Property Faces Decade in Doldrums

[djsherly]

This article from the SMH (http://smh.com.au/articles/2004/03/22/1079939584525.html), this morning.

What are your thoughts on this?

Cheers,

Chris.

[simonjulie]

Hi Djsherly
I just love press articles like the above.
It means that we are in for a change in the herds' thinking processes.
It should not take long before people who are currently caught up in the renovating frenzie realize that they will be overcapitalising their asset against its true market value. And find if they want out of the market they will lose or at best break even on their projects. Then the word will start to get out that there is no money in property investing.
And that should be music to the ears of the real investors.
Kind regards
Simon

[see_change]

And who brought us this particular suggestion?

House price growth had passed a turning point in Sydney and history suggested an extended period of near-zero real growth would follow, CommSec's Property Quarterly found.

Now personally I think that given the prolonged period of growth that we've had , there may be a prolonged flatter period, but when a property report comes out from a Share broker, one does have to question their motives.

See Change

[bicko]

If you thinking overly optermistic about whether or not prices would continue to rise significantly over the next few years, than your strategies might need reviewing.

IMHO now is the time to extract as much profit out of purchase price and property improvements. Selling in the short term could leave people disheartened about property as an investment medium.

Effective due dilligence will extract the maximum growth in any new purchases in this new property climate.

Does anyone have any thoughts on Interest Only Finance, and whether this would be the most effective way of structuring expanding portfolio finance?

[Thommo]

Hi Djsherly
I just love press articles like the above.
It means that we are in for a change in the herds' thinking processes.
It should not take long before people who are currently caught up in the renovating frenzie realize that they will be overcapitalising their asset against its true market value. And find if they want out of the market they will lose or at best break even on their projects. Then the word will start to get out that there is no money in property investing.
And that should be music to the ears of the real investors.
Kind regards
Simon
Be careful uhen you dismiss "the herd" as being the perfect contra-indicator. They make the market. There is no right or wrong here, just the market.

So no matter how illogical it may seem to you, the market can stay illogical longer than you can stay solvent.

Aren't you a little self contradictory too? I'm assuming that the "music to the ears of the real investors" must be lower prices and better buying opportunuties. Now if these opportunities last for 10yrs the article is correct. Besides how do you buy these properties with gun-shy banks and reducing equity in your own portfolio? Share traders have a saying "Never try to catch a falling knife".

Thommo the grouch.

[Aceyducey]

Well this article agrees broadly with my thinking on the situation...hmmm - have to avoid complacency :)
Of course it refers only to Sydney - and it's a general market report - specific suburbs will vary :)

The slant is fun though - 'doldrums' = "Price increases at the moment are not much above inflation"

So you'll still do better than inflation, but it's doldrums? ;)

.....watch Journo try to turn boring news into exciting NEWS!

Some years of 3-5% growth in property prices will bring longer-term averages over the last ten years much closer to the averages over previous 10yr and longer periods...For an indication of longer-term averages see my post in this thread: http://www.somersoft.com/forums/showthread.php?t=14699


Bicko,

Many investors, myself included, make extensive use of IO (Interest Only) financing for investment loans. If you do a search on the forum you'll find many references.

Cheers,

Aceyducey

[simonjulie]

Hi Thommo
I'm afraid your assumption of my post is incorrect.
"The music to the ears" scenario is not so much prices falling and buying opportunities but more the fact that we are one stage closer to the next boom. I for instance will probably pay close to market price for the properties that I will add to my potfolio over the next few years, however, I will also be very selective as to the type of product I choose.
As for the lenders: when the numbers add up they have always come to the party.
Kind regards
Simon

[PT_Bear]

This represents an oppertunity over the next few years to get your portfolio to a point where it's self sustaining, and recoup some of the holding costs. From then it's an oppertunity to build the portfolio so that when the next boom does arrive, you'll be in a great position to make a lot of money on the capital gains it will provide, without having the pain of providing expense shortfalls out of your own pocket.

For me this has been my first boom and it's been a great learning experience for me. I've made some money and I've got a good start, but I'm anticipating that it's between now and the next boom that I'll have the real oppertunities to position myself to make some serious money and leave the rat-race completely.

[willair]

Australia has many property markets,whilst its quite common for one area to boom,another will stall.You only have to look at the connecting factors,
interest rates,initial yield on property purchases,and if the numbers still add up
and cover the outgoings, depreciation,inflation,then in anyones mind this is still a good time to buy,some investors will panic early and sell, even if the
real estate market stalls in a big way everywhere, in three years time it will start all over again..there will also be stockmarket casualties from any bust up in properties just ask yourself one question/whats your definition of speculation.....
good luck
willair..

[Thommo]

Bear, it just may be that the best way to make a buck before the RE boom may not be in RE. Check the chart of any commodity from the bulk iron/coal through coffee/soy beans, all metals to gold/silver. They are all in a bull market. My personal favourate is silver.

Thommo the gold bug.

[Kennethkohsg]

[QUOTE=Thommo]Be careful uhen you dismiss "the herd" as being the perfect contra-indicator. They make the market. There is no right or wrong here, just the market.

So no matter how illogical it may seem to you, the market can stay illogical longer than you can stay solvent. /QUOTE]

What's a deep insight for my own self-education.
Thank you, Thommo.

regards,
Kenneth KOH

[Peter 14.7]

And who brought us this particular suggestion?

House price growth had passed a turning point in Sydney and history suggested an extended period of near-zero real growth would follow, CommSec's Property Quarterly found.

Now personally I think that given the prolonged period of growth that we've had , there may be a prolonged flatter period, but when a property report comes out from a Share broker, one does have to question their motives.

See Change

Good Point and observation. It's a throw away statement anyhow but I welcome anything that takes competitors out of my market (Sydney).

The best deals in property are when most are buying shares! :D

Bring it on, Peter 147

[Kennethkohsg]

This represents an oppertunity over the next few years to get your portfolio to a point where it's self sustaining, and recoup some of the holding costs. From then it's an oppertunity to build the portfolio so that when the next boom does arrive, you'll be in a great position to make a lot of money on the capital gains it will provide, without having the pain of providing expense shortfalls out of your own pocket.

For me this has been my first boom and it's been a great learning experience for me. I've made some money and I've got a good start, but I'm anticipating that it's between now and the next boom that I'll have the real oppertunities to position myself to make some serious money and leave the rat-race completely.

********************************
Dear PT_Bear,

I am with you, generally speaking.

I shall also await a few more years for today's house prices to bottom out before re-investing in the Goldcoast property market again in 2009. In the mean time, I am staying invested in Perth properties.

regards,
Kenneth KOH

[landlubber]

Actually I think the article is a "fair bit" correct, and the headline (like a lot of property related articles) paints with way too broad a brush. The article particularly mentions NEW property and buyers of new property, particularly on the city fringes can well suffer as the article indicates. These properties have small land value and high house value and nil scarcity value. They are bought by owner occupiers who usually don't know what they are doing. The building depreciates, there is no secondhand market in the main (as why wouldn't you buy new for the same price.) All good reasons why we don't buy that horrible new city fringe stuff !!

LL

[Gee Cee]

:) I am not going to agree or disagree on points.

But will just go along with what i have learnt since my first investment in 1979 at 19.

!979-1982 House purchased at 23k went to 55k

From 1983 - 1988 stayed at 55k. With limited rental improvement.

From 1988-1990 went from 55k to 130k.

From 1991-2000 stayed at 130k. With limited rental growth.

From 2001 - 2004 went from 130k to 300k

From 2004 on I feel the past will repeat itself.

However i am not saying there are NO opportunities out there.

In 1985 - 1986 i was picking Bargains at recievership auctions. That were held/ rented / done up and sold in 1989.

Did the same in 1998 /1999- to sell in 2002/2003.

So at present I have off loaded a lot of stuff. Gone into low loans / cash aside.

See what happens & repeat in future 2-5 yrs.

Just my opinion. Keeps bread & milk on the table .

Gee Cee

[Thommo]

Bear, it just may be that the best way to make a buck before the RE boom may not be in RE. Check the chart of any commodity from the bulk iron/coal through coffee/soy beans, all metals to gold/silver. They are all in a bull market. My personal favourate is silver.

Thommo the gold bug.

A few charts here:

http://www.financialsense.com/stormwatch/update.htm

[oceangirl]

Interesting that gold has been described as the "disaster metal". Also interesting that during the dot com boom, many young banking analysts advocated selling off gold reserves, in the belief that it was an "old economy" standard.

Cheers (I think)

Oceangirl

[Thommo]

OceanGirl. It began with John Maynard Kaynes who described it as "that barbaric relic".

Keynsian economics is the text book of all central bankers today. The only opposing view is from the Austrian school. If I have any regular readers they would not be surprised that I lean to the Austrian School. BWTH I'm not an economist.

Thommo the Austrian

[oceangirl]

Thommo, you're a classic.

Thanks for the enlightening lessons in economic history, interesting field.

Cheers

Oceangirl

[Aceyducey]

My personal favourate is silver.

Thommo the gold bug.
Thommo,

Shouldn't you be the silver bug?

Hayek does have some good points. But would you really trust an Austrian socialist (though NEVER National Socialist!) with the economy even though he was totally right about the demise of planned economies.....

Then again, the alternative is a gay English Jew who can't explain stagflation and believed he had solved the boom-bust cycle (which persists to this day).....hmm time for some new economic thinkers.

Go Milton!

Cheers,

Aceyducey

[Thommo]

Thommo,

Go Milton!

Cheers,

Aceyducey

Berle?????

rEAD NOtHING INTO THE extra Q marks nor the caps. SS wont post six letters.

Thommo the piddly

[Kennethkohsg]

:) I am not going to agree or disagree on points.

But will just go along with what i have learnt since my first investment in 1979 at 19.

!979-1982 House purchased at 23k went to 55k

From 1983 - 1988 stayed at 55k. With limited rental improvement.

From 1988-1990 went from 55k to 130k.

From 1991-2000 stayed at 130k. With limited rental growth.

From 2001 - 2004 went from 130k to 300k

From 2004 on I feel the past will repeat itself.

However i am not saying there are NO opportunities out there.

In 1985 - 1986 i was picking Bargains at recievership auctions. That were held/ rented / done up and sold in 1989.

Did the same in 1998 /1999- to sell in 2002/2003.

So at present I have off loaded a lot of stuff. Gone into low loans / cash aside.

See what happens & repeat in future 2-5 yrs.

Just my opinion. Keeps bread & milk on the table .

Gee Cee

***********************************8
Dear Gee Cee,

1. Interesting sharing.

2. Please tell me more about buying at receivership auctions. How do you get the news and data and how does one go about bidding for the said property being under the receivership actions. How much discounts do you get for such properties.

3. How frequent and often are these receivership auctions held and where.

4. Thanks.

regards,
Kenneth KOH

[Aceyducey]

Please tell me more about buying at receivership auctions. How do you get the news and data and how does one go about bidding for the said property being under the receivership actions. How much discounts do you get for such properties.

How frequent and often are these receivership auctions held and where.
Kenneth,

Be prepared to go to quite a few auctions these days. This idea has been widely publicised & there are also greater legal requirements on finance providers to get market prices for properties.

You will not find many bargains with this approach anymore....but I'm sure there are a few that still exist :)

Most importantly - when everyone starts saying this isn't the way to find bargains, you can rest assured that it probably is :)

Foreclosure auctions are held through normal real estate agents these days.

Cheers,

Aceyducey

[geoffw]

You will not find many bargains with this approach anymore....but I'm sure there are a few that still exist :)In fact I have seen a council foreclosure auction where people paid higher than average prices because they assumed they would be getting a bargain and had not done their homework

[Kennethkohsg]

Dear Aceyducey,

Can you please advise me the specific real estate agencies in Queensland and Perth who are handling these foreclosure auctions. Thank you.

Regards,
Kenneth KOH

[Aceyducey]

Can you please advise me the specific real estate agencies in Queensland and Perth who are handling these foreclosure auctions. Thank you.
Kenneth,

I can't give you the names of any specific agents.

To my knowledge these days the banks tend to not use preferred real estate agents on a broad scale. They use the most appropriate agent in the area.

Cheers,

Aceyducey

[Peter 14.7]

:) I am not going to agree or disagree on points.

But will just go along with what i have learnt since my first investment in 1979 at 19.

!979-1982 House purchased at 23k went to 55k

From 1983 - 1988 stayed at 55k. With limited rental improvement.

From 1988-1990 went from 55k to 130k.

From 1991-2000 stayed at 130k. With limited rental growth.

From 2001 - 2004 went from 130k to 300k

From 2004 on I feel the past will repeat itself.

However i am not saying there are NO opportunities out there.

In 1985 - 1986 i was picking Bargains at recievership auctions. That were held/ rented / done up and sold in 1989.

Did the same in 1998 /1999- to sell in 2002/2003.

So at present I have off loaded a lot of stuff. Gone into low loans / cash aside.

See what happens & repeat in future 2-5 yrs.

Just my opinion. Keeps bread & milk on the table .

Gee Cee

Gee Cee timeline is one of the most useful bits I seen.

Real facts, not opinions.

Any others out there who can comment on the cycle?

Peter 147

[Spiderman]

OceanGirl. It began with John Maynard Kaynes who described it as "that barbaric relic".

Keynsian economics is the text book of all central bankers today. The only opposing view is from the Austrian school. If I have any regular readers they would not be surprised that I lean to the Austrian School. BWTH I'm not an economist.

Thommo the Austrian

I've just been reading my JK Galbraith (20c thanks to Red Cross Op Shop!) and he reckons that Austria was an economic failure when the Austrian School people were at their strongest there (1920s). Then they all left Austria for the USA and Austria boomed post WW2!

Peter

[Aceyducey]

I've just been reading my JK Galbraith (20c thanks to Red Cross Op Shop!) and he reckons that Austria was an economic failure when the Austrian School people were at their strongest there (1920s). Then they all left Austria for the USA and Austria boomed post WW2!
Spiderman - think about it some more....

Austria had just become a separate nation (breakdown of Austro-Hungary, who had been failing for many years anyway). It had just been on the losing side of a war & was expected to pay back the winners. Europe was destitute as a whole anyway. At the end of the 20's the world headed into the biggest depression in modern times (back at least another 50 years anyway - they occurred more regularly than people know...)

There wasn't much they could do with a bankrupt economy, weak government, socially depressed people & poor outlook....

Keynesian theories didn't do much better :)

If you want to look forward a bit further at the New Deal - this was not a Keynesian led initiative as sometimes claimed, but basically a poor copy of what Hitler did in Germany to get Germany's economy back on its feet (which was done quite well).

Cheers,

Aceyducey

[geoffw]

basically a poor copy of what Hitler did in Germany to get Germany's economy back on its feet (which was done quite well).I'm not an economist by any stretch of the imagination. But I see Dubya's Iraq thing an attempt to do the same economically as Hitler and his dad had done successfully before. And I don't like the chances of his success.

(a very uninformed opinion- sorry).

[Kennethkohsg]

A few charts here:

http://www.financialsense.com/stormwatch/update.htm


Dear Thommo,

Having attended the ATO's free business tax seminars recently, I was surprised to learn that stock gains and gains from the Australian ASX and from managed funds approved by ASIC are all subject to a capital gain tax. This is quite unlike Singapore where no CGT is imposed. Thus, it may be better off for me to invest into the ASX indirectly from Singapore through the ASX-SGX tie-up.

Does ATO allow stock loss to be accumulated and off-setted against future stock gains or/and other income earned?

Personally, I find making monies through the ASX is going to be tougher than investing in stocks from Singapore so much so that I've decided that I will not want to invest in the Australian stocks unless there are some clear out obvious advantages for investing into this class of assets, after attending ATO's series of 4 tax seminars for new businesses recently.

What kind of returns do ASX stocks gives? I would think that presently both the Australian and Singapore stocks are more or less fairly valued, with not much room for further price rises, as compared to the Japanese, Malaysian, Thai, Korean, Indonesian, and Taiwanese stocks, as far as I can gather from the various regional newspapers/news and investment houses' newsletters.

On the other hand, there seems to be an emerging trend for more Australians to divert from funds from property to shares as the property market/cycle correction is taking place recently. Thus, once the investors start to pull out from the property market en masse, the property price decline will be accelerated as per any other normal property cycle and this in fact will provide good buying opportunties in the property market despite the next few years' of stagnant or low growth, sin't it? It is further said and expected that the same investors will return back to the property market en masse 5-7 years later when the present property cycle has bottomed out and the next property cycle up-swing stage is in sight to cause the next property boom which is expected sometime between 2009-2012.

What do you say?

Looking forward to hearing and learning from you soon.

Thank you.

regards,
Kenneth KOH

[Aceyducey]

Kenneth,

You views of how the swings occur are overexaggerated :)

Look at history to get a better idea.

Cheers,

Aceyducey

[simonjulie]

Hi Kenneth
I don't think it is an emerging trend.
I believe, the reason you will see these types of swings occuring are down to the basic fact that most Australians allow others to control their money.
So while we allow this to happen there will always be the herd swings between stocks,property and cash.
Kind regards
Simon

[Kennethkohsg]

Kenneth,

You views of how the swings occur are overexaggerated :)

Look at history to get a better idea.

Cheers,

Aceyducey

*******************************

Dear Aceyducey,

I like to hear your views and version of the swing of sentiments in the property market.

Please educate me as I want to learn the true picture.

Thank you.

regards,
Kenneth KOH

[Kennethkohsg]

Hi Kenneth
I don't think it is an emerging trend.
I believe, the reason you will see these types of swings occuring are down to the basic fact that most Australians allow others to control their money.
So while we allow this to happen there will always be the herd swings between stocks,property and cash.
Kind regards
Simon
***********************************

Dear SimonJulie,

1. Why do most Australians want to allow others to control their monies?

2. I agree with your third paragraph regarding the swings of herd instincts between stocks, property and cash.

3. Is this phenomenon part of the usual happenings/trend seen in the typical property cycle, beside the usual supply and demand imbalance story due to a time lag between housing constructions supply and demand affecting the housing price movement, isn't it?

4. What is the amount and percentage of the investment monies that is floating between 3 three asset markets during each property cycle that we are talking about and the extent of its impact/effects on the property market and housing prices?

5. I look forward to learning from you again and being further educated on this matter.

6. Thank you.

regards,
Kenneth KOH

[simonjulie]

Hi Kenneth

1. IMHO - Ignorance, fear or laziness.

As for your other questions, I don't know the exact percentages. Property is my main interest.

Regards
Simon

[Kennethkohsg]

Dear SimoneJulie,

Thanks.

My full-time "job" is also in property investing, though I am exploring to become a real estate developer in future, if God be willing.

regards,
Kenneth KOH

[simonjulie]

Hi Kenneth
We are probably a little different to most property investors as we buy olderstyle properties that nobody else seems to want. We then do them up and rent them out. I might add though that we buy with a strict criteria.
1. worst house best street
2. potential for multiple income(house with self contained flat)
3. primarily in the home owner belt.
4. Close to everything.
kind regards
Simon

[Kennethkohsg]

Hi Kenneth
We are probably a little different to most property investors as we buy olderstyle properties that nobody else seems to want. We then do them up and rent them out. I might add though that we buy with a strict criteria.
1. worst house best street
2. potential for multiple income(house with self contained flat)
3. primarily in the home owner belt.
4. Close to everything.
kind regards
Simon
*******************************

Dear Simon,

1. To me, you are using the "Renovation" strategy to add value to the house to create wealth through your property investments, as is presently advocated by both Paul Eslick and Geoff Doidge.

2. It is an effective way too; just like Steve McKnight's strategy in investing through Positive Cashflow properties.

3. I understand that another member, Brenda, who has been featured in API and over your Australian TV recently, is also using this strategy together with Steve McKnight's strategy of investing in regional towns properties to build his millionaire dollars property portfolio.

4. To me, these are all different ways of effective wealth creation through property investments.

5. I look forward to meeting up with each one of you in the near future and to continue to learn from each one of you and from the other "gurus" in this forum.

6. Thank you.

regards,
Kenneth KOH