Comparing Tech Wreck and Inner City Units

[see_change]

With more and more doom gloom warnings coming out about property and Inner City units in particular , I thought it would be relevant to point out what happened after the "Tech Wreck ".

I have always had an interest in shares , but unfortunately left my active involvement untill about one week prior to the peak of the market...... Being a cautious person I only started out in a small way , and by the time I felt confident in knowing what I was doing it was obvious that shares were not the place to be...

But...... after the initial bubble bursting in April 2000, people did not abandon the Market in droves. While some people got well and truly burnt, there was a large group of investors who started looking around the share Market looking for alternative investments outside the Solution 6's of this world. By this stage of the market there was a growing group of informed investors.

The banks which were ignored in the hunt for the next best thing became the flavour of the month. CBA went from just over $22 in April 2000, to peak over two years later near $ 35. NAB went from $20 to over $ 36 and ANZ doubled in the same period. Many other previously ignored yield companies also benifited as people started looking for somethng that actually gave a return.

People like to paint the Share market and the property Market as amorphose entities, but as we all know this is not the truth.

A turn in Inner city units may be a warning of things to come , but it may also be an indicator of opportunities in other areas prior to a more generalised down turn .

While some seminar attendies will walk away dissillusioned and financially ....ed, many will remember the opening spiel about obtaining financial independence and go looking in other pastures.

Work out where they are heading and get there first.

see change

 

[Michael Yardney]

See Change

Its a great anaalogy that you make and one I have been thinking about a bit, particularly in light of the Economist Magazine's comparison of the bursting share market bubble and the current property "bubble."

As was noted on this forum, the Economist predicted a 20% fall in the Australian property market.

I have spent some time thinking about this and concluded that the property market behaves quite differently to the share market. That doesn't mean that some property values won't fall significantly.

I have written a 3 page article on exactly this topic which will be the lead article in this months Property Investment Update newsletter which should be emailed on Friday.

I know most forum memebers get it, but some with hotmail and yahoo addresses are missing out lately because their spam filter is stopping it because of the large attachment. If this is you, put our email address - [email protected] in your spam filter as one you accept emails from.

For those that don't get the newsletter yet you can subscribe at: -
http://www.metropole.com.au/html/Subscribe.htm

 

[see_change]

Michael

One thing I didn't mention in my intial posting, but again should be obvious after a moments thought is the MAJOR difference between te two markets ( in particular with regards to how it impacts on peoples perceptions ) and that is.

Each Day in the Stock Market you investment is revalued and you are made fully aware of how it is performing. This doesn't happen with property . As a result it will take a lot longer for peoples perception of property ( I'm talking about the herd) as a Bad investment to occur.

I'm sure regulars here are still experiencing what we have been experiencing recently . We often mention to friends (non somersoft ) that we've been investing in property. In the last month we have had several long term friends say they've been thinking of investing in property . One of the more financial conservative couples we know proudly announced they have bought an iunvestment .... a block of land ( no plans to build ). We tell every one who asks us about investing to come here first but some people have selective hearing.

I remember GCC making a similar comment two years ago , but people getting in then will be ok ( assuming they did their DD )

see change

 

[Aceyducey]

see_change,

I also know quite a few relatives & friends who are taking first steps into property....I make myself available for them to chat with so they can learn more about the market and they don't take the opportunity.....

I do get concerned about the number of people who invest in property based on media & RE advice alone......and an upswing in the number of this form of 'naive investors' was a precursor to the tech crash....all the serious investors sold out to them, then came back round to pick up the pieces afterwards.

If you lead a horse to water & it chooses not to drink.....will it not die?

Cheers,

Aceyducey

 

[bbg2003]

Agree with you 100% Sea Change. There's always a "market" out there, and there are always opportunites where there is a market.

At this point I see them (many!)for vacant land (as you do) just out of the 'burbs. Med to long term, but with huge rewards for the patient and cashflowed.

 

[bagg]

Good topic SC.

I remember the tech wreck real well. What happened after that was a "flight to quality" which was the banks stocks initially but then really I think the property boom became the flight to quality.

So where too from here?

Very good question.

My guru's are tipping precious metals. They stand up when currencies (US $) start to slide......

Money is a big round-a-bout and has to go somewhere.

Other thoughts folks??

bagg

 

[see_change]

Bagg

I think the Property market in one way may work in reverse to the Share market.

The speculative bubble led off in the share market followed by a flight to quality , In the the property market thye quality properties are the first to lead off.

Once these have moved ( and they have ) the returns there fall , people will look for properties that still give good return ( currently mainly regionals ) and buy there.

That's where I'm looking and buying at the moment. You only need to look at the returns that some people are prepared to accept in doddgy outer sydney areas, to believe that some areas still have a way to move to get to those returns .

see change

 

[Mikhaila]

Hi SC
Interesting thinking…. I disagree. Up market properties are always more volatile, but quality properties are not necessarily all up market. The location usually defines property quality. When the market goes down the more likely areas to suffer the hardest will be in poor locations. If somebody excepts low returns in doddgy outer Sydney it doesn’t mean regional areas will grow to the same extend. Regional areas provide good returns for a reason. IMHO your assumption of potential sustainable growth there and conclusion that these areas will grow when quality areas fall is shaky.

 

[see_change]

Mikhaila

I'm not saying that regional areas will achieve sustainable growth ( in the long term ) , But I am of the opinion that they will experience a period of growth that is above that most other areas will experience. ( I'm working on a doubling from the peak of the previous cycle , which has been the historical situation )

I would also expect that at some stage in the future these regional areas will experience further long periods of no growth and possibly negative growth.

What I'm looking at is , which areas will undergo significant growth in the short to medium term , rather than in the long term.

My interest in investing , is to get to a position where I don't need to wrok , in the short to medium term , rather than in twenty years time. In order to do that , investing in areas ( IMHO ) which are about to undergo significant growth is more likely to get me there.

Maybe Timing , Timing , TIming should be my mantra.

I believe that areas which offer high returns are the areas that are more likely to undergo short term capital growth , and given the way that the herd over react when they start buying in an area , I believe that the prices some people will pay ( the late arrivals ) will be well above what they should pay in these areas. They have in previous cycles and I have no reason to believe this cycle will be any different.

See change

 

[always_learning]

Just to make my small comment: one of the habits of humans is to try to think of things in a overly simple linear way. i.e. home prices have on average of grown an average 9% per year compounded per year for the last 20 years. We try to think about prices being $60K 20 years ago rising to $400K today as some kind of natural steady pattern of growth. This is very wrong and is generally opposite to observable facts.

But reality is much different, almost everything observe is non-linear in nature. Almost everything we look at, from human inventions like stock market and housing prices to natural systems like evolution are non-linear, growth is in spurts and there are periods of decline, long periods of stasis (no-growth), followed by small bursts of growth, big bursts of growth, declines etc.

The only way around this rollercoaster patter of performance is to invest long term; the observed trend is up over the long term.

On the subject of shares vs. IP. One thing stands above all for me, if buying 100 shares in Telstra, it means that someone is selling 100 shares in Telstra. Ie you believe Telstra is worth at least the price you paid because someone though is was worth less than the price you paid. Ie. the buyer and seller are taking an opposite view of the value of that stock for the future. Who is selling and why? do they have more/better information than the person who is buying? Do they know something you donft? Most humans react on feeling, "I guess Telstra is a good company and will be better in the future", "I guess Telstra is a dog and Ifm better sell now".

But what about IP, well I believe houses are also homes for people to live in. Thus the reasons for buying and selling homes/property are has nothing to do really with taking an opposite views on the future of that property as a business. Whilst a few % of people are selling because they think the value of property in the future wont match the returns in another investment (in another property or other investment class), the majority are selling for other personal reasons such as wanting a bigger home, moving to QLD, death, getting hold and trading down bla bla bla. As an investor, we should value and buy the properties from the perspective of purchasing little business, from people who are selling that do not think of it as a business. This is the investors advantage, investors buy for reasons/motives different to the vendor who is selling. However right now however the general market price of homes I believe is over and above there value if you consider the property as a small "business".

 

[L Bernham]

Hi all. I'm new to this forum but interested in property investment so looks like I'm in the right place.

I'm also concerned about a crash of dotcom proportions as I already own an apartment which has made a good profit that I'm thinking of selling.

As see_change wrote its important to find where the next boom or interest will be.
I remember thinking about this as the tech boom started crashing. I'd been buying and selling shares and read about who really makes all the money from the stock market - the stockbrokers. Maybe oversimplifying things I bought shares in my online broker Reckon Ltd. Turned out to be a good move as I recently sold them for 58 cents (bought at 15cents).

Now that the property boom seems to be coming to an end I looked at how I could invest in the realestate market without being exposed to the ups and downs. Anyway, I checked out the company realestate.com.au, seeing as I like their website, I invested in shares in that company. So far so good, up around 20% since I bought them. They look like they will continue to grow regardless of the way the market is. Good thing is if you ever decide to sell you can have the money in your hand the next day (well 3 actually but you know when I mean).

There are opportunities everywhere. Sometimes you just have to look behind the bandwagon to find them.

 

[bagg]

Well done L Bernham!

Good thinking about what happens behind the scenes.

Like your style.

bagg