Best advice : Don’t invest into property : The australian market is CRASHING.

So if houses drop 50%(My IP purchase price of $300,000) and the current cost to build my Ip is around $200,000.
That puts my land value at negative $50,000 !!!!!!!  Not gunna happen
I guess thats the plus of buying in the cheaper areas with a stable although underperforming market. less room to fall. I expect a drop in value over the next year for sure but it will be managable.The reasons i bought have not changed.
Long term view
Bought in a slumped market
Good land content in central town location
Can easily afford repayment even with 17% rates or no neg gearing.

I guess its just time for a reality check. There are many people highly exposed and they should be carefull. In a slump everyone will lose money on paper but if you have no buffer that loss may actually materialise.

Another opinion about whether or not we are likely to meet the same fate as the US/UK:

http://www.jenman.com.au/news_subscriber_item.php?id=17&Section=Reports

National Overview:
When you extrapolate the past to predict the future, you often get it wrong

Already we're seeing evidence that the predictions of many pundits for 2008 are unlikely to be fulfilled.

As I commented in the previous quarterly report, most analysts have been predicting more of the same for 2008 i.e. the "better" areas will continue to thrive and the poorer areas will again struggle with rising interest rates. In other words, for want of an original thought they were predicting the recent past.

There are strong indications that things will be different this year. The popular view that the top end of the market will just keep on rocking is rapidly evaporating.

The industry cliché that the prime areas always perform and always hold their value is just so much nonsense. The outstanding characteristic of the blue chip suburbs is their volatility. The typical pattern for a Top End suburb in any capital city is a roller coaster ride: sharp peaks and troughs. A couple of years of big growth are often followed by a few years of declining values. The past two years have been big for prime residential property but this year will see the heat dissipating and values falling in many areas.

There are other signs of change this year. Some of the cities which have been doing well are facing corrections. Canberra has been a very strong performer for a couple of years but is headed for a backslide. Darwin is headed for a hiccup too.

There are signs that the market generally will not be as buoyant this year as last year. There is evidence trickling in from various sources: Residex sees evidence of prices falling, RP Data says the market is being flooded with homes for sale, APM says auction clearances rates are contracting, while various measures of consumer and business confidence indicate it's heading rapidly south. The Australian Financial Review reports: "Residential property analysts agree the market has quickly slowed nationwide, but are split over whether prices have fallen."

Amid all of this, it's a time of opportunity for property investors. It may not feel much like it, but I believe the current climate of rising interest rates benefits property investors. Higher rates are bad news for home owners and even worse news for renting households which aspire to home ownership. But for investors who already own property and want to own more, the current environment tips the balance in their favour.

Each rise makes it harder for renters to become owners. Each rise turns owners into renters (those who lose their homes because they can't meet the repayments any longer). Over time there are fewer home owners and more renters. Investor owners can raise rents to cover (or partly cover) the higher interest costs because vacancies are low everywhere.

This is likely to continue for some years. Economic forecaster BIS Shrapnel sees home prices and rents rising significantly in the next five years because the existing shortage of housing is expected to worsen considerably.

BIS Shrapnel predicts house prices will rise as much as 40% across the nation in the next five years, because of a growing shortage in housing. The firm's chief economist Frank Gelber says housing affordability is already at record lows but will go even lower because demand is much higher than supply.

Underlying demand is 182,000 new dwellings per year but only 150,000 are being built. NSW has the biggest shortfall, but Victoria is only slightly better. Gelber's says there will be a national shortfall of 60,000 dwellings by June and 129,000 by mid-2009. "We need to build more houses," he says.

Rising interest rates are compounding the problem by discouraging new home construction. "When interest rates stop rising or eventually start to fall, it's likely there will be a surge in demand for housing that could result in a price explosion," Gelber says.

The ANZ Bank, in its latest Australian Property Outlook report, tends to agree with that assessment. It says: "A dramatic tightening of the housing market will force already-soaring house prices and rents sharply higher. By 2010 we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first home buyers become collateral damage in the Reserve Bank's ongoing war on inflation.

"A flight to quality will add to the weight of money that is driving residential (and other) property markets higher.

"This is extremely bad news for both first home buyers and renters, as houses are no different to bananas – in that, when there is a shortage, prices are likely to rise. However, unlike bananas, the necessary rebound in housing supply will be far more difficult to achieve and house prices are therefore unlikely to fall."

Conclusion:
Ignore the negative sentiments and benefit from counter-cyclical investment

Confidence is evaporating, according to all the usual survey measures. Business confidence is down and general consumer confidence is down. It's not so surprising – there's ample negative news lately, led by interest rates heading north and shares heading south.

If you're one of those inclined to defer decision-making about property investment amid the bad tidings, consider the following:-

Residential property has delivered vastly superior returns to all other broad asset classes over time and is expected to go on doing so.

The ANZ's head of financial system analysis Paul Braddick says in the latest edition of Australian Property Outlook: "As an asset class, housing has continued to deliver remarkably strong and relatively stable investment returns. Since 1984, residential property has enjoyed an extraordinary compound annual total return of 13.4%.

"Over the past 23 years at the national level, house prices have virtually never fallen with the greatest annual falls being just 0.3% in the depths of the early 1990s recession and 0.9% in 1996. In contrast, Australian equities fell 43% between September and December 1987, 15% in 1992, 17% in 1995 and 18% in 2003.

"In risk-adjusted terms since 1984, residential property returns have more than tripled those of equities and more than doubled those of commercial property and government bonds.

"More recently, total returns on residential property have accelerated, underpinned by a sharp tightening in the housing demand/supply balance that is driving both rents and house prices sharply higher."

Braddick says a "dramatic tightening" of the housing market will force already-soaring house prices and rents sharply higher. He says: "By 2010 we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first home buyers become collateral damage in the Reserve Bank's ongoing war on inflation.

"A flight to quality will add to the weight of money that is driving residential (and other) property markets higher."

If Braddick is right, the dark clouds gathering have numerous silver linings. So while many people are intimidated by the negative atmosphere into doing nothing, those with the foresight to be counter-cyclical investors will do well in a buyers' market.

The reason why most property owners, for thousands of years, believe a mortgage is a liability is because we are too close to it (in time).  If we observe a mortgage in a distant future, it is very easy to see that your mortgage is actually an asset, not a liability.

The fact that we are paying the mortgage payment every month, we are pretty sure our mortgage is a liability.  But didn’t we walk on a flat surface every day and the earth is still round?

So if you believe that the earth is round, you almost have to agree with me that your mortgage is an asset before I even give you my explanation!

OK, I know I am being cheeky.

Let me use a few examples to demonstrate here.

Example 1:
If you bought an average home 40 years ago, you probably had to pay $8k for it at the time, and say you took on a 100% mortgage (without using any of your money). 
 
Over the next 40 years, you didn’t pay anything back (neither interest nor principle), you may end up with roughly $120k debt and a property valued at roughly $360k, so you will create a net worth of about $240k.

It is not hard to see that the principle of the mortgage $8k you borrowed 40 years ago has lost its significance compared to today's money.  This is the magic of inflation, which allows your debt to drop in value in real term over the years.

While your debt is dropping in value through inflation, your property is going up in value beating inflation; the gap between the two has created serious wealth for you.

Example 2:
If you think the value of properties (from $8k to $360k over the last 40 years) is a good indication for what has really happened in Australia in general.  How about using the same formula moving forward for 40 years?

 
The diagram shows a property will go from $360k to $16Million in the next 40 years, and if you borrow the whole lot (a mortgage again), without paying any interest or principle over next 40 years, you will end up having a $11Million net worth.

Remember the interest you didn’t pay will generate more interest, so it is interest on interest compounding for 40 years!  But it is still no big deal in the whole scheme of things.
Money loses value over time through inflation, it includes the money you borrow, and the interest you have to pay.

Its hard to imagine investment housing demand dropping with rental demand so strong (and increasing) and the yields that are now available on investment property due to increasing rental returns.

Will a VE commdore depreciate in value ?- you bet, will a genuine Walkinsaw appreciate in value? you bet
Will a bottle of goon stay at $10 a cask? you bet, will a 10 year old claret appreciate? you bet
Will petrol keep going up? if supply is tight of course.
The same fundamentals apply to property, well located property (as in close to cdb's, public transport, schools, ocean front ect) will always appreciate in value, as supply is tight and everyone wants to buy there.
 You only have to look at hedges avenue on the Gold Coast as an example of where buyers do not care of the cost to obtain an exclusive and so tightly held piece of land, which in turn drives prices up.
The first to suffer from a price downturn is on the outer fringes where there is plentyful stock (oversupply)
Whilst most buyers are buying with caution at the moment, well located property with unique features or tight supply will always perfom well, and be the last to suffer from a downturn.

Yeah; we'll have to buy a Mcmansion about 5 mins from the CBD and charge $200 per week rent if the Govt step in and regulate it. Not likely. Who's gunna go for that investment?

Once the Govt start meddling in the rental levels and the configuration of the property etc, they will wipe out the incentive for people to invest.

This will lead to less rental properties being available, and the Govt don't want that.

Who will provide the population with its much needed quota of rental properties then? The Govt don't want to do it.

The Govt aren't stupid enough to create that sort of nightmare, where people will end up on the streets due to lack of rental housing available after the investors have all deserted the scene.

In the end, rents will only go up through the willingness of the people to pay the amount asked. The better properties will attract higher rents, and so they should, while the crap properties will be left to the ones who can't afford anything better – as is the case now.

All this talk is only being heard right now because of the recent rent increases. What about back in 2002-05 when there were virtually no rent increases for 3 years?

It's all a big cycle and it will swing around again like always.

yawn.

Scamp I take it that you are against the New World Order and the Money Masters then

But you and Scamp are saying we are yet to follow in the footsteps of the US where interest rates have come down…then you're also saying ours will keep going up…excuse me for ending up confused about the logic behind your comments.