Realistic growth expectations

[Ridin-High]

Hi All,

Just wanted to get an idea on what the property pundits think is a realistic expectation on Per annum growth over the next 10-20yr period for well located (by well located, meaning adhering to the basic principles of location, close to transport, amenities etc).

I've put up a poll and opening it up for discussion.

 

[investor2009]

I think around 8%pa growth is a pretty safe bet. And theres no denying this, could be less, could me more, but the only way to find out is revisit this thread over the years.

We must remember: property has always been expensive. It's never been an easy ride. Buying your first home in the 60's was just as tough. The rules were different but principal(s) the same.Imagine having to come up with a 25% deposit these days!

 

[charlieandkath]

7.18 % year on year. This means it doubles every ten years. Buy in better areas and would do slightly better than this. Buy in worse areas and will do slightly worse than this. This is my opinion anyway.

 

[devo76]

I believe in property but still feel the next 10 years will not be a top performing period. We may well see gangbuster growth near the end of the 10 year period but i expect a slow period from now up to maybe the 5 year mark will drag the overall yearly average down.
6% at a guess but hey its about long term right.

My area has only just regained its losses since 2003 and now it is softening again. I expect to see a full 10 years with minimal growth.(2003-2013)
It will pick up again just not yet.

Cheers

 

[VYBerlinaV8]

I put 3-5%, mainly because my goals assume a doubling of current values of my IPs across the next 15 years, which puts the growth rate just under 5%pa. This is a conservative assumption, though, and over a 15 year period I hope it would do a bit better than than, more like 7% or thereabouts. Anything above 4.8% pa will be bonus territory for me.

 

[our obsession]

Crystal ball where art thou?

Seriously though, based upon past (decades) growth averages performance of my regional cities I would expect minimum of 8%. One I built in Bendigo, (construction completed 2003), cost me all up $145,000 is now around value of $280,000 plus, based on comparable sales in it's street and closeby streets.

Buying well helps, a cheapy nobody else wanted 2008 in another regional city I bought for $55,000 is now about the $120,000 (based on comparable sales, type, size, area etc).

It is a complex issue. I personally see my regional cities continuing strongly with their growth and diversifications, becoming bigger catchment city entities. My guesstimate of 8% may well exceed that.

But I will continue to do best deals possible, buying as well as possible, at the 'deal' ....multiple ways to skin the property cat.

 

[buzzlightyear]

As at today, if you look at the columns on the graph, turn them anti clockwise, and they look like a normally distributed bell curve. Funny that!

 

[Deltaberry]

Hi All,

Just wanted to get an idea on what the property pundits think is a realistic expectation on Per annum growth over the next 10-20yr period for well located (by well located, meaning adhering to the basic principles of location, close to transport, amenities etc).

I've put up a poll and opening it up for discussion.

Too hard to pick as these stuff are lumpy and over a 20-year timeframe rests heavily on macro factors and policy factors. You could having a commodity bust in two years time which gives you a negative 25% in one year. A fair guess would be around positive 4-5% over 20 years? I'd imagine less over 10 years.

 

[sash]

I think 4-7% is reasonable.

In the larger cities (ie. Sydney, Brisbane, Melbourne, Perth, Adelaide)...
this means property will double every 10-15 years. So a 500k property will be worth $1m between 2021 and 2029. Bear in mind that the higher priced property will do the lower figure. 4% of $1m still going to go up about 235k in 5 years. Lower priced property due to affordability will move quicker.

Also, regional properties will probably stay on the lower end of the scale more like 4%-5%....again affordability will dictate growth more than ever.

Too hard to pick as these stuff are lumpy and over a 20-year timeframe rests heavily on macro factors and policy factors. You could having a commodity bust in two years time which gives you a negative 25% in one year. A fair guess would be around positive 4-5% over 20 years? I'd imagine less over 10 years.

 

[bene313]

I tend to agree with Delta and Sash.

I voted 3-5% for reasonably located property. That's inflation plus a premium of 1-2%.

 

[Graemsay]

I voted for the first option. Yes, there's always one.

If the research by the Economist is correct, and Australian prices are 60% overvalued, and inflation remains low, then it's very possible that prices will be lower in nominal terms in ten years, and slightly higher in twenty.

A 60% overvaluation would require a 40% fall to correct it.

If house prices track wages (which is a reasonable assumption given Shiller's long term studies on their movement) then I'd expect a natural rate of growth of between 3% and 4% per annum. Over a decade that works out at a rise of between 35% and 50%

So in 2021, I reckon that house prices could be between 80% and 90% of today's. That would be -1% to -2% per annum over the decade.

By 2031 I'd expect them to be higher, and my very crude model would suggest between 10% and 30% up on current valuations. Over that time frame you'd get average growth of between 0.5% and 1.5% per annum.

 

[oracle]

I voted for the first option. Yes, there's always one.

If the research by the Economist is correct, and Australian prices are 60% overvalued, and inflation remains low, then it's very possible that prices will be lower in nominal terms in ten years, and slightly higher in twenty.

A 60% overvaluation would require a 40% fall to correct it.

If house prices track wages (which is a reasonable assumption given Shiller's long term studies on their movement) then I'd expect a natural rate of growth of between 3% and 4% per annum. Over a decade that works out at a rise of between 35% and 50%

So in 2021, I reckon that house prices could be between 80% and 90% of today's. That would be -1% to -2% per annum over the decade.

By 2031 I'd expect them to be higher, and my very crude model would suggest between 10% and 30% up on current valuations. Over that time frame you'd get average growth of between 0.5% and 1.5% per annum.

Graemsay, what would be the approx yield on these properties 10yrs from now if the prices will be 80-90% of todays value? What makes you think investors won't jump in before and push prices higher?

Secondly, what would be the average wage and approx. disposable income available to service debt? If you think disposable income to service debt will be higher in 10yrs time what makes you think ppl will not spend that extra money to buy a bigger better location house thus by pushing house prices higher?

Cheers,
Oracle.

 

[BV]

As inflation runs at approx 3%
a 5 to 7% growth (on average) is reasonable.

However, we should not forget rental growth.
With the housing shortage the pressure on rents should be maintained so the rental increases should be in the same range (5-7%) and rents should also double in 10 or so years

 

[oracle]

As inflation runs at approx 3%
a 5 to 7% growth (on average) is reasonable.

However, we should not forget rental growth.
With the housing shortage the pressure on rents should be maintained so the rental increases should be in the same range (5-7%) and rents should also double in 10 or so years

Exactly.

If we do end up having the mining boom for next 10yrs atleast as predicted by Govt, RBA and Economists we are bound to have an inflationary environment. This only means higher wages, higher construction costs which can only mean one thing for property prices. They will need to go up.

Cheers,
Oracle.

 

[Corey Batt]

After a short term fall.

Would rather high growth mining stocks in a mining boom than high hold cost high growth property.

Invest in the highest returns, anything else is just silly.

 

[tom32]

Exactly.

If we do end up having the mining boom for next 10yrs atleast as predicted by Govt, RBA and Economists we are bound to have an inflationary environment. This only means higher wages, higher construction costs which can only mean one thing for property prices. They will need to go up.

Cheers,
Oracle.

I am not sure that many think it will last 10 years? If prices remain this far above costs for even 5 years our capacity would be sufficient let alone brazils, indias, chinas own etc.

Of course everyone has an opinion on this but I would be prepared to bet money that the high minerals prices do not last more than another 36months due to capacity coming on line in Australia, Brazil etc. I'd say 36months would be about the favourite. I am not making promises, they could possibly run for longer, I just don't think prices this far above costs with this much investment in supply can last that long.

No question though the capital investment pipeline at the moment is chockers so to speak.

The investment when prices fall will not shut off overnight but it will start hurting within months just like in 08.

 

[Ridin-High]

After a short term fall.

Would rather high growth mining stocks in a mining boom than high hold cost high growth property.

Invest in the highest returns, anything else is just silly.

Leverage plays a part

Eg. 12% return on 200k in mining stocks is about the same as 5% growth on a 450k property + you can burrow more safely against the increased val of the property rather then margin lending against the increased value of the stocks.

Pro's and cons to each

 

[bene313]

I am not sure that many think it will last 10 years? If prices remain this far above costs for even 5 years our capacity would be sufficient let alone brazils, indias, chinas own etc.

I'm no expert, but have friends working in finance/managerial roles for big miners.

Apparently the projections prepared by these companies are up to 50 years forward and are generally bullish. The belief is there that the growth will continue and these companies are investing heavily as a result of such projections.

 

[Aaron Sice]

1-3% pa.

sorry, but after a small spike in values and the subsequent retraction, that mirrors what's called a level of resistance in the stock market.

what resistance that is, i have no idea. could be serviceability, bank equity, mortgages comparable to rents - or a combination.

until that barrier is broken, there will be stagflation in the property market for a while.

stagflation specific to property means existing stock gets cheaper comparitively because new construction materials are subject to 2-3% inflation, so new houses get more expensive to build, but their values are held back by the fully depreciated older stock on the market.

this could, of course, explode to the upside and the INCREASE in replacement values for older stock rises, dragging the existing stock prices up with it.

however, there's a lot of weight to carry since new development has been strangled for 4 years.

 

[bene313]

1-3% over 10 years maybe, but Aaron over 20 years?