Property Economic Cycle
- Thread starter agent007
- Start date
Hello James Bond,
I prefer to measure where the different cities are up to in terms of the "Real Value" of the properties available for purchase:
Based on RENTAL REALITY.
Sydney:
Can hardly find a property where the rental income p.a. exceeds the 5 year yield for the post code. Meaning that the sale prices are too high to be purchasing at this time. (Therefore at market peak or beyond)
Melbourne:
Very similar to Sydney, although we are coming across the occasional purchase that fits the criteria. (Mainly in suburban housing) So, also at the peak with limited opportunity.
Brisbane:
About 30% of properties on offer fit the value reality, generally meaning that opportunity exists for further growth in this cycle. Normally I would have thought about 18 months up until the peak. However, it is usually increasing interest rates (Based on an overheated Sydney and Melbourne property market) that ends the Brisbane cycle. It appears that this will not be the case this time around, because of international economic factors, so maybe the Brisbane cycle will persist for some time longer.
NOTE: I am on record as favouring the Sydney and Melbourne markets above Brisbane as far as longer term capital growth goes. BUT, if you can't enter the Syd and Melb markets now, then either you sit on your hands and do nothing, or you consider the opportunity presented in the sunny state.
AND of course, shares are VERY CHEAP at this moment
Regards,
Steve
I prefer to measure where the different cities are up to in terms of the "Real Value" of the properties available for purchase:
Based on RENTAL REALITY.
Sydney:
Can hardly find a property where the rental income p.a. exceeds the 5 year yield for the post code. Meaning that the sale prices are too high to be purchasing at this time. (Therefore at market peak or beyond)
Melbourne:
Very similar to Sydney, although we are coming across the occasional purchase that fits the criteria. (Mainly in suburban housing) So, also at the peak with limited opportunity.
Brisbane:
About 30% of properties on offer fit the value reality, generally meaning that opportunity exists for further growth in this cycle. Normally I would have thought about 18 months up until the peak. However, it is usually increasing interest rates (Based on an overheated Sydney and Melbourne property market) that ends the Brisbane cycle. It appears that this will not be the case this time around, because of international economic factors, so maybe the Brisbane cycle will persist for some time longer.
NOTE: I am on record as favouring the Sydney and Melbourne markets above Brisbane as far as longer term capital growth goes. BUT, if you can't enter the Syd and Melb markets now, then either you sit on your hands and do nothing, or you consider the opportunity presented in the sunny state.
AND of course, shares are VERY CHEAP at this moment
Regards,
Steve
Agree with Steve's summing up of syd/melb/bris markets.
I also agree that shares are very cheap .. BUT with the all ordinaries setting a three year low on friday , the maket is in down trend and it is just possible that shares may get alot cheaper. Just a thought.
see change
I also agree that shares are very cheap .. BUT with the all ordinaries setting a three year low on friday , the maket is in down trend and it is just possible that shares may get alot cheaper. Just a thought.
see change
Steve,
Thanks for your note.
When would you think will be the best time (cycle wise) to invest in either Sydney or Melborne?
Thanks.
NOTE: I am on record as favouring the Sydney and Melbourne markets above Brisbane as far as longer term capital growth goes. BUT, if you can't enter the Syd and Melb markets now, then either you sit on your hands and do nothing, or you consider the opportunity presented in the sunny state.
AND of course, shares are VERY CHEAP at this moment
Regards,
Steve [/B][/QUOTE]
Thanks for your note.
When would you think will be the best time (cycle wise) to invest in either Sydney or Melborne?
Thanks.
NOTE: I am on record as favouring the Sydney and Melbourne markets above Brisbane as far as longer term capital growth goes. BUT, if you can't enter the Syd and Melb markets now, then either you sit on your hands and do nothing, or you consider the opportunity presented in the sunny state.
AND of course, shares are VERY CHEAP at this moment
Regards,
Steve [/B][/QUOTE]
Now is ALWAYS the right time to buy!!
Heard that one before??
One proviso only:
DO NOT pay more than the 'rental reality' value as indicated by the market. (Formula: Total Rental income pa / 5 year yield % for the post code)
Now the hard yards begin, that is to find property that fits this criterion.
Regards,
Steve
PS: Actually the BEST time to buy a property is 10 years ago!!
B
brains
Guest
Steve
Could you elobarate on the 5 year yield part of the quation?
Hi Brains,
Didn't we go through all of this at the Sat morning session at North Sydney?? (Or are you just being your normal inquisitive best
)Sure I can elaborate: http://www.navra.com.au/includes/writings/real_time_mkt.php
Too lazy to type it all again!
Regards,
Steve
B
brains
Guest
Steve,
I think your memory is better than mine..........
Thanks
I think your memory is better than mine..........
Thanks
see_change,
This is probably off topic but thought it may be wirthwhile pointing out some similarities between shares and property.
Buy quality
Buy at or near the bottom of the market (you can't pick the bottom of the market without an accurate crystal ball)
Get yourself some 'Warren Buffet' style - quality shares
Don't be trading shares at the moment - Bit like playing the roulette wheel !
This is probably off topic but thought it may be wirthwhile pointing out some similarities between shares and property.
Buy quality
Buy at or near the bottom of the market (you can't pick the bottom of the market without an accurate crystal ball)
Get yourself some 'Warren Buffet' style - quality shares
Don't be trading shares at the moment - Bit like playing the roulette wheel !
Will
Completely agree re similarities between shares and property.
But both can be traded and invested in , if you know what you're doing . ( not saying that I do ). Time in the market is important , but timing equally so.
See change
Completely agree re similarities between shares and property.
But both can be traded and invested in , if you know what you're doing . ( not saying that I do
). Time in the market is important , but timing equally so.See change
Originally posted by Aceyducey
However the time we have to buy is now
The only time you will EVER have is now!
So BUY!
Bye
Steve
Actually , you can wait
see change
see change
Dear Steve,
1. I refer to your investment principle which is based on the "rental reality" guideline. While on one hand, I can agree with you that the general household income levels and general affordability may provide a more reliable guide to our housing investment and fair market value irrespective of the current market mood/situation, I will like to seek some clarifications on how the actual principle will apply in real life examples under the following scenario:
2. How do we establish the median rental rate if we are investing in a new housing suburb like Lot 938, Redgum Place, Molendinar, QLD 4124. The initial purchase price for the house was A$282,000 on 4th December 2002 and was subseuqently increased to A$289,000 on 18th Dec 2002 and further to A$303,000 on 8th January 2002. Based on local real estate agent feedback, the realistic weekly rent is about A$325 per week, making the property still viable for investment even if the purchase price is increased to A$338,000. Is it true? How can we be sure that the median rent rate of A$325 per week is realistic when no house has been completed/rent out to date in this Crestwood Project? If this is true, then the project developer, Australand, would have grossly under-priced its houses by some A$56,000 initially. We find it hard to believe that the professional developer like Australand would grossly "undersell" its house package in this manner. Morever, as our buyer agent, a licenced valuer, has also advised that the property investment will remain viable if they are priced below A$300,000. What do you say?
3. Secondly, at Rockingham, Perth, WA 6168, the median house price is A$128,000 and the median weekly rent is A$120, giving a maximum viable property investable value of A$124,000. Yet I know that the recent "land-and-build" house package investment at the Anchorage Project marketed by Australand-Perth (as well as other projects at the nearby Palm Beach area) and can easily cost more than A$200,000 and easily re-sold for more than A$235,000 upon the house completion. Another of our buyer agents in Perth, also a licenced valuer, has given an completed house value of A$205,000-A$225,000 and an assessed weekly rental of A$180-$210 per week depending on the type of the house to be built. Consequently, if we use the assessed weekly rental rate of A$180 - A$210, the maximum viable investment value for the house-to-be-built, will be revised upwards to A$187,200 - A$218,400 accordingly, which seemed to be more realistic, in our opinions. Again, how then and which's house median rental rate are we to safely trust and use in this regard?
4. In Perth, it is common to speak of a 5% rental yield whereas in Qld, as I understand, it is more common to speak of a 6% rental yield rate return. However, your rental reality is actually based on a 5% rental yield rate. Is is applicable to all cases/Australian states irrespective of the different norms in the rental yields for each state?
5. I also wish to seek clarification from you regarding the other principle of investing into houses whose purchase price is 25% above its median house price for the suburb, as the way to ensure high owner-occupany rate. How then do we reconcile with the this investment principle of "buying the worst house in the best street"?
6. Morever at Canningvale with 90% onwer-occupancy rate (and a weekly median A$230 rental rate, giving a viable maximum house investment value of $239,200), where its median house sale price is already above Perth's A$188,000 median house price and if we were to follow your guideline of buying above Canningvale's present A$243,000 median house price, will we not be "over-capitalising" on the intended investment and find it hard to re-sell subsequently? Personally, I will invest in land-and-build" house package whose costs is lower than Canningvale's present A$243,000 median house price, which is already considered much higher than Perth's median house price, so as to be on the safe side and be assured of an immediate capital gains from the investment instead. Do you care to comment on this too?
7. I await your early clairifcation and advice,please.
8. Thank you.
Kenkoh2000
1. I refer to your investment principle which is based on the "rental reality" guideline. While on one hand, I can agree with you that the general household income levels and general affordability may provide a more reliable guide to our housing investment and fair market value irrespective of the current market mood/situation, I will like to seek some clarifications on how the actual principle will apply in real life examples under the following scenario:
2. How do we establish the median rental rate if we are investing in a new housing suburb like Lot 938, Redgum Place, Molendinar, QLD 4124. The initial purchase price for the house was A$282,000 on 4th December 2002 and was subseuqently increased to A$289,000 on 18th Dec 2002 and further to A$303,000 on 8th January 2002. Based on local real estate agent feedback, the realistic weekly rent is about A$325 per week, making the property still viable for investment even if the purchase price is increased to A$338,000. Is it true? How can we be sure that the median rent rate of A$325 per week is realistic when no house has been completed/rent out to date in this Crestwood Project? If this is true, then the project developer, Australand, would have grossly under-priced its houses by some A$56,000 initially. We find it hard to believe that the professional developer like Australand would grossly "undersell" its house package in this manner. Morever, as our buyer agent, a licenced valuer, has also advised that the property investment will remain viable if they are priced below A$300,000. What do you say?
3. Secondly, at Rockingham, Perth, WA 6168, the median house price is A$128,000 and the median weekly rent is A$120, giving a maximum viable property investable value of A$124,000. Yet I know that the recent "land-and-build" house package investment at the Anchorage Project marketed by Australand-Perth (as well as other projects at the nearby Palm Beach area) and can easily cost more than A$200,000 and easily re-sold for more than A$235,000 upon the house completion. Another of our buyer agents in Perth, also a licenced valuer, has given an completed house value of A$205,000-A$225,000 and an assessed weekly rental of A$180-$210 per week depending on the type of the house to be built. Consequently, if we use the assessed weekly rental rate of A$180 - A$210, the maximum viable investment value for the house-to-be-built, will be revised upwards to A$187,200 - A$218,400 accordingly, which seemed to be more realistic, in our opinions. Again, how then and which's house median rental rate are we to safely trust and use in this regard?
4. In Perth, it is common to speak of a 5% rental yield whereas in Qld, as I understand, it is more common to speak of a 6% rental yield rate return. However, your rental reality is actually based on a 5% rental yield rate. Is is applicable to all cases/Australian states irrespective of the different norms in the rental yields for each state?
5. I also wish to seek clarification from you regarding the other principle of investing into houses whose purchase price is 25% above its median house price for the suburb, as the way to ensure high owner-occupany rate. How then do we reconcile with the this investment principle of "buying the worst house in the best street"?
6. Morever at Canningvale with 90% onwer-occupancy rate (and a weekly median A$230 rental rate, giving a viable maximum house investment value of $239,200), where its median house sale price is already above Perth's A$188,000 median house price and if we were to follow your guideline of buying above Canningvale's present A$243,000 median house price, will we not be "over-capitalising" on the intended investment and find it hard to re-sell subsequently? Personally, I will invest in land-and-build" house package whose costs is lower than Canningvale's present A$243,000 median house price, which is already considered much higher than Perth's median house price, so as to be on the safe side and be assured of an immediate capital gains from the investment instead. Do you care to comment on this too?
7. I await your early clairifcation and advice,please.
8. Thank you.
Kenkoh2000
Hiya Kenkoh2000
I think you might be misunderstanding Steve's equation....
I understand him to use the 5 year yield (%) for the post code, not 5% as a value for all situations.
I have re-read his web site and believe this to be the case. I respectfully suggest you have another look at his web site.
Pedro
I think you might be misunderstanding Steve's equation....
I understand him to use the 5 year yield (%) for the post code, not 5% as a value for all situations.
I have re-read his web site and believe this to be the case. I respectfully suggest you have another look at his web site.
Pedro
Hi Kenkoh2000,
Pedro is correct, rental reality valuations are based on the everage of the last 5 years rental yield per post code. Which of course can be very different for every area.
I will try to discuss each of your examples to try and make the point clear:
Assuming the rental of $325 per week is correct:
(You might like to research this thoroughly by getting 4 or 5 agents estimates, especially in an area that is new with little or no comparisons or history. Also, a search of surrounding possibly more established areas might help)
Now, as you have stated, IF the 5 year ave rental yield proves to be 5% then:
$325 X 52 weeks / 5% = $338,000
This could indicate that although the developer has sold at a price that appears cheap ($282,000), the potential in the area has not as yet been realised and a price of $338,000 could become feasible, especially as the area matures and more people (especially owners) move in. In trhis case you would have purchased very wisely. Generally in new housing developments, the 'flavour' of the suburb has not as yet been established, so it remains an unknown factor until the area attains some level of maturity.
On the other hand, if the 5 year yield average for the area (Possibly surrounding area) proves to be 6.5% then:
$325 X 52 weeks / 6.5% = $260,000
A HUGE difference, in which case you might well have overpaid!?
Even a small difference in average yield % can make a vast difference. So perform your investigation with care and diligence.
The answer and example before apply here in the same manner.
Answer: 'rental reality valuations are based on the everage of the last 5 years rental yield per post code'
Buy 25% above the medium price for the city! (NOT THE SUBURB)
Most investors are encouraged to buy at the lower end of the market (Possibly due to good marketing by the vendors, who can knock out such product at best margin) By staying away from this market, you will stay away from the majority of other investors, hence less rental properties in the area. (Which results in: More owners = better capital growth)
Once again it is 25% above the median of the CITY. You might find that in such an area with 90% owners it is very difficult to find property to rent, and that the rental yield is consequently much higher as a result of the demand and that the value could be much less than you estimate:
Example: $230 X 52 weeks / 6.5% = $184,000 (NOT the $239,200 that you suggest)
I hope this helps!
Come to the Perth Structure Course
regards,
Steve
Pedro is correct, rental reality valuations are based on the everage of the last 5 years rental yield per post code. Which of course can be very different for every area.
I will try to discuss each of your examples to try and make the point clear:
Assuming the rental of $325 per week is correct:
(You might like to research this thoroughly by getting 4 or 5 agents estimates, especially in an area that is new with little or no comparisons or history. Also, a search of surrounding possibly more established areas might help)
Now, as you have stated, IF the 5 year ave rental yield proves to be 5% then:
$325 X 52 weeks / 5% = $338,000
This could indicate that although the developer has sold at a price that appears cheap ($282,000), the potential in the area has not as yet been realised and a price of $338,000 could become feasible, especially as the area matures and more people (especially owners) move in. In trhis case you would have purchased very wisely. Generally in new housing developments, the 'flavour' of the suburb has not as yet been established, so it remains an unknown factor until the area attains some level of maturity.
On the other hand, if the 5 year yield average for the area (Possibly surrounding area) proves to be 6.5% then:
$325 X 52 weeks / 6.5% = $260,000
A HUGE difference, in which case you might well have overpaid!?
Even a small difference in average yield % can make a vast difference. So perform your investigation with care and diligence.
The answer and example before apply here in the same manner.
Answer: 'rental reality valuations are based on the everage of the last 5 years rental yield per post code'
Buy 25% above the medium price for the city! (NOT THE SUBURB)
Most investors are encouraged to buy at the lower end of the market (Possibly due to good marketing by the vendors, who can knock out such product at best margin) By staying away from this market, you will stay away from the majority of other investors, hence less rental properties in the area. (Which results in: More owners = better capital growth)
Once again it is 25% above the median of the CITY. You might find that in such an area with 90% owners it is very difficult to find property to rent, and that the rental yield is consequently much higher as a result of the demand and that the value could be much less than you estimate:
Example: $230 X 52 weeks / 6.5% = $184,000 (NOT the $239,200 that you suggest)
I hope this helps!
Come to the Perth Structure Course
regards,
Steve
Hi Pedro,
Yeah Residex will provide the info, currently at $62 per post code.
I was looking to buy the entire list so that I could offer the info to my clients, but they were quoting a price of a squillion postcodes X $$$$ = $45,000!
I might be able to negotiate about $50 per post code, based on a volume arrangement.
Meanwhile try residex.com.au
Regards,
Steve
Yeah Residex will provide the info, currently at $62 per post code.
I was looking to buy the entire list so that I could offer the info to my clients, but they were quoting a price of a squillion postcodes X $$$$ = $45,000!
I might be able to negotiate about $50 per post code, based on a volume arrangement.
Meanwhile try residex.com.au
Regards,
Steve
Steve,
Reading the rental reality formula with interest. Alternate (?) editions of API someties make reference to a '10 year rent rate' - defined as 'providing an indicator of the long term trend of rent rates. Figures are taken from the Residex Residential Property Return Report'
Would these figures provide the necessary guidance when determing rental reality?
f.f
Reading the rental reality formula with interest. Alternate (?) editions of API someties make reference to a '10 year rent rate' - defined as 'providing an indicator of the long term trend of rent rates. Figures are taken from the Residex Residential Property Return Report'
Would these figures provide the necessary guidance when determing rental reality?
f.f
