I'm not a bear. I used to be a bull. Now I think I'm just realistic.
Grab a coffee and have a read. Happy to revise my theories, open for dicussion.
"Growth" property.
Generally, this implies that the property will "grow' in value, faster than the (generally) negative cashflow against it to provide a net gain year-on-year.
We all know this isn't the case currently. Melbourne may have had a decent exception the past 12 months, Perth definitely defied this 2003-2007, Sydney's West even gave that comment a run recently. Darwin taken a small hit recently after it's own hushed 12m growth. But at present, 'growth' is subjective. Medians are useless at determining underlying trends because of the multiple markets inside markets skewing the sales figures. I don't care about Monday's auction clerarance rates. One or two weekends of bad stats, a downturn does not make.
IRs may be stagnant now, but I have "that feeling" that they're not staying here. No, I dont think the USA's QE2 will impact us greatly. Wage growth has moved and is moving in this country so I feel the RBA will be 'happy' to lift rates until we can't afford it*.
Will properties 'grow' in value? Yes. They can't NOT grow in value. The amount of new dwellings impacted by the rising costs of inflation means replacement values will rise, which means older properties will move with them on this percieved replacement value. The only way property can fall in value in the upcoming market is if land prices fall. Now, in older subdivisions this is very possible, the land is created already and weathered and been exposed to growth since inception. I don't want to hear about 1982 prices in the US, nor the Sunshine Coast.
New subdivisions may be shielded, somewhat. The cost of services and retaining and fencing is also impacted by inflation and rising costs, so they too will be propped up partially by the actual intrinsic value of the works provided. However, the core price of the wholesale lot may come down in value, affecting the new subdivision directly on top of that.
Land prices can fall, do fall and are not immune to falling in the future.
We need 'the trifecta'** to continue growth in this country. We will be reliant on foregn credit because the ACCC is stopping the big 4 from buying OS banks (or part of), so our funding will come indirectly from OS as banks try to sure up more credit. Let's face it - our teeny tiny domestic market can only provide so much capital before it stalls. And OS funders are putting a higher premium on their money - upwards of 5% returns PA required, which is the "rising costs of funds" we keep hearing about.
These funds are coming from larger institutions like the huge 401k funds in the US, who are looking for a solid investment that allows their asset base to grow above their own domestic inflation so when it comes time to pay out INTO their domestic market, they can say what a great job they've done.
This means more 'extra overs' from banks on the cash rate movements of the RBA. I expect SVRs to hit 9.5%+ in this country with the cash rate around 5.5% - 6% and the AUD to be about $1.15 USD.
We will increase our working hours for 43hrs currently to 45hrs.
What does this mean for 'Growth' property?
Your costs to hold will rise significantly, and your rents will move negligibly to match it. Wage growth will be absorbed by higher every day costs, so the ability to pay more on rent will be trampled. As IRs move up, the serviceability calculators increase and the debt is unsustainable for many.
I don't see blood in the streets. I just see an economy with less trips to Bali and older cars and retailers unions screaming that de-regulated trading hours are now hurting employers and they want the good old 9-5 back, please, as spending has been reduced and these casual wages are killing us.
We will work harder to maintain the same.
I think in reality this is called Stagflation, but officially it will be Inflation.
Cashflow positive properties won't fare much better. The cost to hold them may soon trump the once-great return. I'd want to see a return of 15%+ to be comfortable with just hanging onto them.
The population numbers we're seeing aren't all requiring houses. About 75% of the 55,000odd immigrants last year were "family immigrants" and nearly 80% of THOSE were singles being naturalised after a defacto or married relationship - which means they're already accounted for in housing stats as they're already living here! They're some shockingly whittled down numbers that put one of many nails in the 'population growth' argument and explain why we're not seeing 'growth' to match the 'population'.
Like I said, I'm just being realistic. These are actual stats.
But I'm not a bear. I still like the property market.
I see the way to make money out of this upcoming market is to ADD VALUE. Now, 'growth' is a percieved value, and you are 'growing' the value of your property by improving it. Kind of a contradiction, but hear me out.
Renovate. Add a granny flat. Develop. Make your 3x1 a 4x2. Know your product.
Sounds simple, but to many it still isn't. Buy and hope is not an investment strategy. If it works, great! Remember that for most people, they hold an investment for less than 5 years. I don't see 'growth' in that time period. In the upcoming market, you'll make money when you buy, because that 'growth' difference that you're hoping to capitalise on when you sell in a few years may not eventuate. Land prices will either be stagnant, or fall, while the cost to put a dwelling on the land rises, along with the cost of the debt tied to it, which will ramp up faster than the inflation eroding it.
I really hope I'm wrong. I really do. But planning for this scenario will CYA *** , and if 'growth' returns, you'll have the best of both worlds.
it's almost like reading waiting for godot, except we're waiting for go-rowth.
* 'it' being defined as debt.
** 'the trifecta' being inflation, wage growth and average IRs.
*** Cover Your A55.
Grab a coffee and have a read. Happy to revise my theories, open for dicussion.
"Growth" property.
Generally, this implies that the property will "grow' in value, faster than the (generally) negative cashflow against it to provide a net gain year-on-year.
We all know this isn't the case currently. Melbourne may have had a decent exception the past 12 months, Perth definitely defied this 2003-2007, Sydney's West even gave that comment a run recently. Darwin taken a small hit recently after it's own hushed 12m growth. But at present, 'growth' is subjective. Medians are useless at determining underlying trends because of the multiple markets inside markets skewing the sales figures. I don't care about Monday's auction clerarance rates. One or two weekends of bad stats, a downturn does not make.
IRs may be stagnant now, but I have "that feeling" that they're not staying here. No, I dont think the USA's QE2 will impact us greatly. Wage growth has moved and is moving in this country so I feel the RBA will be 'happy' to lift rates until we can't afford it*.
Will properties 'grow' in value? Yes. They can't NOT grow in value. The amount of new dwellings impacted by the rising costs of inflation means replacement values will rise, which means older properties will move with them on this percieved replacement value. The only way property can fall in value in the upcoming market is if land prices fall. Now, in older subdivisions this is very possible, the land is created already and weathered and been exposed to growth since inception. I don't want to hear about 1982 prices in the US, nor the Sunshine Coast.
New subdivisions may be shielded, somewhat. The cost of services and retaining and fencing is also impacted by inflation and rising costs, so they too will be propped up partially by the actual intrinsic value of the works provided. However, the core price of the wholesale lot may come down in value, affecting the new subdivision directly on top of that.
Land prices can fall, do fall and are not immune to falling in the future.
We need 'the trifecta'** to continue growth in this country. We will be reliant on foregn credit because the ACCC is stopping the big 4 from buying OS banks (or part of), so our funding will come indirectly from OS as banks try to sure up more credit. Let's face it - our teeny tiny domestic market can only provide so much capital before it stalls. And OS funders are putting a higher premium on their money - upwards of 5% returns PA required, which is the "rising costs of funds" we keep hearing about.
These funds are coming from larger institutions like the huge 401k funds in the US, who are looking for a solid investment that allows their asset base to grow above their own domestic inflation so when it comes time to pay out INTO their domestic market, they can say what a great job they've done.
This means more 'extra overs' from banks on the cash rate movements of the RBA. I expect SVRs to hit 9.5%+ in this country with the cash rate around 5.5% - 6% and the AUD to be about $1.15 USD.
We will increase our working hours for 43hrs currently to 45hrs.
What does this mean for 'Growth' property?
Your costs to hold will rise significantly, and your rents will move negligibly to match it. Wage growth will be absorbed by higher every day costs, so the ability to pay more on rent will be trampled. As IRs move up, the serviceability calculators increase and the debt is unsustainable for many.
I don't see blood in the streets. I just see an economy with less trips to Bali and older cars and retailers unions screaming that de-regulated trading hours are now hurting employers and they want the good old 9-5 back, please, as spending has been reduced and these casual wages are killing us.
We will work harder to maintain the same.
I think in reality this is called Stagflation, but officially it will be Inflation.
Cashflow positive properties won't fare much better. The cost to hold them may soon trump the once-great return. I'd want to see a return of 15%+ to be comfortable with just hanging onto them.
The population numbers we're seeing aren't all requiring houses. About 75% of the 55,000odd immigrants last year were "family immigrants" and nearly 80% of THOSE were singles being naturalised after a defacto or married relationship - which means they're already accounted for in housing stats as they're already living here! They're some shockingly whittled down numbers that put one of many nails in the 'population growth' argument and explain why we're not seeing 'growth' to match the 'population'.
Like I said, I'm just being realistic. These are actual stats.
But I'm not a bear. I still like the property market.
I see the way to make money out of this upcoming market is to ADD VALUE. Now, 'growth' is a percieved value, and you are 'growing' the value of your property by improving it. Kind of a contradiction, but hear me out.
Renovate. Add a granny flat. Develop. Make your 3x1 a 4x2. Know your product.
Sounds simple, but to many it still isn't. Buy and hope is not an investment strategy. If it works, great! Remember that for most people, they hold an investment for less than 5 years. I don't see 'growth' in that time period. In the upcoming market, you'll make money when you buy, because that 'growth' difference that you're hoping to capitalise on when you sell in a few years may not eventuate. Land prices will either be stagnant, or fall, while the cost to put a dwelling on the land rises, along with the cost of the debt tied to it, which will ramp up faster than the inflation eroding it.
I really hope I'm wrong. I really do. But planning for this scenario will CYA *** , and if 'growth' returns, you'll have the best of both worlds.
it's almost like reading waiting for godot, except we're waiting for go-rowth.
* 'it' being defined as debt.
** 'the trifecta' being inflation, wage growth and average IRs.
*** Cover Your A55.
