who promotes an idea while having moved on himself/herself, for example by continuing to sell a book that offers outdated advice.
Do yourself a favour if you must read spruiker books. Buy them on ebay or second-hand bookshops. I've picked up some of the most popular ones for under a dollar each.
Cheers, F. [cowboy2]
I have read Steve's first book '0 to 130 Properties' and part of his second book "0 to 260 Properties' …
I hadnt actually reached the point yet where his newer approaches to property investing are discussed. Eg. his 11 second rule obviously doesnt apply to properties nowdays. in fact any form of 'outof the box' positive cashflow deals are near impossible to find and need to be 'created'… so i can imagine that he must discuss new methods in his latest books.
As i understand it, Steve handed over his half of their considerable property investment portfolio to Dave and he opted to continue down the 'education' route … much the same as other gurus like Robert Kiyosaki and Dolf De Roos.
I was fairly impressed by De Roos' book "Real Estate Riches". at least for me as a novice i thought it explained most of the concepts pretty well about why property investing is superior to other types of investing.
However, i was always aware that what he says is applicable to the US and only applicable to AU in broad principal, as our tax laws vary quite significantly from that in the US, and are unfortunately generally far more punishing for an investor / property owner…
what are your impressions of Steve as a guru and how relevant and up to date do you find his methods discussed in his latest books? (I havent read them yet)
Hi, I'm still perplexing over the issue of 'over/under supply'.
I'm also rather sceptical of conclusions based on migration.
Here in SA, the population grew about 3500 – now 10000 pa. Between 1997 – 2003, the housing starts actually were higher than population growth therefore technically, we were 'over supply'. However, the story on the street was opposite. There was a distinct feel that there wasn't enough housing. Ergo, under supply. And I thought so in 2005/06. Against expert opinion, such as Bernard Salt, McCornish & yourself, Foundation.
the subjective conclusion was the more correct, as it turned out. Local people also need housing. My own family [4 people] lived in one house in 1994. In 2004, we lived in 3 houses. We also owned 5 IPs. All our friends are in the same position. Many have adult children still living at home.
In the event of a bad recession, many people may resort to what they did before, i'e. live with parents, in friends' sheds etc. but that is not what they want. I look at the forty somethings & many have teenagers. Cast forward 7 years. The teenagers will buy their own homes & their parents approaching fifty will live in their own homes for 30 years.
Have we arrived at the point where we have updated all the old stock? I'll be grateful if someone can do the analysis & tell us.
Have fun,
KY
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