The bubble gets bigger

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Reply: 1
From: Mike TheBloodyIdiot


Tony,

I do understand that there is no law in this country which demands that people must be able to rid, rite and cunt.

Furthermore, there is no law that demands that people must understand what they read.

Therefore, you should not be blamed that you have understood the material in those articles exactly the way they wanted you (and other people) to understand it.

Let me try to explain true meaning of this info:

1. First article - they say that only 9% of people indicated that they are interested in shares (which is the lowest level in survey's history). At the same time interest in property is at the highest point in survey's history. It only means that there is MORE of genuine demand for the investment property THAN NEVER BEFORE.
Thus, property market is bound to remain strong in foreseeable future (at least till sharemarket will be able to show consistent positive returns).

2. Last article tells us about the "troubles" that "investors" in old smelly apartment get themselves into. If apartment is in need of replacing carpet and repainting - it was a dog kennel in the first place. Now there is a brand new apartment block build next to it and they fear vacancy. Question then - what those imbecile "investors" were hoping for? In Sydney oversupply of units is evident for years, and it is becoming even worse. If you own unit in the old block, you can expect that Meriton will build new tower next to it at any moment.

3. Second article is soooo much concerned of high "property" vacancy rates. Which property? Great australian dunnies? Sewerage filtration fields? You would not find the answer.
I have got absolutely different experience. In the last 6 months I have rented out 3 houses in Sydney. Fist was on the market for 1 hour, the rest two had the lease signed long before they become available for rent.
Ooops, forgot to tell you about my method of calculating rent. I usually ring 3-4 RE agents and ask them what is the highest rent for 3 br on their roll. Then I take highest rent, add 15-20% on top - this gives me the figure of the rent I will be charging on my properties.

Secrets? None at all:
0. Houses, no units please
1. Good location
2. High quality finishes throughout
3. Pets allowed

In other words, there is no problem with vacancies in Sydney at all. BUT if you "invest" in apartments in Meriton towers or even worse in dog kennels next to it - there is a different story alltogether.

Those three articles combined together, scream at you (and other people) the same thing:

"Aaaaaaaaaaaaa!!!! Do not leave sharemarket!!!!! Aaaaaaaa!!!!! It hurts managed funds!!!!! BOOO!! Property is bad!!!!" and so on, and so on, and so on.

Why media does that? I hate to disappoint you, but it is not about being concerned of your benefit. Media owners simply have got too much vested interest in shares.

Hope this helps.

Mike - TBI
 
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Reply: 1.1
From: Tony Dixon


Mike wrote:
>Therefore, you should not be
>blamed that you have
>understood the material in
>those articles exactly the way
>they wanted you (and other
>people) to understand it.

Mike, I said the articles were "interesting" - I didn't say I agreed with them.
These articles haven't changed my perception of property investment or the sharemarket one iota.
Obviously you misread my position based on the tongue-in-cheek title?


>Thus, property market is bound
>to remain strong in
>foreseeable future (at least
>till sharemarket will be able
>to show consistent positive
>returns).

I would have thought this was obvious with the loss of confidence after Enron, Anderson, WorldCom, Xerox,.. plus the many more that will surely follow.

I happen to agree with much of your interpretation of the articles, and your list of commandments for the property investor.

>Those three articles combined
>together, scream at you (and
>other people) the same thing:
>"Aaaaaaaaaaaaa!!!! Do not
>leave sharemarket!!!!!
>Aaaaaaaa!!!!! It hurts managed
>funds!!!!! BOOO!! Property is
>bad!!!!" and so on, and so
>on, and so on.

My reading was "Managed funds suck, superfund managers suck, stick with property, but buy wisely".

I actually can't comment on the Sydney market as I don't live, rent or buy there.
So I thought I'd cite those articles to see what the reaction was.

Oh, and I *can* read and write, and the counting thing is coming along nicely thanks :)

cheers, Tony
 
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Reply: 1.1.1
From: Mike TheBloodyIdiot


Tony,

Ok, you are a good boy and I am a depressive maniac who is getting mad when word "bubble" is used closer than 1 km to the word "property".

I missed that "bubble-bubble" thread where people were smartassing about property bubbles. Interestingly enough, probably each and every one of them reads an API magazine. In almost every issue they stare at that Residex capital growth graph.

They look at it, but they do not see it. In all the recorded history there was only one time when property for a very short period of time has shown capital loss of 5%.

If it was for share market it would be called "slight correction".

In case of property they call it "crash", "bubble burst", "property nightmare", etc, etc.

The other thing people do not see that before "bubble burst" average capital growth reached more than 40%.

Third thing is that "burst" was caused not by "natural reasons", but by RBA lifting rates.

Well, the first article states that RBA does not have a space for move now. Every 1% of rate rise will eat 12% of homeowner's income, thus lowering consumer spending by roughly the same figure.

What we have is high genuine demand combined with RBA's inability to raise rates.

Where is the "bubble", for god's sake?
 
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Reply: 1.1.1.1
From: Silver Ghost


If you want to see how real manic depressives behave, check out the fool.co.uk discussion board called Property Market & Trends. Talk about doom and gloom - this stuff is music to commit suicide by.
 
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Reply: 1.2
From: Littlemaze :p


Hi Mike,

Ummmm.....you may want to edit your post...when you leave the "O" out of the word count, it doesn't make for a very nice word....

Littlemaze
 
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Reply: 1.2.1
From: Mike TheBloodyIdiot


My are sorry.

Me English don't good....

Frankly, I just seized an opportunity to check if there are any people on this forum who are courageous enough to admit publicly that they have dirty mind... :)

Thanks mate for your participation,

Mike - TBI
 
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Reply: 1.1.1.2
From: Geoff Whitfield


Mike,

>In all the recorded history there was only one time when property for a very short period of time has shown capital loss of 5%.

That was in Australia.

I was in England 1988 to 1990.

When we arrived in England, newly-wed, I was motivated to buy a house by the reasonable interest rates in England as compared with the sky-high Australian rates. Coupled with the deductibility of mortgage payments on one's own home.

We were in Southampton. We bought low range, but a house (terrace), close to shopping and amenities, not too far from the centre of town, a cycle ride to either town centre or the university, and very close to freeways. And only 1 km from "The Dell" (Southampton's soccer home ground at the time)

The house was old (built 1891, well, that's not too old for England), and reno had commenced.

We paid GBP 50,000 for it in 1988. And spent a lot of time, effort and money with carpets, wallpaper, painting, plastering etc. We missed out on a lot of opportunities to see England. But we were going to do quite well out of this.

In 1989, prices went up very well. Estimated price was GBP 58,000. The economy was doing quite well. Where I worked, when you had a soccer friendly, it was "Australia vs Rest of the World", as there were so many Australian contractors required.

But late 1989 and early 1990, the economy went really quiet. We were forced to return to Australia- there were not more IT jobs for foreigners.

Our house was value at GBP 40,000. Substantially more loss that the 5% loss you mentioned- and not even allowing for renos.

We rented it out. Very negatively geared- only to avoid having to pay out a substantial amount just to sell it. Except that we could not claim overseas losses against Australian income. 10 years later we sold it for GBP 67,000. The property management had been bad- but we did not realise that remotely. It was a mess- and would have cost GBP 10,000 to achieve another GBP 10,000 in sale price.

I think out property was fairly typical of the market. Southampton is a large city. The economy everywhere was in decline- when we sold, the economy was booming. But even then, the growth overall was very average.

It can happen. Even here.
 
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Reply: 1.2.1.1
From: Mike TheBloodyIdiot


Geoff,

Thank you for sharing your experience.

It may surprise you, but I agree with you more than 100%.

Lets forget about GB, economy there is being driven by absolutely different forces than in Australia. Here we remain old economy (commodity based, underindustrialised). By the way, this is part of the reason why current IT crisis does not have that much impact here.

Lets talk about this single property slump (-5% cap growth) we can see on Residex graph.

Lets understand this is an average figure. In other words, some areas suffered the most, some areas less, and some still were having positive cap growth.

Some thoughts:

1. Meriton towers (and the like) - of course they were covered with blood. In general - once it is build, it creates oversupply of flats. Location is crappy (philosophy of Mr Triguboff is to build on cheap land). Normal people would not want to live in those beehives.

2. New estates - Another area of big loss. Grossly overpriced to start with, poor infrastructure, remoteness. The main reason people choose to live in new estates is laziness - they want flashy property which does not require any work.

3. Prestige property (in fact anything more than 10% above median price for the given suburb). Purchase driven not by necessity, but the desire to bruise the ego of people purchaser does not like ("I live in $3M house- but you DON'T")
Any hint of economic slowdown - and those "affluent" people are in troubles immediately.

4. Locations with lack of underlying factors for cap growth, like:
a. negative population growth (Perth, Adelaide and the like)
b. no sufficient employment base (Gold Coast, Sunshine Coast, etc)
c. Areas with "artificial" economy (Canberra)

Of course, if something goes wrong, prices there will go down in a blink of an eye.

On the opposite. Sydney grows now at the rate of 1000 people per week. If there ought to be a crisis, will this rate of population growth increase or will it decrease? I think it will increase, because of lack of opportunities in other areas.
So, say we have a location which is good in terms of public transport (and within commutable distance to job), schools, not too far from water. And we buy well below median price, and improve the property. What happens in case of economic troubles? Demand for cheaper quality property will increase - partly because of the pressure from newcomers, partly because people who will not be able to afford their expensive properties will be selling as mad, and they will be buying something affordable as mad.

I remember the thread quite a while ago where people pointed out that St.Ives NEVER was going downt in price.
Guess what? It would not in the future either.

So the real question is: "Are you rich enough to buy cheap things ?"

Hope this helps,

Mike-TBI
 
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Reply: 1.2.1.2
From: Littlemaze :p


Mike,

Nahhh...no dirty mind...I just find that word very offensive.
 
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Reply: 1.2.1.1.1
From: Tibor Bode


On 7/9/02 9:41:00 AM, Mike TheBloodyIdiot wrote:
>Lets forget about GB, economy
>there is being driven by
>absolutely different forces
>than in Australia. Here we
>remain old economy (commodity
>based, underindustrialised).
>By the way, this is part of
>the reason why current IT
>crisis does not have that much
>impact here.
>
Mike,

While I have no problem with the first part of the above comment I just can not relate to the bit talks about the effect of IT crisis here.

I am in IT for over 20 years here in OZ and I have never seen it so bad as it is. In excess of 100 applications for a simple A/P position! In excess of 1000 applications for 20 developer position! What would you call it? A Boom maybe? For employers it is, but for people in IT it is a bust, big time. 1982/83 and 1990/91 were mild compare to what is happening now. Try to talk to an agent who hires people for companies how many applications they have for almost every position. As a metter of fact just try several agents to call you back. You might have to wait for a very long time.
People in IT are rather desperate and several companies turning their previous contractors into permies with no problem at all even from the ones who were "hardliners".
Rates and wages are falling (not only in real terms) apart from a couple of very specially skilled IT people. Even permies are getting worried about their own job security seeing some of the recent changes.

What impact will it have on the economy and the housing market? If it lasts, it will not be a very pretty picture.

Tibor
 
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Reply: 1.2.1.2.1
From: See Change


Hi Mike TBI

Sorry to be pedantic , BUT , Properties in St Ives have gone down in price when others have gone down in price.

Saw a house for sale for 350 in 94-95 which had sold for 500 in the last boom. We were looking to buy a PPOR in the area at that time and saw several houses for sale in the Upper North shore for less than what the previous owners had paid.

It maybe that the circumstance then were a one off that won't be repeated.

I now agree with you in that I don't think the Property Market is going to stall , but I do think that areas that will show the greatest growth in the next years won't be the traditional growth areas. Prices in these areas have already moved to the point where they are at the limit of affordability for owner occupiers and are returning 4% for investors . More investors are looking for properties that are cash flow positive , or at least neutral. If investors hadn't heard of the concept of cash flow before, the latest issue of API will have them thinking.

As more and more people get disillusioned with the share market/ managed funds and super ( the smart ones got out a while a go ) there will be more people looking for these cash flow properties . This will drive prices up to the point where they are also negatively geared

Mt Druitt was cash flow positive three years ago but is now returning 6%.

see change

it's better to be guided by your dreams than your fears
 
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Reply: 1.2.1.2.1.1
From: Mike TheBloodyIdiot


Hi See,

Remember, I said: "anything more than 10% above median price for the given suburb".

Applies to every suburb, including Mt Druitt.

BTW, your example with Mt Druitt only confirms that at the given moment "cashflow positive in growth area" has become a myth, and no more than a myth.

And if you mean Margaret's article the only thought it induces is that there could not have been a worse time to preach the concept which does not apply to current market.
On Central Coast, where Margaret lives people have not seen positive cashflow for 3-4 years, and why she tries so hard to keep up with yesterday - ??????

Targeting positive cashflow now is even more stupid than targeting tax benefits through negative gearing.

Name of the game is "Total After Tax Return", and this is the only thing that makes sense.

Those cashflow paranoics who dominate this forum simply do not know how to convert equity into income stream.
If cashflow is a problem for you why don't you go to Mr Navra's seminar and learn about his brilliant idea of cashbonds. Or wait three more years until I start running my seminars - I have got about a dozen of even better methods.

Cheers,

Mike
 
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Reply: 1.2.1.2.1.1.1
From: Robert Forward


MTBI what crap your sprouting with the following statement....

Quote
BTW, your example with Mt Druitt only confirms that at the given moment "cashflow positive in growth area" has become a myth, and no more than a myth.
Unquote

You simply don't know how to negotiate properly. The market is coming back in many areas at the moment and some vendors (only a few) are getting worried. You can still get cashflow properties in good growth area. Simply open your eyes and do some investigations. It may mean you need to step outside your comfort zone of where you "like" to invest but stop sprouting that you can't get cashflow in these times.

Cheers,
A disturbed Robert

Get your Property Inspection Reports @
http://www.CreativeFinance.com.au
 
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Reply: 1.1.1.2.1
From: Waverly Bay


Hi Geoff

So what would that southamptom property be worth now?

cheers

Waverly
 
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Reply: 1.2.1.1.1.1
From: Mike TheBloodyIdiot


Hi Tibor.

I do remember that you were 20 years in IT. Unfortunately, I have nothing to boast about in that respect - I am only 16 years in IT, and 7 years in Oz.

However, I would say things are not that bad as you try to picture them. They are much worse. 1 July marked new wave of project closures, contract terminations and retrenchements, adding thousands more IT professionals to thousands already fighting for jobs.

Ihave got my phone white hot with people ringing and asking for hints as to what to do. Total bloody doom and gloom.

But, what I said is that proportion of Hi-Tech products in Australia's GDP is negligible. We are commodity based economy, not innovation based. We export gold, coal, grain, wool more than any other country in the world. Our GDP is directly pegged to "new house commencements", not to the "new IT project commencements".

Australian IT at its overwhelming majority works only to support business. We do not produce operating systems, backoffice servers and other crap.

And to be honest, say Coles runs their core business on out of date Cobol software - would they be able to run it for 10 more years? Absolutely. There is no much competition to force them into something more effective.

IT and Property. I used to work for a long time in one large IT department - hundreds of people. I talked to each and every one of them about property and investments. Here are results of my survey:

1. Renting, no PPOR - 61%
2. PPOR, no IP - 38.5%
3. PPOR+IP - 0.5%

I do not know people more dumb in terms of property ownership/investment than IT professionals. People were spoiled rotten by high income to think about tomorrow.

I remember having five people under my supervision. Every time they received a report from their superfund, they were spending hours on the phone whinging about low returns and high fees, checking every figure. All of them were doing salary sacrifice. I spent the whole bloody hour explaining uselessness of super and advantages of property. They said "Aha..." and called for financial advisor. Do I need to explain what this morally disabled mercenary of managed funds told them? As a result, all of them still renting.

How many IT people do we have on this forum? A dozen? A dozen and a half?

This is why I do not subscribe to the idea that IT crisis will have that adverse and immediate impact on property market. Over the time effects of current crisis will flow into economy, no doubt. But for now - we are not that important, mate.
We are just the people everybody loves to hate.

Cheers,

Mike
 
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Reply: 1.2.1.2.1.1.1.1
From: Tibor Bode


Mike,

Cashflow positive and growth can go hand in hand and yes they exist in spite of all the myths that they gone. Some even in Sydney, just ask Robert about it.

I personally don't know where to do it in Sydney (but I did not look at it at all), but in the area I am concentrating on I am getting in the vast majority 10%+ rent and at least 10% (sometimes considerably more) capital growth as well, albeit it is in Brissy, not in Sydney. I am sure some members who also invest in Brissy can confirm that this is reality.

I have not attended Steve's seminar as yet (but looking forward to it) so I admit I only aware of 3 or 4 different ways how to turn equity into cash in a legal and cost effective way.

When you will be ready to share your ideas about other methods, I will be interested to listen very carefully and hopefully will acquire something new and working. During that period of time, I stick what I consider a sensible way of reaching my goals, that is cashflow positive properties.

Tibor
 
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Reply: 1.2.1.2.1.1.1.2
From: Mike TheBloodyIdiot


Aha....

Asking for troubles, are you Rob? Desperate to try your new panic room?

Maybe, I do not know how to negotiate. My best shot was so far just negotiating $480K asking price down to $386K.

Lets talk about your last deal, which you are obviously very proud of.

First, let agree that in investments we are not targeting "panic rooms" but returns. And that money made at purchase is not cap growth.

OK, by your description the value of the building you have bought is around $150K, which leaves $45K for the land. It is your usual "capital city" crap, is not it. Well, in any capital city if value of the land is about $50K I can comfortably assume that long term rate of growth is about 3%, i.e. in line with inflation.

Then, house is almost new, you have got no scope for improvements, so it will depreciate (this means go down in price) at say 2% p.a.

Building is three times more expensive than land, so the whole property in real (after inflation) terms will in fact have negative cap growth.

Then, $250 a week in rent it is just 6.6% return, i.e. after management fees, rates, etc it will be slightly negatively geared (especially if RBA lifts rates another 0.25%).

I.e. No growth, no cashflow. But we have got very proud Robert who can sit in two panic rooms and ... panic.

Due diligence, my arse...
 
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Reply: 1.2.1.2.1.1.1.2.1
From: Tibor Bode


Mike,

I'm sorry but somehow I missed your other response relating to IT. I personally found that the vast majority of people in IT have (or aspire to) their PPOR, but only a few interested in IPs. The point I tried to make that as these people's income (usually better paid than average and have a reasonable number of them around - as I last heard in excess of 800,000 people are in IT or related field, but it can be a bit of understatement) and their job security is jeopardised will definitely have an effect on their purchasing intention in a negative way, even if it is only their PPOR. This does not sound well for investors who are after capital gains. I personally know several people who are either out of work, some even started to sell some of their doodads (assets) just to survive until "things are getting better". I also fund that the majority of IT people are reasonable spenders of doodads and this purchasing power and consumption hungriness will deteriorate as their economic well being erodes.

Tibor
 
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Reply: 1.2.1.1.1.1.1
From: Sim' Hampel


On 7/9/02 4:30:00 PM, Mike TheBloodyIdiot wrote:
>
>However, I would say things
>are not that bad as you try to
>picture them. They are much
>worse. 1 July marked new wave
>of project closures, contract
>terminations and
>retrenchements, adding
>thousands more IT
>professionals to thousands
>already fighting for jobs.

Given that many large companies have now outsourced their IT operations to the services crowd, and many of these large companies are now cutting back on projects and expenditure... many of those "outsourced" people are finding themselves out of work.

The company I work for has recently retrenched a whole heap (ie. hundreds) of services people who were "sitting on the bench".

>But, what I said is that
>proportion of Hi-Tech products
>in Australia's GDP is
>negligible. We are commodity
>based economy, not innovation
>based. We export gold, coal,
>grain, wool more than any
>other country in the world.
>Our GDP is directly pegged to
>"new house commencements", not
>to the "new IT project
>commencements".

I would agree there... as much as we IT people think the world revolves around us (well... it does), in the overall scheme of our local economy, we are small fry.

>I do not know people more dumb
>in terms of property
>ownership/investment than IT
>professionals. People were
>spoiled rotten by high income
>to think about tomorrow.

The vast majority of people I work with in the IT industry were heavily into shares... especially during dot.com mania. Now they have all bought or upgraded their PPOR, and one or two of them have bought an IP - but the IPers are certainly in the minority.

>How many IT people do we have
>on this forum? A dozen? A
>dozen and a half?

Based on numbers who come to Freestyler events, I would suggest that number is significantly higher. In the early days of the forum, I would suggest that over 50% of people on here would have had at least one IT person in the family. My argument is that these people have generally more disposable income than average, and so are going to be looking for something to invest in.

Given the popularity of property these days, I'd say that ratio has dropped as more and more "regular" people jump on the property bandwagon, but there still seems to be a significant number of IT people here.

>This is why I do not subscribe
>to the idea that IT crisis
>will have that adverse and
>immediate impact on property
>market. Over the time effects
>of current crisis will flow
>into economy, no doubt. But
>for now - we are not that
>important, mate.
>We are just the people
>everybody loves to hate.

*sigh*, once again I find myself agreeing with your entire post Mike... this just isn't good enough ! ;-)

sim.gif
 
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