Brace for even higher price!

man! I dunno, all of these stupidly high prices are scaring me to be honest.

not sure if I would sleep well at paying such a high price,

I feel like its 12 oclock on the investment clock

however at the same time, I dont expect prices to fall at all, just stagnate for a few years.

there must come a point when even an average property in a reasonable area and distance from the centre becomes so unaffordable that people simply start renting and give up
 
man! I dunno, all of these stupidly high prices are scaring me to be honest.

not sure if I would sleep well at paying such a high price,

I feel like its 12 oclock on the investment clock

however at the same time, I dont expect prices to fall at all, just stagnate for a few years.

there must come a point when even an average property in a reasonable area and distance from the centre becomes so unaffordable that people simply start renting and give up

I would still be comfortable investing in Australia for the very long term, which is what the time horizon will be for any investments I use.

If you focus on the underlying fundamentals you can block out most of the useless white noise from the media / BBQ talk and the like.

Based on 1% net migration and 0.7% natural increase, the Australian population will be 34 million in 20 years time; Sydney will be 6.7 million, Melbourne 6.4 million - and that is not taking into account the migration away from regional cities to the capitals.

Couple that with the lack of supply coming online where people want to live and it is a pretty safe bet over the long term. Just avoid the housing estates on the fringes and the oversupply in the CBD and you can't go wrong on the supply side.

It is a pretty compelling demand/supply dynamic IMO, I can't think of a safer investment over the next few decades.

Obviously you do need to take price into account (Sydney is off the richter right now) but in the long term, residential Aus. property is still a pretty good bet.
 
Yep...vive le diffrence......

I am just an old and crusty collector..... :)


Sash

I can tell you from experience developing regardless whether land and house packages or 3 unit site etc. all still have associated risks, because anything can happen during the building process.

Last time I built land and house it took 18 months to complete due to crazy boom times, however I think realistically should now take 6-9 months?.

Markets do and can turn during this period. I guess comes down to buying at the right time and if you get it wrong you need to be able to hold the stock. Of course there are developers who build and hold all stock because the cash flow/yield - perhaps 8%+, good luck to them.

Perhaps/hopefully get timing right, buy lower than median price of the area and if market does turn during the build and you can not sell, rents need to be able to cover mortgage. If this all fails then make sure you have a bucket load of money sitting in a couple of offset accounts to cover your ****.

My point is there are associated risk with developing and I think it obvious so if you don't have an exit plan then fool you/fool me. Go back to buy and hold, but then again that's not full proof as well, once again comes down to timing the market, that old bloody chestnut;)

MTR:)
 
I would still be comfortable investing in Australia for the very long term, which is what the time horizon will be for any investments I use.

If you focus on the underlying fundamentals you can block out most of the useless white noise from the media / BBQ talk and the like.

Based on 1% net migration and 0.7% natural increase, the Australian population will be 34 million in 20 years time; Sydney will be 6.7 million, Melbourne 6.4 million - and that is not taking into account the migration away from regional cities to the capitals.

Couple that with the lack of supply coming online where people want to live and it is a pretty safe bet over the long term. Just avoid the housing estates on the fringes and the oversupply in the CBD and you can't go wrong on the supply side.

It is a pretty compelling demand/supply dynamic IMO, I can't think of a safer investment over the next few decades.

Obviously you do need to take price into account (Sydney is off the richter right now) but in the long term, residential Aus. property is still a pretty good bet.

Yes I agree, but at some point there must be an equilibrum point that demand will plummett as there is no one who can simply afford it

wages arent going up as quick,

and unless people start changing their spending habits, eg remove ipads, foxtel, going out, international holidays which im sure wont happen

what will happen when for example the closest reasoanble dwelling becomes officially 2hrs travel time away for lets say $1m
 
Markets do and can turn during this period.

you only need to look at that office complex I was doing to see that in play... between buying the land and doing the plans the market completely nose dived. The only way I can see of mitigating such risk is either going in low LVR (syndicate the thing and buy land with cash so you can just sit on it for 20 years if things head south) or having an alternative cash flow to fund the interest bill, tho even that won't work because when banks want deals off their balance sheet they will slash and burn regardless of your cashflow/equity position/character etc - they are truly merciless
 
I feel like its 12 oclock on the investment clock

however at the same time, I dont expect prices to fall at all, just stagnate for a few years.

people tend to feel that because the thought of prices dropping with the market as hot as it is now just seems too far removed
 
you only need to look at that office complex I was doing to see that in play... between buying the land and doing the plans the market completely nose dived. The only way I can see of mitigating such risk is either going in low LVR (syndicate the thing and buy land with cash so you can just sit on it for 20 years if things head south) or having an alternative cash flow to fund the interest bill, tho even that won't work because when banks want deals off their balance sheet they will slash and burn regardless of your cashflow/equity position/character etc - they are truly merciless

Get your point. However, I am not a big time developer though.
I am really just a small fish in a big pond.

I am talking relatively manageable debt for me and whenever I can I try to bring cash back on the table to reduce debt. Also smaller developments perhaps $1-3M tops, one project after the other, on to my fourth project in 2 years. I don't have huge numbers on the go, just what I can manage and also I want to sleep at night:)

I also think another way to reduce risk is ever possible, is just don't build, sell plans and permits. If the land has moved considerably and the market is still strong and there is builder demand/shortage of deve site, then a nice way to go in and out, better still just sell the land if its easier and still make good profits.

My guess and of course could be totally wrong, majority of developers on SS probably in this range as well??? perhaps a few playing in bigger pond.

Also, as I see it at the moment I just go project after project, therefore able to manage the debt. Its sometimes very difficult to find profitable sites so this can also slow you down and perhaps that is a good thing??

MTR:)
 
yeh have messed around with plenty of those sorts of developments, can't see me rushing back there in a hurry. there's more fat and quicker turn around in single resi spec homes IMO. where it does seem to work well is for vertically integrated developers/builders/trades
 
  • Like
Reactions: oc1
Yes ...buying well is VERY important....the other is as you point out have the money to cover via offsets. I am doing this on some of my purchases as the land will not title for 6-7 months.

The buy and hold is safer in the sense once you have bought it and so long as you service your loan you are ok. But obviously if you bought at the top of the market you will be holding it for a long time.

What I am seeing is a lot of first time people developing...as I was shifting through land agents one lady had just bought site in Heidelberg. She has bought a 3 unit devy site for 680k...to put 3 units on it. When I queried what the probable end value of each would be ...she answered about 550-570k. Assuming 40k in costs...750k in build costs...80k in hold, sell and marketing costs. The total costs are around $1540k...so the profit is about 100-170k.

I am not sure this is a good deal...as the gross margin is only 7-12%. If the market turns they are stuffed. I would rather do single H&L land where I am getting 20-25% gross margin any day of the week. Also not many people have 1.5m in offsets...thought I do....


Sash

Perhaps/hopefully get timing right, buy lower than median price of the area and if market does turn during the build and you can not sell, rents need to be able to cover mortgage. If this all fails then make sure you have a bucket load of money sitting in a couple of offset accounts to cover your ****.

My point is there are associated risk with developing and I think it obvious so if you don't have an exit plan then fool you/fool me. Go back to buy and hold, but then again that's not full proof as well, once again comes down to timing the market, that old bloody chestnut;)

MTR:)
 
Sure investors can move onto more affordable cities like Adelaide but who is going to rent all these new IPs? Adelaide has the highest unemployment rate in the country and it will just keep creeping up. I already see an oversupply of houses and units on realestate.com and rent prices sliding down slowly. Most Rental properties are now just sitting for more than 3 months with no interest especially the more expensive houses with no renos (over $350/week) Who would want to rent a 3 bdrm 1 bath craphole? Property hype by the media in Adelaide looks very desperate, any little jump in house prices and they are on it, further fuelling the ponzi and putting vulnerable investors at risk. But they would not be so quick to make an announcement when prices declined. All bubbles bursts and remember interest rates don't stay low forever. Investors need to look at the broader economy instead of the media hype that instills FOMO. The national economy is weak and especially Adelaide's economy.


interesting article.

http://www.smh.com.au/business/the-...even-higher-house-prices-20150615-gholmq.html


Employment is going well
Falling AUD
Property hype by media
Record low interest rate
Higher cost of subdivision
slow approval process.

are contributing factor to price.

Hearing bubble is going to burst soon.. but as long as above factors stays strong and govt doenst introduce any new policy.. i personally don't see this boom coming to end any time soon ... (12-18 months)

Investor will just keep moving to more affordable states/cities..

Sydney..melb..Brisbane..Adelaide...
 
Yes ...buying well is VERY important....the other is as you point out have the money to cover via offsets. I am doing this on some of my purchases as the land will not title for 6-7 months.

The buy and hold is safer in the sense once you have bought it and so long as you service your loan you are ok. But obviously if you bought at the top of the market you will be holding it for a long time.

What I am seeing is a lot of first time people developing...as I was shifting through land agents one lady had just bought site in Heidelberg. She has bought a 3 unit devy site for 680k...to put 3 units on it. When I queried what the probable end value of each would be ...she answered about 550-570k. Assuming 40k in costs...750k in build costs...80k in hold, sell and marketing costs. The total costs are around $1540k...so the profit is about 100-170k.

I am not sure this is a good deal...as the gross margin is only 7-12%. If the market turns they are stuffed. I would rather do single H&L land where I am getting 20-25% gross margin any day of the week. Also not many people have 1.5m in offsets...thought I do....




I guess my point was not really about comparing which is a better strategy, all to their own, one shoe does not fit all.

Today's figures/end values are just what they are, on completion they may end up higher or lower? Skinny profits on a development will only hurt more if the market goes pear shaped, if it rises then we are all bloody geniuses, 20% becomes 40%, come in spinner :p










MTR:)
 
so you think that a collapse or a significant fall is more likely then not?

real estate doesn't grow in a linear fashion, it moves in cycles, so it will happen it's just a matter of when. the higher it goes and the later you are to the party the more it will hurt
 
Yeah agree that rate will stay low for some time, but Melbourne are more prone to over supply. Their vacancies rate is passed 3.5%, where Sydney still in 1.5%. But imo even in Sydney we'll see some correction in some area soon

Which area do you mean ?

Parramatta, Homebush, Sydney CBD, or any area with more than one High Rise building is bound to collapse :confused:
 
real estate doesn't grow in a linear fashion, it moves in cycles, so it will happen it's just a matter of when. the higher it goes and the later you are to the party the more it will hurt

yes I know that, my question was are you predicting a collapse???

Linear or not, im not forseeing a collapse but a complete stagnation for years
 
Not comparing which is the better strategy...but about margins.

I am in the midst of this decision now....do I do a double story vs a single story. My brain tells me single for maximising profitability...but the heart says double. Such is my dilemna.

I have seen to many people take the skinny profits...unless you can lock the costs you need a 5-10% contigency. I am lucky as on the smaller 1-3 developments I can do this....harder on the larger stuff as the risk lies with the person developing. I am pretty hard nosed about a 30% gross margin with most costs fixed...I also factor in a 5% contingency for unexpected costs and delays to building..if this is not consumed..it is added to the gross margin. :D

I guess my point was not really about comparing which is a better strategy, all to their own, one shoe does not fit all.

Today's figures/end values are just what they are, on completion they may end up higher or lower? Skinny profits on a development will only hurt more if the market goes pear shaped, if it rises then we are all bloody geniuses, 20% becomes 40%, come in spinner :p










MTR:)
 
you only need to look at that office complex I was doing to see that in play... between buying the land and doing the plans the market completely nose dived. The only way I can see of mitigating such risk is either going in low LVR (syndicate the thing and buy land with cash so you can just sit on it for 20 years if things head south) or having an alternative cash flow to fund the interest bill, tho even that won't work because when banks want deals off their balance sheet they will slash and burn regardless of your cashflow/equity position/character etc - they are truly merciless

Agreed, risks are significant there.i know someone who was bankrupted during gfc because they bank out of the blue asked him to pay back just under $100m in loans in a pretty short period, less than 6 months I believe. Even though he miraculously paid back all but $7m they still bankrupted him instead of allowing an extra month or 2. Realistically he lost around $200m minimum.
 
I am in the midst of this decision now....do I do a double story vs a single story. My brain tells me single for maximising profitability...but the heart says double. Such is my dilemna.

There is also whether you go for a double or single garage. Observing my immediate area, single-story dwellings with a single garage don't appreciate that well.

On the other hand, dual-occupancy properties do fairly well in the North West. There have been a few in North Kellyville and one or two in Rouse Hill with a bed-sit or small 1-bedded over a detached double garage. These seem to do well from a profitability perspective. The problem is either corner blocks or dual-street access is needed for this type of property.
 
As I always say, every boom we have new comers (ie new buyers) come in saying the boom keeps going.

Let's just say I'm happy to sell 3 in Jul/Aug, and if it really loves another notch up (ie 10%), I'll sell another 3. And 3 more if it runs 10 more percent
 
I would still be comfortable investing in Australia for the very long term, which is what the time horizon will be for any investments I use.

If you focus on the underlying fundamentals you can block out most of the useless white noise from the media / BBQ talk and the like.

Based on 1% net migration and 0.7% natural increase, the Australian population will be 34 million in 20 years time; Sydney will be 6.7 million, Melbourne 6.4 million - and that is not taking into account the migration away from regional cities to the capitals.

Couple that with the lack of supply coming online where people want to live and it is a pretty safe bet over the long term. Just avoid the housing estates on the fringes and the oversupply in the CBD and you can't go wrong on the supply side.

It is a pretty compelling demand/supply dynamic IMO, I can't think of a safer investment over the next few decades.

Obviously you do need to take price into account (Sydney is off the richter right now) but in the long term, residential Aus. property is still a pretty good bet.

That's right as I'm sure your granny told you, you make money when you buy. Buy buy buy
 
Back
Top