"It's all relative, isn't it?"

From: Les .

G'day all,

Overheard someone today talking of an auction where the property sold for $350k MORE than THIS buyer was prepared to pay. Yes, it was Sydney - and the final price was $1.6 million (reached in about 2 minutes from the outset, according to the source).

I inwardly gasped - but I'm used to Brisbane prices - then I thought about Jan's first book and her predictions re values if the long-term growth average of 10% is projected into the future. (page 48).

Now the example given was for a Brisbane block of land - but project things forward to suit the market you're in. Let's take Sydney - the median figure I last heard was $310k (maybe 6 months ago). In that 6 months, it's probably gone up another $15k already to $325k. And that's MEDIAN .... which simply means "the price of the house that had an equal number of sales at a LOWER value and at a HIGHER value".

And, in another 10 years, the Sydney MEDIAN is likely to hit the $1m mark (or, at least give it a damned good fright!!!) - assuming that the 10% is sort of even in its progression (and we all know it's NOT).

Is that hard to take? Certainly is for me!!! I'd better stick to Brisbane (median around $145k 6 months ago - so maybe $152k by now???) and in 10 years we may still be able to afford property there - unless all of the NSW'ers go and buy up the place beforehand.

Now, if house prices continue to double every 7 years (average 10% growth) then even little old Brisbane will be at a median of $1m in 2018 - us "baby boomers" better have bought ourselves a retirement pad well before then, eh??

I guess the real question behind the ramblings is this - when house values are at a median of $1m, will haggling to get the price down an extra $5k be worth the effort?? Probably - it will at least pay for a celebratory dinner that night .....


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Reply: 1
From: Keith J

I'm one of those NSW'ers that's coming up to Bris to buy some of your 'cheap' houses.

To answer your question - it seems to me that the majority of vendors will accept an offer of around 5-10% below the asking price. I see this as being influenced by RE agents who want commission on 90% of the asking price NOW rather than the possibility of 100% of it LATER. So in 10 years time we won't be haggling over 5K - we'll be haggling over 50K or 6 months wages.

Regarding haggling over 5K today - it just doesn't make sense to me (I have a buy & hold strategy). I'd rather buy a good property at a fair price and see it appreciate over time. In 20 years time when it's worth $1M I'll look back and think how crazy I was to miss out on all those other good properties just because I wasn't prepared to go the extra 5K.
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Reply: 2
From: Owen .

As you said Les, it's all relative. If you are buying in Brissie at $152k and you get 10% growth you have made $15,200. If you buy in Sydney at $325k and make 10% then you put $32,500 in your pocket (or company or trust or whatever) :eek:) In each case this can be used to fund extra IP's in their own markets (Could buy outside the market though).

Yes, the entry price is higher in Sydney but the payoff is much larger as a result of that. And as we are talking median prices I don't believe the risk is any greater. Growth is growth and percentages are percentages. If you can borrow 80% of the value of your properties then you can, regardless of the numerical value that equates too.

Also remember that the rents are relative too. Average Sydney returns of 7% will cover most 80% LVR loans so once you get into the market it becomes self generating because of the value of the growth - 10% is 10%.

As for discounting, this can be a bit different. 20% discount off $325k is $65k which could be hard to swallow compared to a $30k discount in Brissie. So initially you may have to put a bit in up front (use you equity from you Brissie IPs) to get going, but once you are in the market it's self generating and you can stay in that market.

Go into http://www.domain.com.au (Sydney Morning Herald property classified) and search on properties for sale between $100-$150k return 78 properties, $150-$200k return 255 properties. There are bargains galore. Can't wait until my IP's are worth $1m each. Brisbane ones will only be worth half that by then.
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Reply: 3
From: Gerard C

Will the bubble burst? Bear with me while I objectively explore (ramble about) a few of my thoughts. Sydney’s median house price does worry me somewhat, even though the projections seem rational enough. Residex in their Sep Qtr 2000 predict a Sydney median house price in 2008 to be $719,500. What concerns me is the affordability for the “median” wage earner. Lets take the $1m median in 10 yrs as the model. If we assume that rental returns maintain 6% (I suspect that this may not be the case) then the weekly rent for this property will be approx $1153/week. Income of the tenant would need to be approx 3 times that in gross or pre-tax$ ie $3461/week or $180K p.a. Is this income needed to pay this rent a viable proposition for the majority of Sydney households in 10 years time?
Phillip Ruthven of Ibis has predicted that by 2045 (I think) that the majority of rental property ownership shall be in the hands of superfunds. My own interpretation of this is that the 5-7% returns of today shall drop to the point where it will be difficult for investors to afford financed purchases, but the superfunds (with literally trillions of $) would be willing to invest purely for the capital growth. In 2041 the median will be $9.9M at 9% growth.
So my main concern is this – Will wages be able to keep up (percentage wise) with the capital growth of our properties, and if not, will capital growth be curtailed as a result?
Does this mean that there will be a great divide – more massive growth for Sydney’s east and far less spectacular west?
Anyone care to comment?
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