Assuming market increases

[Ideo]

I used to think that, now I'm not sure. Especially for NSW.

Have a state government that is dead keen to stop development and make things harder in order to appease the blue rinse set in Kuringai.

So, development will start to slow down again.

In another 8 years there will be a move back towards the state Department of Planning having a role in assessing major developments to get them back away from anti development local councils.

Once that happens there may be a slight release in the logjam that is getting something approved in this anti-growth state (which has gotten much worse after the last election) and then we might see property prices go down, especially in the Sydney metro, and the inner urban and middle ring areas in particular.

 

[vaughan]

I used to think that, now I'm not sure. Especially for NSW.

Have a state government that is dead keen to stop development and make things harder in order to appease the blue rinse set in Kuringai.

Crap. NSW has the easiest and fastest (10 days) approval for dual occupancy in Australia: granny flats. They can be rented commercially, legally.

Kuringai is only one small part of Sydney (the so-called upper north shore, but really it's the far-outer north east suburbs) which are bounded by the national park to the north so expansion is very limited so they are going for increased density around the transport corridors.

 

[equitymate]

Have a state government that is dead keen to stop development and make things harder in order to appease the blue rinse set in Kuringai.

So, development will start to slow down again.
.

Strangely the complete opposite has occurred I have never seen so many cranes in StIves. Perhaps these developments were a parting gift from the previous incompetents. The reality of the situation is putting hi rises in an area that is poorly serviced by public transport with no rail is at best absoulutely dumb though more likely just spitefull.

Towering high rises over 'silvertails' backyards might be a funny or amusing to some but unless it is matched with additional infrastructure its a disaster in the making. Mind you the offshore investors who mostly buy these things arent too concerned about any loss of amenity.

Nowonder Kuringai locals have had a gutfull.

 

[truong]

When investing long term you have to plan long term. Only when flipping or when selling/buying do you weigh up short term markets. As I’ve said on this forum, for planning purposes I’ve been using 5-6% per year average for both CG and rents.

My rationale:

- The days of prices doubling every 7-10 years are probably gone. They were the result of a major restructuring of economic conditions in Oz when interest rates went from being consistently high to consistently low therefore allowing people to borrow more.

- For the years ahead one can assume house prices will in general follow household disposable income, notwithstanding highs and lows in particular years.

- Assume inflation around 3%, wage increase 4-5%, household disposable income 5-6% and there’s my number.

- 5-6% per year equates to prices doubling every 12-14 years.

In short, tougher conditions ahead however still very playable. Return is still good as compared with other types of investment especially because of leverage. So your main task is to make sure you can hold out for the long term, not to look at prices every week and sweat/cheer.

Yes, there's the catastrophic scenario too but I doubt anybody can plan it. You can only mitigate eg by building enough reserve, and that's part of your holding strategy.

 

[wylie]

Lizzie,

Just curious why would you have funds in a bank account if you have debt you could offset.

I cannot answer for Lizzie, but for us, because we made a big capital gain last financial year, and to help offset it we prepaid interest for the coming year, it meant that we had to sit some of the sale proceeds somewhere, but it couldn't be in the offset account because we have prepaid interest on that loan.

I'm unsure what would happen if we prepay the loan and then plonk money into the offset attached to it. Hadn't thought of that really. Anybody know?

 

[lizzie]

Lizzie,

Just curious why would you have funds in a bank account if you have debt you could offset.

Because the debt is tax deductable - the money in the bank is not taxable (in my name with no income but expenses) - the ppor debt was locked in 3 years ago at near 1% less than the bank is paying us, and not offsetable.

 

[lizzie]

Crap. NSW has the easiest and fastest (10 days) approval for dual occupancy in Australia: granny flats. They can be rented commercially, legally.

not just for granny flats ... any complying development should take only 10 days if the paperwork is filled out properly

 

[Aaron_C]

not just for granny flats ... any complying development should take only 10 days if the paperwork is filled out properly

Seeing as Ideo is a town planner I would believe him. It is never so simple to get a planning approval. Here in Victoria the Council is supposed to make a decision, no matter the size of the project, within 60 days. Even with such a long timeframe they still never meet that deadline.

 

[mrmonopoly]

OK - have to get this one out there ...

Every strategy I have read so far on every forum, magazine or TV show on property investing ALWAYS assumes rising property prices.

I have made a few posts before ... pointing out that properties cannot always keep rising at the rate they have. This is simply NOT sustainable and hence why we are now seeing the property bubble slowly deflating.

Generic question I know as there are many markets within Australia... however general trend right now is down.

So question is ... what would a strategy look like for someone young starting out now in a declining/flat property market factoring in a 5 - 7 yr time horizon ?

I think a strategy might look something like that of our commonwealth cousins, and whilst I sincerely hope Oz doesn't follow suit if it does I believe a strategy might look something like this:

i.e. Buy below market value, add value. Focus on rental yields and cash on cash returns.

At least the above is exactly what ALOT of investors in the UK are doing at the moment.

There (UK) buying at market value is considered a risk, hence buying at BMV mitigating any possible further falls.

Adding value offers opportunity to increase rental returns.

CG anytime in the near future (i.e. short/mid term) will be negligible therefore rental returns are everything.

Property however IS still considered a good investment though, CG is just considered a bonus.

When you spend as much time on the dark side as I do, in a country like the UK where inflation is running at 5%+ and bank deposits at 2% effectively meaning idle money is going backwards, you really do gain perspective on how lucky we in Australia 'the Lucky Country' are.

I believe buying purely for CG is tantamount to gambling (compounded when negatively geared), but that said applying the above strategy down under means a potential double win for well located IP's.

 

[Success]

i.e. Buy below market value

Great replies everyone !

Just on market value ... I cannot believe investors still fall for the old "buying below market value" scam. How can such thing be ????

If a vendor has accepted your offer for a property that was available for sale to the public ... guess what ????

Yes - YOU HAVE PAID MARKET VALUE . Now ... if the bank values it higher it still does not mean you paid below market value.

Sorry Nathan I know you are big on buying below market value !

 

[Andrew_A]

Great replies everyone !

Just on market value ... I cannot believe investors still fall for the old "buying below market value" scam. How can such thing be ????

If a vendor has accepted your offer for a property that was available for sale to the public ... guess what ????

Yes - YOU HAVE PAID MARKET VALUE . Now ... if the bank values it higher it still does not mean you paid below market value.

Sorry Nathan I know you are big on buying below market value !

Yes a valuer will be often inclined to agree with this point of view! However as investors we know this is all a matter of semantics, it's definitely possible to buy very well, perhaps it's better to say below 'fair value' which could be defined as what the property would be expected to sell for with proper marketing and appropriate time on the market.

 

[Success]

Yes a valuer will be often inclined to agree with this point of view! However as investors we know this is all a matter of semantics, it's definitely possible to buy very well, perhaps it's better to say below 'fair value' which could be defined as what the property would be expected to sell for with proper marketing and appropriate time on the market.

Defintely semantics ! THE MARKET VALUE is what one pays ... just like attending an auction ... what vendor(s) are hearing is THE MARKET talking to them ! Should they decide to sell they will be accepting MARKET VALUE.

 

[mrmonopoly]

Great replies everyone !

Just on market value ... I cannot believe investors still fall for the old "buying below market value" scam. How can such thing be ????

If a vendor has accepted your offer for a property that was available for sale to the public ... guess what ????

Yes - YOU HAVE PAID MARKET VALUE . Now ... if the bank values it higher it still does not mean you paid below market value.

Sorry Nathan I know you are big on buying below market value !

Well in an extremely literal then of course thats the case as the market is setting the value, but BMV usually refers to buying a property below the value a registered valuer (e.g RICS in the UK) would attribute given normal conditions of sale such as time and a normal marketing campaign.

There are MANY occassions when sellers simply dont have the time or money to do this and in exchange for a quick settlement or other conditions will often drop their prices considerably. E.g A mortgagee sale.

I know I have benefitted from this personally and professionally and I'm sure many others on SS would have also.

I believe Steve Mcknight has even written about this quite extensively, especially within the whole 'buying problems, selling solutions' chapter of one of his books.

 

[lizzie]

Seeing as Ideo is a town planner I would believe him. It is never so simple to get a planning approval. Here in Victoria the Council is supposed to make a decision, no matter the size of the project, within 60 days. Even with such a long timeframe they still never meet that deadline.

I can only comment on what I know ... my major reno plans were in and out of council in 10 working days and didn't go to the neighbours for comment because my draughtsman had filled out the "most thorough and complete" (the words of the duty officer) compliance form.

Even if doubling only occurs every 12-14 years ... still not a bad strategy if starting early. Can always create your own shorter timespan by buying below average market value for the type of property, buying location and renovating/improving.

 

[imonmyway]

My feeling is the people driving the prices have maxed out there credit cards and cant cut spending in other areas any more to fund the mortgage. Generally household income of those buying houses has increased quite substantially over the last 15 years and combined with loosening of lending criteria created a period of extraordinary growth that most on this forum have benefited from. This cant be sustained of course unless we see interest rates of 3% or massive inflation.

I think the worlds financial difficulties have a long way to go before we start to see growth above inflation in the housing market america and europe in the toilet and china slowing down. Who are the Chinese going to sell there widgets to if the rest of the world is insolvent? Then the slow down wacks Australias' mining sector then boom we see a scramble for the exit sign. Interesting times.

So id say we have another 5 to 7 years of low to no growth in housing with the possibility of a major world wide recession then at best a couple of years of solid growth but i doubt we will ever see a run on house prices like we have in the last 10 years again in our life times.

 

[Success]

Interesting to hear that others here also share similar view to mine.

Opportunities are everywhere around us especially when it comes to property investing. I am however warning those who are starting out ... please do not assume/rely completely on a rising market at least over the next 5 - 7 years.

 

[redwing]

I'm not sure of the value of ₤586.16.14 nowadays in comparison to the 1900's, but I was down in WA's southwest recently and snapped this photo for posterity

I also recall a story from MRD about a visit to the old Sydney Brick Pit. wherein there was a plaque at the location stating that the average Sydney home cost ₤1,600 in 1911 when the brick pit was running and the average wage was ₤200.

 

[topcropper]

I'm not sure of the value of ₤586.16.14 nowadays in comparison to the 1900's, but I was down in WA's southwest recently and snapped this photo for posterity

I also recall a story from MRD about a visit to the old Sydney Brick Pit. wherein there was a plaque at the location stating that the average Sydney home cost ₤1,600 in 1911 when the brick pit was running and the average wage was ₤200.

Hey, funny that.

If houses go up at 7% compound for ever, then at $3,200 for 100 periods, the average Sydney house is supposed to be worth $3 million. What when wrong then?

But then I have no idea where the brick pit is? Maybe there are worth $3 million?


See ya's.

 

[Ideo]

Crap. NSW has the easiest and fastest (10 days) approval for dual occupancy in Australia: granny flats. They can be rented commercially, legally.

Kuringai is only one small part of Sydney (the so-called upper north shore, but really it's the far-outer north east suburbs) which are bounded by the national park to the north so expansion is very limited so they are going for increased density around the transport corridors.

It would not surprise me in the slightest if that was wound back.

I hope I'm wrong but that is the impression I am getting.

Unless there is a change in planning minister or BoF steps in then the overall situation will go downhill.

The move is away from sustainable urban consolidation around transport hubs and towards urban expansion with no infrastructure support. That is a short term position influenced by resident action groups who think they should be able to stop a two storey house being built two stories over because it might overshadow a nature strip where some agapanthas grow.

I am a massive fan of complying development. I want to see it survive. But I worry about where it is heading.

Local councils hate it. the LGSA has got a strong lobbying arm and is pushing for it to be wound back. Local government has stacked the Planning Institute as well. Theres is the only voice being heard at the moment.

 

[Ideo]

Seeing as Ideo is a town planner I would believe him. It is never so simple to get a planning approval. Here in Victoria the Council is supposed to make a decision, no matter the size of the project, within 60 days. Even with such a long timeframe they still never meet that deadline.

The average across the state for complying development is 11 days. That is for both council building surveyros/certifiers and private certifiers.

The average for a DA is around 67 days.