Capital Gains.......How much and how soon?

[Big Tone]

To all forumites on the capaital gains strategy, who of you feel that if you were to buy a property in an Australian capital city at or less than or equal to fair market value today, that that property will double in value in 10 years time?

Why/Why Not?

Or your thoughts on whether it will be a shorter or larger time frame?

Your opinions (as always) are appreciated.

Big T

 

[wylie]

I do believe it will happen, because it has been happening for nearly 30 years since my parents bought their first IP (and obviously way longer than that).

I remember in Brisbane in about 1989 a young chap at work buying two houses in East Brisbane and people saying he had paid too much, yada, yada. Purchase prices back then were $21K and $19K or thereabouts. Those houses would sell for roughly $700K or so now.

If things totally change and life as we know it alters, then I will eat my hat. I suppose I would be a bit more dubious if I hadn't seen a few cycles myself.

 

[Bon]

I would expect to see my property have at least doubled in value within 10 years, it should be more than enough time to go through a full property cycle.

Whether it is shorter or longer will depend on whereabouts you buy in the cycle IMO. If you were to buy in Perth right now, I would say you've probably missed the boat and you're buying at the peak and therefore would have to probably wait longer than if you were to buy somewhere else.

 

[travelbug]

I think it really depends on when in the cycle you buy. If you bought at the top of the last cycle in Sydney your IP may have now dropped by 35%. It will take a long time to recoup that then double what you originally paid.
If you buy just before a boom of course that's shorter.

I bought a property in 1999 for $198,000. By 2003 it was worth $350. That's a lot less than 10 years (but not double). But it would not have changed much in the last 5 years. So if you bought in 2005 you might not have had any growth for 5 years.

My first property 1985-1994 went from $55,000- $122,000

It used to double every 7 years. Now they say it's 10-11.

I believe timing is important.

 

[Rixter]

It used to double every 7 years. Now they say it's 10-11.

Who is 'they'

 

[Big Tone]

you know...."they",.....those people who tell what we should or should not do,
yet don't practise what they preach, the people who live pay to pay, and now have negative equity because thay bought off the plan in Sydney in 2004 because they were too lazy to go house hunting because they needed to pick up their new car/s and book the overseas holiday.

You know."they"

 

[Bill.L]

Hi all,

Median property on average over the last 30+ years has risen 1-2% above inflation per annum. This includes upgrades (renos and extensions) spent on existing properties to get this above inflation growth.

My opinion is that this will continue while we have population growth.

So if we have inflation averaging 5-6% pa over the next 10 years, then median property will probably double in value, provided there is net population growth in whatever cap city you chose.

If you want to believe that the Reserve Bank can control inflation to be in the 2-3% band over the next 10 years, then my opinion is that property is unlikely to double. However it is likely to go up by about 50% over that time period.

bye

 

[Andrew_A]

Hi all,

Median property on average over the last 30+ years has risen 1-2% above inflation per annum. This includes upgrades (renos and extensions) spent on existing properties to get this above inflation growth.

My opinion is that this will continue while we have population growth.

So if we have inflation averaging 5-6% pa over the next 10 years, then median property will probably double in value, provided there is net population growth in whatever cap city you chose.

If you want to believe that the Reserve Bank can control inflation to be in the 2-3% band over the next 10 years, then my opinion is that property is unlikely to double. However it is likely to go up by about 50% over that time period.

bye

All the large number of multi century studies I have seen (two of them) say that property tracks inflation over the longer term, though they were from Amsterdam and Trondheim I remember and they were already well established cities, and I think you might reasonably expect some premium to inflation for a growing city. Also in the long return everything mean reverts, dust to dust and all that, and it's just common sense that property will remain some reasonable multiple to wage everything else being equal. If you have a look at how Australia has grown over the last X years then it's obvious that we have been an emerging country in terms of population and importance.

One interesting rule of thumb I saw recently is that IR's should roughly be inflation + GDP for a country, which would mean for Australia presently we are about 1% higher in IR's than where stated GDP growth and inflation would have us.

 

[boomtown]

I <3 inflation.

 

[travelbug]

Actually the "they" I was referring to would be so called property experts who run workshops show past property growth.



Actually you can access these stats yourself (making you a "they" if you like).

 

[Bill.L]

Hi all,

I never care what "they" say.

I use information that I gather to make my decisions. If something goes wrong, the only person to blame is me.

"They" do not have any more privileged information than I can gather for myself, and then "they" put there spin on data to highlight what "they" are trying to sell.

The single most important person in investment is "I" not any of the "they's" out there. Failure to understand this is what causes most losses.

Andrew,

I tend to agree that over the very long term property goes up by the rate of inflation, however most of us don't have centuries to work with

The 1-2% above inflation for median property over the last 30 years includes the upgrades I mentioned, plus the larger 'median' house size today compared with the past.
No attempt is ever made in the official figures to show that the 'median' beast today is different to that of 30 years ago. However offsetting this, is the size of a 'median' block of land, which I believe is getting smaller, though I don't have any evidence of.

bye

 

[alexlee]

The median price comparison over time (it probably is just above inflation) is flawed when using that to assess your own portfolio. Why? Because the median property shifts. 50 years ago the median property might have been 10km from the CBD, 30 years ago, 20km. Now, 30km. This is normal as the city grows in size and population, and changes in income distribution.

So say Sydney median prices grow at 1 or 2% above inflation. Does that mean a given property will also grow by that much? No. Because a given property doesn't move while the median does.

Sure any property has to be 'affordable'. But affordable to WHOM? A house 10km from the city might have been purchased by a working class family 50 years ago. So at THAT point, that property has to be affordable to them. 20 years ago, that 10km from the CBD house would be considered an mid-ring suburb and only affordable to say a white collar higher income earner. It's not affordable to a low income person, but because of the growth of outer suburbs that ARE affordable to low income earners, that 10km from the CBD house CAN be more expensive.

Today, that would be an exclusive, right next to the city house. It hasn't moved: the city has grown around it. So today it's one of a very small number (relative to all the dwellings in the city) of inner city houses that is totally out of reach for any ordinary person. Is that a problem? Not really, since the number of very high income earners has increased (but still very small relative to the population) as the population increased.

In short, the 'prices have to track wages' argument is incorrect because the 'price' it's talking about is not specific to any property over time. It'll keep shifting, while our properties won't.
Alex

 

[Ausprop]

The median price comparison over time (it probably is just above inflation) is flawed when using that to assess your own portfolio. Why? Because the median property shifts. 50 years ago the median property might have been 10km from the CBD, 30 years ago, 20km. Now, 30km. This is normal as the city grows in size and population, and changes in income distribution.

not only that, but the median house of 40 years ago is probably due to be demolished, whilst the mcmansion built on the block will feed thru into the median price once it is sold and yet no value may have been addded at all. The figures are very broad stroke at best

 

[alexlee]

not only that, but the median house of 40 years ago is probably due to be demolished, whilst the mcmansion built on the block will feed thru into the median price once it is sold and yet no value may have been addded at all. The figures are very broad stroke at best

And that median house of 40 years ago is now sitting on a big block of land in the inner city, and has value to be rebuilt as townhouses or apartments or whatever. Many houses in established suburbs on Sydney's north shore, for example, are a good 50, 60 years old and people who buy them generally demolish them.

In short, when people cite studies saying property only increases by inflation, they're talking about the entire market. But obviously the entire market changes. I could buy every single property that exists today, and 20 years from now I'll only own a portion of the market because new properties are being built.
Alex

 

[Andrew_A]

..
In short, when people cite studies saying property only increases by inflation, they're talking about the entire market...

Not the studies I quoted, the one from Amsterdam was for one building throughout the whole period.