Commercial Real Estate Apocalypse in 2011-2012

[sash]

Hobo Jo......a recession in Australia pretty unlikely....though I do suspect there will be a slowing for about 6-12 months. This is primarily being driven by the uncertainty in Europe and the change in spending patterns being driven by largest consumer group in histroy the baby boomers who are now winding down and saving like mad prior to retiring over the next 7-10 years or so.Unfortunately, the Genx Xers and Yers are not in a position to consume at the rate of Boomers.

As for housing falling yes a little bit (about 5%) to balance supply and demand...mostly in Melbourne & Adelade. Sydney and Perth will continue to increase albeit slowly....Brisbane will probably also strengthen. Note that Sydney and Perth have a shortfall of rental properties...I have 8 properties in NSW and am increasing rents $10-$15 every 6 months.

As for Commercial property...I can see that retail properties outside of hotspots like mining towns will not do so well.....anotherwards rentals are trending downwards. Have friends who rent via Mirvac and Westfield and they have pushed for rental relief have got them. Office and Industrial properties outside of high demand locations are stable....in hot locations like mining towns they are going well.

The real pain is going to be felt in the $850k property sector in Melbourne, Sydney, and Perth or over the $650k bracket in Brisbane and Adelaide. The banks are increasingly conservative and anything over this bracket makes it hard for people to borrow unless they have significant savings. At the sametime the rental market is strengthening in lower and middle end of the market.

So your presumption that it is the end of the real estate boom might be premature. Sure the cycle we experienced during the 1990s will probably not repeat this decade. However, this will be balanced by stronger rent increases (5%-6% pa) and more moderate capital growth (4%-5%). As I have said before if people buy on fundamentals they should do okay!

Anyone still claiming that this is just a business as usual downturn/recession is kidding themselves. Still standing by the fact we are in the eye of the storm and there is a lot more pain to come.

Everyday I see risks that could bring down the global financial system, risk of sovereign default, further stress via the options arms resets, commercial property problems, eventually one of them will trigger a meltdown. Credit will dry up worse than 2008. Will probably see currencies fail. Housing will fall dramatically (including in Australia).

Here is one of the risks quite intricately detailed if you've got a day to sit down and read the whole 190 pages

Commercial Real Estate Apocalypse in 2011-2012


FEB 2010 OVERSIGHT REPORT - Commercial Real Estate Losses and the Risk to
Financial Stability

 

[hobo-jo]

Would it be fair to say that residential house prices haven't falllen as dramatically as you expected.

January 2010 I said this:

I now believe we will see at least 15-20% of nominal prices over all capital cities over the next few years and probably another 5+ years stagnation/low growth. It could end up being worse.

My prediction is the tipping point is Qtr 1 2010 (that may just mean relatively flat growth to begin with). Though my expectations are no where near as bearish as some that have been here before.

So I think prices are playing out pretty close to expected. Melbourne bucked trend in 2010 and continued to boom and I think Melbourne will now pay the price by falling a lot harder than other capitals over the next couple of years.

As I pointed out at the start of this thread and in the post from January 2010 I think there is the potential for larger falls given the right circumstances (global conditions worsening).

I personally think having a high % of your wealth linked with a non yielding highly volatile investment is fraught with danger. However being relatively young you have plenty of time to start again if disaster strikes.

I am not leveraged. It is a highly volatile asset (relative to something like property), but I have scaled in over several years and my average price is much lower than today, closer to late 2008 prices than current.

My current position is probably less risky than others who put down a 5% deposit for a property (20x leverage) which has out of pocket expenses every week to hold it. In my opinion a leveraged property investor is taking a lot more risk on than I am. Any investment if not managed appropriately can be high risk.

I'm interested to know what your future plans are. Over your life time you most likely will encounter a number of financial crisis. Presuming that you have accumulated significant assets by then do you intend to be as nimble jumping out of traditional assets such a realestate (even if it is only a PPOR) into alternative investments such as precious metals.

From my current position I can see myself trading out of metals in the next 2-3 years (during which time I think we will see the bull market peak), my hope is to purchase a PPOR outright (pending reasonable prices )with the proceeds against which I can then borrow to invest in business or assets, with all debt being tax deductible. But in all honesty I think any fixed in stone plan is asking for trouble given the nature of events that could play out with Euro/Greece/Chinese/Japanese issues... I'd rather keep a close eye on things and play it all by ear.

It's too hard to tell whether I would trade out of all property again down the track when I've amassed a larger portfolio. I probably wouldn't sell my PPOR again, but the one I sold late 2009 wasn't purchased as a long term PPOR anyway.

 

[Hdb]

I now believe we will see at least 15-20% of nominal prices over all capital cities over the next few years and probably another 5+ years stagnation/low growth. It could end up being worse.

Hobo-jo
To say it has played out like you predicted is just not true. Brisbane, the worst performer being down around 12% hasn't even had those falls

 

[hobo-jo]

Should have read "are playing out". Edited above post. I don't think the price falls are over.

 

[Aaron Sice]

Also open to the possibility that another round of global easing could kick commodity prices off again, ease credit conditions and perhaps even allow house prices to stabilise here (for now). However the actions I see the Fed (and some other central banks) taking are not sustainable forever, they are simply compounding the problem unless they can turn their QE programs into real growth (which is looking less and less likely with the huge debt burdens being accumulated).

i think property will soon be classified as a wealth store,much like gold. when, though, i have no idea.

but its becoming more and more apparent that land will soon become a commodity, as evidenced by the global farming land grab and the new indexes tracking prices etc.

it wont be long before derivatives are available against these indexes, that is,if the current system lasts that long.

but, thats just one opinion in many.

 

[willair]

Hobo-jo
To say it has played out like you predicted is just not true. Brisbane, the worst performer being down around 12% hasn't even had those falls

I don't know about that,take some of the flood area's,most are down way over 12%,the problem with Brisbane is the prices have not gone anywhere in several years,i know people in the redevelopment game spend 1.2 mill all up and can't get offers above 890k on inner city upmarket tv show renos all part of the cycle only this might stay lower for longer..

 

[hobo-jo]

So Dazz, nice work with the funny analogy, but you can't even link a single deal that's out there?

Humour me. You've got $600k to spend on a residential property/s. Give us a link to a few push bikes on www.realestate.com.au you would consider.

 

[Dazz]

I haven't researched any residential real estate for over 9 years.

I'm not about to start doing your legwork for free, conveniently posting some link so you can blow it away with your 'realistic' viewpoint.

If you wanna pushbike down the road to wealth, get off yer *** and do what everyone else has had to do, get yer own.

 

[hobo-jo]

I haven't researched any residential real estate for over 9 years.

Thanks, as I expected.

For me, your credibility is bumping along the bottom, as you own no [residential] property. With no skin in the game for quite a few years now, you really have no idea.

 

[Dazz]

Is that it ?? Is that all you are prepared to do ??

You're going to quote me saying I haven't researched the residential property market for over 9 years as what....your queue to continue standing there on the side of the road bereft of any property investments.

I fear very much, like before, you'll be back waxing lyrical about all of the downsides of "the property market" and why you couldn't possibly buy anything just right now....far too risky.

If you're too scared to buy, or can't / won't do any research to improve your chances, then zip off and at least finish this dissertation on property, so the professors of the world and the other experts with no property will at least be your audience.

You could have a little symposium by the side of the road, with invitees restricted to only those with no property holdings. You'll have a captivated audience.....with much merriment and mirth at the expense of the property investing continually travelling down the road.

 

[hobo-jo]

It amazes me that the B-Train driver continues to leave the resort in order to mutter unintelligible gibberish at the side of road policeman. Doesn't he have something better to be doing? Piña coladas to be sipping? Laps to be swimming? Bikini clad tail to be chasing?

 

[blw101]

Somersoft - come for the education, stay for the entertainment.