Sydney property prices set to double

[oracle]

From '80 till now is three decades which means that if prop doubles every ten years the prop value should increase X8, which it has done (as near as I can tell), but the rule of 72 says that is just 7.2% cap gain per year. The average interest being paid on the OPM would be nearly 7% so that chart could never convince me, on it's own, to buy Sydney property.

What about the rental return of 5%approx. which helps with the mortgage and the negative gearing tax benefits. So even if the cost of funds is around 7%pa it might actually only cost you 1-2% per annum to hold it. So that is still 5-6% gain.

Correct me if I have completely misunderstood the concept of property investing please.

Cheers,
Oracle.

 

[Shadow]

Hi Shadow,

Thanks for the charts. Could you tell me if you got all three charts and the associated data from Residex? And if you did, did you have to pay for this data or do they provide free access?

Cheers,
Lisa

Hi Lisa,

Yes, the data is freely available from Residex, for all cities...

http://www.residex.com.au/index.php..._indices_median_table&thestate=NSW&dwelling=H

 

[Shadow]

Some fuzzy figures there Shadow, the linear and log charts seem to have different start points.

The figures are from Residex, and the charts both start at a median house price of $43K. Remember that this will 'appear' to be higher on the log scale chart, do to the nature of the log.

I am always sus about graphs purporting to "prove" something but which do not allow accurate interpretation because there are no graduations on one axis.

Not trying to prove anything. Just posting a chart of the data. That's what happened. It doesn't prove anything other than what the historical prices were. The source data is freely available on the Residex website if you want to confirm any details.

I reckon you should only use log charts for long time charts anyway, so I'll discuss that one.

I think it is appropriate to use log scale when plotting exponential growth.

that chart could never convince me, on it's own, to buy Sydney property

I wouldn't expect it to. The chart is just a chart. It has no predictive powers. Anything could happen. I expect the Sydney house price to approach $1M by 2014-2015 for various reasons unrelated to the chart - population growth, shortage of property, low rental vacancy rates, flat house prices since 2003, smaller than usual price gap between Sydney and the other states, unemployment improving, disposable income increasing etc etc. Growth of 9% per annum from here will have Sydney houses pretty close to a $1M median by 2015. Considering we had 12% growth in Sydney last year (and 17% in Melbourne!), I don't think 9% average growth for Sydney is out of the question in coming years.

 

[Deltaberry]

What about the rental return of 5%approx. which helps with the mortgage and the negative gearing tax benefits. So even if the cost of funds is around 7%pa it might actually only cost you 1-2% per annum to hold it. So that is still 5-6% gain.

Correct me if I have completely misunderstood the concept of property investing please.

Cheers,
Oracle.

Agreed. He's ignoring the rental component, which goes up over time too. So eventually your rental yield as a % of your purchase price is a lot more than 5%.

 

[tigerGT]

Property Investing is a VERY forgiving method of investing. Eventually TIME heals all wounds(losses).

 

[Sunfish]

What about the rental return of 5%approx. which helps with the mortgage and the negative gearing tax benefits. So even if the cost of funds is around 7%pa it might actually only cost you 1-2% per annum to hold it. So that is still 5-6% gain.

Correct me if I have completely misunderstood the concept of property investing please.

Cheers,
Oracle.

No! according to Somersoft you are doing the right thing. According to me the only possible reason to buy such property is for the tax benefits. I have never needed "tax benefits" so I'll pass on that, thank you.

BTW You will only have been getting 2.5% nett rental returns and BHP pays nearly that much in divs.

You don't need to be a genius to buy BHP shares.

 

[Dazz]

Ouch Sunfish, that graph and the 2.5% nett divs (don't forget the ICs pumping the return way higher) makes for some sombre studying when compared with some houses I've been involved with.

I can see why you lean the way you lean. Top stuff.

 

[Sunfish]

I'm no genius Dazz. I was stopped out of my BHP during the GFC and haven't bought back.

 

[RocketMan]

it's just because property is inherently leveraged vis-a-vis share investing. People don't have a problem going 95% LVR on a house but they get scared (and rightly so) if they do the same leverage on a stock like BHP. Does that make property or shares better? not really...but it depends on your strategy. short term/lack of borrowing power - shares, long term - property.

 

[oracle]

No! according to Somersoft you are doing the right thing. According to me the only possible reason to buy such property is for the tax benefits. I have never needed "tax benefits" so I'll pass on that, thank you.

BTW You will only have been getting 2.5% nett rental returns and BHP pays nearly that much in divs.

You don't need to be a genius to buy BHP shares.

I am not disputing your point about investing in shares. I like shares and invest in them myself.

The point is property investing is not a bad investment either. If you buy resi ip in good location you will do alright over medium to long term. Most people find it much easy to borrow 480K on 600K property (80% LVR) and still have SANF. The same people will find it difficult borrowing 420K (70% LVR) on BHP shares and still have SANF.

I guess your point is buying an asset at the wrong time which can cause no CG and losses for an extended period of time. But that can happen with shares as well, infact more often then property. People have made fortunes in both assets classes, it just depends on the individual, their risk tolerance and how much effort they are willing to put into research.

Cheers,
Oracle.

 

[Sunfish]

People don't have a problem going 95% LVR on a house but they get scared (and rightly so) if they do the same leverage on a stock like BHP.

I accept what you say but I wonder why. 95% gearing on property scares the c*** out'a me.

It seems to me that a share investor is forced to understand risk but property investors happily ignore it. Absolutely NO WAY would I have a mil$ debt on property with nothing more than equity in my home to support it. My home is the family's foundation and I will not put it at risk.

 

[willair]

I am not disputing your point about investing in shares. I like shares and invest in them myself.

The point is property investing is not a bad investment either. If you buy resi ip in good location you will do alright over medium to long term. Most people find it much easy to borrow 480K on 600K property (80% LVR) and still have SANF. The same people will find it difficult borrowing 420K (70% LVR) on BHP shares and still have SANF.

I guess your point is buying an asset at the wrong time which can cause no CG and losses for an extended period of time. But that can happen with shares as well, infact more often then property. People have made fortunes in both assets classes, it just depends on the individual, their risk tolerance and how much effort they are willing to put into research.

Cheers,
Oracle.

Oracle,that's the only problem with both markets,BHP is only one that stands out,, look at all the top 4 High End Banks over the past 15 years
CBA in march 1992 was $7.35,5 minutes ago it's around $56.00 plus
and once you add on all the div's franking credits year in year out
it adds up too big money if you hold during all the down trends,where as property works slower,and as several in this site have never seen the
times when property goes backwards in a big way,anyone can produce a number to lower your anixety levels,or say property has gone up 10%per month,but what happens when it stops?? ..willair.

 

[Dazz]

My home is the family's foundation and I will not put it at risk.

Ha, this is how my wife thinks as well.


I on the other hand don't, so took the fully paid off deed to our family home and slapped it down as a part deposit on a rusty old 1960's shed. She wasn't too happy at first, but reckons, in hindsight some years later, it was a good move - but still growls every now and again.

 

[Sunfish]

You're right Oricle. I too own property but with far lower LVRs than are spoken of here. The results have never been so good that I wish I had been more aggressive IN THE MARKET I KNOW. I should have ventured into mining towns though but this thread is about Greater Sydney.

I am NOT confident that GFC Mk II is not around the corner so I am very conservative and limiting new investment to speccie Au/Ag miners outside Oz. (by nature, un-geared). That needs some study, as you say.

 

[RocketMan]

True, share investors/traders understand that prices are volatile. I trade myself so I understand that I can't take anything for granted and time won't heal my losses necessarily. People leverage up massively on property because there are no margin calls, and people only really sell if they have to for financial or personal reasons. So it's a different risk. Obviously people sometimes forget that if the crap hits the fan then a sale of property is much more financially significant than selling a leveraged share portfolio

 

[DeeHwa]

True, share investors/traders understand that prices are volatile. I trade myself so I understand that I can't take anything for granted and time won't heal my losses necessarily. People leverage up massively on property because there are no margin calls, and people only really sell if they have to for financial or personal reasons. So it's a different risk. Obviously people sometimes forget that if the crap hits the fan then a sale of property is much more financially significant than selling a leveraged share portfolio

Agree. Shares are marked to market whilst property isn't. Also people would liquidate their shares when ***** hits the fan, but the house would be the last resort.

 

[Fudge]

One of the few things I think Australia can learn off America is to have more cities. What Sydney have done with Parramata is something that should be the benchmark.

Jezza

I thought I have heard that Brisbane City Council and other regional amalgamated councils in the South East, are suggesting they don't want to be like a Parramatta, and are increasing densities inside the exisiting brownfield suburbs.

This is evident, as they are looking at changing densities and rezoning areas.

Cheers,

F

 

[jezza]

I thought I have heard that Brisbane City Council and other regional amalgamated councils in the South East, are suggesting they don't want to be like a Parramatta, and are increasing densities inside the exisiting brownfield suburbs.

This is evident, as they are looking at changing densities and rezoning areas.

Cheers,

F

You may be right Fudge but Councils I think these days are like most CEO's they are expected to be in the position for a short period ( around 5 years) and they want to justify there position only on that period so they target short - medium term goals. They don't look for what is going to happen in 10/20 or 30years time and set the framework up. I don't want to turn this to a political thing but I wonder what the long term view is on just releasing land 50-60km's from a CBD with no transport and very little means of infrastructure

Jezza

 

[Deltaberry]

I accept what you say but I wonder why. 95% gearing on property scares the c*** out'a me.

It seems to me that a share investor is forced to understand risk but property investors happily ignore it. Absolutely NO WAY would I have a mil$ debt on property with nothing more than equity in my home to support it. My home is the family's foundation and I will not put it at risk.

If you have a good investment thesis and you've done your numbers, then even if you lose, so be it. Obviously different if you're just buying for the sake of buying properties.

Just had a friend buy another investment property on 95% gearing - she doesn't even know what yield is.

 

[Deltaberry]

Oracle,that's the only problem with both markets,BHP is only one that stands out,, look at all the top 4 High End Banks over the past 15 years
CBA in march 1992 was $7.35,5 minutes ago it's around $56.00 plus
and once you add on all the div's franking credits year in year out
it adds up too big money if you hold during all the down trends,where as property works slower,and as several in this site have never seen the
times when property goes backwards in a big way,anyone can produce a number to lower your anixety levels,or say property has gone up 10%per month,but what happens when it stops?? ..willair.

Can't borrow at 95% LVR on a bank stock because of margin calls. Minor movements will trigger margins, as happened in 2008. But when the Double Bay mansions dipped in the same time, people rode through it even at 70% LVR and here they are again.