Get ready for the mother of all property booms!

From Michael Yardney's latest newsletter (his title not mine):

Imagine, for a moment, that it is 12 months from today. How will our property markets have fared in 2010?

It know it's customary to give a forecast at this time of year, but if there is one thing that we have learnt from the Global Financial Crisis, it is that economists and analysts are terrible at forecasting the future - they didn't see the calamity coming nor the quick recovery that followed and many economists predicted the Australian property markets would fall in a heap.

And they were wrong, as the overall property market grew strongly last year.

I could not agree more. It is shaping up for a busy year. I've been to a number of OFIs over the last 3 week-ends and there are many more buyers than there is stock to buy - pushing up prices (the old supply/demand equation).

I'm hopeful of more stock coming onto the market in Feb/Mar, Traditionally, it does work that way as kids go back to school, people return to work from the holidays and they get down to the business of putting their property on the market.

Let's hope so for all of us who are wanting to buy ;)
 
Sorry mate, I'm really not seeing it.

In an environment of rising base rates (and likely interest margins as well) and coming off big growth in recent times I reckon best we can hope for is a few years of flat prices to inflation + a few % growth.

What I dont see is the "mother of all property booms" - what would that be - prices doubling in the next 3 or 4 years?

Why will that happen? $50k FHBG? 10% inflation?

But of course as a BA you and Michael Yardney* both need to beat that drum as hard and as fast as you can!!!

* Nothing against Michael and Metropole - when I was o/s I used Metropole as a BA and they did an exceptional job - utmost integrity, service, and results - highly recommend them. But thats neither here nor there for his market calls!
 
Sorry mate, I'm really not seeing it.
I respect your right to disagree. Perhaps I am influenced too much by the crowds I have to fight off when I'm trying to inspect places. Just this week on a Thursday night at 6:30pm, surrounded by storms, I had to really struggle to get in to see a property - must have been 50+ people all at once in this 2brm unit coming up for auction.

But of course as a BA you and Michael Yardney* both need to beat that drum as hard and as fast as you can!!!
I don't mind beating Michael's drum. He's a competitor for the same client base but I happen to agree with him on this call. (I don't happen to agree with all his statements)
 
Perhaps I am influenced too much by the crowds I have to fight off when I'm trying to inspect places. Just this week on a Thursday night at 6:30pm, surrounded by storms, I had to really struggle to get in to see a property - must have been 50+ people all at once in this 2brm unit coming up for auction.

I know nothing about your market - but in Melbourne I still cannot believe how low rents are, and how prices can increase until rents catch up. Especially given these "shortages" you are referring to.

You're now talking minimum $450k + costs for barely $350pw rent gross before expenses on the types of properties Metropole buy in Melbourne (great properties - but seriously - how long til these go +ve!!). Again it may be different in Sydney - no idea.

Strip out the tax benefits and your actually do need a lot of growth before you even break even. Unless you want to play russian roulette with LoE (and over a 40 year retirement it is really russian roulette!!) you aint retiring anytime soon (its going to take a lot of years at $10 or $20pw annual increases on these properties).

As an aside - mid to late last year I went to a couple of opens. One was for a low end unit in the same building we have an IP in - real FHB territory in a
nice suburb - $450k mark for the units. Same experience as you mentioned - 25+ people, queueing up to get in etc... We also looked at quite a few potential new PPORs (around $1m and a slight shade over) - lucky to have 2 or 3 other people viewing. This tells me that there is demand out there - but a real bottleneck at the bottom end of the market, limited supply, and price growth by FHBG and low interest rates. With lending standards tightening, rates rising, and drops in FHBG - this segment has a lot of counter pressure against limited stock, and a shortage of new developments.

Ended up canning the new PPOR, staying put and buying a CIP instead. Wish I'd done that earlier - no more fixing rangehoods, awful yields, and ungrateful tenants who balk at $10 - 20 pw annual increases when the capital cost of the asset they are leasing has increased by a much greater %age. I know in 5 - 10 years time when its seriously +ve I wont give two hoots about capital values. Living of rents - now a realistic and attainable goal!!

Never again for the resi IP I say!
 
I know nothing about your market - but in Melbourne I still cannot believe how low rents are, and how prices can increase until rents catch up. Especially given these "shortages" you are referring to.

You're now talking minimum $450k + costs for barely $350pw rent gross before expenses on the types of properties Metropole buy in Melbourne (great properties - but seriously - how long til these go +ve!!). Again it may be different in Sydney - no idea.

I think Trogdor, Melbourne has seen more growth in 2009 than Sydney. For $450K 2brm unit here were are looking at $420pw rent perhaps. Yields have fallen from 5.2% back towards 4.x% due to price increases and rents are still playing catch up.

But that is fairly typical I would have thought, since prices can go up almost instantaneously and rents still have 6 months of locked in lease to run their course before coming up for review.
 
For $450K 2brm unit here were are looking at $420pw rent perhaps. Yields have fallen from 5.2% back towards 4.x% due to price increases and rents are still playing catch up.

if thats in metro decent "blue chip" areas in Sydney thats more respectable and much better than here and more compelling.

I guess thats the nature of property - a statement may be a lot more applicable in Sydney than in Melbourne - and you often only see your own back yard.

While I've got you - let me ask you a really dumb question - why are body corporate charges so high in Sydney? I remember surfing on realestate.com and seeing various adds in Sydney with body corporate fees 3x Melbourne rates for comparable age / amenity level properties.
 
if thats in metro decent "blue chip" areas in Sydney thats more respectable and much better than here and more compelling.
Metro / Inner West - yep.

While I've got you - let me ask you a really dumb question - why are body corporate charges so high in Sydney? I remember surfing on realestate.com and seeing various adds in Sydney with body corporate fees 3x Melbourne rates for comparable age / amenity level properties.

I'm not sure what BC fees you have in Melbourne. Sydney examples:
1. 4 units in an Art Deco block $300 per qtr (all OO and self managed)
2. 12 units in a block (3 floors) $550 per qtr (no lifts or pools)

....all seem pretty reasonable to me.

The high ones - sometimes $1K per qtr seem to be with lifts, pools, saunas, the whole works & jerks. And yes, if you own a 1brm apartment in one of these you'd lose most of your rent in BS fees, rates etc. :(
 
What I dont see is the "mother of all property booms" - what would that be - prices doubling in the next 3 or 4 years?

to qualify as the 'mother of all' i believe you're correct, it would have to be doubling in the next 3 or 4 years, which is a big call (or just an exaggeration/hype as we know it is).

it will be interesting to see what if any impact rising rates have against all the forces pushing prices up. they may have helped a bit with curbing prices back in 08 but i dont know that theyll have as much as an impact this time

what i wouldnt do for a time machine

block of 95 units here (western sydney), 2 lifts, 5 stories, $425/qtr
 
As always, the looseness of credit will determine what happens to property prices this year.

Rates are increasing, LVRs are decreasing, DSRs next?
 
Hiya WW

Affordability as in terms of DSR and the way lenders have been asessing repayment capacity has already been eroded ahead of rate rises., in some cases by 20 %.

The current credit cycle where we are still in" credit" rather than the sales part of the cycle, is more driven by availabilty of cost effective funds to lend, rather than credit risk alone. The risk side seems to have calmed a lot. No longer are we getting daily announcements of tightening on risk, now its more like weekly.

The late 80s were a different time, but credit wasnt cheap nor easy, and we had stoopid asset value growth on top of inflation, and there was this fear factor that if you dont get in now, you are done for.


ta
rolf
 
You can always assume that the market falls by 15% over the next 2 years
and property prices stall,in various areas around Australia,who's to say that inflation starts to kick in a big way,and the rates go above 8%,and the real facts about umemployment are told,the way i look at things we have had about 4-5 booms in inner Brisbane over the past 8 years,prior to that it was every 5-8 years,every re or ba or taxi driver will tell you the same items,prices will double within 5 years:rolleyes:,interest rates will stay low:rolleyes:,rent will double within 3 years :rolleyes:,and most agents-ba i talk too still think the sky's the limit,even with the only investing experience is less then 2 years
..willair..
 
Hiya WW

Affordability as in terms of DSR and the way lenders have been asessing repayment capacity has already been eroded ahead of rate rises., in some cases by 20 %.

Yes, I suppose that makes sense, because they can reduce risk without it making the front page, like it does with rate rises, and LVRs to a lesser extent. Suppose post codes get tightened first up as well (because a journo wouldn't bother tracking that)


The current credit cycle where we are still in" credit" rather than the sales part of the cycle, is more driven by availabilty of cost effective funds to lend, rather than credit risk alone. The risk side seems to have calmed a lot. No longer are we getting daily announcements of tightening on risk, now its more like weekly.

I don't see how risk, reward, and funds available, can be considered independent of each other, anywhere along the distribution chain Rolf.....even factoring in market inefficiencies.

If there's a tightening of "availability of cost effective funds to lend", then someone along the credit chain is projecting lower risk adjusted reward for Aussie resi mortgages.....whether that be Aussie fund managers in cash or bank bonds, or foreign wholesale lenders. .....

And I'd guess China's credit contraction and our rising cash rate have something to do with it.


The late 80s were a different time, but credit wasnt cheap nor easy, and we had stoopid asset value growth on top of inflation, and there was this fear factor that if you dont get in now, you are done for.

ta
rolf


We can only have stoopid asset value growth if lenders approve loan apps for stoopid offers :)

Do you recall what the DSRs were in those days? I've understood they weren't as high as recent times.


every re or ba or taxi driver will tell you the same items,prices will double within 5 years:rolleyes:,interest rates will stay low:rolleyes:,rent will double within 3 years :rolleyes:,and most agents-ba i talk too still think the sky's the limit,even with the only investing experience is less then 2 years
..willair..

Yeah I had a Public Trustee tell me Wednesday prices are going to go up in Bris 10%pa for the next few years.....cos of the shortage of stock you see.

Well, that's one side of the equation......

debt serviceability and credit availability is the other.

 
I could not agree more. It is shaping up for a busy year. I've been to a number of OFIs over the last 3 week-ends and there are many more buyers than there is stock to buy - pushing up prices (the old supply/demand equation).

Also went to an OFI today in western sydney. Could not believe the line up out front. Over 50 people to look at a 3 bedroom townhouse (7 beds inside!) leased to housing dept with gross yield of 5.8% on asking price.
 
Also went to an OFI today in western sydney. Could not believe the line up out front. Over 50 people to look at a 3 bedroom townhouse (7 beds inside!) leased to housing dept with gross yield of 5.8% on asking price.

Similar experience here for me today too. Got in a line of 50-60 to inspect a 3brm unit that needed a new kitchen and bathroom - and I mean they really needed to be replaced - the bathroom was black with mould. This is going to sell for $420-430K and there were many Indian & Asian people wanting to purchase it (I listen in to their conversations ;))

So I see no D&G on the ground - just like you twobobsworth. If anything I'm seeing people with a lot of confidence.

Hey, I even stood in line, behind a bunch of (mainly Asian) but also Egyptian and others to inspect a whole unit block in the Inner West that is ripe for strata titling asking $3.4M and only showing a bit over a 5% yield.
 
I have been going hard in Melb since early last year and that market as we all know has boomed and still going strong.

I just signed up my first property in Sydney. Original offer fell over due to finance, came back on the market yesterday, 3 offer on the table, one came under asking the other was not using selling agent, say no more....

I placed offer, full asking price settle end of March and my offer has been accepted, not easy coming from Perth with competition like this.

No, definately not boom times;)

I am going hard and it is now Syd market I am chasing.

Cheers, MTR
 
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