Landlords shouldn't bet house on capital gains

[L Bernham]

On another thread I made reference to an interesting article to which some questioned the validity or integrity of some of the statistics.

I thought I would post it here.
Bear in mind this is one persons opinion and although one would expect that the journo is a well educated and informed man he may have biases to certain viewpoints. I'm referring to his implication that anyone getting into property investment in Australia right now must be suicidal.

http://www.smh.com.au/articles/2003/10/26/1067103269143.html

Looks like us renters stand to reap the benefits for a while. Does anyone know where I can lease a car for 2% of its cost??

Cheers
LB

 

[Les]

I believe it's called "spin" isn't it??

G'day LB,

Thanks for the input. I am often amused how articles such as this start by saying one thing, then "switch" the meaning behind the figures to include another market.

In the article, this gent makes reference to the impending "blowout" in the unit markets in Sydney and Melbourne, then "switches" the argument to include houses in general.

Now, of course, some figures quoted can't be discounted - e.g. if it is shown that investor input to the "housing" market is at a 40 year high, then OK. My question is "What percentage of that is for purchasing inner-city apartments?" Could it be that this apartment market makes up half of the total investor mortgages? (Probably unrealistic, but you can see where I'm coming from - no breakdown is given....).


Articles such as this tend to paint a grim picture over all - as such, I continue to be guided by what I see in the markets I am in. But, yes, caution is probably a useful watchword at this particular time in most property markets. I personally don't subscribe to "doom and gloom" in "my" markets - but I agree that SOME markets are destined for rough times.....

I'm also sure, though, that this article will "play its part" in helping to hose down the "over-heated" property market - along with the preceding months' articles. The RBA governor, Peter Costello, and Uncle Tom Cobbley have all had their say - and, I'm sure, will continue to do so. In time, as always, the property cycle will drop out of over-drive and back to a lower gear - until next time.

As always, take what is worth taking from such articles as this, and leave the rest.

Regards,

 

[L Bernham]

Hi Les

I agree whole heartedly.

But then maybe -

"its spin that got us into this mess maybe it will also be spin that gets us out"

cheers
LB

 

[BV]

Les,

I agree,
The article is basically refering to the markets of Sydney and Melbourne, isn't ?
Returns in Brisbane and other capital citiess perhaps have not reached those low levels of returns yet and as such affortability is low and demand is high bringing prices up.

LB
I suspect that renters will have to wait long to see those benefits
In fact the situation may worsen for renters if interest rates go up and some investors choose to get out.

In that situation my guess is that those landlords who choose to keep their I/P's they will be increasing their rents.

Bill

 

[Jakk]

Re: I believe it's called "spin" isn't it??

Originally posted by Les
............. In time, as always, the property cycle will drop out of over-drive and back to a lower gear - until next time.

...and I will stick my neck out and say without any hesitation....THAT.........THERE WILL BE A NEXT TIME!!!!!

Regards

 

[see_change]

LB re

Originally posted by L Bernham


"its spin that got us into this mess maybe it will also be spin that gets us out"

cheers
LB

What "mess" are you refering to. So far no one I know is in a "mess" .

Or is this just another of the flipant comments you seem to like making .

see change

 

[brains]

I thought it was a pretty good article, no sensationalism, just fact.
Especially pertinent is the last part about money still going into property at this stage of the market when the sensible thing to do is put it into the share market (either through a fund or directly).

 

[Aceyducey]

Nice article, I agree it's very much Metro Sydney/Melbourne focused - no surprise given the orientation of the newspaper (Sydney Morning Herald).

I think it's definitely a time to consider long and hard where you allocate your investment funds, but not a time to write off any asset class, just to carefully assess the probably relative returns over the next 5-8 years.

We have, for instance, begun positioning in the share market, but are still focused on property.

If it's a 'spin' driven market - well, investors aren't by definition 'spin'-focused. They look at the reality of the situation - which is why at times many investors seems contrarian.

Actually successful investors are NEVER contrarian, they are merely realistic - it is the non-contrarian gamblers who are following the spin & not clearly assessing the returns

Cheers,

Aceyducey

 

[suggo]

I have been led to believe that every investment should be looked at individually and if the investment is sound before tax benefits are taken into account, then it is a GOOD investment. Is this true?
If it is true then does it really matter what sort of investment it is?

(Obviously when you are looking into the said investment that means you are aware and have factored in all aspects eg the market, interest rates now and possible future rates etc etc)

 

[Les]

G'day LB,

"its spin that got us into this mess maybe it will also be spin that gets us out"

I think I see what you mean - in my recollection, there was "spin" that drove Mum and Dad investors out of shares and into property. Probably by similar negative comments following the "tech bust".

I tend to think that newspapers just LOVE drama !!! Whether it's shares crashing, or property crashing, or shares booming, or property booming. It's almost like NOTHING just "ticks away, doing its thing..... To a newspaper, it either "booms" or it "busts" - jeez, let's not have any half-way measures - that won't sell papers !!!

From where I'm sitting, though, LB, I don't see a mess. And, if I remember correctly, you are also from Brisbane - do you see a mess there? I'm sounding like a newspaper article myself, but all I am seeing currently is "Boom" !!! Maybe a wee bit of tapering off in some areas ......

Let's hope the "spin" doesn't stuff Brisbane up too quickly - I'm liking it pretty much the way it is (after umpteen years in the doldrums). But, time passes, things change - as they will again. But, THIS TIME, I am FAR better prepared than previously.

THANK YOU, property cycle. (Hmmm, shares aren't doing so bad at the moment either .... )

Regards,

 

[BV]

LB

All this doom and gloom talk from the media may actually slow down the market sufficiently so that the RBA will not need to raise interest rates any time soon.

With this in mind, property prices will keep on going up
but at a lower rate, and the rental market will be oversupplied as
more renters will decide to buy their own place to live in.

So rents may fall a little short term due to oversupply, but if interest rates go up my guess is that we are in for rent increases.

Bill

 

[L Bernham]

thanks Les for not taking my poetic license too seriously.

It is what I meant.
It seems when newspapers cry doom and gloom its called spin doctoring but when they do the opposite by saying how its all booming and a guaranteed way to riches etc its "telling it like it is" .

My opinion only- I cant see how landlords could raise rents if there is no change in vacancy rate. If there is oversupply (lets not get into the arguement of if there is or not but lets just say hypothetically) landlords arent going to be able to just put up rents as and when they want to to match interest rate increases.

If interest rates increase and some investors sell, creating more renters, doesnt that mean there will also be more rental properties available so there is a nil net effect on supply/demand of rental properties.

Lets face it, Australia is the last country in the world that will have a shortage of places to live. Lets not forget, in Holland they can fit the entire population of Australia in an area roughly the size of Tasmania.
If we "run out" of properties I'm sure there wont be a drama in building more. (maybe we will run out of builders)
Here in Brisbane we could comfortably fit twice the population without any noticeable change especially as businesses move further out to give jobs to those who are living further out. Happens everywhere else. Dont see why it wont here.

Kinda reminds me of a simpsons episode where BArt stands on top of Statue of liberty and yells to a ship of arriving immigrants something like " go back, our countries full" and the ship actually turns around and goes back.

Sorry to say, our country aint full just yet. Maybe when we get around 200 million we;ll be half full (or should I say half empty )

sorry gone off on a bit of a wild one tonight.

cheers LB

 

[Les]

G'day LB,

Maybe this is where you seem to be at odds with others:-

If interest rates increase and some investors sell, creating more renters, doesnt that mean there will also be more rental properties available so there is a nil net effect on supply/demand of rental properties

If investors sell, you seem to be assuming that they will sell "to other investors" - BUT, if investors generally are "getting out of the market", then it seems to me that they WON'T likely be selling to other investors, they'll be selling to Home Buyers - THEN you have renters looking to rent, but LESS properties available to rent.

Thus, rental vacancies decrease, rents rise !!! See, you were right anyway ('cos you had SAID that !!) - I guess you failed to see that if investors are exitting the market, than investors are NOT getting INTO the market - and THAT creates the imbalance that leads to lower vacancy rates, etc.

Exit, stage left, the "nil nett effect"

Regards,

 

[L Bernham]

LEs
Thats assuming they are selling to actual home buyers.

Where would you propose these home buyers would be coming from.
The home buyer is not suddenly created when an investor decided to sell.

If its a FHB they are expected to come onto the market in a steady stream anyway so for purposes of our discussion they are irrelevant. (ie an investor deciding to sell doesnt create a buyer that didnt exist before)

I will try to use an example -
Assume a country has:
100,000 total stock of houses
70,000 are owner occupied
25,000 renters ie IPs owned by owner occupiers
5,000 vacant

Every year there are a certain number of new home buyers coming in anyway so the figure is irrelevant for our discussion of what would happen if some owners sell as there would no doubt be new houses being built as well etc

If 10,000 properties are sold to either current renters or current owners as new investments there would still be a vacancy rate of 5000, just the mix would be different.
It could become
100,000 total
60,000 owner occupied
35,000 rented (if those 10,000 owner occupiers decided to rent)
5,000 vacant.

Does this make sense. I dont think I explained it too well but I hope you see my point.


LB

 

[np2003]

lol, I know what you mean! I was reading the Bulletin newspaper a few months ago which had frontpage news of some guy making $50K captain gain.. Then a month later it had articles about Property Doom.

Originally posted by L Bernham
thanks Les for not taking my poetic license too seriously.

It is what I meant.
It seems when newspapers cry doom and gloom its called spin doctoring but when they do the opposite by saying how its all booming and a guaranteed way to riches etc its "telling it like it is" .

 

[Bill.L]

Hi all,

LB, maybe if I explain it real slow the penny will drop!

The population is growing, the number of people per household is falling. These two facts mean there is an ongoing need for more new housing.

In a "new" housing estate the houses of the same type are MORE expensive than the nearby established houses. (ie the older ones have depreciated in value)

As interest rates rise new home purchasers( ie the people) will tend to buy the established houses that are cheaper than the new.(that's all they can afford)

If at the same time investors are leaving the market, then the overall effect is to reduce the demand for new housing. Much higher unemployment in the building industry follows. The number of new dwellings being built falls.

As the population continues to grow the number of houses available to rent has fallen(because the investors were selling out remember). The effect is to put a squeeze on existing accomodation.

When a landlord has a vacancy there is a greater demand because of the limited supply and a higher rent will follow.(That is if you believe anything in simple economics about supply and demand)

bye

 

[Aceyducey]

Originally posted by L Bernham
It seems when newspapers cry doom and gloom its called spin doctoring but when they do the opposite by saying how its all booming and a guaranteed way to riches etc its "telling it like it is" .

A small caveat on this.

The general situation at the moment is that when the media reports on the boom they are using PAST RESULTS. effectively they are saying that based on the price increases over the past X period we're in a boom.

When the media at the moment starts talking about an impending doom they are using FUTURE PREDICTIONS, they are effectively saying "this can't continue!" for whatever reason they dredge up - usually based on a rationalisation of what had happened in the past.

Of course, in a period of long-term bust the media reporting is reversed - they can report on actual 'doom' results from the past and may foretell of 'boom' conditions, but again it's just a forward prediction.

So RIGHT NOW there is considerably more verifiable truth in the cries of BOOM than in the cries of DOOM.

Don't trust what you read or see in the media, trust the figures you can check (comp prices in the areas you are researching).

Keep in mind that the future is NOT the past. Just because something is a historic average doesn't mean you can rely on it to predict the future - at best you can receive an indication of what is likely based on all other conditions remaining the same.

Mind you, I put more weight on recurring cycles & historic averages over the long-term than over the short term....but this is stll no guarantee that the future will resemble the past, it's just how humans need to rationalise.

Check your assumptions at the door!

Cheers,

Aceyducey

 

[brains]

Sounds like some of you guys are blaming the media for the slowing of the market, thats crazy. Its just reporting on a naturally occuring cyclic event. Its happened many times in the past and will happen in the future - media or no media.

To my way of thinking theres three ways of determining a slow down and they are:

The amount of time properties sit on the market before selling.

The amount the asking price is discounted to sell.

Auction clearance rates.

All three are indicating a slowing of the property market (in the ares im looking at) and thats before increases in interest rates, when that happens who knows what will happen but i reckon theres going to be a lot of greif and some bargains around (and yes a bust)

****flame suit on****

 

[Aceyducey]

Originally posted by brains
Sounds like some of you guys are blaming the media for the slowing of the market, thats crazy. Its just reporting on a naturally occuring cyclic event. Its happened many times in the past and will happen in the future - media or no media.

Hey Brains,

I agree with your three indicators & what they are indicating, however I haven't seen many commentators in the papers USING these indicators to predict the future.

Remember the media aren't interested in what actually is happening, they are interested in a story And overwhelmingly journalists aren't too bright - otherwise they'd be property investors So they don't know which indicators to use.

They simply blunder around, picking the wrong figures from the wrong sources & using them out of context & sometimes get it right

Howver I do not believe there is a bust on the near-future (next 2 year) horizon - no-one can afford it!

Cheers,

Aceyducey

 

[willair]

Bill L thats a good way to look at the real estate market in today climate,in brisbane it just comes in waves no sooner does the market in houses slow then bang its back again im still waiting for the aussie dollar to hit 75cents US then the games will begin..
good luck
willair..