Are we on the cusp of an upswing for property?

[sash]

Welcome to the global economy!

I am all for more 457 visas if it means that that curtails inflation.....did you not see the latest unemployment figure of 4.9%.

That means we are at full employment...and you ain't likley to find a lot of skilled people among the 4.9%.

Do you understand the term Comparative Adavantage???

You sound quite clueless on the economy sash. Why don't we just outsource everything overseas. Will be a lot cheaper than. To bad no one will be employed, and have the income to actually buy the stuff back.
Like the banks are slowing finding out after outsourcing a lot of IT to Indian, once you hand over control of essential and strategic assets (ie food production), you are at the mercy others. What is cheap now, may cripple you later down the line once the balance of power changes.

Also comparing Australia to the US is ridiculous. There are economies of scale to factor in.

As long as your the first to cap your "ridiculous wages", preferable to 3rd world levels.
The is no "skills" shortage. Your being fooled by the business lobby to get cheaper labor in on 457, where they don't need to pay some of the stuff the Australian labor does.

 

[Wunderbar]

Welcome to the global economy!

I am all for more 457 visas if it means that that curtails inflation.....did you not see the latest unemployment figure of 4.9%.

That means we are at full employment...and you ain't likley to find a lot of skilled people among the 4.9%.

Do you understand the term Comparative Adavantage???

I disagree. You will find a lot of unemployed accounting graduates due to the simple imbalance of supply and demand. This is the problem with the Government skilled migration - it's too inflexible and causes peaks and troughs in supply of labour.

But not to worry - all the accounting students who come here populate my houses and pay me rent so I say - bring it on!

 

[bluestorm]

Welcome to the global economy!

I am all for more 457 visas if it means that that curtails inflation.....did you not see the latest unemployment figure of 4.9%.

That means we are at full employment...and you ain't likley to find a lot of skilled people among the 4.9%.

Do you understand the term Comparative Adavantage???

I disagree sash. A lot of Australia's inflation eventually will not be due to domestic reasons, but imported from overseas. The reason the world is starting to see inflation rear it's head, is because so much money was injected via stimulus, and so much money printed, that eventually it was bound to be reflected in increasing inflation. Now it's time to pay for all the injected money.
Interest rates will go up. The only think saving Australia from even higher inflation is the higher Australia dollar. If that dropped back to 90c in the future, the RBA would move rates up even quicker.
The oil price will keep climbing (despite your assumption that it will fall).

Hey, sash, I have no problem with 457's. Bring it on. Flood the market with overseas and cheap labour. Most of us can compete easily for jobs globally, and the biggest loosers with be the Green and Labor voting blue collar workers. Cools - Feel the pain idiots.

 

[whitegoodman]

Hey, sash, I have no problem with 457's. Bring it on. Flood the market with overseas and cheap labour. Most of us can compete easily for jobs globally, and the biggest loosers with be the Green and Labor voting blue collar workers. Cools - Feel the pain idiots.

me rikey this

 

[Belle]

I disagree sash. A lot of Australia's inflation eventually will not be due to domestic reasons, but imported from overseas. The reason the world is starting to see inflation rear it's head, is because so much money was injected via stimulus, and so much money printed, that eventually it was bound to be reflected in increasing inflation. Now it's time to pay for all the injected money.
Interest rates will go up. The only think saving Australia from even higher inflation is the higher Australia dollar. If that dropped back to 90c in the future, the RBA would move rates up even quicker.
The oil price will keep climbing (despite your assumption that it will fall).

What would cause the AUD to drop?

 

[whitegoodman]

What would cause the AUD to drop?

- flight to safety
- US raise rates
- people unwind carry trades
- china bursts
- an other form of shock that turns off the 'risk-on' trade

 

[Ausprop]

if the chinese allowed their currency to float then half the issues above would sort themselves out.

 

[DaveM]

Had an agent tell me today that the area I was looking in was currently undergoing a "mini boom, prices are going up and up"

I had to laugh - the glut of property that is unsold is huge.. that one agent alone has 50 properties for sale, and others around keep sitting there unsold with 10k drops on a regular basis.

I do have to admit, the FHB seem to be AWOL this weekend... was looking at some original condition buy/renovate/re-lease units in Penrith today and on two new to market property launches, I was the last one through, and I was viewer #2 on one and viewer #3 on another. 12 months ago there would have been people queued up to view.

Buy at say $205k (or less, I wouldnt pay over $195k), flatpack kitchen, new carpet and paint, rent for $280pw. Under $300pq strata.

 

[aul]

This is good for Australia..as goods from the countries above is cheaper. Also, remember....we pay a lot for our food because we produce most of our food with higher wages. If we imported it would be a lot cheaper.

With the gorcery price wars going on....I think this is good thing...because woolies has dominated for a long time with a 8% retail margin...whereas the UK/USA average is about 3%.

I also feel that government will wake one as the skills crisis bite and ease the foreign labour restrictions. This shoud put a cap on the ridiculous wages paid in Australia. This will also help ease inflation.

This is what I don't get with a lot of PIs. (pls note, I am a single IP owner myself)

So its okay for a PI to make 8% p.a on their IP CG just by sitting on it and renting it out, but a company is not allowed to make 8% profit on items they buy and sell? This company is:
- buying goods locally - helping local businesses and farmers, manufacturers, producers, freighters, packagers, wholesalers etc etc etc
(yes they do import also)
- employing tens of thousands of people
- is servicing the wider community (obviously at a profit)
- they are actually doing something to make their margin. Most PIs are not.

Their 8% margin goes a long way in helping the economy, I can't say that about PIs.

 

[Propertunity]

....- they are actually doing something to make their margin. Most PIs are not.
Their 8% margin goes a long way in helping the economy, I can't say that about PIs.

I have no issue with companies making a profit. Heck, if they don't make a profit they cannot be around to provide goods and services to people, so making a profit is essential.

Just as essential to this economy is the PI. Without PI's, the rental situation for tenants would be even worse than it is now. Govt.s of all persuasions are inherently bad at providing public housing. We all know plenty of examples - and they are even bulldozing some of their own developments due to poor design etc.

PIs subsidize the true cost of providing the accommodation by accepting a poor return of 5% rental yield in many cases. The true cost of provision is more like 10% (7% IR, 1.5% PM & mtce, 0.5% depreciation - which means that ultimatley the property will need to be totally rebuilt). The PI needs to be compensated with CG or else, their is really no point in the investment for them.

 

[whitegoodman]

PIs subsidize the true cost of providing the accommodation by accepting a poor return of 5% rental yield in many cases. The true cost of provision is more like 10% (7% IR, 1.5% PM & mtce, 0.5% depreciation - which means that ultimatley the property will need to be totally rebuilt). The PI needs to be compensated with CG or else, their is really no point in the investment for them.

what happens when the one way bet becomes unstuck...

 

[tom32]

This is what I don't get with a lot of PIs. (pls note, I am a single IP owner myself)

So its okay for a PI to make 8% p.a on their IP CG just by sitting on it and renting it out, but a company is not allowed to make 8% profit on items they buy and sell? This company is:
- buying goods locally - helping local businesses and farmers, manufacturers, producers, freighters, packagers, wholesalers etc etc etc
(yes they do import also)
- employing tens of thousands of people
- is servicing the wider community (obviously at a profit)
- they are actually doing something to make their margin. Most PIs are not.

Their 8% margin goes a long way in helping the economy, I can't say that about PIs.

An 8% margin and an 8% p.a. return are very different things. I think the likes of supermarkets had a 17 or more times per annum throughput on stock.

Milk and the likes many more than 17 times sold per year other things less but about 17 times overall on average.

That is buy the same item and sell it 17 times a year on average.

So the capital invested in stock is re-used 17 times through the year so your 8% margin is gigantic!

Put a million dollars in for stock at the start of the year, re buy as you sell and get out 3.7million at the end of the year.

 

[Deltaberry]

This is what I don't get with a lot of PIs. (pls note, I am a single IP owner myself)

So its okay for a PI to make 8% p.a on their IP CG just by sitting on it and renting it out, but a company is not allowed to make 8% profit on items they buy and sell? This company is:
- buying goods locally - helping local businesses and farmers, manufacturers, producers, freighters, packagers, wholesalers etc etc etc
(yes they do import also)
- employing tens of thousands of people
- is servicing the wider community (obviously at a profit)
- they are actually doing something to make their margin. Most PIs are not.

Their 8% margin goes a long way in helping the economy, I can't say that about PIs.

Do you take the same view about buying shares? Regardless the transaction involved helps one side monetise their property and reuse the money elsewhere, be it on consumeration or innovation. To entice people to buy into this, there needs to be a degree of return. What does putting money into term deposit for 5% do? Same thing...

 

[Propertunity]

what happens when the one way bet becomes unstuck...

I think you probably know the answer to the Q, but I'll humour you with a response.

Choices:
1. Sell at a potential loss due to the high transaction costs of buying & selling
2. Hold until a CG gain is achieved, meanwhile potentially bleeding cash if the IP is neg. geared
3. Work out a way to increase rental yield to enable you to hold until the market improves. i.e. a reno to the property or the addition of a granny flat or the like
4. Investigate development potential of the property

RE is a long term game, and time usually heals all wounds but that is no excuse for you not to have done your DD in the first instance to minimise teh risks of not getting any CG.

 

[topcropper]

we pay a lot for our food because we produce most of our food with higher wages. If we imported it would be a lot cheaper.
.

That's not correct.

There is almost no trade barriers in food anymore. Except for the odd disease restriction. If you think food could be imported into this country cheaper, then go ahead and do it. Hook in. You will make a lot of money, and you are wasteing time investing in property.

The fact is that as we are a food exporting nation, nearly all food prices are based on export parity pricing. That is the price received for food once it's exported.

That's why we do import the odd vegetables and fruits from overseas from countries with cheaper labour, as vegetables and fruit have a high labour component in production. But once into the staples like grain and milk and meat, labour is a very small component of the cost of production, so overseas producers can't compete with Australian producers.


See ya's.

 

[arriety]

Hi All,

After watching the hard economic news - jobs, retails sales, housing start, interest rates, and exhange rates....and also the

soft economics news - current affairs programs about how families are struggling, power bills, Baby John's march to Canberra to let Jooliaa know how hard it is live on $364pw for pensioners, doom and gloom news...

BELIEVE IT OR NOT WE MAY SEE AN UPWARD ON PROPERTY NEXT YEAR!

I like your optiminism Sash! I think if no more natural disasters occur and US economy is starting to recover, then we will see upward on property but I somehow dont' think interest rates are going down any time soon. In saying that the place where I work has lost 30% income due to Oz dollar being so strong. How many other businesses this is going to affect and what this does to inflation, I couldn't say because the $AU hasn't been this strong since it was floated in 1983.

Great thread though - its good to hear all the opinions in such a lively but civilised discussion! (please no more scantily clad males - its putting off my dinner!)

 

[normailson]

BTW, I've got the body of a twenty year old

No appears to have focussed on the one of the main factors that drives the property market – supply and demand. It’s no longer “record migration” but migration is still relatively strong. Australia is still the place to be, with an economy that weathered the GFC, low unemployment and an economy underpinned by resources. Anyone who knows an UK / Irish visa holder will know they have nothing for which to go home and most definitely will try to stay.

Publications try to compare overseas property prices with Aussie property prices. How can you possibly do that with different banking systems, different cultures, different interest rates, different demographics etc. etc.? A wasteful exercise! This is one of the most desirable countries in the world and OOs supply/demand dictates price - not personal excitement.

Migration might be slightly lower (demand) but construction (supply) is down. Low housing starts, will in the near future, result in a shortage of rental housing producing an increase in rents for the 2011/2012 and bring investors in to try to benefit from the situation. Where are migrants going? Melbourne and Sydney.

There has been a lot of talk about interest rates but no one has actually addressed the misnomer that interest rates don’t bring down property prices. We have had a number of rate increases since the GFC and prices have continued onwards and upwards. Look at history. Once the pain hits, property prices will slow and maybe we have go there but my properties are still been going upwards - I'm not hurting because rents are up.

Legislation changes to curb students should have an effect student accommodation and CBD apartments. However, it is the undesirable students that will be curbed; the desirable students are still welcome. Only now, the high aussie dollar will mean they can go to the former “mecca of desirability” the USA more cheaply than Australia (as desirable as it is it becomes too expensive)

Low unemployment – someone has already pointed out that we have full employment for functional individuals – so confidence should be up. However, confidence as measured by retail figures is low because it seems that spending is down and savings are increasing.
Disasters, as tragic as they are, create employment.

Libya apparently only produces 2% of the world’s oil so price hikes have already been exaggerated and factored into the future, so oil is likely to plateau or come down. Only fear appears to be driving this price.

The US sharemarket is in full recovery. I haven’t heard any economist talk about a double dip for months now. Australia’s stockmarket appears to be going sideways – again indicating uncertainty. The risk is if the recovery heats up too much, the US will start to increase interest rates resulting in the $A dropping.

At the EOTD, unless the D&Gers actually have something real to contribute (I mean something different to what they have been saying for the last 5-10 years when Sash would have been making handsome CG), it’s just another day at the office. D&Gers: How far will prices drop? 30%? For many buy and hold investors that might bring them back a couple of years.

 

[bluestorm]

No appears to have focussed on the one of the main factors that drives the property market – supply and demand.

There has been a lot of talk about interest rates but no one has actually addressed the misnomer that interest rates don’t bring down property prices. We have had a number of rate increases since the GFC and prices have continued onwards and upwards.

Low unemployment – someone has already pointed out that we have full employment for functional individuals – so confidence should be up.

The US sharemarket is in full recovery. I haven’t heard any economist talk about a double dip for months now.

I think you wrond on many points here normailson. For a start, everyone is focusing of interest rates as only a property related issue. Interest rates in general impact the whole of the economy, including business lending. Many of the businesses now are already struggling, so any further increases just put the screws on further. Unemployment will rise.

The supply and demand argument is an incorrect arguement. Building has been down for a couple of years, so you would have expected supply to drop. Yet regardless we are now past the plataeu, and property prices have started to fall. There is actually now a glut of properties on the market (supply in some places is outstripping demand).

Unemployment - you believe the figures??? We all know how inaccurate they are, and how throughout the years the definition of "employment" has changes. The fact is that many people, while "employed", as very much underemployed, so could not afford to maintain a home loan anyway.

The US share market in full recovery. All the experts economists were blind sided by the GFC as well. Dow with be below 10000 before the end of the year.

 

[Nth Brisbanite]

What effect will a reduction on interest rates have on property? Article in today's papers seems to indicate that we may be on the verge of a surprise cut:

HOMEOWNERS could soon be graced with a surprise gift from the major banks - a small interest rate cut.

Banking experts believe the major lenders are considering trimming their variable mortgage rates in the coming months, if the cost of their funding stays at current levels.

Since shocking customers by raising rates by upwards of 0.45 per cent in November, the major banks tight lending margins have eased slightly. It is enough to give them breathing space to offer more competitive rates.

A senior banking executive said yesterday he was anticipating a downward move from one of the major banks before winter, if the current lending margins remained and if official rates stayed on hold.

 

[Ausprop]

that's not an RBA cut, that's just big 4 banks not ripping us off to the same extent they were before. there would be nothing in it for customers of B rate lenders