Investor's dilemma... is the property market 20% overvalued at the moment?

[mmerlin]

The SBS Business Show on Friday had an interesting piece on the overheating of the property market.

You can read the transcript at:
http://www.sbs.com.au/business/index.php3?tid=661

Panelists were:
Mark Rider - UBS Warburg.
Michael Davoren - LJ Hooker
Neil Jenman - Jenman Group

Basically they are saying that in general, property is overvalued but will probably keep rising in price for a while yet

Mark Rider estimated that back in September 2002 the market looked to be about 20% overvalued. If this is true then where are we at now?

They didn't give any real indication as to when or how much prices will drop if there is a correction...

Anyone want to hazard a guess as to when and how much prices might fall in a correction? Or more specifically, any guesses as to approximately when, and how much the possible percentage drop in the different capital cities might be?

My personal situation is that I am looking around for a PPOR in Melbourne and seeing articles like this is a bit worrying since I don't want to be buying at the peak of the market...

I suppose though, that a great property bought at any time in the economic cycle over the long term will turn out to be a good investment if held long enough...

Besides the following possible indicators:
- rising unemployment
- rising interest rates
- share market sparks back up and money moves back to shares.

are there any other key indicators to watch before a correction could take place?

The Hudson Institute (http://www.hudson-institute.com/) use a visualisation device they call the "economic clock" which kind of approximates which of the three investment classes are currently the best place to put your investment dollars.

The cycle goes
Stock Market -> Real Estate -> Fixed Interest
and around again.

In November 1999 they were saying Shares were done (being the current highest-performing investment class), and that the time for Real Estate investing was beginning. See page 2 of following Acrobat document to see the Economic Clock.
link: 1999-11-01 (http://www.hudson-institute.com/member_services/workshops/slide_pdfs/miw2000slides/BasicPropertyInvestment.pdf)

In November 2001 they were saying that the Real Estate cycle was nearly over as the best performing investment class (they were a bit early on this one), and that Fixed Interest would soon be the safest investment class.

If their representation of the economic cycle is correct, then it would seem statistically best to put money in fixed interest investments until the Stock Market starts another bull run, then stay in the stock market for a few years and then once again start investing in real estate.

These reports are making me hestitate about buying a PPOR in Melbourne... but I would really love to own somewhere down here now (I suppose that's the non-investor emotional side of me talking :-)

If the Business Show people are right then I could be better off waiting a few years for some fallout to occur and then jump in at a mortgagee sale or similar fire sale...

In the meantime I could continue renting and investing the difference in fixed interest and then later on the stock market.

As with any kind of prognosticative speculation by the pundits, they might be wrong, and if they are then I will once again be kicking myself in a few years for not investing in property ("a few years earlier") but if they are correct, and a property I buy this year falls in value and then takes 5 years to reach the price I bought it for then I would not be pleased with myself.

I suppose this is the investor's dilemma... should I or shouldn't I... the mind flip-flops while the clock tick-tocks... :)

[Jakk]

Originally posted by mmerlin



They didn't give any real indication as to when or how much prices will drop if there is a correction...




That's because just like the rest of us, THEY AINT GOT A CLUE!

regards

[Aceyducey]

mmerlin,

While I can still find positively geared properties (at reasonable working class rentals) all over the country I'm not concerned that the property market is too high :)

I think Australia is big enough to have a number of different markets & it would take a real catastrope for the market to go experience a national 'correction' (which I define as more listed properties static or declining in price than increasing).

On a market by market basis, I think we would need a large move in unemployment, inflation or interest rates to stop the property market increasing - in the order of 2% change in a six month period.

The only other indicators of a market correction I can think of would be:

A change in government policy which makes it more favourable to not buy IPs (could be state-based)
Mortgage repayments increasing to more than 35% of average wages in an area
Major shift in population demographics/density in an area

Cheers,

Aceyducey

[always_learning]

This is my philosophy at the moment
"Buy what you can if it makes sense for you, dont try to guess the market".


This is based on a few observations:

[list=a]
Many companies that grow by aquisitions (buying other companies). The most successful of these dont try to guess the best time or worst time to buy. They just buy without regard to guessing the market. The question they ask is "is this company right for us now at the price we have to pay today?"
Jan Somers suggests in "More Wealth from Residential Property" that we should buy when we can afford it without regard market conditions, but I believe this is under the assumption that you are buying median priced housing stock or below.
If the market is falling many people will be saying "don't buy now the price will get cheaper".
If the price is static people are saying "don't buy now the price is going nowhere"
If the price is rising people are saying "don't buy now the price has boomed and the bust will be soon"
[/list=a]

The time to buy is now when what you are buying you believe meets your requirements.

[bundy1964]

Originally posted by always_learning
Many companies that grow by aquisitions (buying other companies). The most successful of these dont try to guess the best time or worst time to buy. They just buy without regard to guessing the market. The question they ask is "is this company right for us now at the price we have to pay today?"

Hi AL

What about some of the efforts of AMP, Telstra, Tower and the similar others who have done write downs on the book values of what they have taken over? :rolleyes:

sceptics-r-us

bundy

[always_learning]

Originally posted by bundy1964
Hi AL

What about some of the efforts of AMP, Telstra, Tower and the similar others who have done write downs on the book values of what they have taken over? :rolleyes:

sceptics-r-us

bundy

AMP, Telstra, Tower are they companies with a strong history of growth by aquistion? I dont think so, I think they just decided they want to play the game? I am thinking of companies such as GE.

[geoffw]

I was talking to my local RE agent yesterday. He was saying that, in the Canberra market, every market drop has been preceeded by some eveny- a change of government, mass layoffs in the government, or a big rise in interest rates. Some places dropped value 33% or more.

However, in all of these cases, it took 3+ months for the market to drop- and those who were aware of it got out early.

[WillG]

change of government & mass layoffs in the government are closely related. Little Johnny is holding all the cards at the moment - Can't see a change in government unless Mr Costello takes over the reigns

Interest rate rise ???. The 5 year fixed rates wouldn't indicate it.

I reckon a booming Stock Market is about the only 'event' likely to cause a major change in property market.

I think prices will continue to rise, yields will drop further and housing will become less affordable - Property will stall - When ??

[hobgoblin]

On that note, WillG, what DOES happen to the property market when the stock market peaks? (needless to say I am pretty uneducated and uninterested in the stock market...)

I have just read Rich Dad's Prophecy and heard Robert Kiyosaki state on stage last Saturday that "Now is NOT the time to buy property" I believe there is a fair bit of wisdom in Rich dad's predictions, but the million dollar question is WHEN???

I have just bought an inner Sydney unit for $2850 LESS than the vendor paid for it 7 years ago, but that is just one example.

My kingdom for a crystal ball....!!!

Hobbo

[bundy1964]

what DOES happen to the property market when the stock market peaks?

If the stockmarket goes as well as property has been and property returns are low then there will be some value shift from property to shares. Interest rates would play a huge part in this too as would vacancy rates.

I have just bought an inner Sydney unit for $2850 LESS than the vendor paid for it 7 years ago, but that is just one example.

That would sugest the previous vendor paid too much for the unit in the first place.

bundy

[see_change]

I'm with Geoff on this one

Over the short period of time I've become actively involved in investing ( shares and property ) , all the signs are there to see if you know what to look for and are keeping an eye on the market.

It's only once you've seen something happen when you thought it would happen , a couple of time , that you start to have faith in your own ability to predict and understand what is going to happen.

The majority of people ( investors included ) do not look at their particular market with any degree of insight and only react when it's bleeding obvious to blind freddy that somethig is happening.

I'd guess that the 90 / 10 rule holds true for the number of investors who have much idea of what is really happening , and why it is happening as compared to those who have no idea.
ie 10% of investors know what they're doing.

( still working out which group I'm in......)

see change

[JSH]

Firstly, it must be said, that nobody can pick the high or low point in any market cycle. This is determined by a large number of economic factors that nobody can foresee.

The answer to your question is quite simple:

If your property investment views are longer term, and you do the research and buy at "fair market value" for the area you are looking at, then your property will always increase in value over a period of time.

Good luck.

[Bear924]

When I purchased my PPOR I examined the amount of money I would need to pay to rent any property that I purchased. If you can rent a property for significantly less then you can own the property I would suggest now is not the time to purchase that property. I would limit my minimum rental yield to 5%, lower then that and I wouldn't buy.

[JumJones]

Yeah, this follows Steve Navras method of calculating what the max price you should be payin for a particular property is ..

Checkout his website for details, but the gist of it is basing the price on what you can rent that particular property out for and multiplying that into the three/five/whatever year average yield for the suburb the property is in.

I think its a fairly general equation - tying down the yeild % and rental return requires a bit of give and take so the purchase price is gunna be +- x%

[rambada]

Of course its overheating - the sheep are our there buying anything not bolted down. Especially units.
HOWEVER - I'm still shopping (and buying - houses). In any market there is a wholesale property available every day - its realising what is wholesale and what is retail. Education is the key, know your area.
Example - Working on our IP, an area we know and love (for the CG of course) a RE agent pulls up and has a chin wag. 10 mins later we are negotiating to buy a place down the road at wholesale. If the market collapses tommorow we are still ok, rent and reno will make the place neutral to positive cash flow. Knowledge is the key and RK is right - for the average investor, don't be average. Go forth and prosper!

[steven]

Originally posted by hobgoblin
On that note, WillG, what DOES happen to the property market when the stock market peaks? (needless to say I am pretty uneducated and uninterested in the stock market...)

Hobbo

Hobbo,
from my understanding of the investment cycle, when the share market peaks, investors look towards the realestate market,
and after a major share market collapse, investors then look towards investing in a rising share market,

regards steven.

[Mikhaila]

Steve, your understanding is incorrect. Majority of investors run away from shares after major share market collapse to whatever they can find. Usually it is realestate. When the share market peaks investors (major part) are still continue to invest into shares.

[bundy1964]

Hi

Are we talking true investors or sheep here?

My mother still thinks money in the bank is the best investment in the world :rolleyes:

bundy

[steven]

Originally posted by Mikhaila
Steve, your understanding is incorrect. Majority of investors run away from shares after major share market collapse to whatever they can find. Usually it is realestate. When the share market peaks investors (major part) are still continue to invest into shares.

Mikhalia
I will Quote to you some info from Stuart Moore, Author of How To Start with no savings and get rich safely,
(how to understand and profit from economic cycles)
"WHEN TO BUY SHARES",
"This is usually Three To Four Years after the previous peak of the share market"
Not at the peak as you sugest,
Keep in mind the property boom on avarage is a two year period, that occour each 7 to 9 years,

"WHEN TO SELL SHARES"
"When the Index has climbed to three times the previous low or when share prices rise above the underlying values that justify the price,"
"The rapid rise during the final few months of the share market Bull Run (RISE) can prove a powerful lure to hang in there, Remember the adage: you cannot go broke taking a profit"

Regards Steven.

[Mikhaila]

Hi Steven,

I’ll try to be short as I don’t want to start a discussion about when to buy or sell shares. I just want to make couple of comments.

1. I didn’t make any suggestion when to buy/sell shares, but just expressed my view how it actually works in reality.
2. Theoretic knowledge is great. It does not work too well in real life way too often.
3. What you say in your original post is not quite the same what you are saying in your second (may be I misunderstood the first posting)
4. If one can reliably predict when a given investment market peaked/bottomed, this is like having a crystal ball. There are countless methods of doing the predictions, many of them complex mathematical models. So, giving and believing in advices like you quoted above “When to sell/buy shares” is naïve at least.

Last thing, there is well known saying in share market “buy higher highs and sell lower lows”. If this phrase taken out of context or blindly applied by novice investors it may be dangerous, but generally speaking it is true and wise suggestion. Unfortunately, majority does just the opposite and loose money.

Cheers

[see_change]

Steve

I would not be selling shares :

"When share prices rise above the underlying values that justify the price'

Share prices fluctuate above and below their justifiable valuation.

The fluctuation in prices have as much to do with emotions as genuine value. Currently many shares would be priced below their valuation but until the market starts moving up , you'd be game to buy at the present .

If you sold "when share prices rise above the underlying values that justify the price" you would be missing out on every stock boom , because during the booms , the prices are always higher than justified, but it is the emotions that drive it there.

see change

[coolstyle]

Sorry to spoil the fun in shares ... but Is the property market 20% overvalued?

I don't have time to scan my memory or famous quotes in good books by 'experts' right now ... so I'll make a judgement myself..

I think everyone agrees we are either at the edge of a cliff (of a boom), going to plateau for 2-8 years, or rise at a rate less than or equal to inflation.
- Generally speaking - I do agree with this.

There will always be exceptions where more emotional purchases come into play ... such as popular new area's which were once 'slums', some beachside suburbs, and the 'well marketed' inner city/ city fringe apartment market, etc ... which will fluctuate more than average movements as more emotion is involved.

My gut feel is to stay away from these area's while we are close to a boom - unless of course the area is fundamentally undervalued (contrasting to other areas in the capital city).

By 'fundamentally', i mean rental vs loan payments, neighbouring suburbs, or historical outperformance of a particular location.

Where am I looking to buy? .. I'm sticking to what I think is a reasonably low risk approach of purchasing large block (600+ sqr mtr) within 10-11km's from the city, and for sub 200k.
--> I realise this will limit me to some area's with bad reputation for quality of living, but I think this is the best long term approach, particularly considering I'm paying careful attention to generic potential such as parkland, upcoming/ wealthy neighbouring suburbs, transport (public & ease of car access), nice quiet street with the appearance of less than average condition house.

... ran out of time ... but please guys .. criticise my hypothesis of the market (and my plan) if you can find any holes in this.
--> note - I am a beginner and this will be my first purchase.

** Also .. I must make the point that there seem to be an increased number fo rental properties available for a cheap buck on the market ! .... around $150 for 2 bed apartment in Fairfield 400 mtrs from station?.. sounds like the asset values will react to this oversupply (or perception of).

Cheers,
Coolstyle ;)

PS: My take on the stockmarket?
--> If I was not holding my cash for a deposit, I would invest in +5% yield consistent performers such as ANZ, NAB, even AXA .. ..
Apart from this sector - I think generally the market has about 3 years to reach a solid boom, then it will drop off and the property market will begin to gain momentum again.
- I still see a lot of good property area's which seem out of sinc with the rest of the market ...

[steven]

Originally posted by Mikhaila
Hi Steven,

I’ll try to be short as I don’t want to start a discussion about when to buy or sell shares. I just want to make couple of comments.

1. I didn’t make any suggestion when to buy/sell shares, but just expressed my view how it actually works in reality.
2. Theoretic knowledge is great. It does not work too well in real life way too often.
3. What you say in your original post is not quite the same what you are saying in your second (may be I misunderstood the first posting)
4. If one can reliably predict when a given investment market peaked/bottomed, this is like having a crystal ball. There are countless methods of doing the predictions, many of them complex mathematical models. So, giving and believing in advices like you quoted above “When to sell/buy shares” is naïve at least.

Last thing, there is well known saying in share market “buy higher highs and sell lower lows”. If this phrase taken out of context or blindly applied by novice investors it may be dangerous, but generally speaking it is true and wise suggestion. Unfortunately, majority does just the opposite and loose money.

Cheers

Its not rocket science, when the share market peaks it is followed by a decline or a crash, followed by investment in R Estate.
Now if you choose to invest in the stockmarket at its peak thats up to you, but this will have no bearing on the outcome or the principles of the economic clock,
so to answer Hobbos Question, what happens when the share market peaks, (REAL ESTATE INVESTMENT)
Regards Steven.

[bundy1964]

Originally posted by coolstyle
Sorry to spoil the fun in shares ... but Is the property market 20% overvalued?

Hi coolstyle

Property market is supply and demand, lifestyle choices and emotion.

There is no more beaches being built near the cities ;) so supply is low and demand is high, so that = high prices.

Inner city appartments are being built still, vacancy rates could be a problem from oversupply, so that should = stable or declining prices.

A place in the suburbs is all about location location. Near CBD, shops, transport, services, entertainment and employment it will hold or improve value.

My lifestlyle choice is for a large block, within easy reach of the city with shops close by. If I moved I would like all of that and to be on a main rd location with a shopfront.

Emotional buyers will always drive prices up and motivated vendors will sell undervalued. You just have to know when to walk away when the price is over your valuation.

So in short the answer is yes and no.

bundy

[mmerlin]

Originally posted by JumJones
Yeah, this follows Steve Navras method of calculating what the max price you should be payin for a particular property is ..

Checkout his website for details, but the gist of it is basing the price on what you can rent that particular property out for and multiplying that into the three/five/whatever year average yield for the suburb the property is in.

I think its a fairly general equation - tying down the yeild % and rental return requires a bit of give and take so the purchase price is gunna be +- x%
Thanks for the reference JumJones. I hadn't read Navra's site and they have some interesting articles (http://www.navra.com.au/articles.html) there.

The one you are referring to is
www.navra.com.au/media/291002.html (http://www.navra.com.au/media/291002.html)

<Quote>

Navra Investments says investors should obtain a three to five-year median rent for the area they are considering.

Assuming the yield in the suburb is 5 per cent on a rent of $250 a week, then dividing the rent by the yield as a percentage and then multiplying by 52 gives the real value of the property. In this case $260,000.

“Property should only be purchased up to this value if you wish to achieve real capital growth in the short to medium term,” Navra says.

</Quote>


This all sounds good, but does anyone know where these kinds of figures published?
i.e. for a particular suburb...
- 3 to 5 year Median Rents
- the "Yield" of that suburb (I suppose average per year?)

Thanks to everyone who has added to this thread, it's great to hear people's perspectives.

mmerlin

[steven]

[QUOTE]Originally posted by coolstyle
[B]Sorry to spoil the fun in shares ... but Is the property market 20% overvalued?

I don't have time to scan my memory or famous quotes in good books by 'experts' right now ... so I'll make a judgement myself..

... ran out of time ... but please guys .. criticise my hypothesis of the market (and my plan) if you can find any holes in this.
--> note - I am a beginner and this will be my first purchase.

Cheers,
Coolstyle ;)

Coolstyle, as you are new to investing i would not jump into making a decision just yet,
there is a lot of info on this forum to be found, read as much of it as you can, Ask questions, listen to the answers, read everything regarding investing you can get your hands on, then you will be able to make an informed judgement, based on knowledge, and then you will know when and where to make your first purchase, with confidence. Good Luck.
Regards Steven.

[Mikhaila]

Originally posted by steven
Its not rocket science, when the share market peaks it is followed by a decline or a crash, followed by investment in R Estate.
...,
so to answer Hobbos Question, what happens when the share market peaks, (REAL ESTATE INVESTMENT)
Regards Steven.
Almost agree with the above. It should say "what happens when the share market crashes, (REAL ESTATE INVESTMENT)" I am glad you changed/corrected your point of view so soon. The post I replied to was totally different to what you saying now.

from my understanding of the investment cycle, when the share market peaks, investors look towards the realestate market,
and after a major share market collapse, investors then look towards investing in a rising share market,

[steven]

Originally posted by Mikhaila
Almost agree with the above. It should say "what happens when the share market crashes, (REAL ESTATE INVESTMENT)" I am glad you changed/corrected your point of view so soon. The post I replied to was totally different to what you saying now.

You have to be joking, Do i have to spoon feed you again,
read my first post and second post, then read it again slowly, then read it again out loud to yourself,
I have not changed or corected anything,
Now just becouse you failed to grasp my point, do not accuse me of changing my post.
I did not feel the need to insert decline or crash after the word peak in my first post, I assumed anyone with a brain would know that after a peak there is a decline/crash. But not you,
So DID include the word decline/crash in my later post just for YOUR benefit, becouse you have special needs.

[Mikhaila]

No I am not joking and there is no reason to be abusive. It makes you an idiot.

I did not feel the need to insert decline or crash after the word peak in my first post
Well I inserted it for you. Here it is :
from my understanding of the investment cycle, when the share market peaks then declines/crashes, investors look towards the realestate market,
and after a major share market collapse, investors then look towards investing in a rising share market,
How does it sound now? It is pure nonsense unless you want to insert/omit something else.

If you feel the need to save the face, just say it was a typo.

[Aceyducey]

Originally posted by steven
So DID include the word decline/crash in my later post just for YOUR benefit, becouse you have special needs.

Steven,

Conduct unbecoming a gentleman.

You destroy your credibility with posts like this.

I will assume you are new to the web and have not learnt nettiquette as yet.

I suggest you visit this guide: http://pixel.cs.vt.edu/class1/spinners/InternetSpeak/nettiquette.html and review it (particularly the second last point, which says in part:

'Be courteous and respect other people.'

Also review: http://www.albion.com/netiquette/

Cheers,

Aceyducey

[steven]

Originally posted by Mikhaila
No I am not joking and there is no reason to be abusive. It makes you an idiot.


Well I inserted it for you. Here it is :

How does it sound now? It is pure nonsense unless you want to insert/omit something else.

If you feel the need to save the face, just say it was a typo.

Mikhaila, It was not a typo, this is the point i have been making all along, you are splitting hairs over two words, Decline & Crash.

and you have failed once again in your perception of everything i have said, as I said befor read my posts, then read them again,
You are missing the point, the point is, i did not feel the need to type decline or crash after the word peak,in my first post as i assumed everyone knows after a peak there is a decline,
dont complicate the issue by inserting words in to my quotes, this will confuse you even more,

[steven]

Originally posted by Aceyducey
Steven,

Conduct unbecoming a gentleman.

You destroy your credibility with posts like this.

I will assume you are new to the web and have not learnt nettiquette as yet.

I suggest you visit this guide: http://pixel.cs.vt.edu/class1/spinners/InternetSpeak/nettiquette.html and review it (particularly the second last point, which says in part:

'Be courteous and respect other people.'

Also review: http://www.albion.com/netiquette/

Cheers,

Aceyducey
Aceyducey, I would like to point out to you that I am allways courteous and show respect towards other people,
and I take offence to your post that i do not,
and I would like to add that your interpretation of the words I used "special needs" is wrong,
(special needs as in, to add decline or crash after the word peak)which is the whole point of this silly stupid debate,
You assumed wrong, and flamed me becouse of your asumption.
so may i suggest you get all the facts correct before you hand out the nettiquette Tips.
Kind Regards Steven

[XBenX]

ouch - I didnt know being abusive makes you an idjiot ?

I better watch out.... I too suffer the same fustration as Steven w/ ppl who choose to not join the dots....

[Aceyducey]

Originally posted by XBenX
I better watch out.... I too suffer the same fustration as Steven w/ ppl who choose to not join the dots....

XBenX,

I too have this infliction, but I am getting better at understanding that other people don't necessarily see things the same way I do and it doesn't imply any limitation on their part, simply that I should communicate better.

Communication is a tricky business & not worth getting hot under the collar about - my hat's off to Mikhaila for keeping his cool.

Steven, on rereading your post, perhaps I misunderstood ' special needs' which does have very definite connotations in dealing with people with disabilities - however you did use 'spoon-fed' and the general tone of your post leaves me still recommending those netiquette guides for you.

Cheers,

Aceyducey

[steven]

Originally posted by Aceyducey
XBenX,

I too have this infliction, but I am getting better at understanding that other people don't necessarily see things the same way I do and it doesn't imply any limitation on their part, simply that I should communicate better.

Communication is a tricky business & not worth getting hot under the collar about - my hat's off to Mikhaila for keeping his cool.

Steven, on rereading your post, perhaps I misunderstood ' special needs' which does have very definite connotations in dealing with people with disabilities - however you did use 'spoon-fed' and the general tone of your post leaves me still recommending those netiquette guides for you.

Cheers,

Aceyducey
Aceyducey, glad to hear you have reread the posts, and now realise you may have misunderstood what I said,

I would be very interested to hear how you feel the word spoon fed requires specific attention from you, yet you failed to make any comment on the word Idiot as posted by Mikhalia,
maybe you overlooked that bit, as it conflicts with the argument you are trying to make,
Regards Steven.

[Mikhaila]

May I suggest we just let it go . It’s silly and not worth it really. The posts are all here and it is very clear who said what, why and when. Also it is clear who had a point and who didn’t. Fortunately it is in black and white and unambiguous at all. So, how about taking a deep breath and letting it go :cool:

[Aceyducey]

Steven,

You misunderstand, I'm not making an argument, I'm pointing out that courtesy is the key to credibility online, and your courtesy has been lacking.

What does it matter whether others have behaved badly, it still would be no reason to respond badly.

Cheers,

Aceyducey

[steven]

Originally posted by Mikhaila
May I suggest we just let it go . It’s silly and not worth it really. The posts are all here and it is very clear who said what, why and when. Also it is clear who had a point and who didn’t. Fortunately it is in black and white and unambiguous at all. So, how about taking a deep breath and letting it go :cool:

Mikhalia I could not agree more,
I for one am sick of this petty stupid topic, and i am not proud of my contribution to the bickering. nothing of value came from it, lets move on.

Regards Steven.

[HermanZ]

Plse forgive my rudeness but I come from NZ and am only of average intelligence (special needs methinks).
May I make the following points.
1. Youse jokers have just ruined a reasonable post.
2. Most of us lurkers fear being made a pratt, with the world watching. Hence--we dont post
3. This is my 3rd post if you jump all over me Ill go back to Lurking.

Regards
HermanZ

[astroboy]

C'mon guys, lighten up. It's a public forum some degree of critisism is to be expected and its not the end of the world.

After all if someone has a go at you, that is only *their opinion*, no reason to believe they are correct, bite back if you want or take the approach AceyDucey did. Who says those who jumped on you have any idea anyway ?

I'm not saying anyone is right or wrong, everyone included. I'm not here to judge.

Discusssion is good and i guess critisism is part of that, just don't be afraid to throw your 2 cents worth in, someone may try to shoot you down in flames but dozens of others may silently agree with you and (you never know) others still may go, 'hey, I see it now!'

astroboy

[Ross Sneddon]

Hi

M Merlin’s post posed the question of the difficulty in deciding where to purchase a PPOR in Melbourne and how to assess if asking price is excessive and if so by how much.

The value for a PPOR is personal and is a partly heart decision. If you love it enough and can afford it, then buy it and enjoy it.

If you are looking for an investment, then more of a head decision is required. Perhaps this is a crude calculation but consider this:

If the sales price of a MEL property offered is $400,000 and rents for maybe $340 per week. (reasonable Mel figures I am told) then yield is:

Annual rent divided by purchase price as a percentage of purchase price

$340 X 52 weeks = $17,680 / $400,000 % = 4.42%

Now if you believe that you would want not less than a 5.0% yield then the purchase price becomes the rent divided by the desired yield percent.

$17,680 / 5.0% = $353,600 or $400,000 - $353,600 = $46,400 overvaluation. This overvaluation of $46,400 as a percentage of $353,000 is 13.12% overvaluation.

So prices must ease, rents must increase or a combination of both is required to reach a “balance” of price and rent to represent the norm. But what is a Norm?

Of course if you are selling a property you would want a sales price above the norm and if purchasing you may want a yield of well in excess of 5% so what indeed is a norm.

Regards

Ross