Hi all,
I've traditionally been very bullish with my property growth expectations. We've just finished a dual occupancy development and in the process of refinancing so that we've got equity to re-invest again, and I've been doing a lot of thinking.
I'm not sure that I'm convinced that residential property can continue to double every 10 years anymore (i.e. 8% growth pa). Looking at history, I can see that since the 1970's a combination of the following contributed to the doubling every 10 years effect:
a. significantly increased availability of credit (i.e. I think you needed at 30-40% deposit in the 70's which is 60-70% LVR, whereas by about the year 2000 you could get 95-100% LVR.
b. Much greater proportion of woman full time in the workforce i.e. effectively doubling family capacity to service debt.
I can't see any opportunity for such dramatic increases in capacity to bid up the price of residential property occuring again. Of course, the drop in interest rates has increased borrowing capacity by some margin, but I don't see this being enough to achieve a doubling effect.
I also know that people use the 'substantial population growth and limited supply' as an argument, but its the average Joe and his/her wage, combined with the available LVR from the banks which determines their capacity to bid up property prices, so I don't believe that population growth alone can achieve a doubling.
In summary, I beleive that there are factors which will no doubt result in increases in residential property values (such as the first home buyers grant in 09), I just can't see them doubling every 10 years anymore (i.e Sydney last peaked in 2003, which would mean prices in 2013 being double what they were in 2003).
On the hand I can the sharemarket offering opportunity for doubling in this timeframe because business provides a needed service or product on the basis of fair exchange, and I beleive has the capacity and the right to growth because it contributes to the real economy, rather than rising just as a result of inflation, as property does.
Any thoughts? Am I losing the faith? I am very interested in others opinion concerning the 10 doubling effect going forward.
I've traditionally been very bullish with my property growth expectations. We've just finished a dual occupancy development and in the process of refinancing so that we've got equity to re-invest again, and I've been doing a lot of thinking.
I'm not sure that I'm convinced that residential property can continue to double every 10 years anymore (i.e. 8% growth pa). Looking at history, I can see that since the 1970's a combination of the following contributed to the doubling every 10 years effect:
a. significantly increased availability of credit (i.e. I think you needed at 30-40% deposit in the 70's which is 60-70% LVR, whereas by about the year 2000 you could get 95-100% LVR.
b. Much greater proportion of woman full time in the workforce i.e. effectively doubling family capacity to service debt.
I can't see any opportunity for such dramatic increases in capacity to bid up the price of residential property occuring again. Of course, the drop in interest rates has increased borrowing capacity by some margin, but I don't see this being enough to achieve a doubling effect.
I also know that people use the 'substantial population growth and limited supply' as an argument, but its the average Joe and his/her wage, combined with the available LVR from the banks which determines their capacity to bid up property prices, so I don't believe that population growth alone can achieve a doubling.
In summary, I beleive that there are factors which will no doubt result in increases in residential property values (such as the first home buyers grant in 09), I just can't see them doubling every 10 years anymore (i.e Sydney last peaked in 2003, which would mean prices in 2013 being double what they were in 2003).
On the hand I can the sharemarket offering opportunity for doubling in this timeframe because business provides a needed service or product on the basis of fair exchange, and I beleive has the capacity and the right to growth because it contributes to the real economy, rather than rising just as a result of inflation, as property does.
Any thoughts? Am I losing the faith? I am very interested in others opinion concerning the 10 doubling effect going forward.