Makes sense.
I guess if it were to happen I'd be inclined to wait for the slowdown then snap up a couple of below median IPs in a good location in preparation for the supply driven growth down the track.
Q: What happens to house prices when replacement costs skyrocket?
- Thread starter MichaelW
- Start date
Makes sense.
I guess if it were to happen I'd be inclined to wait for the slowdown then snap up a couple of below median IPs in a good location in preparation for the supply driven growth down the track.
OK, here's some out of my spreadsheet for a 3 unit build in Sydney:
Pittwater Council DA lodgement $4,638.75
Architects to DA $23,292.50
Geotech to DA $2,640.00
Survey to DA $2,000.00
Arborist to DA $1,650.00
Accessibility to DA $990.00
Landscape Plan to DA $1,650.00
Traffic Engineer to DA $1,650.00
Renovation Solutions to DA $1,235.00
Plans and title search $99.40
LEC Lodgement $4,801.00
Section 94 Contributions to CC SOPS $23,174.80
s94 SLEL $1,856.00
s94 SCSF $3,498.00
s94 SVSS $13,368.52
Tender Package to CC $2,500.00
Structural Engineering to CC $4,400.00
Architects to CC $2,550.00
Detailed Architecturals $2,750.00
Private Certifier $5,950.00
Traffic Plan to CC $600.00
Hydraulic Engineer to CC $990.00
s. 73 Sydney Water $1,730.00
s. 73 Implementation $7,000.00
Connection of services $12,000.00
WBC Valuation $3,300.00
And that's not all of it. There's a heap more build costs in there, these are just some of my DA and CC costs. Note that the Section 94 contributions to local council alone amounted to $42,000 over three units or about $15,000 per unit. And did I mention there's 10% GST on the sale price at completion. Oh, and heaven forbid I make a profit or else I'll be up for corporate tax on that too.
I'm sure you get the idea... In case you're wondering, the numbers above sum to $130,000! And that excludes other non-hard contract build costs such as a $50K invoice for site contamination and another $50K for interest servicing over the construction timeline. But that's a different story. There's also stamp duty on the initial site purchase and land tax of $10K every year as well. The only ones making money out of construction are the government bodies across all three layers of government. Everyone has their finger in your pie.
Cheers,
Michael
In answer to the original subject and question, it's all in the safety aspect of property inesting. That's just a part of why it is such a sturdy investment over time. That and many other reasons.
Thanks enormously Michael, thats fascinating.
Its a while since I did my last development (in the UK), those figures are frightening, and leave me feeling that like so many businesses here in Australia, development is hobbled by the vast amount of unproductive leeches taking their slice.
You should see the list of costs I get for importing here, my relatives thought I was taking the **** when I read them out once.
Australia is hopelessly over taxed and over governed, which is why everything costs 3 times that of the US. it's a real shame but it is inbedded in our socialist democratic past, a blue-collar-everyones-a-battler-how-about-a-fair-go-give-me-a-subsidy-i-am-a-farmer mentality. howz abou get off your lazy butt and if your product or services are of any value someone will pay you fairly for them?
That post is pure gold. Thanks.
I certainly agree with you about the effects of rising building costs and these government charges effects. I have always thought Sydney's prices moved first because Carr moved first on urban consolidation.
My issue is; while supporting house prices by restricting developers does have positive effects on the economy short term through an increase in the wealth effect, rising equity and all that, and restrictions and taxation on development can sustain higher prices for housing in the long term I still don't think it is sound economic policy.
Near unlimited land has historically been a competitive advantage in this country. We certainly don't look like leveraging off this at the moment. It is like saying Port Hedland could export things other than Iron Ore while they pay $100k in rent for a house so to get a worker you a) pay the 100k rent or 20k rent for 5 of them to share, or b) pay them over 200k per annum. I am talking here about a worker not an executive...
When Australia actually has to be competitive again in places other than hard rock mining people will realise governments meddling here does not necessarily make for a prosperous nation.
All things being equal is nice.
However it doesn't always follow; for an example.
In the west of Melbourne vacant land prices have skyrocketed and are still going up. Yet the value of existing houses has not moved anywhere near as much. In fact over the past few months they are down 5-10%.
The fact is that people are prepared to pay a premium for something new or to build the house they want. In this respect the improvemetns component of the property value is a lot like a new car; some pretty significant depreciation once you drive it off the lot/occupy it.
Cost does not equal value.
cheers
RightValue
However it doesn't always follow; for an example.
In the west of Melbourne vacant land prices have skyrocketed and are still going up. Yet the value of existing houses has not moved anywhere near as much. In fact over the past few months they are down 5-10%.
The fact is that people are prepared to pay a premium for something new or to build the house they want. In this respect the improvemetns component of the property value is a lot like a new car; some pretty significant depreciation once you drive it off the lot/occupy it.
Cost does not equal value.
cheers
RightValue
Agree however the two are certainly linked.
It might be the price that can be achieved is lower once it has been lived in though if the cost of new increases so to does the price of existing.
The only time costs and price can completely disconnect is when the demand for homes is less than the level of existing stock. This happens from time to time in small towns, you know the ones where house prices are waaay less than what it would cost to develop a new block and build there.
Yes it's great isn't it...!!
Just had a changeover at one IP enabling an increase of $50/wk.... let alone the other rises of $35 total on two others....Niiice...!
And the next stage of the cycle is renters buying up as nil growth has stalled capital values (rent nearly pays for home purchase over time)...and then it all starts again as everyone jumps in.....it's got nowhere else to go but round and round the cycle....so predictable and so reliable due to the many reasons listed in above posts that make it a 'solid' investment due to the supply and demand over so many variables and Govt reliance on the housing industry and all it's spinoffs.
Can you really see any govt/authority taking away it's life support just for the heck of a few whingers....???
It's like farmers (the really good ones)....they have become more and more efficient and clever in their ways and can compete and still make a profit, all done under tremendous price pressures and extreme weather conditions.
The bad/slack ones left bye the wayside.
Builders have to do the same...but also Govts have to loosen the shackles a bit and allow growth...but they are very careful not to completely ruin the housing market...it's not in their interest...hence why I 'trust' this investing asset class to continue to do it's cycle thing.
Unless someone can draw me another alternative cycle that is....any takers...?
Yep, the Pollies and the bankers are such a clever bunch, theres absolutely not chance of them causing any sort of cockup.
Onwards and upwards chaps!
Problem is I've got a couple of mates in a little fiscal distress atm, and they have been trying to offload their properties with no luck whatsoever, even having reduced asking prices to substantially below where props were changing hands a couple of years ago.
The problem with being "gung ho", and overly bullish, is that any problems that may exist, can justifiably be ignored.
Perhaps we all need to be a little more realistic as to whats going on, I'm not getting a lot of good news South of Sydney, especially not from the EA's.
Onwards and upwards chaps!
Problem is I've got a couple of mates in a little fiscal distress atm, and they have been trying to offload their properties with no luck whatsoever, even having reduced asking prices to substantially below where props were changing hands a couple of years ago.
The problem with being "gung ho", and overly bullish, is that any problems that may exist, can justifiably be ignored.
Perhaps we all need to be a little more realistic as to whats going on, I'm not getting a lot of good news South of Sydney, especially not from the EA's.
You are 100% spot on Michael, and its something that is constantly overlooked by the bears.
Your point is especially relevant when the current underlying supplyfor a specific area is very limited.
The bears point to short term price movements and use that to justify that increased cost of supply doesnt matter. But it does (over longer periods of time), the cost of supply will just increase over time. Hence this will provide supply sided pricing pressure.
The only way we will have a step down, in new supply pricing is if all the indirect costs that you are identified are removed. I believe that is will occur at some point in the future (otherwise if one extrapolates far enough into the future new property will be totally unafordable).
Another concise, well-constructed argument. Keep it up.
Each way bet, in a strong economy that stays strong - ie cost increase driven by low unemployment, demand for labour etc it would drag the prices of existing stock with it. Which we have seen to a degree in patches in the last 10 years.
In the event of a tax that would by most logic have a contractionary effect on the economy by removing money from it(even it a lot comes back through cuts, will still not be returned in full due to govt wastage, targets of tax cuts etc) I believe it's effect is more likely to be negative, due to increased unemployment (negative effect on building and materials industry) lowering demand, along with increased cost to build and reduced ability to service. Less buyers in the game.
i think it is dangerous to assume it will only be positive. The cause will have a big influence on the effect.
In the event of a tax that would by most logic have a contractionary effect on the economy by removing money from it(even it a lot comes back through cuts, will still not be returned in full due to govt wastage, targets of tax cuts etc) I believe it's effect is more likely to be negative, due to increased unemployment (negative effect on building and materials industry) lowering demand, along with increased cost to build and reduced ability to service. Less buyers in the game.
i think it is dangerous to assume it will only be positive. The cause will have a big influence on the effect.
perhaps you need to read the last 6 months of posts.
the funny thing is, just because people see buying opportunity doesn't mean they're eternal bulls or in denial.
