Rents underpin property values

hobo-jo · 12th May, 2011

Disagree Bigtone. I rarely talk about what policies I think should be introduced. 90% of the housing content on my blog is analysis of facts, data & statistics in an attempt to predict what we will see going forward. I've posted a few times about the strike, but that's only a small percentage of the posts on my blog that relate to housing.

I rarely talk about what 'should' happen on here either. Almost every one of my posts relates back to data, much moreso than many users here who are using anecdotal examples to push their own barrow.

Also just went back and checked how many threads I'd started in the PME subforum (I rarely post elsewhere these days) and it totals 17 threads started over 15 months. Around 1 a month and some of them aren't negative. How can you claim that I "post every negative property market article"... ? Wouldn't you agree that you have an agenda yourself to paint me in a way that doesn't represent reality?

not happy · 12th May, 2011

Bigtone said:
searching or trying to create the opportunity through an unrelenting campaign to lower house prices, this campaign includes at the least this things;

* first home buyers strike
* end of neg gearing (housing only of course)
* posting every negative property market article
* random graphs thrown in to "prove" a point
* own blog
* all posts push the same agenda of 'fair house prices'

You just need to be honest with us, you don't post on what you think will happen or how we as investors can capitalize on opportunities in a particular market. You post or what you think should happen and try to influence it as much as possible.

Evand and Sunfish are negative on everything but that is simply their current opinion on property they don't have an agenda they are running via their posts.

I think you hit the nail on the head with this one. Kudos.

Sunfish · 12th May, 2011

Like Hobo I'd look stupid in a pleated skirt and pom-poms so cheer-leading is out, but as a forum member of some notoriety I reserve my right to an opinion, whether you agree with it or not. I do have a reputation to maintain, after all!

Aaron Sice · 12th May, 2011

evand said:
The connection between rents and property values finished with negative gearing. Any one that believes that circa 2%-3% nett yield is satisfactory is not a property investor but a property hobbyist.

hahahaha so true. kudos.

turk · 12th May, 2011

hobo-jo said:
RPData suggests that rents haven't outperformed inflation over 2009/2010 and 1st quarter results for 2011 showed similar under performance for houses (with rents for units exceeding inflation)... of course there may be some areas that outperform, some areas in Sydney appear to be doing so.

I think there is the potential for rents to exceed inflation short term, but if this housing correction continues then it has the potential to drive a turn of events that sees rents falling (in real terms) in an economic downturn/recession.

Hi hobo-jo

Could you please post your RPData for the 1st quarter of 2011 as ANZ's
Pan-Regional Housing Outlook has RPdata posting a large rental increase
for this quarter.

"Rents, capital gains

Separately, property analysts RP Data said today rents nationwide by the end of March had increased by 2.9 per cent over the year and 4.8 per cent in first three months of 2011 alone.

Still, across all cities rental growth over the last year has been well below the five-year average annual rate for capital cities of 7.0 per cent, RP Data said.

Capital gains for units (up 1.4 per cent) outpaced houses (down 1.2 per cent) over the same period, analyst Cameron Kusher said.

The strongest performing capital cities for rental growth were Sydney (5.3 per cent), Hobart (4.5 per cent) and Perth (4.4 per cent) in the year to March, he said. Melbourne's rents edged up 0.9 per cent to be among the worst performers, while they slumped 1 per cent in Brisbane."

Read more: http://www.theage.com.au/business/h...le-drop-anz-20110512-1ek8v.html#ixzz1M8h7RdhN.

Either ANZ or yourself is talking up their book and is horribly wrong.

I also note that the report has rents increasing 7% annually over the last 5 years(including 2009/10).

Cheers

Pete

hobo-jo · 12th May, 2011

Looks like I was mistaken, 2010 had slighly better than inflation growth, 1st quarter this year has been stronger than inflation, it was the 12 months to march 2011 that was below.

On an national basis, rental rates flattened in late 2008 and recorded virtually nil growth over the first three quarters of 2009.
http://blog.rpdata.com/2010/07/renting-costs-remain-flat-in-capitals/

According to RP Data’s analysis of national rents for the December quarter, weekly rental rates have increased nationally by 2.9 per cent over the past 12 months and by 4.2 per cent in Australia’s capital cities.
http://blogs.brockharcourts.com.au/...lds-in-2011-to-eclipse-those-of-2010-rp-data/

http://www.countryliberals.org.au/uploads/RPData March Quarter Rents.pdf

Deltaberry · 12th May, 2011

mrmonopoly said:
Now I know this doesn't apply to everywhere in Australia but I thought this article by Michael McNamara was particularly apt for those in Sydney.

http://news.domain.com.au/domain/ho...-underpin-property-values-20110510-1egnx.html

So for my own self education and that of other investors who subscribe to similar Sydney market beliefs, I would love to here some feedback from the bears, bulls and anyone in between who has an opinion.

I'm sure the usual SMH D & G crowd will comment directly on the article but in the pursuit of a bit more balance thought I would post here.

Do dividends underpin share investing? Last time I bought MCE they went up 3x, but still haven't paid me a dividend.

If rents underpin properties, you'd also never look at Peppermint Grove or Double Bay I guess... then again maybe you don't haha

tom32 · 12th May, 2011

Deltaberry said:
Do dividends underpin share investing? Last time I bought MCE they went up 3x, but still haven't paid me a dividend.

They do.

I have put down this analogy before but companies that have strong PE's but no dividends are the equivalent of buying a fixer upper where the tennant is paying 12% gross of the places price per annum 10% nett (a PE of 10) but you spend it all doing up the kitchen in the first year i.e. a dividend of nothing.

You know down the line it is going to make you even more money but this year you used it to reinvest in the home.

Then the place not paying any PE, well I guess that is like owning a block and building on it. You are just waiting for it to pay dividends later.

turk · 12th May, 2011

hobo-jo said:
RPData suggests that rents haven't outperformed inflation over 2009/2010 and 1st quarter results for 2011 showed similar under performance for houses (with rents for units exceeding inflation)... of course there may be some areas that outperform, some areas in Sydney appear to be doing so.

I think there is the potential for rents to exceed inflation short term, but if this housing correction continues then it has the potential to drive a turn of events that sees rents falling (in real terms) in an economic downturn/recession.

Hi hobo-jo

Glad to assist you in reading the RPData stats. correctly, difficult to reach the correct conclusions if the input is wrong

RPData has rents increasing well above inflation at 7% over the last 5 years which includes the GFC recession/downturn.

They have now increased by 4.8% in the 1st quarter of this year, I agree with you, these figures would indicate a potential to beat inflation in the short term, perhaps even by a large margin.

Why do you think rents will suddenly fall in real terms?

Cheers

Pete

intrigued · 12th May, 2011

Deltaberry said:
Do dividends underpin share investing? Last time I bought MCE they went up 3x, but still haven't paid me a dividend.

If rents underpin properties, you'd also never look at Peppermint Grove or Double Bay I guess... then again maybe you don't haha

Maybe its just you, but everyone else has got two so far

MCE 2c 28/10/2010 100% Final 2C FRANKED @30%
MCE 3c 29/04/2011 100% Interim 3C FRANKED @ 30%

Intrinsic_Value · 13th May, 2011

Deltaberry said:
Do dividends underpin share investing? Last time I bought MCE they went up 3x, but still haven't paid me a dividend.

If rents underpin properties, you'd also never look at Peppermint Grove or Double Bay I guess... then again maybe you don't haha

Three points:
firstly yes definately in times of market turbulance sustainable dividends definately support the share price for 'dividend oriented shares'.

There has been plenty of research on this issue, and no i am not going to provide a link.

Secondly, dividends are not earnings. Rent is the equivalent of share earnings (think REIT), not dividends.

Thirdly, housing is not a pure investment asset, it is also a place of abode. Therefore the pricing mechanism is not determined soley by investment characteristics. People buying into Peppermint Grove or Double Bay are not buying because they are looking at rental ylds.

hobo-jo · 13th May, 2011

turk said:
Why do you think rents will suddenly fall in real terms?

That's not what I said

, I definitely don't think it will be 'sudden'. I'm talking perhaps in 12-24 months, we could continue to see rents exceed inflation until then in some cities where demand drives it.

"I think there is the potential for rents to exceed inflation short term, but if this housing correction continues then it has the potential to drive a turn of events that sees rents falling (in real terms) in an economic downturn/recession."

There are so many triggers that could set off a chain reaction to Australia heading into a larger downturn/recession.

Consider the effect of the property price/volume down turn:
http://blog.rpdata.com/2011/05/market-slowdown-likely-to-create-a-hole-in-state-budget-revenues/
Also covered 3 weeks earlier by Unconventional Economist:
http://macrobusiness.com.au/2011/04/hooked-on-property/

Also I think the end of QE2 is likely to see a large correction in commodity prices, which is really the only sector that I've seen keeping us afloat.

Who knows, maybe we will be able to print ourselves out of this downturn like we did during the GFC...

Sunfish · 13th May, 2011

Do dividends underpin share investing?

Profits or at lest future profits do. And if those profits can never reasonably be expected to translate into dividends the company should be sold for scrap. It has no intrinsic value.

If you want this demonstrated look at the dot.com bubble. Once it was realised there would be no profits everyone abandoned the space. Even with junior miners I look for future return OF my investment.

evand · 13th May, 2011

The problem with this assumption SF, is when profits are fed back into the company to raise the share price rather than being paid as divs.

News Ltd used to do this years ago. Not sure if they still do as i havn't held them for years.

Sunfish said:
Profits or at lest future profits do. And if those profits can never reasonably be expected to translate into dividends the company should be sold for scrap. It has no intrinsic value.

turk · 13th May, 2011

hobo-jo said:
That's not what I said , I definitely don't think it will be 'sudden'. I'm talking perhaps in 12-24 months, we could continue to see rents exceed inflation until then in some cities where demand drives it.

"I think there is the potential for rents to exceed inflation short term, but if this housing correction continues then it has the potential to drive a turn of events that sees rents falling (in real terms) in an economic downturn/recession."

There are so many triggers that could set off a chain reaction to Australia heading into a larger downturn/recession.

Consider the effect of the property price/volume down turn:
http://blog.rpdata.com/2011/05/market-slowdown-likely-to-create-a-hole-in-state-budget-revenues/
Also covered 3 weeks earlier by Unconventional Economist:
http://macrobusiness.com.au/2011/04/hooked-on-property/

Also I think the end of QE2 is likely to see a large correction in commodity prices, which is really the only sector that I've seen keeping us afloat.

Who knows, maybe we will be able to print ourselves out of this downturn like we did during the GFC...

Hobo-jo

Rents dropping in 12-24 months is sudden, we are talking about the property market, not commodities or equities.

Your 1st link is an article on the subdued housing sales.

Your 2nd link also talks of subdued sales leading to a lower tax return to governments

"As a result of these current soft conditions we expect that state and local governments will experience a budgetary hole at the end of this financial year due to fewer transactions within the sector which accounts for their greatest source of taxation revenue."

hobo you gotta understand if people aren't buying they're generally renting this actually puts upward pressure on rents.

Cheers

Pete

Sunfish · 13th May, 2011

evand said:
The problem with this assumption SF, is when profits are fed back into the company to raise the share price rather than being paid as divs.

News Ltd used to do this years ago. Not sure if they still do as i havn't held them for years.

American companies do it most because cap gains get favourable tax treatment and News is listed in NY. I have a problem with this because it encourages the board to take risks in acquiring other companies.

But in the end, if a company never returns funds to the shareholders via divs or "special" divs, it should be dismantled and the "scrap" value returned to them. Mining companies are shockers at only paying management which is why conservative investors hate them, and I don't blame them. (Yes I do understand IV, but I like cap gains as much as anyone

) BHP s/holders would have appreciated some div return instead of wasting a qtr bill on failed take-overs.

Deltaberry · 18th May, 2011

Sunfish said:
Profits or at lest future profits do. And if those profits can never reasonably be expected to translate into dividends the company should be sold for scrap. It has no intrinsic value.

If you want this demonstrated look at the dot.com bubble. Once it was realised there would be no profits everyone abandoned the space. Even with junior miners I look for future return OF my investment.

You sound like an investment banker running a DCF, future profitability... hmmm

Heaps of people made it in the dot.com bubble... just because others got burnt doesn't mean there's anything wrong with investing in a bubble.

What do you think of a junior miner's future profitability? How about, say, Focus Minerals? Probably drilled like two holes... if, without even being able to name the Chief Geologist of a junior miner, you can look at a few hole datas and predict future profitability, you would have to be the Buffett of Australia (can't be Buffett of Asia because Asia's second richest man HK-based Lee Shau Kee has already claimed that title)

Deltaberry · 18th May, 2011

evand said:
The problem with this assumption SF, is when profits are fed back into the company to raise the share price rather than being paid as divs.

News Ltd used to do this years ago. Not sure if they still do as i havn't held them for years.

If someone can tell me the future profitability of Western Plains Group that would be really appreciated. Taking a view on currency and iron ore prices would be a good start, and we better not get that wrong for a start...

Deltaberry · 18th May, 2011

Intrinsic_Value said:
Three points:
firstly yes definately in times of market turbulance sustainable dividends definately support the share price for 'dividend oriented shares'.

There has been plenty of research on this issue, and no i am not going to provide a link.

Secondly, dividends are not earnings. Rent is the equivalent of share earnings (think REIT), not dividends.

Thirdly, housing is not a pure investment asset, it is also a place of abode. Therefore the pricing mechanism is not determined soley by investment characteristics. People buying into Peppermint Grove or Double Bay are not buying because they are looking at rental ylds.

Dividend oriented shares like SP Ausnet keep dying and the yield keeps going higher... no need for link my friend, I talk to the key people in these cos all the time anyway

Deltaberry · 18th May, 2011

intrigued said:
Maybe its just you, but everyone else has got two so far

MCE 2c 28/10/2010 100% Final 2C FRANKED @30%
MCE 3c 29/04/2011 100% Interim 3C FRANKED @ 30%

Oh out long before that... you need to tee up with the guys at Argonaut to get in to those floats my friend. I don't buy stocks at level 51 these days. The last float they did of GNG another nice one. Issue price of $1.00, opens at $1.85. Dividend? Maybe in 3 years if the market hasn't tanked yet.

Rents underpin property values

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hobo-jo

not happy

Sunfish

Aaron Sice

turk

hobo-jo

Deltaberry

tom32

turk

intrigued

Intrinsic_Value

hobo-jo

Sunfish

evand

turk

Sunfish

Deltaberry

Deltaberry

Deltaberry

Deltaberry

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