Profoundly unconvincing.
declining property prices?
- Thread starter momo
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Profoundly unconvincing.
What if they create mini-CBDs every 10 kms around the city? Would that change your mind? Some cities manage it. Or, you go to Hong Kong, where every building is 30+ stories high. Much easier to get around, though the living conditions aren't great.
But we digress. We've changed the definition of land so many times I'm confused. Now, say I accept your argument that the amount of land where you can ride to work (and therefore desirable) is finite. Wouldn't that imply long term investing in such land would be profitable? We're not losing any population, so that land must get more desirable and more valuable as real incomes increase.
Alex
I agree with you Goon. Well positioned land and houses are finite. That's why there will always be a demand hence this type of property will attract a premium in price.
HG just likes to argue.
I must say that I find myself disagreeing with him ALOT personally, I dont want to start an argument here and Im sure hes a descent bloke but thats just what I think, I like Alex though..
different strokes for different folks.
I must say that I find myself disagreeing with him ALOT personally, I dont want to start an argument here and Im sure hes a descent bloke but thats just what I think, I like Alex though..
different strokes for different folks.
You have just made the argument that we've been trying to tell you all along - if you invest in the RIGHT property in the RIGHT locations - there will always be a higher demand for it (and as the right property in the right places is finite) in the long term, prices will continue to rise. That's why we believe in Capital Gains, that's why we believe in the cashflow property provides, and that's why we invest in property. Yes, there will be fluctuations - property can go down - but if you're in it for the long haul, it's always a good time to invest.
Cheers,
Jen
Alexlee, I think we agree except for technical details.
We agree the surface of the earth is finite, but that's an upper bound we're not anywhere near yet.
Australia is very empty, we have ~100 acres per person.
You and I agree that not all of it is livable. Yes, the Yanks built Las Vegas in the desert, but Vegas is right next to the Hoover dam (supply of water + energy). Maybe with hot rocks and the artesian basin we could grow a desert city. I don't know. We don't have one now.
There is no shortage of land. There IS a shortage of land that has infrastructure, near where people want to live, near people's families, near jobs, within an acceptable commute, etc.
I guess the best way to describe it as "land in which an average Australian would find acceptable to live"
With a sufficient investment of infrastructure, we could create new land which is livable. I think we should actually build some new cities, perhaps up north where there is lots of water. We could start from scratch and build excellent public transport, renewable energy, etc etc.
I don't think we will get anywhere near the size of the USA, because of our physical limitations of soils and water. There is probably space for another couple of >1M cities up north.
But there's no money for that, and no vision. Infrastructure is running down because we'd rather have money now than plan for the future.
I fully expect to buy property in the future, but when I see value. I don't now.
If I had been provided with excellent infrastructure I would have accepted it as a fair deal to take from the previous generation and pass on to the next. Unfortunately it seems that the current demographic bulge with the power has decided to take a lot when they were young, then make it a user pays system for those that follow...
But we don't want to turn this into a babyboomer bashing thread....
The critical thing is: much of what makes a piece of land livable is extrinsic to that particular piece of land. It is the distance to work, services, infrastructure, transport etc that gives it it's value. With infinite infrastructure and infinitely fast travel times land would not be scarce until we hit that far-off time when everyone is standing shoulder to shoulder and we can't all walk on ground level at the same time.
But those 2 things don't exist. So livable land IS scarce.
We agree the surface of the earth is finite, but that's an upper bound we're not anywhere near yet.
Australia is very empty, we have ~100 acres per person.
You and I agree that not all of it is livable. Yes, the Yanks built Las Vegas in the desert, but Vegas is right next to the Hoover dam (supply of water + energy). Maybe with hot rocks and the artesian basin we could grow a desert city. I don't know. We don't have one now.
There is no shortage of land. There IS a shortage of land that has infrastructure, near where people want to live, near people's families, near jobs, within an acceptable commute, etc.
I guess the best way to describe it as "land in which an average Australian would find acceptable to live"
With a sufficient investment of infrastructure, we could create new land which is livable. I think we should actually build some new cities, perhaps up north where there is lots of water. We could start from scratch and build excellent public transport, renewable energy, etc etc.
I don't think we will get anywhere near the size of the USA, because of our physical limitations of soils and water. There is probably space for another couple of >1M cities up north.
But there's no money for that, and no vision. Infrastructure is running down because we'd rather have money now than plan for the future.
I fully expect to buy property in the future, but when I see value. I don't now.
If I had been provided with excellent infrastructure I would have accepted it as a fair deal to take from the previous generation and pass on to the next. Unfortunately it seems that the current demographic bulge with the power has decided to take a lot when they were young, then make it a user pays system for those that follow...
But we don't want to turn this into a babyboomer bashing thread....
The critical thing is: much of what makes a piece of land livable is extrinsic to that particular piece of land. It is the distance to work, services, infrastructure, transport etc that gives it it's value. With infinite infrastructure and infinitely fast travel times land would not be scarce until we hit that far-off time when everyone is standing shoulder to shoulder and we can't all walk on ground level at the same time.
But those 2 things don't exist. So livable land IS scarce.
Ok, given:
-An increasing population
-A population getting wealthier
Land prices will go up because well positioned land is finite. I never disagreed with this.
Everyone thought the internet was the future in 1999. They bought up internet companies like crazy because they wanted a share of this future wealth.
You know how that turned out but the internet still *is* the future, it just didn't get there with cashflows as quick as everyone thought. They got too excited too fast. Speculation took over, prices disconnected from fundamentals. Maybe people bid the internet stocks up to 2020 levels. If you held a portfolio of internet stock until then, maybe you'd do well.
My point is that people have gotten over-excited about property and I think we might be paying too far into the future's price today.
If I think property will be worth more in 20 years than it is now but less in 5, why not buy it in 5 years but before 20?
There are formulas you can use to calculate how much you should pay for an asset compared to your estimates of future cash flow. It's called Present Value:
http://en.wikipedia.org/wiki/Present_Value
When I apply these to even ridiculous rent growth, which would cripple Australian wage earners, I see no value in the current real estate market.
-An increasing population
-A population getting wealthier
Land prices will go up because well positioned land is finite. I never disagreed with this.
Everyone thought the internet was the future in 1999. They bought up internet companies like crazy because they wanted a share of this future wealth.
You know how that turned out but the internet still *is* the future, it just didn't get there with cashflows as quick as everyone thought. They got too excited too fast. Speculation took over, prices disconnected from fundamentals. Maybe people bid the internet stocks up to 2020 levels. If you held a portfolio of internet stock until then, maybe you'd do well.
My point is that people have gotten over-excited about property and I think we might be paying too far into the future's price today.
If I think property will be worth more in 20 years than it is now but less in 5, why not buy it in 5 years but before 20?
There are formulas you can use to calculate how much you should pay for an asset compared to your estimates of future cash flow. It's called Present Value:
http://en.wikipedia.org/wiki/Present_Value
When I apply these to even ridiculous rent growth, which would cripple Australian wage earners, I see no value in the current real estate market.
I just think we've read some of the same books, HG. I enjoy the intellectual stuff as much as anyone, but I don't let it interfere with reality.
As to why you should start buying now, instead of buying in 5 years....... having never bought property, what makes you think you'll be able to pull the trigger even if markets do fall? Aren't you just going to say 'I told you so' and happily say 'I'm going to wait until it hits rock bottom, wait until all your investors go broke and then buy'? You're never going to tip the bottom.
Even for people who believe property works, it's very hard for them to decide to actually take the plunge, borrow money, and buy a place. Even for us investors, who KNOW it works, find it very hard to keep pulling the trigger. That's why most 'investors' only own one property. Somersofties are hardly the norm.
You generally think that property values are based on ever-increasing debt. How will you tip the bottom? How can you be sure that you will buy and the property won't fall another 20%? After all even if it falls 20% people are still going to buy with debt. How do you recognise a level of debt that's roughly around fundamental value or would you think it's *still* stupid because people are still using debt?
Life isn't that simple as you think. Buying property is surprisingly difficult.
Alex
As to why you should start buying now, instead of buying in 5 years....... having never bought property, what makes you think you'll be able to pull the trigger even if markets do fall? Aren't you just going to say 'I told you so' and happily say 'I'm going to wait until it hits rock bottom, wait until all your investors go broke and then buy'? You're never going to tip the bottom.
Even for people who believe property works, it's very hard for them to decide to actually take the plunge, borrow money, and buy a place. Even for us investors, who KNOW it works, find it very hard to keep pulling the trigger. That's why most 'investors' only own one property. Somersofties are hardly the norm.
You generally think that property values are based on ever-increasing debt. How will you tip the bottom? How can you be sure that you will buy and the property won't fall another 20%? After all even if it falls 20% people are still going to buy with debt. How do you recognise a level of debt that's roughly around fundamental value or would you think it's *still* stupid because people are still using debt?
Life isn't that simple as you think. Buying property is surprisingly difficult.
Alex
What don't you believe?
That I am willing to pay more to live closer to the CBD?
That my extra rent is less than running a car?
My total rent is 11440 a year. I can risk my life and rent a 3bdr house in Elizabeth for $145/wk = saving of $3900 a year. After $500 registration costs if it costs $65 a week to run a car I'd be behind.
http://www.caradvice.com.au/642/average-running-cost-of-australian-vehicles/
says $260 a week when you factor in depreciation and other costs.
My $600 bike has lasted for years with 0 running costs, except extra food.
Because I'm not a gambler and I know I can't time the market - and I also know that 5 years ago people were saying EXACTLY the same thing, yet we've managed to make significant gains for our outlay in far less than that period. I don't think you should just jump in and buy any property at a ridiculous price - do your homework, search the market, find a well priced property in a good location, and you'll be fine.
For instance, We can't afford inner city period homes - I'd love to own one, as I know they appreciate like antiques, but we can't afford one, and their rental isn't strong enough for me to hold one - but we have still bought 2 inner city units in just over 2 years for under $300k. Everyone was telling us not to buy (mind you - NOT ONE had an investment property themselves), the market was at it's peak, it was all downhill from here. Longterm property investors will tell you otherwise. Since they are the ones who have alot of wealth, I find listening to them much more beneficial than listening to someone who has not found success. And you know what - they were right, we now have enough equity for deposits on 2 or 3 more properties, and we plan on using it and repeating the cycle.
Here's what I know - if I learn and apply the skills to do what the rich are doing, I can be rich. If I do what the poor are doing, I will be always be poor.
History will show that society is not equal, has NEVER been equal - the rich get richer, the poor get poorer. While I can volunteer and donate to charities and everything else to help the poor, I am not going to follow their lead. I will support and respect them, but I can't accept their beliefs as they don't work and they've never worked to finding financial freedom - which is our goal - living off the pension is not.
By the way - we rent too!
That's how we can afford to invest!Cheers,
Jen
You like real estate, I like shares, but this logic is true for both and I have tried to make the same point, a number of times.
You've got to be in it. Hear the grease paint, smell the crowd.
I'd buy when my PV calculations tell me that property would beat risk-free cash.
I would probably also buy for the security and lack of bother of dealing with rental agents if rent exceeded owning costs, even if the market was still trending downwards. I'd write any further capital losses off as costs of living.
Happy waiting, then. The only time property is that cheap is when no-one else is buying property. Often during a recession. If you've never bought property and you're gutsy enough to buy during a recession, good for you. Me, I'm just a mortal, and I'll have to buy when it looks sort of right. I haven't bought for 3 years, but what do I care. My first IP yields 9% on cost.
The last time rent exceeded owning costs was in the late 90s. It might come again. Do you know how many people told me I was crazy to buy in Brisbane in 2000 when the yield was 2000?
Ah well. I won't convince you, since you don't want to be convinced. For other forumites reading this, just remember: book knowledge and the ability to do equation and draw graphs doesn't make a property investor. Actually going out there and buying does.
Alex
It's easy to sell high when you've bought low.
Sometimes the best thing to do is not buy. You don't want to buy high and sell low. Unfortunately a lot of people end up doing that. I'll probably be the buyer!
Ouch Alex......the truth hurts !!!! Fantastic hard hitting advice but boy, try and pad it out next time to soften the blow !!!
Nice work JenD.
I know. Unfortunately it's hard to buy low because you have to be able to pull the trigger.
Yeah, but obviously you don't count yourself to be in the majority. Me, I don't want to buy high and sell low. But if it's a choice between buying and not buying because I'm too scared to pull the trigger (which I would be if I didn't own anything and had no experience buying).............
Alex
Sometimes the best thing to do is not buy. You don't want to buy high and sell low. Unfortunately a lot of people end up doing that. I'll probably be the buyer!
Reply With Quote
Ha ha, do you really think that in 20 years, your going to sell low, even if you bought at a REALLY inflated price?
I dont think you really know much about investing and you havent been learning either, PROPERTY IS LONG TERM MAN!!!
It can be made short term ofcourse, but it rarely ever is.
even if you do, the longer you keep it, the more you will gain.
Reply With Quote
Ha ha, do you really think that in 20 years, your going to sell low, even if you bought at a REALLY inflated price?
I dont think you really know much about investing and you havent been learning either, PROPERTY IS LONG TERM MAN!!!
It can be made short term ofcourse, but it rarely ever is.
even if you do, the longer you keep it, the more you will gain.
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