Market Reality - 'Jazzed up

From: Steve Navra


The article "Rental Reality, Timing and Market Sentiment" is attached for your perusal.

Note:
I have attached it to this posting in preference to sending out 1000's of e-mails.
(My new time management method!)

Please post you feedback and comments for further discussion.

Also feel free to e-mail me any specific individual questions.

Regards,

Steve
 
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Reply: 1
From: Steve Navra


HELP!!!

I can't seem to get the attachment working.

Feel free to email me and I will send out the article to whomever requests it!

(So much for time management - BAH)

Regards

Steve
 
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W

WebBoard

Guest
Reply: 2
From: The Gow's


Hi Steve
I think you forgot to attach the attachment!

"Three essentials to happiness in life are something to do, something to love, and something to hope for."
Addison
 
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Reply: 2.1
From: Steve Navra


I have sent out the article to all who have requested.

Will send out to any further enquiries later today and tomorrow.

Please post your comments.

Regards,

Steve
 
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Reply: 2.1.1
From: Asy .


Sorry, Steve,

Sim really is the attachment expert, but it seems he has abandoned us in our hour of need... How dare he! ;o)

May I have a copy too please?

asy


"Don't forget what happened to the guy who suddenly got everything he ever wanted...
He lived happily ever after.
(Willy Wonka).
 
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Reply: 2.1.1.1
From: Boyler Room


Steve,

make sure when ur typing ur message u check the Attach file box.

Then go thru the usual motions of checking spelling etc.

Once uv done that click Post and a new window will appear asking you to attach the file.

Click the radio button that corresponds with the type of file, then click Browse and find your file.

Type in a description and click Yes if u want to add more files or No if this is the only file u want to add.

Click upload now and you should be off and running.

Boyler Room
Co Ordinator for ADL Freestylers
 
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Reply: 2.1.1.1.1
From: Fredo J


Steve would like the attachment please
richfmod@yahoo.com.au
Ambition is the lock motivation the key
 
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Reply: 2.1.1.1.1.1
From: Steve Navra


Hi Boyler,

I tried all of that!
Damn, still didn't work. Never mind the attachment is on its way to Asy who has promised to make it available.

Steve
 
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Reply: 2.1.1.1.1.1.1
From: Asy .


Gee...

It's not working for me either, Steve...

:eek:(

However, I have enlisted the Mighty Sim!

SIM TO THE RESCUE!!!

:eek:)

asy


"Don't forget what happened to the guy who suddenly got everything he ever wanted...
He lived happily ever after.
(Willy Wonka).
 
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Sim

Administrator
Reply: 2.1.1.1.1.1.1.1
From: Sim' Hampel


Here 'tis, as promised... from Steve, to Asy, to me, to you !

sim.gif
 
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Reply: 2.1.1.1.1.1.1.1.1
From: Steve Navra


HOORAY for Sim,

Thanks mate - drinks on me!

Regards,

Steve
 
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Sim

Administrator
Reply: 2.1.1.1.1.1.1.1.1.1
From: Sim' Hampel


My pleasure Steve - glad I could help.

For future reference, attachments must have filenames of 43 characters or less (including the extension and any spaces in the filename). I only just discovered this tonight ;-)

sim.gif
 
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Reply: 3
From: Always Learning


Steve



Thanks for the posting, it is a very interesting perspective. Looking at the RIEA website I found the following table:



<table cellSpacing="2" cellPadding="2" width="90%" border="1">

<tbody>

<tr vAlign="top">

<td>





</td>

<td colSpan="3">



SALES ACTIVITY



</td>

<td colSpan="3">



RENTAL ACTIVITY



</td>

</tr>

<tr vAlign="top">

<td>



Capital City



</td>

<td colSpan="3">



Nominal Median House Prices



</td>

<td colSpan="2">



Quarterly Median Rents



</td>

<td rowSpan="2">

<p align="center">

Vacancy Rate

%

</td>

</tr>

<tr vAlign="top">

<td>





</td>

<td>

Dec Qtr 2001



$'000

</td>

<td>

Change from Sept Qtr 2001

%

</td>

<td>

Change from Dec Qtr 2000

%

</td>

<td>

3 br Houses



$/week

</td>

<td>

2br Flats/Units/Townhouses



$/week

</td>

</tr>

<tr>

<td>Sydney</td>

<td>



350.0



</td>

<td>



11.1



</td>

<td>



14.8



</td>

<td>



240



</td>

<td>



270



</td>

<td>



3.8



</td>

</tr>

<tr>

<td>Melbourne</td>

<td>



316.0



</td>

<td>



1.0



</td>

<td>



17.0



</td>

<td>



200



</td>

<td>



185



</td>

<td>



4.8



</td>

</tr>

<tr>

<td>Brisbane</td>

<td>



200.0



</td>

<td>



8.1



</td>

<td>



20.5



</td>

<td>



200



</td>

<td>



185



</td>

<td>



n/a



</td>

</tr>

<tr>

<td>Adelaide</td>

<td>



158.0



</td>

<td>



3.6



</td>

<td>



15.3



</td>

<td>



190



</td>

<td>



140



</td>

<td>



2.1



</td>

</tr>

<tr>

<td>Perth</td>

<td>



171.8



</td>

<td>



2.3



</td>

<td>



8.6



</td>

<td>



166



</td>

<td>



138



</td>

<td>



4.6



</td>

</tr>

<tr>

<td>Canberra</td>

<td>



210.0



</td>

<td>



-3.2



</td>

<td>



12.4



</td>

<td>



235



</td>

<td>



230



</td>

<td>



1.9



</td>

</tr>

<tr>

<td>Hobart</td>

<td>



123.0



</td>

<td>



0.0



</td>

<td>



7.0



</td>

<td>



165



</td>

<td>



135



</td>

<td>



1.8



</td>

</tr>

<tr>

<td>Darwin</td>

<td>



190.0



</td>

<td>



2.7



</td>

<td>



5.7



</td>

<td>



235



</td>

<td>



190



</td>

<td>



12.6



</td>

</tr>

</tbody>

</table>

<p>
<p>
If I look at this I can clearly see that the rental returns (on average) for Sydney and Melbourne vs. the median price, clearly show that the market is at very high level sentiment indeed. Jan Somers, and John Fitzgerald in their books about wealth creation via residential property both warn against buying in a frenzied market. Would anyone like to dispute that the Melbourne and Sydney markets are not in a frenzied state?

<p>
Extreme Example of a Frenzied IP Market
<p>
On a flight back to Japan, I was speaking to the lady next to me, she lived in Japan in the early '90's. Her husband was an executive and his company rented them a house in Tokyo's upmarket Azubu district. During the tenancy the owner of the house (on about 200m2 of land) was offered the tidy sum of US$27Million (AUD$50M) for it, the owner counter offered and set the price to US$29M (AUD$54M). Maybe his thinking was if someone is silly enough to pay AUD$50M for the house, why not ask for $54M? Anyway the house wasn't sold at the peak of the asset bubble. Today that house is worth much much less, indeed if I could get a loan I could purchase a similar house for around AUD$2~3M. Why AUD$2~3M? well, this is the value of the house based on its rental return. Market rental now governs the value of a house in Japan, today such as house can be rented for AUD$15K a month. The frenzied market buying of the asset bubble in Japan has now been replaced with the opposite, market pessimism. I think the house now at AUD$2M represents a good buy, and a good long (long) term investment from the Capital gains perspective.

<p>
The Sydney Market Now
<p>
Looking at Sydney market, last week a house was sold in Crows Nest, price $825K rental value about $550~600PW, a gross return of around 3.5%. Now I don't have access to the average 5 year rental values for Crows Nest, but I would guess this couldn't be a rational purchase price based on rental reality! The question I have for rental reality is suppose that the average returns for that area is 3.5% and I find a IP house returning 4.2%, does that make it a good deal? The law of gravity and the law of economic reality has yet to be broken for any significant period of time. Remember the "new economy laws" such as "profits don't matter" of the dot.com boom, where are they now?

<p>
Price in Tokyo and Sydney Not so Different
<p>
In Tokyo Japan, if someone would loan me money I could purchase a house on a little smaller land (than Crows Nest) for $825K, but the market rental return could be around 10%, with interest rates at 2%. Tokyo a world class city of 20Million people. Same price, similar sized house, similar % land value, but returns are many times better! The reason is simple, in Japan there is very low market sentiment combined with a dysfunctional banking sector!

<p>
Request for Free Advise
<p>
Steve I have around $800K of IP assets over debts of $160K. I have done well on paper with this boom. Returns on current values are terrible for me: 3%. Combined with a good income, no other debts, low expenses. As far as I can judge I am all set to continue my IP plan if I could come up with a good plan given the current market. If I was to become your client what would you be recommending to me to do? Would you recommend the purchase of an upmarket IP such the "Montage" example in Double Pay (i.e. AUD$1.1Million purchase cost, leasing to corporate clients at $1250PW)? My initial impression of such a deal is to ask why this deal is so different to purchasing commercial property? Wouldn't rental value of a high return up market property have some larger downside risks if the supply of corporate clients on expat deals with fat rental allowances evaporated during a economic slowdown ?
<p>
I feel that many of the "prime" members of this forum are doing well because they have a good strategy and spend lots of time working their market. They are sort of plugged into the property "matrix" (for those who have seen the movie). Can anyone be successful without having a good plan and taking strong, determined and frequent action?
<p>
Steve, I am really trying to understand your thinking, my "yes... but" questions are really just asking for more information. I want to widen my perspective by understanding yours. Please don't hesitate to give me free advise here ;-)

<p>



<p>

Investment Laws

<ol>

<li> 1st Law: "Whatever you don't invest you forfeit."

<li> 2nd Law: "Whatever you reap is what you've sown"

</ol>

Jim Rohn;
 
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