That's a fair enough point, but property investors have to deal with sale costs and CGT. Easier to hold the properties and borrow against them, or just let the rent supplement your other income streams.
Home Buyer Strike
- Thread starter HomeBuyerStrike
- Start date
That's a fair enough point, but property investors have to deal with sale costs and CGT. Easier to hold the properties and borrow against them, or just let the rent supplement your other income streams.
Well the point about hoarding land can be turned in favour of the bulls just as it can be used to support the 'there is an oversupply of housing argument'.
When the next generation accepts living in shoe boxes as the norm like in Europe and Asia (eg cf HK, Singapore, Tokyo), even a 100sqm land hoarder in inner city Sydney is suddenly sitting on something quite valuable (if they aren't already).
People might not start living in 'rooms' as that's pretty unlikely to be the norm before HK/Singapore/Tokyo move towards that trend, but eventually inner city land will be used to either go up or be split into smaller lots. And these smaller lots with land or apartments (if it's been built up) will sell for what houses sell today (ie at $600k-$800k a lot).
When the next generation accepts living in shoe boxes as the norm like in Europe and Asia (eg cf HK, Singapore, Tokyo), even a 100sqm land hoarder in inner city Sydney is suddenly sitting on something quite valuable (if they aren't already).
People might not start living in 'rooms' as that's pretty unlikely to be the norm before HK/Singapore/Tokyo move towards that trend, but eventually inner city land will be used to either go up or be split into smaller lots. And these smaller lots with land or apartments (if it's been built up) will sell for what houses sell today (ie at $600k-$800k a lot).
Not always. People are usually greedy and will tend to speculate that it'll go up more. Obviously the fact they already sit on profits will give them firstly, comfort, second buffer, and thirdly aftertaste of long term hold. So even if yield is not attractive, they'll be more inclined to hold. CGT will diminish the monetisation value anyway.
Most people will probably choose to leverage off the asset to perhaps invest into higher yielding asset classes and eschew the sale strategy
I'm not sure what that means, I don't think present or past conditions alone make a sound basis for future decisions. That is, if they feature strongly in those decisions at all.
That is an extreme situation which would be the polar opposite of what we have now. More reasonable would be where people match their utilisation to their current or near term needs.
There was a recent article in Virgin Blue's voyeur magazine which dealt with concepts for future developments. The basis for at least one of these was the growing demographic of single person households, I believe I have seen this in other documentation and possibly the recent Commonwealth Bank presentation on the market. At least some of the current commentary is taking this demographic as a continuing trend without attempting to understand it.
Those points would of course form part of the discussion regarding the current utilisation of property.
What you're talking about is doubling up, basically and getting deeper into the market. My point was that investors have to decide when to take profits. Casinos operate on the basis that their marks won't know when to cash in. In commercial market businesses who decide to take profits from capital appreciation will often enter into sale and leaseback deals.
I'm not sure why people would make a lifestyle decision to choose to live like that. Australia appears to depend on continued migration to support it's market so this would rely on people investing heavily in migrating here to live that lifestyle.
okay, i'm out.
if you're going to reference and in-flight magazine as credible or truthful or realistic or all of the above insofar as representing your argument, then i know where this is headed and i'm not wasting my time with this thread anymore.
pass.
I see nothing wrong with citing an in-flight magazine, wherein most if not all the content is commercial in nature. Somebody paid for that content to be there and in fact the concepts were part of an industry competition if I recall correctly so have been tested for merit by the industry. I haven't seen any commentary attempt to explain the unusual demographics developing in the Australian market and in particular this peculiar single person household demographic. Regardless of the significance of the content in the in-flight magazine article, it exists and in the absence of other qualitative analysis it warrants mention. I would welcome other analysis should it be proffered.
Back to the issue at hand, these dialogues whether online or otherwise have a habit of drifting off topic. If there were a home buyer strike, I think it would be highly unlikely that this would be the result of any organised social movement. If there were a strike however that developed as a result of market conditions I wonder what would the effect be on the wider economy. It seems that property and mineral exports are the main drivers of the Australian economy. It seems like Australia had a bumper year in tax year 08/09 for exports, primarily driven by mineral exports. In that year total exports were $254 Billion. It seems like the property market is as important as the total export market for the Australian economy, if not more important. If there is a slowdown in the number of property transactions then what fills the income gap?
Not necessarily - I had a plan to borrow against properties to fund direct investment into higher yielding investments (such as some shares). The property component of the portfolio can bubble away in the background while the shares grow (and are supplemented by extra borrowings against property, supported by rents), while I simply receive the dividend yield as income.
Knowing how and when to convert the portfolio to 'income mode' is a large part of the story.
+1. Let's keep it nice - there's some good food for thought amongst this.
One thing I'd add is the time value of investments. Over time your rents rise and your loan reduces. I've never done hard economic analysis on how this will work for me (beyond basic calculations), because the difference is likely only to mean working (or not) for an extra year or few.
Units which in today's terms are making 5% are in fact making a lot more for me, because I bought them at a significant discount to today's price. This doesn't always model well, but it's the reality for investors who can hold on over time (and buy multiple IPs).
what you are saying makes a lot of financial 'sense'. If you buy when prices are reasonable and take a very long term view residential property is still an excellent long term vehicle for creating wealth.
The two main problems i see are
(a) some people only become interested in residential property as an investment asset after it has shown a period of rapid price appreciation
(b) some people try to turbocharge the process by taking on excessive debt, the 'bite as much as you can and then try to chew like mad'.
From the tone of your posts i dont think you fall under either of these risks. Well done, and keep to your strategic plan.
Personally i am not so sure this is the right way.
By leveraging a potentially overvalued asset, you are counting on the total return rate of the newly invested asset offsetting the potential decline in the potentially overvalued initial asset (lots of potential's in this sentence, but im sorry investing is not a definative science).
I know alot of people on this forum dont like to sell, full stop, to avoid CGT.
But personally i am not comfortable with this strategy.
Instead i would suggest two alternatives
(a) if one needs to start creating income (or wants to diversify their asset holdings), then look at selling some of the low income generating assets and invest the net after tax proceeds in higher income assets (and cop the CGT).
(b) if one is still in their asset accumulation phase, then just do nothing.
If residential property is potentially over valued, then just sit on the sidelines. If you started investing in residential property when prices were 'reasonable', then you should be sitting on some nice gains which will act as a nice hedge or insurance. As VR Berlina said, the ylds on purchase price will probably be satisfactory, so there is little need to worry about interest rate rises, short/medium term property declines etc.
The great thing about this strategy is that there will be a time in the future where it makes 'sense' to start accumulating property again. One should have a skill set in this area (due to investing in the asset class over long periods of time), so one should have a competitive advantage over others in seeing the opportunities when they arise.
That sounds like diversifying and doubling up at the same time. What I was referring to would be de-risking and enjoying the profits. Your still exposed to your property investments but have added some exposure to, for instance, equities.
It does change it actually Mr Troll, but you'd have to understand about economics to know why.
This assumes a soft landing. I'm not convinced by this scenario. I think to sustain the capital values they have to keep growing. Any slowdown would have to be very brief in my opinion before it would turn into a drop. Not necessarily because of the interrelationship between income and investment for the economy but because a lot of investors rely on capital gain to cancel out cash losses.
I would have expected a more hostile and less receptive audience here to be honest. However, I figured it was worth a try engaging bulls on this topic and I haven't been disappointed. There doesn't seem to be much cogent argument elsewhere in Australia on this topic except for a few noteworthy exceptions. Too much of the dialogue is white noise, but you just have to filter that out. Thanks for engaging with the topic.
Definitely some things to think about there. Personally, I'm a big fan of actively managing risk, and as such have not simply hocked up to the eyeballs for investing, but have lected to take a more 'slow and steady' approach. There will always be times when certain activities (eg buying certain assets) is good, and times where they are not so good. The 'do nothing' option, for short to medium periods appeals to me (in fact we are not buying property right now unless a stone cold bargain comes along).
In terms of borrowing against assets to buy other assets, I figure that cashflow is very important. There are two factors critical to me borrowing against property for shares, for example:
1) The yield on the properties covers the cost of borrowing (typically this means borrowing to an LVR of a lot less than the maximum available); and
2) The shares are longer term yield oriented (ie I'm using these shares to get tax effective income rather than pure capital growth).
From this, it is probably apparent that I am not a particularly aggressive investor. I have no problem with those who are, but it's not for me. As I've posted on other threads here, I've been surprised by how well and quickly the whole investing thing has been (zero to a million plus equity in 6 years), but I'm also conscious of not getting greedy or overconfidant and screwing it up.
In the end, I'm not as concerned with the total portfolio value as I am with the cashflow I can 'safely' generate from it.
Interesting CommSec comments on the 'undersupply' and in particular utilisation figures:
http://images.comsec.com.au/newsresearch/articles/trends.pdf
Same data, different take on it:
Real estate tale of two cities
But what do I know, clearly there is no shortage...
But if I were a betting man, and I am, I'd be placing my resi property bets in Sydney right now. Oh wait, I am!!
Cheers,
Michael
Real estate tale of two cities
SMH said:
But what do I know, clearly there is no shortage...
But if I were a betting man, and I am, I'd be placing my resi property bets in Sydney right now. Oh wait, I am!!
Cheers,
Michael
I don't see that they're using the same data, they seem to be using completely different data. Particularly the comments regarding increased utilisation are unique to CommSec. I haven't had a chance to look for their source yet.
Similar threads
