a lot of people, myself included expected property to go into a downturn in 2000 but instead after the GST it went for another boom. That was unexpected, no correction, this is a damn long cycle. So we piled in again. And if there was not correction last time, well, the catholics would say, you'll get twice the correction this time. But who's to know, it could go for another boom. That would be funny. Chillea young man cover your fanny, just because you haven't seen it and can't imagine it, doesn't mean it can't happen. It's a lot easier to imagine the unimaginable when its happening right in front of you...
Once in a Hundred Year Property Slump
- Thread starter Peter Spann
- Start date
With the greater part of NSW and Sydney missing out on the later part of this boom. Does that mean we dont have as far too fall as other states.
I have no idea whether we will go into a prolonged period of contraction. I have already hedged my property exposure by fixing 70% of my loans for between 10&20yrs, so im not that fussed what happens to the property market.
But the above doom & gloom report is just pulling opinions from his behind without any justification.
Why should property fall 50%?
Why should interest rates drop to 2% in Australia (this one especially is a real cracker)
Why should commercial ylds move to 12-20%?
There is no justification, just scaremongering.
I am pretty optimistic about sydney property in general. however all property will fair well IMO.
I see the 2% may be on the cards if we tough recession/depression. In the US earlier this year they dropped rates so quick it wasnt funny. there was a 3/4% and a 1/2% drops 2 weeks apart and i think cash rate hit 2.5%
if this case scenario we will have inflation like zimbabwe, or we will be in a very depressed ecenomic climate.
I see the 2% may be on the cards if we tough recession/depression. In the US earlier this year they dropped rates so quick it wasnt funny. there was a 3/4% and a 1/2% drops 2 weeks apart and i think cash rate hit 2.5%
if this case scenario we will have inflation like zimbabwe, or we will be in a very depressed ecenomic climate.
As you may know I have sold most of my properties – I have only 7 left, and that includes my PPOR, and two trophy properties. The remainder are “land banks”.
I made a conscious decision to get out of property because of my pessimism about the future and the lack of liquidity in property and my level of gearing but not because of any real fear of a price collapse.
My primary investments are now shares and that portfolio has certainly taken a hit in the last 6 months but given most of my investments were over a period of 8 years or so not as bad as you may expect – I am still well in front overall, although where I was geared certainly took a big hit even though I was conservative (never over 50%).
My investment time frame however was 2015+ so I still think there is great potential upside.
This article certainly puts forward a very pessimistic view – more pessimistic than I have been, and I posted it so I could read the debate – most people here are probably closer to residential property than I am at the moment.
I guess it is possible.
Property does from time to time go down in the order he speaks of - Sydney in the recession of the early 70's saw decreases of up to 50% in various areas and if people were forced to sell they saw prices decimated.
Realistically decreases of 25% were more likely but back then most people who owned residential property were home owners or committed long term investors so there wasn’t a lot of selling. People just buckled down, worked a bit harder and rode out the storm.
Then again, back then most people didn’t have credit card debt, own 3 cars, 48 plasma screens, etc and more than anything this “bad debt” will really start coming in to play in the economy soon.
Brisbane continued to perform well until this year and has not seen those types of falls before but then again before this boom Brisbane didn't have so many high rise apartments, small subdivisions, over priced trophy homes and other types of similar property that all takes a hit during bad times so the next slump may well see Brissy join the ranks of cities that see significant decreases in house prices..
Sydney's west is suffering badly and I would say prices are down by up to 40% in different areas but the high end has been performing in the last few years and so on average across the city these falls have been masked.
Prices in Melbourne have been subdued for a while but haven't had much decrease.
Perth went really over the top and last year would have been an excellent time to sell!
There is no doubt the banks are feeling the pinch and quietly making provision for more and more bad debt but unlike the US they have better balance sheets, significantly more Govt protection and are able to tap into larger resources of depositor's funds to continue lending. Cost of funding is their biggest issue.
Unfortunately (or fortunately) Australia is a very unique property market and we have few if any parallels to draw upon.
I think it is now pretty clear that Federal Reserves world wide overreacted and put the brakes on way too hard. In order to be declared by their colleagues as "responsible" they actually interfere in economies far too regularly and everything that is happening in the US was actually hastened by the Fed rather than helped.
The Reserve Bank here was smarter but still probably overshot.
I have no doubt that the really good times are behind us both in property and shares (although with the latter we will probably still see a big run up again) for the time being.
Will we get a monster property slump? A bit too early to call at this stage I would say.
People are really fearful and I think it is that negative mental attitude that is driving this more than anything - fundamentals are still pretty good, the broad economy is still pretty strong but that means nothing when people get negativity in their heads.
Until this crazy sentiment settles down I don't think much will matter - we've just got to pop out the other end and wait until sense prevails.
Hi all,
Thanks for your take Peter.
Just a question about the land banking. If we were to have the 'one in a hundred year property slump', then you would think that development would be stone dead for a few years and this would hurt those with land banked.
By keeping the land is it like having a bit eachway??
My take on property is that the highest probability is sideways to slightly down for a few years, not expecting huge reductions. There is just too much demand for property with the growing population and rents.
The next area for boom will probably not be for a few (3, 5, 7?? years) in Sydney. Perth to remain flat/down, slightly, until the next commodity boom (10 years??).
I'm also expecting higher inflation in most OECD countries, to help wipe away the debt problems, maybe stagflation, but I have been expecting higher inflation for a few years now.
bye
Thanks for your take Peter.
Just a question about the land banking. If we were to have the 'one in a hundred year property slump', then you would think that development would be stone dead for a few years and this would hurt those with land banked.
By keeping the land is it like having a bit eachway??
My take on property is that the highest probability is sideways to slightly down for a few years, not expecting huge reductions. There is just too much demand for property with the growing population and rents.
The next area for boom will probably not be for a few (3, 5, 7?? years) in Sydney. Perth to remain flat/down, slightly, until the next commodity boom (10 years??).
I'm also expecting higher inflation in most OECD countries, to help wipe away the debt problems, maybe stagflation, but I have been expecting higher inflation for a few years now.
bye
Yeah, thanks Peter.
Always great to hear your views. Thanks.
See ya's.
Always great to hear your views. Thanks.
See ya's.
At the moment in gross terms about 30%
I own a LOT of trees!
Yes a slump would definitely hurt if people intended to develop straight away, but land banking is a long term strategy anyway - some property I own is unlikely to be able to be developed for at least 15 years - so it would have to be a VERY long slump to defeat that strategy - possible I guess but not plausible.
I see my land banks as a nice nest egg sitting there waiting to make me money.
Based on history this is the most probable outcome but we DO live in interesting times and I will grant that anything is possible at the moment.
I agree - Sydney usually "starts" most property booms but I'd be on the latter end of your time frame, and resources booms usually drive everything else.
Not sure on that one.
Wake up alice your not in wonderland.
I have owned and operated a successful practice for 17 years.
If you read the age today the deputy governor of the Bank of England was quoted as saying the financial shock waves are like random grenades exploding with the effect of destabilizing the survival of many finacial institutions.
I have owned and operated a successful practice for 17 years.
If you read the age today the deputy governor of the Bank of England was quoted as saying the financial shock waves are like random grenades exploding with the effect of destabilizing the survival of many finacial institutions.
Last edited by a moderator:
I don't believe that we will see massive price drops.
Some vendors who are desperate to sell will do so therefore some buyers will get a good deal or 2 but that's all. The majority of vendors don't have to sell so if they can't get the price they want they will pull their property off the market and wait.
From the buyer's point of view I think it's a good time to buy.
Those of us (like me) who want to add to their portfolio should be looking now because later on (when interest rates are lower) there will be more competition.
Ofcourse I am not expecting big property price increases either so
for me it's very important to buy good yielding properties so that I have low holding costs.
Soon enough we will have an interesting situation where interest rates will be coming down and rents will continue to go up. Under those conditions good yielding properties could easily become positive geared or in combination with a depreciation schedule they will cost nothing to hold.
Time will do the rest.
Some vendors who are desperate to sell will do so therefore some buyers will get a good deal or 2 but that's all. The majority of vendors don't have to sell so if they can't get the price they want they will pull their property off the market and wait.
From the buyer's point of view I think it's a good time to buy.
Those of us (like me
) who want to add to their portfolio should be looking now because later on (when interest rates are lower) there will be more competition.Ofcourse I am not expecting big property price increases either so
for me it's very important to buy good yielding properties so that I have low holding costs.
Soon enough we will have an interesting situation where interest rates will be coming down and rents will continue to go up. Under those conditions good yielding properties could easily become positive geared or in combination with a depreciation schedule they will cost nothing to hold.
Time will do the rest.
Nah mate - you're looking at it all ar$e about face.
Perth had a boom in 98 and 99. Sydney followed us in 01-03.
Perth then had another boom from 03-07. Given the pattern, I reckon it might be your turn to follow us again in 2010, although it's looking pretty sick your side of the paddock. Far too many lawyers, IT and insurance people to actually do any useful work. You are all to be greviously pitied.
Agreed - that's why Perth and Brissy always start the booms and they radiate down and out to the lesser southern states. Of course, the Melb & Sydney folks have their heads so far up their fundamental orifices, they can't see or predict much anyways.
Have a great day !!!
Hi all,
One problem with those statistics of your Dazz....
Median house price Perth...
1996 $126,625
1997 $134,125 5.9%
1998 $141,000 5.1%
1999 $147,500 4.6%
2000 $156,250 5.9%
Sydney
1996 $211,125
1997 $233,250 10.4%
1998 $248,750 6.6%
1999 $272,500 9.5%
2000 $287,000 5.3%
From average quarterly REIA data as in Ableson and Chung, Housing Prices in Australia.
Which one boomed first???
bye
One problem with those statistics of your Dazz....
Median house price Perth...
1996 $126,625
1997 $134,125 5.9%
1998 $141,000 5.1%
1999 $147,500 4.6%
2000 $156,250 5.9%
Sydney
1996 $211,125
1997 $233,250 10.4%
1998 $248,750 6.6%
1999 $272,500 9.5%
2000 $287,000 5.3%
From average quarterly REIA data as in Ableson and Chung, Housing Prices in Australia.
Which one boomed first???
bye
the chicken
and leaving the chicken and egg debate and back to the topic,
I also believe that housing stock available for sale will be reducing so unless something is done to increase stock in Cities like Sydney prices won't be going south, in the worst case scenario they will stay where they are but with interest rates coming down I doubt it.
Cheers
I also believe that housing stock available for sale will be reducing so unless something is done to increase stock in Cities like Sydney prices won't be going south, in the worst case scenario they will stay where they are but with interest rates coming down I doubt it.
Cheers
just read the report by morgan stanley's economist. he's bearest for the following reasons in summary:
- Record debt levels in housing for the past 17 years
- Record economic growth in the past 17 years
- Record levels of debt/income ratio.
- Thinks property research is written by interested parties and not regulated like equity research is and full discolsures must be made
- Says that most property valuations are done on gross yield current 3% Says cost is ~2% of asset value thus net yields is around 1% which impllies properties are trading at around 100 x PE ratio massively overvalued.
- Thinks the trigger for a slump will be losses or a reduced willingness by lendors and /or borrows to continue sustain such high leverage rates
- graphs a total debt/income graph vs real house price and its shockingly correlated.
