Rates, yields, investment cycle and VIC market

[TMNT]

Am just brainstorming, purchased a property in bendigo about 4 months ago, at the time I got a great price on it, renovated it, new valuation (done by myself, and the word of a few different agents) I was quite happy with

fast fwd 4 months, and in my opinion my house is now worth 10% less if I sold it, not too fussed as im not intending to sell,

that got me thinking,

I liked and still like the fundamentals of the area, at the time there was a rate cut or two, and I thought perfect time to get in for the next boom/recovery of the vic market,

in hindsight, I feel that timing wise was not right, and also applies to the rest of state, yields were not particularly great at the time,

so that got me thinking, I personally believe that unless there is some unique announcement or similar around the corner, or some other major factor, the property market overall bottoms out when rates hit all time lows or cyclical lows, and where the yield (depending on whether the area is blue chip/metro/regional) matches/exceeds interest rates as a result of investors jumping in,

if my above thinking were correct, would that mean there is no point in buying in VIC in the majority of the areas, and to continue focussing on NSW and QLD,

for example, in vic regional, the yields on average are sub 6.5%, which isnt neutral, whilst in nsw and qld, yields are often 7.5% and above (if purchased at market rate)

there is no point getting say 10% off the market price now, and thinking you got a bargain when in 6 months time, the market price is the same as what you purchase it today!

anybody care to comment?

 

[devank]

I don't know about you but I can't definitely pick the rock bottom. Over long term period it may not matter much. Qld prices also dipped further in last 12 months.

 

[mikezen]

that got me thinking,

so that got me thinking,

if my above thinking were correct,

and thinking you


anybody care to comment?

perhaps your thinking about it to much............

 

[TomW]

We are now in a property bear market. During the bull market a lot of people confused brains with a bull market.

How many people have you heard pat thamselves on the back about the little property they brought during the boom (after much searching) that went up by X%? It was more a case of a rising tide lifts all boats than any special acumen on the investors part.

 

[Peter_Tersteeg]

In a year or two we might look back and realise that now was the bottom of the market; or it might drop further. Unfortunately it's only something that we'll know in hindsight.

We're obviously not in an upward cycle, but eventually we will be. The most appropriate strategy may be to simply try buy as well as you can for a long term outlook and don't sweat the short term fluctuations.

 

[Fifth]

perhaps your thinking about it to much............

Thinking gives you wrinkles.

Anyway, even for those who do manage to pick the bottom, the bottom won't necessarily be the same state-wide. I imagine Melbourne will lead the upswing, but regionals mightn't follow directly.

And, yes, the yields in Victoria are craptacular. Logically, prices should either decline further or stagnate for a long period allowing rents to catch up, but our property market hasn't got a sensational track record when it comes to 'logic'. All bets are off so far as I'm concerned.

 

[TMNT]

In a year or two we might look back and realise that now was the bottom of the market; or it might drop further. Unfortunately it's only something that we'll know in hindsight.

We're obviously not in an upward cycle, but eventually we will be. The most appropriate strategy may be to simply try buy as well as you can for a long term outlook and don't sweat the short term fluctuations.

Agree, however, I don't always agree with the saying ' it's not when you buy, but how long you've been in it'

My common sense tells me, yields in vic have risen in the last 12 months but still negative geared, fho s will continue to rent until yields improve,

No point buying something worth 250k for 200k now and getting a great del t the time, to find next door is for sale for 195k 3 years later,

Which one of the suburbs has happened that I purchased in

 

[Aaron_C]

My common sense tells me, yields in vic have risen in the last 12 months but still negative geared, fho s will continue to rent until yields improve,

I seriously doubt FHBs look at yields and make that equation of renting vs buying in the way you describe. FHBs buy when they can afford to. This is why they pay ridiculous prices for small blocks of dirt in random areas like Point Cook / Epping etc - because they are 'affordable'. However, right now the valuations are simply not stacking up (which I agree with), hence they cannot get finance and can't purchase these blocks, as usually they are going for 90-95% LVRs. Servicing is never an issue with FHBs - it is always the leverage. So falling rates/rising yields makes no difference.

 

[Peter 14.7]

Property Investment is long term.

To me a good investment is one where rental and CG growth is balanced. Where the long term fundamentals are solid ( i.e. not mining towns). Where the maintenance is reasonable and the depreciation high. Bendigo meets that criteria overall.

Long term prices go up.

Personally I have bought in 1989 sold 1991 made 20%, 1991 subdivided and sold 1993 and 1997 broke even, 1996 sold 2005 made 120%, bought 2001 sold 2003 made 80% and have mutiple others still held. On all of these except the 2003 there would have been a time I would have made a loss.

Yet I know friends who refused to buy in 1989 as the market was "too high" and and questioned our logic. I will never know if they did eventually buy anything as we lost contact. What I do know is a small but very significant part of our present fully owned PPOR is from the purchase in 1989. IT formed the nucleus of our financial security.

Overall we have turned the first investment into a 1000% increase in value since that time. Lucky father in law never wanted the 10% deposit he loaned us back

Good Luck, Peter 14.7

 

[Graemsay]

I saw an episode of Location, Location, Location a few weeks back in which Kirsty and Phil caught up with previous participants.

(I think that you get this show in Oz. The presenters show couples around various properties, convince them to buy somewhere that they'd have originally rejected, and then cut what often appears to be a poor deal despite their claims of ninja negotiating skills.)

It featured a young couple who were on in 2007, which was the peak of the British housing bubble. They were first time buyers, no deposit, and looking to spend five times their combined salary, and payments on the mortgage would be something like half their gross salary. Basically they were complete idiots.

They missed the apartment they wanted, but somehow found more money, and ended up spending £300K on a basement flat in West Kensignton.

So after five years of unending economic gloom, a global financial crisis, ongoing Eurozone problems, and a double-dip recession how had things turned out for them?

Since London property has been behaving irrationally (whilst I've not remained solvent), their apartment had risen in value by £80K, at a rate of 5% to 6% a year.

Going back to TMNT's original post, if you'd known the basic shape of the GFC and its causes, you wouldn't have bought property in London in 2007. And you'd have been proven wrong due to the flow of money into the city seeking a safe haven, which along with loan forbearance (though there's chatter that might be coming to an end), and a zero interest rate policy prevented the market crashing.

My point is really that you can make the right decision for what are the wrong reasons, and even predicting the gross shape of how the market will perform is a mug's game. Even if you have a God's Eye View.

I think that the best you can do is make a stab at whether the market is historically under or over valued, and even then there will be disagreement over that. If an investment looks like it's going to make money then buy into it, if not then don't. And don't come crying to me if you make the wrong decision, because we're all big boys and girls here.

 

[Peter 14.7]

It featured a young couple who were on in 2007, wh........ry. Basically they were complete idiots.


So after five years of unending economic gloom..... their apartment had risen in value by £80K, at a rate of 5% to 6% a year.


I think that the best you can do is make a stab at whether the market is historically under or over valued, and even then there will be disagreement over that. If an investment looks like it's going to make money then buy into it, if not then don't. And don't come crying to me if you make the wrong decision, because we're all big boys and girls here.

Agree.

We sold out and made lots in 2003 as that was top of the market in my opinion and it was, ......in the east.

Had we invested that profit in the west we would have doubled again! That taught me there is no one market.

In the end YOU ARE INVESTING. Not buying a car and seeing it depreciate before your eyes, or "saving" for the future only to spend it on a holiday with a new partner who leaves 12 months later.

AND

Dont discount the "lock in factor" of property investment. Unlike cash you cannot change you mind in 24hrs at the whim if each market report.

Regards Peter

 

[Trippy]

Stockland today issued a warning based on a slack Victorian Market. I think there is still some pain here to come. I fear it's still early days with more pain to come...

PROPERTY group Stockland has warned its earnings will fall by 15 per cent if the Victorian market fails to show any improvement.

The company said on Tuesday there had been no change in the Victorian housing market since October, and it appears unlikely any improvement will be seen soon.

That will lead to Stockland's earnings per share in the 2012/13 year falling by 15 per cent, the lower end of its previous guidance of a fall in earnings per share in the range of 10 to 15 per cent.

Stockland's residential chief executive Mark Hunter said market uncertainty and a lack of consumer confidence were continuing to present challenging market conditions, particularly in Victoria.

http://www.couriermail.com.au/news/...earnings-warning/story-e6freonx-1226529460473

 

[murtagh]

Stockland today issued a warning based on a slack Victorian Market. I think there is still some pain here to come. I fear it's still early days with more pain to come...

You inspired me to do this search:

https://www.google.com.au/search?q=site:somersoft.com+"more+pain+to+come"

Which results in warnings of all this incoming pain from as far back as 2003.

How's that working for you?

 

[Belu]

Hi TMNT,

those numbers dont sound right, down 10% in 4 months? Which suburb? Mind PM'ing me what you bought? The market is much better now than it was 4 months ago in Bendigo so it would be interesting to see what you are looking at.

Cheers

Ben

 

[Deltaberry]

I saw an episode of Location, Location, Location a few weeks back in which Kirsty and Phil caught up with previous participants.

That's hilarious. People are calling the London market to crash, along with HK, and it just doesn't.

In the end the market does what it does and who knows what it does. If the numbers work for you now and you can afford the repayments etc and save money and continue to build capital, buy it.

 

[truong]

so that got me thinking, I personally believe that unless there is some unique announcement or similar around the corner, or some other major factor, the property market overall bottoms out when rates hit all time lows or cyclical lows, and where the yield (depending on whether the area is blue chip/metro/regional) matches/exceeds interest rates as a result of investors jumping in,

There is a noteworthy mathematical explanation for this: when gross yield equals the interest rate, the property starts to become CF+.

Say property price is P, interest rate is R and gross yield is Y.
Assuming LVR of 80%, loan repayment = P x R x 0.80
Assuming as a rule of thumb that net yield is 80% of gross yield, the net income is = P x Y x 0.80.

Therefore if Y = R, loan repayment is equal to net income and you have a CF neutral property.

If Y > R, the property is CF+

This means that at that point of the cycle there is a real incentive for investors to buy. However whether this translates into the market bottoming out depends on a lot of other factors.

Currently with interest rates in the low 5s it's becoming more and more easy to find CF+ properties, hence an increased interest from investors.

 

[Trippy]

You inspired me to do this search:

https://www.google.com.au/search?q=site:somersoft.com+"more+pain+to+come"

Which results in warnings of all this incoming pain from as far back as 2003.

How's that working for you?

I'm actually surprised that you can only find the term "more pain to come" dating back to 2003. Maybe this term is getting more prominent these days
Personally...it doesn't work for me. That's the point of the link, there is pain to come. Are you saying the Stockland are incorrect and misleading the market
Lucky I'm not in Victoria trying to sell my property

Your search did however inspire me to do my own search:
https://www.google.com.au/search?q=...edfe170ea46107&bpcl=39580677&biw=1920&bih=955

Which is just as meaningless as yours...

 

[TMNT]

T those that say buy
Well at anytime

A property I purchased for 150 sold in 09 for 210k, at the time, 210k was about market price,

Now as an investor your equity has dropped 60 k or 30% in 3 years, I'd be very annoyed at myself and almost questioning my investing ability

So my property that I believe has dropped 10% in a major regional town in vic

At the time I bought at a great price, however I was in my early stages of investing and I believe that it was the worst purchase I made to date,

To me the fundamentals are the same but with a yield of about 5.9% , it's still at a point where renters will stil rent as its still negative by a long way, once the prices fall a bit further or the rents to up another few %, and it seems that rates have also hit bottom or just about

I personally think that vic has either hit bottom now or has a little bit to fall, say 4 to 6 o'clock , in hindsight, now would be a good time to get into my area, I'd rather catch the falling knife at 5 to 6 o'clock

 

[devank]

I personally think that vic has either hit bottom now or has a little bit to fall, say 4 to 6 o'clock , in hindsight, now would be a good time to get into my area, I'd rather catch the falling knife at 5 to 6 o'clock

People have been saying that about nsw & qld for a while but clock hasn't ticked much

 

[Peter 14.7]

People have been saying that about nsw & qld for a while but clock hasn't ticked much

IMO the "investment clock" is still valid except:

• there are multiple clocks. There is clock for Asia, USA, EU and AUS. All linked.
• the Government resets the clock as it see fit with FHO boosts, SD exemptions, new taxes of property, etc

So in short the clock exists but is broken.

It can only tell the time now, not the future.

Regards Peter