Housing Crisis: The Cold Facts?
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So what would stop them from renting out one bedroom for $140 pw? That would take their repayments down to $210 pw and give them $490 pw to live on.
That's how I paid my first mortgage...rented out a room. It's just not that hard to do.
I have a job so go quiet from time to time.
Don't know why I bother working though - I could just buy property and watch it miraculously increase in value! Infact, everybody should do that - nobody should work at all.
(When I get a chance I'll go through your figures)
That's the mystery (or irony) of investing. Not everyone will do it. Investing books have been around for decades, for most people still don't understand saving, much less investing.
Don't bet against human nature, YM. You always make that mistake. You think humans will react logically, but they don't.
Alex
Which brings us to that old question. Which is if resi property investing is so great ( i don't mind it) why aren't funds and institutions investing in it.
Why aren't there companies with thousands of resi properties on their books?
There seems to be funds for every investing area, except resi property. Interesting question.
Why aren't there companies with thousands of resi properties on their books?
There seems to be funds for every investing area, except resi property. Interesting question.
They do it in the US, but not here. I think it's partly because the market is so fragmented. A 6-pack block worth a mil or so is great for an individual investor, but funds and institutions need scale. That's why they go for office properties, big industrial, etc. You don't see the big funds owning small office suites, either, unless it's a big building.
Added to that (as we all know) net cashflow from property isn't that great. With a decent amount of gearing you're almost certainly in a tax loss position. Funds cannot easily pass those losses to investors, which really changes the returns especially as you don't see capital gains until you sell it.
In the US the residential REITS own buildings / developments with hundreds if not thousands of units. Those are fairly rare in Oz, because of our population and just lack of massive residential developments. The large population in the US, for example, means that the sheer number of renters (even though their ownership % might not be much lower than ours) is enough to support entire rental buildings.
Also, they have different rules about rentals and non-rentals (condos). I'm not sure of the exact details but it seems a lot of buildings are EITHER rentals or owner occupied.
Whether an investment is good depends on your circumstances. I'm quite happy with just a couple mil in property, but for a fund that wouldn't cover the overhead.
Alex
Bill - Thanks for making the comparison. Comparisons over time are so difficult as everything else is changing at the same time however using your own situation makes the comparison more meaningfull.
I agree with your conclusion at a point in time. That is, 22% of income for repayments vs 20.7% of income for repayments. Looks to be similar.
But the big thing that you missed is inflation. Interest rates were at 14.5% in 1981 for a reason. Inflation in the early 80's was approaching 9.5% (or more). Therefore the interest rate in real terms was only 5%. This is similar to todays real interest rate (8.79% less inflation of 3.79% is a real interest rate of 5%). Why does this matter? Well check out these figures.
Assume you maintain the ratios above over the loan (i.e. contribute 22% and 20.7% of income respectively). Then assume that wages inflate by CPI (9.5% and 3.79% respectively). In the early 80s you would have owned your home outright in only 9 years and would have paid $79,000 in total over the 9 years. In todays environment it would take you 15 years to pay off the loan and total repayments would be $350,000.
So it might be the same percentage of income but the loan term is much longer and you end up paying much more. I would much rather buy a house in your era than mine.
edit: Just as an afterthought - this is why I like house price relative to income (ratio) as a measure. If it is expensive relative to your income then there is no free lunch on the financing side - somebody, somewhere will pay for it.
Did you see the graph that i linked to that Arjay posted up??
Unless you've invented a time machine, we don't have that choice. I wonder whether our kids will say the same thing to us in 30 years?
Alex
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Dear YM,
1. ... Provided that property investing is really your life passion whereby you can afford and able to devote yourself fully to it as a full-time pastime in the first place;- otherwise it can be as "boring" as any other jobs that we do not like to do.
2. i know of a number of investors who have lost their monies in property investing too.
3. Thus, for me, continual self-education and doing due diligence are critical to succeed in one's property investing, please.
4. For your further comments and discussion, please.
5. Thank you.
Cheers,
Kenneth KOH
Cheers,
Kenneth KOH
Kenneth how could this be possible? Resi IPs on the majority run at a loss, so you need a job or income to support them?
why don't institutions invest in resi IP? because they run at a loss. It's easy to argue that the increase in value makes up for the losses, but most things go up in value, so why not buy something that yields?
Yes - there is something wrong though with the income side of the equation on that chart. In some cases household income has nearly tripled in 10 years in a low inflation environment. Either he is using averages (s/be median) or he is capturing the rise in 2 income households. Probably the latter as Andrew had already pointed out the issue with median.
My argument is that houses are more unaffordable than they used to be. Bill's argument is that they aren't - entry level was always tough.
If it requires 2 incomes now instead of 1 income to buy the same entry level house then that would prove my point - they are now more unaffordable. The numbers Bill gave me were good as they were both based on dual income to compare apples and apples.
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Dear Ausprop,
1. I've thought that as fellow property developers and investing at wholesale level, we are actually proactively creating our own profit (and time) for ourselves, by buying land to build houses for sale or/and for rental purposes, do you not agree?
2. Perhaps, there isn't as much opportunity available within the Perth property market, for us to develop profitably now in today's weak market conditions.
3. You ask why don't institutions invest in resi IPs? Probably, not in Australia at this point in time, which I do agree with you presently. However, things may change in the future.
4. Back in Singapore, however, we do presently have certain financial institutions, such as the Great Eastern Assurance Group, and the Kuwait Finance House-Malaysia Berhad? (KFHMB) etc investing heavily in the upper end of the resi property markets.
5. The KFHMB has been recently reported as having purchased options to buy some 97 (46.2%) units of the 210 freehold apartment units from Guocoland at its Goodwood Residence Development Project.
6. While many property investors do require a full-time employment income to get their housing loans from the lending institutions, a few of the investors are actually self-employed and see or treat their own property investing activities as a full-time business activity for themselves.
7. As I have heard Billy Zheng once said, property is just a "vehicle" for the financial game, to get the bank finance to invest profitably.
8. As a financial strategist, Billy Zheng is suggesting that the real game in property investing is not the property investing activity per se, rather it is a fundamentally a "financial" game, i.e to borrow monies from the bank to invest and that the tool incidentally happen to be the property itself, as in the case of investing in the residential real estate.
9. As a property developer cum investor myself, while I do not fully agree with Billy Zheng's perspective per se myself, I do acknowledge that there is however some "truths" in what he is saying too.
10. For your further comments and discussion, please.
11. Thank you.
Cheers,
Kenneth KOH
you see being a developer is in my opinion quite different to buying a house and holding and hoping
Bingo. Most savvy investors see resi property as a vehicle for cheap credit, with that credit being used in higher yielding areas. The some aim of investing only in residential property isn't one shared by many high net worth individuals I have dealt with personally.
Even the most strident equities/business fans who don't believe in property speculation have geared their property up to the hilt to acces cheap credit for their trading activities.
Yes - it's really arbitraging stupid banks who think property is risk free. Why not take their money and invest it in other things if they let you?
AND taking advantage of owner occupiers who will do anything, including ignore rental yields and pay over the top prices for properties. I don't get it, YM. You see all that, and you still don't do it? How do you have such contempt for ordinary people yet still expect them to act rationally? I have contempt for humans and THEREFORE I don't expect them to act rationally.
Alex
I think they will continue to act irrationally but the credit supporting their irrationality will dry up. It will be taken out of their hands.
On a side note I hope to keep this thread alive to hear what Bill has to say - it took 5 or 10 mins of my day today to work out the inflation effect on those loan scenarios!
Hi all,
YM, Yes of course there was inflation then, but no-one knew how long it would continue, would it go up, or would it go down! Pretty much the same as today.
This thread is about whether housing is in crisis and unaffordable. If the house took 15 years to pay off instead of 9 so what. A couple who went into housing now, like those I highlighted would not be in a worse off position than we were in '81.
The point being that there is no affordability crisis.
A young couple starting out today, are likely to have pay rises much faster than inflation for a few years, just as we did in '81. Paying off a loan of $180,000 with 2 rapidly rising incomes starting at $86,000 (combined) should not take 15 years if they are trying.
Having a salary of ~$53,000 after tax and housing repayments, leaves a lot of room to pay off the house, again depending on priorities.
Whether purchasing now or 27 years ago was a better time to invest is an entirely different question.
bye
YM, Yes of course there was inflation then, but no-one knew how long it would continue, would it go up, or would it go down! Pretty much the same as today.
This thread is about whether housing is in crisis and unaffordable. If the house took 15 years to pay off instead of 9 so what. A couple who went into housing now, like those I highlighted would not be in a worse off position than we were in '81.
The point being that there is no affordability crisis.
A young couple starting out today, are likely to have pay rises much faster than inflation for a few years, just as we did in '81. Paying off a loan of $180,000 with 2 rapidly rising incomes starting at $86,000 (combined) should not take 15 years if they are trying.
Having a salary of ~$53,000 after tax and housing repayments, leaves a lot of room to pay off the house, again depending on priorities.
Whether purchasing now or 27 years ago was a better time to invest is an entirely different question.
bye
