Million ready to brave the housing bubble

[L Bernham]

We may even get to the stage (a la Japan) where it used to take THREE GENERATIONS to buy a house

If you've ever been to Japan you'd see why. This will NEVER happen is Australia - or at least not until our population is 500 million or so, definietly no reason to invest yet.

Mind you, even in India, one of the densest countries in the world I was amazed at how cheap land was in most cities. I cant remember how much but I remember realising I could afford a pretty decent bit of land right on the Ganges. After centuries of 9% growth I wonder how this could be.

I think its important to look at how much liveable space their is in Australia and the decreasing necessity to live smack bang in the city centre. Makes you realise the premium on land values at the moment are a little farfetched.

LB

 

[Les]

G'day LB,

I'm still interested in your answer to THIS question:-

quote:
--------------------------------------------------------------------------------
strip that data down to "real" numbers ie taking out the effects of inflation and get back to me.
--------------------------------------------------------------------------------

Les> Bill.L is using RENTS and VALUES from differing era's - OK, but the rent paid, and properties values are SURELY affected by the SAME inflation rate, aren't they???

My implicit question is "What "stripping" needs to be done, when BOTH values AND rents are affected similarly? Surely we could even multiply ALL numbers by a factor of 1000 - nothing changes!!! So, in short, what "stripping" could be done that would have MATERIAL effect?

Regards,

 

[abcdiamond]

Originally posted by L Bernham
Mind you, even in India, one of the densest countries in the world I was amazed at how cheap land was in most cities. I cant remember how much but I remember realising I could afford a pretty decent bit of land right on the Ganges. After centuries of 9% growth I wonder how this could be.

I can't help asking this question, but where did the figure of 9% growth in India come from ? I can't begin to imagine that being possible for that country.

 

[geoffw]

Originally posted by L Bernham
I think its important to look at how much liveable space their is in Australia and the decreasing necessity to live smack bang in the city centre. Makes you realise the premium on land values at the moment are a little farfetched.

The premium on land in any position is only the value that people place on that land.

I would guess that in Melbourne, Sydney and Brisbane, many more people work in or near the city centre than in any other single location (there may be one or two exceptions).

People who do work in the centre want either a good commute- or failing that, a lifestyle advantage necessitating a long commute (eg, Blue Mountains/Central Coast). They don't have to be really close- but most would probably prefer not to be travelling two hours every day.

India might be cheap to you- but you're earning Australian dollars. I wonder what that cheap land would mean in terms of affordability for a person working in India.

 

[Lilith]

Houses are really really hard to generalize. The detached market differs on a neighborhood by neighborhood, street by street or sometimes even a house by house basis.

I won't look at ANY average yield number and try to extrapolate that for the pick of your heart. A house's value has way too many variables:
1) size of the property (1/4 acre vs 1/3 acre vs acre property react very differently)
2) style of the house (if it's a cookie cutter mobile-home look alike, it is likely to move at the same beta of a townhome)
3) school district (dunno about the Aussie market, but a huge consideration for the US)
4) houses next to yours (being right next to a run-down home even in a nice neighborhood certainly doesn't help your valuation)
5) particular local laws pertaining to fix-ups
6) view (future obstruction?)
.....

Therefore, it is entirely possible for a house to lose only 10% of its value during a significant crash while another one two blocks down may lose 50%. I have actually seen this happen in real life. That's why I won't jump to any conclusion until I see exactly which house you are talking about and have done my homework on the subsurbs and what not.

Why argue over something a hypothetical house that we don't know well? Units, however, are just like a share of a listed company, if the overall valuation of the economy drops, sorry, the share will have to move in the same direction, by more or less the same magnitude.

 

[Aceyducey]

Originally posted by L Bernham
Everyones always saying here that property prices go up more than inflation .
However rents tend to move with inflation and/or wages.

L Bernham,

You've made this claim - now prove it with figures.

And I want to see you using figures from at least 3 states for at least 5 markets, including both metro and regional. Using a single figure from a single market is clearly - from your own words - unreliable.

You love to scoff at the figures presented by other people, well you're the worst culprit in making unproven claims.

Cheers,

Aceyducey

 

[abcdiamond]

Originally posted by Lilith
4) houses next to yours (being right next to a run-down home even in a nice neighborhood certainly doesn't help your valuation)

It helps if you also get the chance to buy the one next door, demolish it and build a really good one.
Especially if you get them at a really price because of the original situation.

 

[Bill.L]

Hi all,

I had a really detailed Q&A for LB but the puter spat the dummy and erased it all on me

LB,

It was a question, therefore questionmark at end of sentance.

If there is any correlation at all between interest rates and yields, would you not expect yields to be substantially lower if interest rates were a third of what they were 13 years ago???

If an average house returns 66% of interest costs today, when it only returned 33% of interest costs 13 years ago, does that not make it a better buy now than 13 years ago???

If this average house only fell 10%-15% in price between 1990-1994, when it was much more overpriced than now, why would it fall 35% now???

bye

 

[qaz]

I guess the big question is, how do we determine if a property is over/underpriced?. Navra's rental reality helps in some regards, but it isnt the be all and end all of property investment.

 

[Bill.L]

Hi all,

LB, I noticed that you have not had time to reply to my questions yet.

Here is an easy one for you. What percentage of the interest payable on the purchase of an asset, would you think the yield should bring.

For example; if you bought item X for $100,000 and this item is expected to grow in value by 3% PA(inflation rate) only. If current interest rates were 6.5%, what percentage of this would you need from the yield to accept it as a sound investment???

bye

 

[L Bernham]

Here is an easy one for you. What percentage of the interest payable on the purchase of an asset, would you think the yield should bring.
For example; if you bought item X for $100,000 and this item is expected to grow in value by 3% PA(inflation rate) only. If current interest rates were 6.5%, what percentage of this would you need from the yield to accept it as a sound investment???

Hi Bill
This sounds like a loaded question to me.
It would depend on so many factors without which there is no way yo ucould answer it.
IT would depend on
a) the variance of returns above and below its 'expected return' of inflation
b) the risk tolerance and profile of the investor
c) whether the asset was in an evident asset bubble where previous year increases were well beyond the inflation rate due to an increased number of speculators
d) whether the Exp ret being the level of inflation was merely estimated as the minimum likely return based on the false belief that an expected return cant be negative even if there is more evidence pointing to it than otherwise
e) Expected future interest rate movements
f) whether supply of the said asset was increasing at a rate beyond the requirements of people actually using the asset (other than for investing purposes)
g) whether the result of f) would cause yields to falleven more
h) whether the said asset had ever experienced a major fall in values before, the absence of which would create a false sense of security amongst in investors perceiving that it couldn't lose in value thus exacerbating any boom and possible subsequent loss in value.

There are many any more things youd need to look at.
What asset are you talking about anyway?

Cheers
LB

 

[Aceyducey]

Originally posted by L Bernham
Hi Bill
This sounds like a loaded question to me.

I would agree, it does sound like a loaded question.

However it's the key question investors are attempting to answer every day so it is extremely valid!

Every investor answers this question in a different way - but they all must answer it

For many of us at the forum our answer would be selected high yield property.

Cheers,

Aceyducey

 

[L Bernham]

Certainly, the higher the yield the better. When taking into account the above factors I would expect probably around 6% net return (ie nett of all associated expenses) to consider it a sound investment. Provided it could be diversified with 20 or more of the same asset.

If it couldnt be diversified I would be unlikely to touch it as there are plenty of opportunities offering better returns that are diversifiable.

LB

 

[see_change]

LB

As you obvious don't consider Property to be an appropriate investment atthe moment , maybe you could give us an insight into what you think is an appropiate investment .

See Change

 

[L Bernham]

The 'average' (I hate that word too) property isnt a good investment, however there will be individual properties that give good returns boom or bust. You'd want to know what you were doing though or you could lose your shirt.

I'm not able to say what I think is a good investment as I'll no doubt get hammered for turning a property forum into something else.

LB

 

[willair]

LB,
come on tell us where all the smart money is made,, mathematical
comparisions or statistical propabilitys dont always work ..
good luck
willair

 

[abcdiamond]

Willair
Remember that No Matter what market we invest in, the following applies

You'd want to know what you were doing though or you could lose your shirt.

I think thats probably why most people will stick(or should stick) to what they know, rather than be tempted to change horses.

 

[L Bernham]

come on tell us where all the smart money is made,, mathematical

FINE!
but no-one had better get mad at me. AND DONT TAKE THIS AS INVESTMENT ADVICE.

I've mentioned this before but for a holding period of > 6 months you cant go past shares in realestate.com.au (REA).
It recently got as high as 68cents. I sold for 66 cents as it looked like it was going to retrace, which it did.
My broker says that talk of a property bubble bursting has spooked a lot of investors into selling and brought it back down to 54cents which values the company at a mere $50 million (the cost of 80 nice Sydney houses!)

I have been buying back in at around this level. (disclosure: I therefore have an interest in suggesting others buy) and these I will be holding for the long term.

I worked out that even if their revenue growth continues for 6 more months they will be on a 11% earnings yield which would see share price rocket. (used the backs of about 3 envelopes to calculate this, not in depth by any means)

I like it because its a simple company, easy to understand and analyse. Not only that, I and many people I know use the product and expect to continue using it through all cycles of the property market (even if just to find rentals)
I have been keeping track of growth by counting new listings each week to ensure that these are staying the same or going up regularly and here are my results.
new listing
8-Nov 18277
1-Nov 16327
25-Oct 18231
18-Oct 17825
11-Oct 14434
4-Oct 18222
27-Sep 14957
20-Sep 11302
13-Sep 14750
6-Sep 15020
30-Aug 14871

This shows that either their subsriptions are going up or the number of people selling is going up. Either way its good news for realestate.com.au. I would like to see them back up to their previous levels of $1.40 (how they got there while they were making a loss I dont know, but now they are making a profit its more likely)
I would be happy for anyone to tell me why they don't think its a good buy especially including any inherent risks that I may have missed. I like to be fully informed.

Cheers
LB

 

[see_change]

Hi LB

Originally posted by L Bernham
The 'average' (I hate that word too) property isnt a good investment

What you mean by the average property. I have bought Average properties ( for their area) in the last 2-3 months that have increased their value by 20% on their purchase price. Given that I have borrowed 100% , plus purchase costs this gives an infinite ROI on my initial investment. I explained my reason for these purchases in detail in the following post.

http://www.somersoft.com/forums/showthread.php?s=&threadid=11656

Although I didn't state it in that post Given that rocky has followed the rest of Australia by roughly doubling in each of the previous cycles. I expect significant further movement in this current cycle.

Originally posted by L Bernham

I'm not able to say what I think is a good investment as I'll no doubt get hammered for turning a property forum into something else. [/B]

While this is a property forum , everyone I know on this forum is interested in wealth creation in whatever vehicle that comes in. There are many people in this forum who have an active interest in shares.

I can't recall anyone getting "hammered " on this forum , for giving examples of good investments, and having the evidence to back up their opinions.

The only people who get hammered are those people who make dubious claims and then fail to back up their claims. Credibility is important here.

I, along with many people on this forum , would be intersted in your opinions.

Let me repeat myself

"As you obvious don't consider Property to be an appropriate investment at the moment , maybe you could give us an insight into what you think is an appropiate investment ".

In particular I would be interested in the details of your recent Westpac Trade.
What were your resons for entering the trade, and what were you exit criteria? Do you employ a stop loss, and if so what sort of criteria do you use ? As you place emphysis on your experience on rick management, what is your strategy in relation to this trade ?

See Change

 

[L Bernham]

In particular I would be interested in the details of your recent Westpac Trade

My assumptions on the WBC trade

rate increase, share price goes down a lot (due to bond yields rising and lower margins and revenue falling).

rates left the same, share price would not move significantly in either direction.

As I believed rates would rise I saw potential for a 'put' option trade.
My expected return was therefore either postive or nil (less some brokerage and put writers margin)

It turned out better than I expected because on top of the rate rise RBA came out and went on about consumer debt, property bubbles and more rises on the way which made WBC shares fall further than I expected. Those sensationalists in the media also assisted.

This was only ever meant to be a 2-3 day trade and had interest rates not risen that would have been my stop loss.

There were a few other factors that came into play one of them being that the upside of WBC at the time was very minimal due to it being over priced IMHO.

BTW I dont consider this sort of thing "investing" and wouldnt recommend it to anyone. opportunites like this rarely come along.

LB