How time flys....
Just yesterday (2009) we were in doom and gloom about the property market....now the newspapers are screaming a boom in real estate in mid 2010. Is a another bust around the corner?
Being a counter cyclical investor...I am increasingly growing cautious about the property market.
My crystal balling has made me come to the following conclusions:
1. We are not at the end of the interest cycle yet....I am of the view that there is another 0.5% to 0.75% in increases. This means that rates have will have rised between 50%-60% by the end of 2010. This will hurt because it is more than the rise from 6.8% to 9% in percentage terms, where is increased about 33%.
2. The recent attempts by China to cool growth and the risk of this being overdone and the recent tax increases on Mining companies are potential risks to one of the key areas of the Australian economy.
3. Credit will get tighter....as I suspect what is happening with the PIIGS (Portugal, Ireland, Iceland, Greece, and Spain) will reverberate through the financial markets. Watch this space...Greece is going to be minor impact compared to what will happen if Spain does not sort their economy out.
4. Being an election year....and politicians being predictable will make immgration and issue and rein this in from the current 300k to 150-180k. This will have an impact on housing.
5. The building approvals are increasingly rapidly....though Qld and NSW will continue to experience supply constrainsts even if immigration is reduced.
6. Some FHB are realising their first home dream is starting to become a nightmare....who would have predicted??
So what does this mean?:
1. Interest rates will top at somewhere between 7.8% and 8.5% late in 2010. Given the level of indebtness of people, this will not stay at these levels for long....and by May 2011 we will see a downward movement as things really cool in real estate.
2. The riskiest markets will be Vic (Melbourne) as it has boomed a lot followed by Brisbane and Perth due their exposure to the Mining sector. Sydney/NSW can also be risky....but due to the shortfall there maybe a floor there. The real dark horse is what will happen with immigration and if it becomes an election issue?
3. The tightening of credit will also rein in the market and even more so if the PIIG issues affects the financing side of things. Should China waver....it buckle up!
What will I be doing?
1. I have decided to hold off on purchases...as I suspect there will be some opportunities which will present when the FHB sell up as they realise mortgages can be bummer...and sales due to bankruptcies are another possibility.
2. If the supply side is constrained I will pushing rents up possibly 10-20% per annum. The potential for this exists mostly in Qld and NSW.
3. Will continue to identify areas around Australia which will be unaffected by any of this. Still working on this.
4. I seem to be in a solid position from a borrowing perspective as I have up to $2m to spend. Though I don't like the thought of putting down a 10% deposit!
Would love to hear commentary on my thoughts above??
Just yesterday (2009) we were in doom and gloom about the property market....now the newspapers are screaming a boom in real estate in mid 2010. Is a another bust around the corner?
Being a counter cyclical investor...I am increasingly growing cautious about the property market.
My crystal balling has made me come to the following conclusions:
1. We are not at the end of the interest cycle yet....I am of the view that there is another 0.5% to 0.75% in increases. This means that rates have will have rised between 50%-60% by the end of 2010. This will hurt because it is more than the rise from 6.8% to 9% in percentage terms, where is increased about 33%.
2. The recent attempts by China to cool growth and the risk of this being overdone and the recent tax increases on Mining companies are potential risks to one of the key areas of the Australian economy.
3. Credit will get tighter....as I suspect what is happening with the PIIGS (Portugal, Ireland, Iceland, Greece, and Spain) will reverberate through the financial markets. Watch this space...Greece is going to be minor impact compared to what will happen if Spain does not sort their economy out.
4. Being an election year....and politicians being predictable will make immgration and issue and rein this in from the current 300k to 150-180k. This will have an impact on housing.
5. The building approvals are increasingly rapidly....though Qld and NSW will continue to experience supply constrainsts even if immigration is reduced.
6. Some FHB are realising their first home dream is starting to become a nightmare....who would have predicted??
So what does this mean?:
1. Interest rates will top at somewhere between 7.8% and 8.5% late in 2010. Given the level of indebtness of people, this will not stay at these levels for long....and by May 2011 we will see a downward movement as things really cool in real estate.
2. The riskiest markets will be Vic (Melbourne) as it has boomed a lot followed by Brisbane and Perth due their exposure to the Mining sector. Sydney/NSW can also be risky....but due to the shortfall there maybe a floor there. The real dark horse is what will happen with immigration and if it becomes an election issue?
3. The tightening of credit will also rein in the market and even more so if the PIIG issues affects the financing side of things. Should China waver....it buckle up!
What will I be doing?
1. I have decided to hold off on purchases...as I suspect there will be some opportunities which will present when the FHB sell up as they realise mortgages can be bummer...and sales due to bankruptcies are another possibility.
2. If the supply side is constrained I will pushing rents up possibly 10-20% per annum. The potential for this exists mostly in Qld and NSW.
3. Will continue to identify areas around Australia which will be unaffected by any of this. Still working on this.
4. I seem to be in a solid position from a borrowing perspective as I have up to $2m to spend. Though I don't like the thought of putting down a 10% deposit!
Would love to hear commentary on my thoughts above??