Residex Predictions for Values in 2013

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Here's what the Residex crystal ball says the median values will be in 5 years. The growth rates are very low, with Sydney the highest on 4.95%p.a.

If these predictions came true, would it be worth your while to hold for this long (particuarly neg geared IPs)?

Code: 
			Nov-08		Nov-13
ACT 			$450,500	 $526,832
Adelaide 		$373,500	 $421,551
SA Country 		$242,500	 $282,765 
Brisbane 		$447,500	 $520,288 
QLD Country 		$377,500	 $423,370 
Darwin 			$430,000	 $543,594 
Northern Territory	$391,000	 $482,612 
Hobart 			$350,500	 $438,881 
TAS Country 		$258,000	 $319,367 
Melbourne 		$479,500	 $576,407 
VIC Country 		$273,500	 $287,878 
Perth 			$491,000	 $557,149 
WA Country 		$414,500	 $402,416 
Sydney 			$565,000	 $719,384 
NSW Country 		$312,000	 $326,780 
Australia 		$398,500	 $461,074
 
Gee, residex has changed its tune recently!

it used to predict Sydney growth to be 8 to 10 % per year long term. That's a big drop in expected growth :eek: It would definitely change the profitability of negatively geared properties.

This is the 5 year average though. My guess is that they would be expecting a flat market until 2010 and the market to start to pick up after that.

Cheers,
 
It still works well for me, even though these numbers are quite low and total fiction it still adds up,
Although I cant see how they can predict 5 years ahead though, this is kind of mad really. . we all know how the vast majority of reputable forecasts have been completely wrong in the past so why should this one be any different?

I remember Yardney amongst other experts saying that Darwin had completely overshot the mark a few years ago and couldnt possibly sustain the growth its seen but weve seen way above average growth for the past 5 years, around 20% or above per annum in most parts.

some 70%, some 40% some 100%, varying from suburb to suburb,
 
Interesting figures and they make sense to me. So many reasons it should crash and so many reasons why it shouldn't crash I've been expecting a long flat (the great forum wars of 2006-2009 taught me this).

My most negatively geared IP requires 2.6% growth per annum to break even. So even the Melbourne Metro median 3.75% works OK. But that's a special case because its a penthouse in Toorak and I live in it.

I've only owned it 1.5 years now and its bank valuation grew 14% during the first 10 months of ownership so that's covered the next 4 years negative cashflow. I don't expect much more growth from it during that time however 10-12 years from now should be pretty sweet.

To make a Melbourne Metro median of 3.75%, some properties will have 0-1% growth and some will have 6-7% growth. Picking that suburb that will do 7% is probably more luck than anything else, however with careful asset selection it's not too hard to beat the median by 1 or 2%, giving you 4.75 to 5.75% annual growth. Those are the properties I plan to own (and hold them while they are cashflow neutral or positive).

If we enter a time of high inflation owning any asset will be a good thing. Last thing you want to do is sell up and sit in cash.
 
I dont know how you can make the correlation between unrealised cap gain and existing cashflow.

I have never seen that justification previously.


DavidMc said:
Interesting figures and they make sense to me. So many reasons it should crash and so many reasons why it shouldn't crash I've been expecting a long flat (the great forum wars of 2006-2009 taught me this).

My most negatively geared IP requires 2.6% growth per annum to break even. So even the Melbourne Metro median 3.75% works OK. But that's a special case because its a penthouse in Toorak and I live in it.

I've only owned it 1.5 years now and its bank valuation grew 14% during the first 10 months of ownership so that's covered the next 4 years negative cashflow. I don't expect much more growth from it during that time however 10-12 years from now should be pretty sweet.

To make a Melbourne Metro median of 3.75%, some properties will have 0-1% growth and some will have 6-7% growth. Picking that suburb that will do 7% is probably more luck than anything else, however with careful asset selection it's not too hard to beat the median by 1 or 2%, giving you 4.75 to 5.75% annual growth. Those are the properties I plan to own (and hold them while they are cashflow neutral or positive).

If we enter a time of high inflation owning any asset will be a good thing. Last thing you want to do is sell up and sit in cash.
Click to expand...
 
On having a second look, these figures make no sense at all. If I apply the equalisation theory (that I keep banging on about), growth in regional centres will continue. Even though I do not know the NSW market, to say that it will increase only 14K on average over the next 5 years is a crock of crap.

My theory states that areas of low entry cost will eventually "equate" or "equalise" and start heading upwards to wards higher entry cost areas. Take Sydney/Brisbane over the last few years...Take Inala in the last few years...Take XXXXXX regional centre in the last few years, all with huge growth which has been sustained due to areas that have higher prices. While the major cities have higher prices, regional areas will continue to shoot up...on average.:):):)
 
evand said:
Of course not. Why would you?
Click to expand...
* sigh *

OK, here I go again. Seems I'm one of the last bastions of the basics here so I'll run the numbers for the masses again...

Lets use Sydney as an example as that's where I invest. I actually expect my properties to outperform the Sydney median, but I won't run that argument and just use the 5% growth assumption above.

Total Return

5% Growth
4.5% Yield
0.5% Negative Gearing cash back
= 10% Return

Total Cost

6% interest
1% other sundry stuff
= 7% Costs

So, Total Return > Total Cost makes it a viable investment. Add leverage and here's what happens:

$20K deposit on $100K property.

Net Return = $4.2K pa ($10K - $5.8K) [Note: Interest on $80K loan only]
IRR on $20K deposit = $4.2K / $20K = 21%

I don't know about you, but I'm pretty happy with a 21% IRR on my investments. Beats cash in the bank with interest rates headed south and inflation eating it away. With inflation, rents increase and my debt value decreases too, so the numbers only improve over time.

It really isn't rocket surgery, but some people just love the negative mantra.

Cheers,
Michael.
 
evand said:
I dont know how you can make the correlation between unrealised cap gain and existing cashflow.

I have never seen that justification previously.
Click to expand...

I don't know how you can't get.

If you want to genuinely discuss it in a constructive fashion, please tell me what your thoughts are.

My thoughts -
- I bought a property for $592k in April 2007.
- The bank revalued it at $675k in Feb 2008.
- I arranged additional finance - 78.8k (being 95% of the 83k growth).
- I can go down to the bank and draw out $78.8k all in $100 notes and take a bath in it.

That's realising the gain to me.

Do you think it's not realising the gains because I haven't sold it? I don't think so.

Could the house sell tomorrow for $675k? I don't think it matters. I'm never going to sell it. All I care is about the bank valuation each time I refinance.

I understand the value of it can go down. If it does (and they probably have come back a bit) I just don't revalue/refinance. It's highly unlikely the bank isn't going to reduce or take away my 78.8k facility, it's a redraw not a LOC (I know some LOCs were canceled in the US in some extreme examples) and I still get to have my money bath.

When the values go up again, I refinance again, buy more 'lifestyle' or repeat another place.

Please note this is my worst (by far) property in terms of cashflow (it's my PPOR).

There you go. Not trying to start a war - just showing you my cards and trying to understand what your thoughts are.
 
I forgot to add, the property costs me around $15k-20k per year in negative cashflow. If I want I can use this $78.8k to 'fund' the next 4+ years of cashflow, so any new growth is all gain over that period.

At the measly 3.75% growth each year (and this property should beat that) that's over $25k in year 1 ($136k over 5 years). Not bad, considering I don't pay tax on it that's pretty similar to what I used to take home yearly on my graduate $35k pa job.

All with using a 95% loan last year.
 
Well said Michael - it works because of leverage.

Look, even though these figures show low growth for the entire areas, just remember that there are areas that will be lower than that number and others that are higher.

For every suburb that grows a 0%, another will do 10%.

As smart investors I should expect we can find those towards the top of the growth figures.
 
DavidMc said:
I forgot to add, the property costs me around $15k-20k per year in negative cashflow. If I want I can use this $78.8k to 'fund' the next 4+ years of cashflow, so any new growth is all gain over that period.

At the measly 3.75% growth each year (and this property should beat that) that's over $25k in year 1 ($136k over 5 years). Not bad, considering I don't pay tax on it that's pretty similar to what I used to take home yearly on my graduate $35k pa job.

All with using a 95% loan last year.
Click to expand...

Well put, leverage is key to success,
if we do see these slow figures I'll be in the same boat being I still earn more than what my day job returns per annum and Im not ready to even think about whats happening in the short term, Im still aquiring and have another 10 years of play left until I need to head for the home stretch, even then I think I'll still be investing in something.
 
evand said:
I dont know how you can make the correlation between unrealised cap gain and existing cashflow.

I have never seen that justification previously.
Click to expand...

Evand

If property dropped by 70% as predicted by some here but you had an
existing cashflow to sustain this unrealised cap loss you would still see
no correlation?

Peter
 
MichaelW said:
I don't know about you, but I'm pretty happy with a 21% IRR on my investments. Beats cash in the bank with interest rates headed south and inflation eating it away. With inflation, rents increase and my debt value decreases too, so the numbers only improve over time.
Click to expand...

Exactly. 5% annual growth will work great for me. I don't care if this is equal to the rate of inflation... because the 5% growth is still 'real' growth to me, since it's all built upon borrowed principal that is depreciating in value at the same rate of inflation, and the bank doesn't care if I never repay this principal anyway.

DavidMc said:
My thoughts -
- I bought a property for $592k in April 2007.
- The bank revalued it at $675k in Feb 2008.
- I arranged additional finance - 78.8k (being 95% of the 83k growth).
- I can go down to the bank and draw out $78.8k all in $100 notes and take a bath in it.
Click to expand...

Exactly. I've had this argument with the gloomers so many times. They seem to think that capital gain isn't real unless you sell (yet capital losses are very real even if you don't sell :rolleyes:). I can tap into my capital gain using LOCs and go buy a car* or boat* with it. This seems pretty real to me!

Cheers,

Shadow.

* Not that I would buy either of these. I'd just buy more IPs! :D
 
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