I still have concerns as to your negativety towards property at present, especially selected property(free standing houses on land in particular), when demand is great(population growing), rents are rising(in the areas that I look at), cap growth is "flying".
But the expected pop growth has always been factored into house prices.
Rents from what I hear are not expected to rise due to current supply (ie new construction) beating new demand. Capital growth has "flown" up till now. But we will see this change as growth stagnates and then declines as the last few investors get sick of ridiculous yields and prices that command far too much future demand and growth just to break even.
How could their be a next boom when house prices are already as unaffordable for FHBs as they are. Esp in a country like Australia where affordability should not be an issue.
What one needs to do is imagine what prices WOULD be if it werent for the potential for capital growth and then look at each driver that contributes to growth and you'll see what I mean.
Ie
Lets assume a typical house in say Brisbane worth $350K. It rents for $320 per week.
What would this house be worth if there were none of the drivers that could create a capital gain.
$320 pw is $15K pa (2 weeks untenanted). After all expenses you would be lucky to be left with $10 grand.
With interest rates at around 6.5% you would expect to get a net rental yield of 10% to justify buying this house (leaving you with a 2% profit after tax, an adequate compensation for the risk).
This shows that the house is intrinsically worth around $100K.
this means that there is already a massive $250K of expected capital growth included in its current selling price, or 250%
Next thing you would need to do is look at what would justify this 250% premium to intrinsic value.
The three main ones are
increasing rents (which can be caused by increased inflation/wages)
increasing population (over and above what is absorbed by new construction)
decrease in supply ie huge fires or Weapons of MD (this is never realistically taken into account, due to the benefit being cancelled out by the possibility that it could be your house that it happens to)
Now you wouldnt need to spend too long working out, that even with rents and population increasing at double the rates they have been in the past, that its going to take many decades for this to catch up to its $350K price tag.
Hence you would have to expect an even greater increase in population (ie China deciding to buy our Australia for its residents) or rents to feel that you could expect greater returns by buying this house when it already has so much expected growth in its current price.
If I did this example using apartment prices it would be even more ludicrous.
cheers
L bernham
But the expected pop growth has always been factored into house prices.
Rents from what I hear are not expected to rise due to current supply (ie new construction) beating new demand. Capital growth has "flown" up till now. But we will see this change as growth stagnates and then declines as the last few investors get sick of ridiculous yields and prices that command far too much future demand and growth just to break even.
How could their be a next boom when house prices are already as unaffordable for FHBs as they are. Esp in a country like Australia where affordability should not be an issue.
What one needs to do is imagine what prices WOULD be if it werent for the potential for capital growth and then look at each driver that contributes to growth and you'll see what I mean.
Ie
Lets assume a typical house in say Brisbane worth $350K. It rents for $320 per week.
What would this house be worth if there were none of the drivers that could create a capital gain.
$320 pw is $15K pa (2 weeks untenanted). After all expenses you would be lucky to be left with $10 grand.
With interest rates at around 6.5% you would expect to get a net rental yield of 10% to justify buying this house (leaving you with a 2% profit after tax, an adequate compensation for the risk).
This shows that the house is intrinsically worth around $100K.
this means that there is already a massive $250K of expected capital growth included in its current selling price, or 250%
Next thing you would need to do is look at what would justify this 250% premium to intrinsic value.
The three main ones are
increasing rents (which can be caused by increased inflation/wages)
increasing population (over and above what is absorbed by new construction)
decrease in supply ie huge fires or Weapons of MD (this is never realistically taken into account, due to the benefit being cancelled out by the possibility that it could be your house that it happens to)
Now you wouldnt need to spend too long working out, that even with rents and population increasing at double the rates they have been in the past, that its going to take many decades for this to catch up to its $350K price tag.
Hence you would have to expect an even greater increase in population (ie China deciding to buy our Australia for its residents) or rents to feel that you could expect greater returns by buying this house when it already has so much expected growth in its current price.
If I did this example using apartment prices it would be even more ludicrous.
cheers
L bernham
