Bust and then what....????

[Harris]

I would be interested to hear from forumites..what they believe could happen to the prop market, once it starts settling down..? I am sure plenty of you have had the opp to see through a couple of prop cycles.... and had plenty of observations made as a result of downturn.
Since its the biggest and most agressive cycle (I believe in the history of the prop market), what effect would it have in your opinion to the top end/ bottom end and the median house prices..?
Where does the bust start and how do the ripples travel onward..? Is the bust going to have minimum effect on prop prices if the interest rates stay close to where they are..?
What are the factors that cushion or otherwise (aggravate) the down turn..?

How does one hedge the risk while entering into the median market in syd/melb at this point in time...? Surely there will be people who have their contingency plans ready..

A question for those who are waiting to go on acquisition rampage when the prop market settles--- Are you guys expecting to buy IP's at significantly lower cost (vs now) or you believe it will be the wide availability of prop at that time or a combination of both ..?

Cheers,
Harris

 

[L Bernham]

I'm going to upset some people and say I expect decline of around 45-60%.

There will be a limited number of opportunitues to go on a rampage to get these bargains because by then prop investing wont be fashionable anymore and will have a higher risk weighting attached to it so banks will demand lower LVRs.
Also a lot of the equity people have in their investments will just disappear so I think we will see a lot of sellers and only a relatively small number of buyers. The only way the banks will approve loans is to people with cold hard cash.

I love property as an investment (just not now) and am fully cashed up ready to take advantage of some good prices.

I think everyone should look at what position they would be in if my prediction were to be accurate. Who would actually be in a position to buy more IPs?
Sorry, but all booms must come to and end sometime. Be glad you were in it from the start if you were indeed so lucky.

 

[L Bernham]

I should also say that its not going to take a trigger, like an interest rate rise.
All it needs is a change in sentiment.

I cant predict what areas it will begin or end. I'll leave that for someone else to guess.

It will be shorter and sharper than many anticipate as opposed to a slow decline.

I think we will start seeing better evidence of the downturn in the next few months. But I'm not scared to admit that I could be wrong on the timing.

 

[astroboy]

I have definately seen micro markets where it is already happening. Want it or not/ believe it or not I believe property is already losing its title as the investors darling.
Whoa, sit and wait a little before you shoot me down.
astroboy

 

[Harris]

decline of 45% - 60%.....!!!!!!

If I were you LBernham with such convictions for drop in prop prices, I will sell all my IP's right now and buy them again when they are 60% cheaper...!!!!!! makes sense..??

What do you base your research on L Bernham...?
Are you really suggesting that prop prices will drop by more than half..? and that its going to happen rather quickly (when it does)..?

Even the most pessimistic doomsayers believe the worst effect would be a 5-10% slide at the top end....however 20 or 30% (let alone 45-60%) just cannot happen with the interest rates where they are....

May be I am wrong...however would like to see more opinions.

 

[abcdiamond]

decline of 45% - 60%.....!!!!!!

It did happen in England, and not that long ago, 1996 I think was about the bottom of the market.

However, on a good note, it came back up again, and now SEVEN years on, its at a high again even higher than it was before.

If you can fix your interest rates, and you keep getting the rent coming in, AND the market bounces back, it shouldnt be a disaster.

But still keeping my fingers crossed about the experts who say that the Brisbane area will escape any price drops.

 

[Andrew]

The good news for anyone able to hold on to their properties
is that as property investment becomes unfashionable and
there are less investors (hence less properties to rent) the
rents will rise.

Coupled with declining property prices yields get a real shot
in the arm.

andy

 

[Cosmo]

I’ll be very interested to see what happens when property prices stagnate, rents go further down due to oversupply (short term), interest rates start the trend upwards, the stock market turns around and we get bombarded with stock trading shows and seminars titled “How I turned $50 into a million in a week”.

I really cant see a lot of investors sticking with property when for example after x years of ownership they have had no CG’s……..

This is where you’ll see properties dumped off for pretty much what they paid for them years prior.

IMHO the best thing to be doing in the real estate market right now is :

1) Run a property investment seminar.
2) Be a vendor.
3) Be a loan broker.
4) Develop / speculate with the view to becoming a vendor quickly.

 

[see_change]

The other thing is to work out which areas are still giving good returns , and havn't moved much in the current cycle.

But that takes work ....

see change

 

[ger]

The market WILL dive
I somewhow do not believe 40-60%
maybe somewhere around 20%
I think the properties near the
city centre will be the least afected
apart for high rise apartment
which might go to 30-40%

 

[see_change]

In technical analysis in shares , some people try and predict the future. Others use it to shift the balance of probabilites in their favour.

They think they know what will happen , but they will have a back up plan , in case what they think might happen , doesn't.

The same should apply to property.


see change

 

[hwd007]

I think Tassie will be the first to fall. The fundamentals don't appear there. Negative population growth projections and an aging population with less disposable income. yet somehow they have a mini property boom, I suspect driven by speculators rather than renters.

Sad part is that people hate to hear the truth. Its the herd mentality thing they spoke about on 60 Minutes. The analogy used was about drivers, who go through 4 red lights and eventually crash on the 5th time etc... Its the crash that does the damage and you know it's going to happen eventually.

If the ABS is correct in its mid to longer term forecasts, these investors are heading for that crash. I'm talking over the next 5 years starting from today. No yesterday. their negative population growth trend has already begun.

 

[Aceyducey]

Originally posted by Cosmo
I’ll be very interested to see what happens when property prices stagnate, rents go further down due to oversupply (short term), interest rates start the trend upwards, the stock market turns around and we get bombarded with stock trading shows and seminars titled “How I turned $50 into a million in a week”.

I really cant see a lot of investors sticking with property when for example after x years of ownership they have had no CG’s……..

This is where you’ll see properties dumped off for pretty much what they paid for them years prior.

That's called the property cycle.

And when prices go down that's when the serious investors buy in....same as the share market

Cheers,

Aceyducey

 

[willair]

i like your question on acquisition rampage,if you think that
inner city prices in brisbane will drop 50%.. then what i think you should, do is take a few walks in the areas you think this will happen,it did not happen in the 90s,it did not happen in the middle 80s,its not going to hapen now,what investors must understand is the money that buys inner city, now is from not from down south ,the money is from overseas ,its quite simple to understand.
These people want a safe place to live,and once they find that the rest will follow,thats only what i am starting too see.
sure country areas will be worse off,and several areas in brisbane
will fall ,Thier are very few inner city left to do a reno most are restored...
good luck
willair......

 

[NigelW]

Originally posted by Aceyducey
That's called the property cycle.

And when prices go down that's when the serious investors buy in....same as the share market

Cheers,

Aceyducey

Yep. it's only when the tide goes out that you see who isn't wearing any shorts!

 

[L Bernham]

Harris wrote:
Even the most pessimistic doomsayers believe the worst effect would be a 5-10% slide at the top end....however 20 or 30% (let alone 45-60%) just cannot happen with the interest rates where they are....


Actually - the Economist magazine (the same one that predicted the tech crash) did a good lot of research on the property market in Australia and they suggested a drop of up to 30% is inevitable.

http://www.economist.com/displaystory.cfm?story_id=1794873

In my opinion they ignored a lot of factors that when included suggest that property would drop by even more than that in Australia.

If there is one thing that any serious investor should know about any investment its - What goes up, can just as easily come back down again. If its possible to rise by 30% in a short time it can just as easily fall by that same value. HAve we had a 30% increase in population? how about a 30% increase in wages? How about a 30% decrease in supply? (supply is currently outstripping demand)

Those who revere property as a neverfail investment will be in for a rude shock.

Corrections (like we saw in the 90s) can be the most dangerous thing to compare to in a boom. The level of decline in a previous correction becomes the psychological benchmark for the maximum amount of any future possible decline. For this reason, a subsequent 'correction' will be worse the second time round.

Cheers L Bernham

 

[Fester]

L Bernham have you actually got any IP's?? Or I sense a bit of self interest here, are you maybe a financial adviser or similar and the fact that investment dollars have been channelled away from "super" and into property! Just curious!

 

[kierank]

I may be stating the obvious but there is an old Irish saying which says "an x% fall is a lot worse than a x% rise".

For example, let's assume that an IP is valued at $200K. After say a 30% rise, it would now be valued at $260K.

If the market then experienced a 30% fall, the new value would be $182K, which is less than the original starting value.

In fact, we only need a 23% fall to get back to the original starting value.

 

[L Bernham]

I currently own an IP but the sale contract is almost complete and I will be IP free.

I sold for reasons I have previously stated.
They are my own reasons and each person should make their own decsions on when to sell or not to sell as I havent necesarily picked the boom at the top.
I was getting more and more nervous holding and given the illiquidity of property as opposed to the stockmarket I didnt want to be holding at the beginning of the downturn.

Crikey! A financial adviser? Yeah and the time I spend here will make a difference to the amount people are putting into their super.
If you read my previous posts you would see that I wouldnt recommend people put any money into the sharemarket at the moment.
Sorry, as usual, all my interests are selfless. Maybe thats why I aint a millionaire.
Cheers
L Bernham

 

[Harris]

thx Kierank...thats a very valid point and more food for thought....