Dead Cat Bounce
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One of the issues that investors have to take into account is the evolution of investment theories. During different times, various investment themes come into vogue and then fade out. I have a personal philosophical interest in investment pyschology and i think over long periods of time it actually reflects mother nature. Anyway i digress.
There is a current debate on this forum that investment for capital gains (through negatively geared strategies) is incorrect and investment for yld is correct.
I think members have to be very careful in applying such sweeping statements. In my opinion there is a time for investing for yld and there is a time to focus on capital gains.
Those members that hopped on the band wagon early in last property upswing did very well by utilising a negative geared capital appreciation seeking strategy Without knowing Sea Changes personal circumstances i find it curious that he seems a successful old member that disappeared for a while, and is now back. Maybe he is one of these people who hopped on the band wagon early, disappeared once the market become hot, and is now back for more now that is LVR ratio's are low due to market appreciation.
Those who come to the party late are possibly feeling the pain now. But its like any investment strategy, you have to be very careful of being crowded out of a position. Crowding out generally occurs when an investment theory is successful in its application, as a trend is established and positive reinforcement in the application of the investment theory occurs more people enter the position which marginalise the future returns (and because human being are human beings actually increases the chance of a capital loss being incurred).
This is not unique to property. You just need to look at the recent resource boom. Many investors looked at the trend on hopped on board (without maybe being appreciative of the fact that the position was becoming crowded). Those that entered early have still done very well, those that entered late have incurred hefty capital losses.
Therefore in my opinion, there is no single successful application of a strategy. Rather its how
1)the individual investor can adapt a strategy to his personal circumstances; and
2) how perceptive the investor is to the investment environment.
There is a current debate on this forum that investment for capital gains (through negatively geared strategies) is incorrect and investment for yld is correct.
I think members have to be very careful in applying such sweeping statements. In my opinion there is a time for investing for yld and there is a time to focus on capital gains.
Those members that hopped on the band wagon early in last property upswing did very well by utilising a negative geared capital appreciation seeking strategy Without knowing Sea Changes personal circumstances i find it curious that he seems a successful old member that disappeared for a while, and is now back. Maybe he is one of these people who hopped on the band wagon early, disappeared once the market become hot, and is now back for more now that is LVR ratio's are low due to market appreciation.
Those who come to the party late are possibly feeling the pain now. But its like any investment strategy, you have to be very careful of being crowded out of a position. Crowding out generally occurs when an investment theory is successful in its application, as a trend is established and positive reinforcement in the application of the investment theory occurs more people enter the position which marginalise the future returns (and because human being are human beings actually increases the chance of a capital loss being incurred).
This is not unique to property. You just need to look at the recent resource boom. Many investors looked at the trend on hopped on board (without maybe being appreciative of the fact that the position was becoming crowded). Those that entered early have still done very well, those that entered late have incurred hefty capital losses.
Therefore in my opinion, there is no single successful application of a strategy. Rather its how
1)the individual investor can adapt a strategy to his personal circumstances; and
2) how perceptive the investor is to the investment environment.
Very broad statement. This is exactly what I did, and even if rates and rents hadn't done their thing - I'd still be fine. As it is I'm better off now, but I wouldn't be struggling to make the repayments now if figures stayed the same. For me if I went down the CF+ path etc I'd probably still just be sitting on 1-2 properties in a rural town.
Very true. Remember the days when there was good profit in a corner block subdivision before every man and his dog caught on. Large developers got started this way back in the day, much tougher now.
Hi Chilliaa
I started our property investment progress when , disillusioned with our financial progress in the late 90's we realised we could subdivide our PPOR in leafy Pymble . Which we did .
in 2001 we got into investing in a serious way . Read lots of books . realised Sydney had already moved significantly so , being familiar with what had happened in Mt Druitt , I looked at Logan. Realised quicky what was going to happen there and bought several properties . Also bought a block of four units in Hobart in New Town. ( got this from a tip in the chat room , ).
Subsequentally bought in Rocky and townsville . Only dud decision we made was not going to WA. We thought about it , but decided we'd done enough... 0 to 19 IP's in about 2 years.
I've just linked this post in another post , but in case you didn't see it.
http://www.somersoft.com/forums/showthread.php?t=11656&highlight=rocky+thing ( sorry Sim ...
)
We also sold our PPOR and bought a place in wahroonga on 3000M2 which no one though was subdivisiable ( but was ). If you're selling a block on 3000M2 you'd think they advertise the size , but the vendor thought the size would put people off...... On the first subdivision we sold the other block , but this time we developed the whole thing. Sold one and are living in the other one at the moment. That exchanged Dec 07 and settled May 08. This kept us busy for a couple of years.
Each previous cycle has started in well located areas in Sydney , so I'm acting under the assumption that the same will happen again. Sydney really finished its boom in late 03 . Other places finished their booms much more recently, so I'm assuming Sydney will move earlier than most other capital cities.
At the moment Sydney 10 growth rates are below other cities and Central growth rates are lower than outer growth rates and that's not normally the case, so indicating they should catch up earlier.
We sold down some of our logan IP's and all of the rocky and townsville ones ( last one to go in Nov 08 ). If we'd kept these , we would have got very stressed during the development ( emotionally certainly and possibly financially ) and given the change in the Credit market , I think we'd be struggling to buy now. It was always my intention to sell the majority in those places.
At this stage we're cashed up with money in the bank , a large LOC available on our PPOR and a smaller one available within a trust.
With our new purchase , one of the reasons we got it , is that we didn't have to worry about finance , so we could make the offer and exchange very quickly. We found this quite helpfull , and the fact that we could tell the vendor this , I think this was part of the reason our offer was accepted.
Once we've reonvated , we will get them revalued and get finance on the IP's themselves. Hopefully this will cover the total purchase and reno cost and we can pay down the LOC and keep it available for the next one. Then we'll start watching again .
I have been checking the forum out on an occasional basis , but over the last couple of years we've been busy. I know many of the long term posters and have met many of them in real life.
Cliff
I started our property investment progress when , disillusioned with our financial progress in the late 90's we realised we could subdivide our PPOR in leafy Pymble . Which we did .
in 2001 we got into investing in a serious way . Read lots of books . realised Sydney had already moved significantly so , being familiar with what had happened in Mt Druitt , I looked at Logan. Realised quicky what was going to happen there and bought several properties . Also bought a block of four units in Hobart in New Town. ( got this from a tip in the chat room , ).
Subsequentally bought in Rocky and townsville . Only dud decision we made was not going to WA. We thought about it , but decided we'd done enough... 0 to 19 IP's in about 2 years.
I've just linked this post in another post , but in case you didn't see it.
http://www.somersoft.com/forums/showthread.php?t=11656&highlight=rocky+thing ( sorry Sim ...
) We also sold our PPOR and bought a place in wahroonga on 3000M2 which no one though was subdivisiable ( but was ). If you're selling a block on 3000M2 you'd think they advertise the size , but the vendor thought the size would put people off...... On the first subdivision we sold the other block , but this time we developed the whole thing. Sold one and are living in the other one at the moment. That exchanged Dec 07 and settled May 08. This kept us busy for a couple of years.
Each previous cycle has started in well located areas in Sydney , so I'm acting under the assumption that the same will happen again. Sydney really finished its boom in late 03 . Other places finished their booms much more recently, so I'm assuming Sydney will move earlier than most other capital cities.
At the moment Sydney 10 growth rates are below other cities and Central growth rates are lower than outer growth rates and that's not normally the case, so indicating they should catch up earlier.
We sold down some of our logan IP's and all of the rocky and townsville ones ( last one to go in Nov 08 ). If we'd kept these , we would have got very stressed during the development ( emotionally certainly and possibly financially ) and given the change in the Credit market , I think we'd be struggling to buy now. It was always my intention to sell the majority in those places.
At this stage we're cashed up with money in the bank , a large LOC available on our PPOR and a smaller one available within a trust.
With our new purchase , one of the reasons we got it , is that we didn't have to worry about finance , so we could make the offer and exchange very quickly. We found this quite helpfull , and the fact that we could tell the vendor this , I think this was part of the reason our offer was accepted.
Once we've reonvated , we will get them revalued and get finance on the IP's themselves. Hopefully this will cover the total purchase and reno cost and we can pay down the LOC and keep it available for the next one. Then we'll start watching again .
I have been checking the forum out on an occasional basis , but over the last couple of years we've been busy. I know many of the long term posters and have met many of them in real life.
Cliff
Nothing is permanent. But what if the FHOG is maintained for the next three years, and if interest rates drop another 1.5% and then stay there for two years and then gradually rise again 0.25 basis points at a time over another two-three years. The current 'bounce' could then be maintained for several years, by which time the GFC would be history.
Would you still call it a 'dead cat bounce' then? I think this cat will be up and running in a couple of years.
Cheers,
Shadow.
Sunfish and evand, I think you both misunderstood my post. I am suggesting that interest rates will stay low and the FHOG will be retained for a few years, at least until the GFC is over, by which stage the FHOG won't be needed any more and interest rates can then start to increase gradually over a few years. The next property boom will just be getting going at that stage. The RBA and government are not going to do anything hasty to jeopardise the early recovery. Don't assume the FHOG and low interest rates will disappear any time soon.
I don't understand it yet, I'm sorry.
And I make no assumptions about GFC improving any time soon ergo the low rates will stay until and unless high inflation breaks out.Our pollies and economists are hopelessly out of their depth and are making things worse so it may be ten years even before we stabilise again. I'm guessing, of course. I KNOW nutting!
I think it will be around as long as the government can afford it ,and thinks it's getting value for money.
At this stage I think they are , if it's helping under pin the economy in outer areas with new houses etc.
Cliff
Interesting conclusion. My take on that is many have seen their properties go positive on a nett basis recently. This means that with variable IRs around 5.2% their gross yields must be over 7%. If that is "sub-optimal" then I am happy enough with that... If they were negatively geared previously, it wouldn't have been by a lot.
On the FHOG, why do you think it will be withdrawn? It hasn't in the past - I find it very hard to imagine how a govt could get away with it politically and economically. IMO there is a strong ratchet effect with these subsidies - even if the economy booms there would be an outcry if it was removed (think of the children!). Not saying it won't happen - just that it's pretty unlikely IMO.
And if the economy tanks, all the more reason to leave the FHOG in place...
as a full time property developer/trader this would make my career outlook pretty darn shaky. the risk is all over the place. maybe a 9-5er would be a safer option if all this keeps up
Agree with your first point but that is on the basis on today's rates. People weren't buying on that basis in the past. All that said, the rediscovery of yield (for as long as it lasts) will be no bad thing though one wonders how long before all the numbers, once again, are based on CG making the deal add up.
I should have been clearer...reduce from it's current level to (at best) it's previous level. The increased $ plus the expectation it will be gone in June is clearly driving FHB activity.
Depending on the state of the budget forecasts over the next few years, the government will likely have pretty serious difficulty maintaining a whole bunch of handouts. You'd have to think even the old level of FHOG is at risk as will be a bunch of other stuff...there's only so many destroyers you can put off building before you have to save money in ways people might actually notice and whinge about.
Or you can start raising taxes. They are talking about raising the Medicare levy to cover Dental in the AFR today.
Thats an additional 1500 pa off anyone earning 130k. Ouch.
Having attended a few auctions lately I can say that there has been a rise in the number of people attending however this has not translated into higher prices. There appears to be a lot of people thinking about property but not yet ready to act. Perhaps they want to see a steady rise before taking the plunge.
Personally I believe the massive amount of scaremongering and over reacting has put the brakes on the market, and made things a lot worse than what they needed to be. This being the case I do not believe there will be a sustained push in the market until people feel confident and secure and unless the government rescue package actually delivers (highly doubtful) it will take until at least the end of 2010.
The most recent auction I attended had a number of properties sell at prices that would give a positive cash-flow..... in Sydney!!! These sort of returns will not be there in six months regardless of the overall performance of the market.
It may be a dead cat bounce, but it doesn't mean it's not a good time to pick up a few bargains.
Regards
Andrew
Personally I believe the massive amount of scaremongering and over reacting has put the brakes on the market, and made things a lot worse than what they needed to be. This being the case I do not believe there will be a sustained push in the market until people feel confident and secure and unless the government rescue package actually delivers (highly doubtful) it will take until at least the end of 2010.
The most recent auction I attended had a number of properties sell at prices that would give a positive cash-flow..... in Sydney!!! These sort of returns will not be there in six months regardless of the overall performance of the market.
It may be a dead cat bounce, but it doesn't mean it's not a good time to pick up a few bargains.
Regards
Andrew
That was what started the engine running but most of the people I saw at work last week were over 40 and some over 50 so the 'older' people are getting confidence back, only 2 lots coming through were FHB, the week before there were only 4 and prior to that the majority. 3 lots from the weekend were already in contact with me again on Monday so some keen people out there. The stuff in the papers is old news by the time people are reading it, it takes them a while to catch up!
In my local Darwin area units in most suburbs have jumped from around 260k to 300-330k in the past few months and I saw very good growth for a time such as this, I believe this can be contributed to most other properties being far more expensive, low rates, highest rental yield in the country, increased FHOG and low supply, an increasing population, strong local economy, slow construction and release of land, the land that is released is expensive and its also ofcourse costly to build on so the cheaper end of the market is not only holding up well but rising in value.
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