What will you do when Rudd decides to turn the FIRB tap off?

Hi all,

It seems most people I speak with in regards to the current boom in residential prices agree that this level of capital growth is unsustainable in the long term. (If you dont agree there is a boom, example #1 Box Hill South is now a million dollar suburb: http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=vic&u=box hill south)

It seems fairly obvious that at least part of this growth is due to foreign investors inflating prices, which in turn ripples further out (eg; Mitcham, Nunawading, even Ringwood if we take Melbourne as an example).

The point of my question is, if you agree with these two points, then have you thought about what will happen when the government decides to "turn the tap off" so to speak? The loosening of the FIRB policies appears to have been a direct result of kevin rudd $hitting himself as most of the western worlds residential property prices were dropping in 08-09, most would agree if his intention was to prop up the market he has succeeded many times over.

Being first home buyers, my girlfriend and I have been looking to purchase for the last 12 months, and each month that goes past we get more and more bewildered by the state of the market. We first started looking in Burwood, Burwood East, Vermont, Vermont South, gradually getting priced out every weekend. We are now considering buying in an outer area such as Ringwood or Upper Ferntree Gully, but my biggest concern is that this market is falsely inflated by foreigners buying our land.

In short, I have very little confidence in buying into this market when all it takes is a politician to sign a new piece of legislation thus wiping out a big chunk of my equity by disallowing foreigners to purchase Australian Real Estate. The contrarian investor side of me wants to wait until this happens and using it as a buying opportunity, but how long will that be?
 
Hi all,

It seems most people I speak with in regards to the current boom in residential prices agree that this level of capital growth is unsustainable in the long term. (If you dont agree there is a boom, example #1 Box Hill South is now a million dollar suburb: http://www.rs.realestate.com.au/cgi-bin/rsearch?a=sp&s=vic&u=box hill south)

Since my parents emigrated here in '86 house prices have always been on an unsustainable path in the "long term" I don't think anyone can accurately answer when and if capital growth in property will/won't collapse.

It seems fairly obvious that at least part of this growth is due to foreign investors inflating prices, which in turn ripples further out (eg; Mitcham, Nunawading, even Ringwood if we take Melbourne as an example).

This could be true in some part, but if/when FIRB rules are changed again what market forces will cause a property prices to drop. Will the "foreign" investors be forced to sell at a loss to locals? Will residents/investors panic sell, cause a run on the property market, is there a history of property market slumps big enough to cause deflation in property in Australia? Will there be some sudden change in supply demand? Or is it more likely that other factors will cause property to either plateau or rise albeit not so acutely?

The point of my question is, if you agree with these two points, then have you thought about what will happen when the government decides to "turn the tap off" so to speak? The loosening of the FIRB policies appears to have been a direct result of kevin rudd $hitting himself as most of the western worlds residential property prices were dropping in 08-09, most would agree if his intention was to prop up the market he has succeeded many times over.

Yes cause and effect, what pressure is the government facing to deflate prices? All indications are that gov is happy with the status quo of urban sprawl further and further out.

Being first home buyers, my girlfriend and I have been looking to purchase for the last 12 months, and each month that goes past we get more and more bewildered by the state of the market. We first started looking in Burwood, Burwood East, Vermont, Vermont South, gradually getting priced out every weekend. We are now considering buying in an outer area such as Ringwood or Upper Ferntree Gully, but my biggest concern is that this market is falsely inflated by foreigners buying our land.

I have heard this argument from every gen of Australian I have met. I have crotchety old co-workers say back in the day Richmond/St Killda etc were slums where they wouldn't care to spit in. Then the boomers who were "forced" to settle for Bentliegh, Mordialloc, Mentone etc. Then the older X's that are even furthert out etc... Please refer to the status quo observation about gov urban sprawl complacency.

In short, I have very little confidence in buying into this market when all it takes is a politician to sign a new piece of legislation thus wiping out a big chunk of my equity by disallowing foreigners to purchase Australian Real Estate. The contrarian investor side of me wants to wait until this happens and using it as a buying opportunity, but how long will that be?

Everyone has to do what is best for them. If the market you want to buy into is not within your means do not purchase and wait until your means can afford what you desire. Ultimately we are all responsible for our own actions, govt policy should not be the only factor to dictate the outcome of your financial plans.

I don't want to come across as harsh, but every generation has the same worries and challenges it's just the numbers that change.
 
I don't want to come across as harsh, but every generation has the same worries and challenges it's just the numbers that change.

Thanks for the detailed response, Jonril. I agree with a lot of your sentiment but I do think there are some fairly large "visible hands" that are interfering with the property market right now, I'd even go as far to say larger than any Australian first home buying generation has seen before us. When you add the supporting forces of negative gearing, FHB grants and foreign investment rules massively blowing out the demand side of the equation, I dont think I am alone in being worried about changes in government policy.

It is hard for my girlfriend and I to see the fairness in the situation when we compare ourselves to friends who bought in the south-eastern and eastern suburbs of Melbourne only a couple of years ago. Paying $350-$400k for a 3 bedroom house on a 700sqm block seems unimaginable now, and many of them have doubled their money in a few short years. They admit that they got lucky, I just dont want to get on the wrong side of such forces and get unlucky!
 
It is hard for my girlfriend and I to see the fairness in the situation when we compare ourselves to friends who bought in the south-eastern and eastern suburbs of Melbourne only a couple of years ago. Paying $350-$400k for a 3 bedroom house on a 700sqm block seems unimaginable now, and many of them have doubled their money in a few short years. They admit that they got lucky, I just dont want to get on the wrong side of such forces and get unlucky!

You say this, but also this............

Being first home buyers, my girlfriend and I have been looking to purchase for the last 12 months, and each month that goes past we get more and more bewildered by the state of the market. We first started looking in Burwood, Burwood East, Vermont, Vermont South, gradually getting priced out every weekend. We are now considering buying in an outer area such as Ringwood or Upper Ferntree Gully, but my biggest concern is that this market is falsely inflated by foreigners buying our land.

Stop procrastinating and just buy!

Who cares if it is not the most ideal place. You can upgrade in a couple of years.

Just get on the ladder, or else you may as well get used to renting

Hope that wasn't too harsh.

(Obviously, make sure you can afford repayments in an interest rate rising market)

Cheers,

F
 
Just get on the ladder, or else you may as well get used to renting

The implication being that now is the last chance to buy a property before they become priced out of our reach forever? I believe such sentiment was common during the bubble of 2006/2007?

It appears I am one of the few people here who are not completely bullish about the future of Australian property :confused:
 
The implication being that now is the last chance to buy a property before they become priced out of our reach forever? I believe such sentiment was common during the bubble of 2006/2007?

It appears I am one of the few people here who are not completely bullish about the future of Australian property :confused:

I think the trick is to buy something well within your means. It may require you to:

1) Buy a smaller place - eg flat, unit
2) Buy a house in an area you hadn't considered - just to get onto the property ladder.

The longer you wait, the more reasons you are going to find for 'waiting' to buy your first property.

It's really not that hard - just do it.

Regards Jason.
 
The implication being that now is the last chance to buy a property before they become priced out of our reach forever? I believe such sentiment was common during the bubble of 2006/2007?

It appears I am one of the few people here who are not completely bullish about the future of Australian property :confused:

As I have said previously on the forum, you can stay on the sidelines for as long as you want, or you can get in the water and ride the wave.

If things go pearshaped, what will I end up doing.....sell a few properties. No big deal. (Always start again). But if you sit back and in two or 3 years time find yourself in the same situation, well who are you going to blame?

To tell you the truth, I don't look too much into the future of Australian property and considering I don't have a crystal ball, there are too many factors that have an effect on the current situation, and what happens if they dont all align??? I could get hit by a truck tomorrow!!

I wont say I am bullish, but am starting not listen to all the newspaper reports. I am so sick of the media drumming up hysteria to sell a paper....but I guess that is business as normal. (and that is both sides of the story....Doom and Gloom and...Boom, Boom, Boom).

Good luck with your decision.

Cheers

F
 
What makes you think he will turn the FIRB off? On a side note, a chinese International investor bought his 150th house today in Doncaster alone. God knows what he owns in other suburbs.
 
The implication being that now is the last chance to buy a property before they become priced out of our reach forever? I believe such sentiment was common during the bubble of 2006/2007?


Think of it this way: you know the market has been, and continues to, head upward. If you're ready to buy, then buy. I have friends who years ago told me they weren't buying because they were "waiting for the market to drop". They ended up buying a PPOR very similar to mine, for just under double what I paid. Had they bought earlier (and they could have), this would not have been the case.
 
The implication being that now is the last chance to buy a property before they become priced out of our reach forever? I believe such sentiment was common during the bubble of 2006/2007?

It appears I am one of the few people here who are not completely bullish about the future of Australian property :confused:

images

Tarred with the same brush?

Australian Property is a big market though, which part aren't you bullish on?

A Single Family Detached Home in Fanny Bay, NT
Apartments in East Perth, WA
Studio in Sydney, NSW
Units in Brisbane, QLD
Townhouses in Adelaide, SA
Duplexes in Dalby, QLD
Mobile Home in Wyong, NSW
Houseboats in Echuca, VIC
The Cottage in North Tasmania
Holiday Rental Home in Watson, ACT
Student Accommodation in Joondalup, WA
Cane Farm on the Burdekin River, QLD
Land for Sale in Point Cook, VIC

Then you can get into the markets within markets of Commercial & Industrial and size of scale therein

If you can better use your funds elsewhere and expect to get a better return on your investment, then buy your property at a later time when you feel more comfortable and certain with your decisions? Who know you may be a gun at playing the futures market, CFD's, Options or an internet guru in the making...just be careful , otherwise you may just do your own head in with the whatif's, whatever :confused:
 
It seems fairly obvious that at least part of this growth is due to foreign investors inflating prices, which in turn ripples further out (eg; Mitcham, Nunawading, even Ringwood if we take Melbourne as an example).
Do you have any figures for that ?

Best I could find was this
Analysing the raw data provided by Queensland's Department of Environment and Resource Management, he found foreign investment in the state's property sector has crashed from $558m in 2007 to $355m in 2009.

Foreign sales made up just 0.75 per cent of Queensland's property transactions last year, he found.
.....
Asked to provide up-to-date data on the sale of residential property to foreigners and temporary residents, the minister's spokesman replied: "FIRB approvals for temporary residents to buy established houses as a percentage of the total number of transfers of established housing that occurred in the eight capital cities were at a level of approximately between 1.5 per cent and 2 per cent in recent times. Data are not available after 31 March 2009 given that temporary residents were exempted from FIRB notification requirements."

The point of my question is, if you agree with these two points, then have you thought about what will happen when the government decides to "turn the tap off" so to speak?
There's heaps of unquantifiable negatives about buying a property. Changes in Govt legislation is just one of them. However, the underlying theme is that the govt doesn't want to alienate it's voters.... 70% of homeowners are voters.

Being first home buyers, my girlfriend and I have been looking to purchase for the last 12 months, and each month that goes past we get more and more bewildered by the state of the market. We first started looking in Burwood, Burwood East, Vermont, Vermont South, gradually getting priced out every weekend. We are now considering buying in an outer area such as Ringwood or Upper Ferntree Gully, but my biggest concern is that this market is falsely inflated by foreigners buying our land.
Can you see a pattern emerging ?

In short, I have very little confidence in buying into this market when all it takes is a politician to sign a new piece of legislation thus wiping out a big chunk of my equity by disallowing foreigners to purchase Australian Real Estate.
In the short term property may fall or stagnate.... no-one knows for sure. In fact no-one should care much about the short term. OTOH, in the long term, there is a strong likelihood that it will continue to rise, and you'll look back in 5 yrs & think how smart you were to buy.

The contrarian investor side of me wants to wait until this happens and using it as a buying opportunity, but how long will that be?
Property cycles are long.... v. roughly 10 yrs. Can you remember the last time anyone said property is too cheap... I'll buy some ? Nope.... for several generations everyone has been saying property is too expensive.

Your experience in nothing new... bite the bullet.
 
Think of it this way: you know the market has been, and continues to, head upward. If you're ready to buy, then buy. I have friends who years ago told me they weren't buying because they were "waiting for the market to drop". They ended up buying a PPOR very similar to mine, for just under double what I paid. Had they bought earlier (and they could have), this would not have been the case.

me too! they waited untill they went up another 100k :rolleyes:
 
Hi there Whatever,

I have to agree with most of Jonril's post.

Every generation has had to buy into the market. My parents seperated my two older siblings and took them to Nan's to live for 12 months so that they could live in a caravan with the other three of us, while my father built our house.

I might also add that foreign investment is certainly not a new phenonemon. FHOB's are not a huge percentage either.

It all comes down to this:

How much do you want to buy a house and what can you afford in the areas you are looking in?

Regards JO
 
What makes you think he will turn the FIRB off? On a side note, a chinese International investor bought his 150th house today in Doncaster alone. God knows what he owns in other suburbs.

Interesting, it must be a new property as foreign nationals cant buy anything but new property. Persons with at least a 12 month visa can buy established property but only if they live in it.
 
If I was a young person starting out (as a couple), I would probably try to get together with another couple and buy a modestly priced 3 beddie in an ok but nothing special area. Then we could live togher for a couple of years (renovating the house as much as possible using our own labour) till we could get to the point where you could put a unit in the back yard. This would mean we all borrowed for the sencond dwelling, we all owned both and we all pitched in to make it happen.

Then either strata them and sell them and each couple take a share adn go and get their own seperate propoerties or stay and live in the both propoerties owned by all, going up in value all the while. If one couple bailed out, so long as the units werew strata-ed the other couple could stay and maybe buy their unit outright with a share of the sale of the other.

Sometimes drastic times require drastic measures. I rent rooms out in my house since my divorce cos I cant afford the mortgage by myself on the large home I ended up with (but am not ready to sell cos it will make an awesome unit site one day when the zoning rules change).
 
The thing is, nobody really knows if or when the market will turn. Most of Australia seems overvalued, as you mention, due to the initiatives/incentives that have helped prop it up.

If you can rent for significantly less than the interest on a mortgage, it wouldn't hurt to do just that, provided you are able to save the difference for an even bigger deposit. Of course values could rise faster than your deposit, but this is unlikely in the long term as prices are more likely to "settle" back to long term valuations (yields, household income, etc), than not.

What you shouldn't do is buy into the "get onto the ladder now" trap. Hearing that, regardless of the type of investment, should set off alarm bells.
 
The thing is, nobody really knows if or when the market will turn. Most of Australia seems overvalued, as you mention, due to the initiatives/incentives that have helped prop it up.

Seems being the operative word.


If you can rent for significantly less than the interest on a mortgage, it wouldn't hurt to do just that, provided you are able to save the difference for an even bigger deposit. Of course values could rise faster than your deposit...


What you shouldn't do is buy into the "get onto the ladder now" trap. Hearing that, regardless of the type of investment, should set off alarm bells.

The trouble is that advising a prospective FHB to either get into or stay out of the market is dangerous.

The 'buy now, as prices will rise' line could end up being wrong. A FHB may be entering at the peak of the cycle, and the market may drop for an extended period of time. The main risk in this scenario being that circumstances such as job loss, illness, etc may lead to the FHB needing to sell the property after prices have dropped. Depending on the level of the borrowings, this set of circumstances may lead to a -ve equity situation.

Selling the opposite opinion to a FHB (ie the 'don't buy now - wait till prices level off' line) could be equally as disasterous. If a FHB wanting to break into the Melbourne market during 2007 took this advice then they would almost certainly have been priced out of the market!

I think the commonsense approach is to only buy a property that a FHB can afford to hold over the long term.

but this is unlikely (growth outpacing the ability to save a deposit) in the long term as prices are more likely to "settle" back to long term valuations (yields, household income, etc), than not. .

Craig James (chief economist) at Commsec, reasons that property is "not less affordable. Despite higher interest rates and rising prices, housing is the most affordable it's been in six years..... Although the median house price has risen 41% since 2003, household disposable incomes have risen more - by 44%." (The Sunday Age, April 18, 2010, investor section, pg 7).

Regards Jason.
 
Seems being the operative word.
The trouble is that advising a prospective FHB to either get into or stay out of the market is dangerous.

The 'buy now, as prices will rise' line could end up being wrong. A FHB may be entering at the peak of the cycle, and the market may drop for an extended period of time. The main risk in this scenario being that circumstances such as job loss, illness, etc may lead to the FHB needing to sell the property after prices have dropped. Depending on the level of the borrowings, this set of circumstances may lead to a -ve equity situation.

Selling the opposite opinion to a FHB (ie the 'don't buy now - wait till prices level off' line) could be equally as disasterous. If a FHB wanting to break into the Melbourne market during 2007 took this advice then they would almost certainly have been priced out of the market!

Thats right, both recommendations can be incorrect. Its the cost of being wrong on either of these that todays buyer needs to weigh up.
If you don't buy, you risk prices going up even more, so have to live at home with parents or rent for longer, but you'd have some decent savings if/when you do buy.
If you buy, and find that you bought at the peak of the cycle, you risk -ve equity as you mentioned.

The FHB needs to decide what is the worst outcome for them.
For some, buying their own place is of primary importance in their life, so they may as well not bother trying to time the market or they probably end up buying at the peak of a cycle.
For others, having permanent shelter, a good cash savings buffer and a solid 20%+ deposit for when they do buy is more important, so waiting and saving a bigger deposit may be more of an option for them.

Craig James (chief economist) at Commsec, reasons that property is "not less affordable. Despite higher interest rates and rising prices, housing is the most affordable it's been in six years..... Although the median house price has risen 41% since 2003, household disposable incomes have risen more - by 44%." (The Sunday Age, April 18, 2010, investor section, pg 7).

Affordability measures are a useful short term price predictor, but not a reliable long term valuation method. I personally prefer alternate valuation methods, but each to their own.
 
If you can rent for significantly less than the interest on a mortgage, it wouldn't hurt to do just that, provided you are able to save the difference for an even bigger deposit. Of course values could rise faster than your deposit, but this is unlikely in the long term as prices are more likely to "settle" back to long term valuations (yields, household income, etc), than not.

Depends where you are buying, but as said previously, there are so many things that influence buying property.

With regards to your prediction....I am not too phased if the market is going up or going down. Only buy on numbers and my criteria.



What you shouldn't do is buy into the "get onto the ladder now" trap. Hearing that, regardless of the type of investment, should set off alarm bells.

Of course you have a whole plethora of criteria to tick off to get to the answer, but what you are finding now is that all the first home buyers that raced out when the grants were on maxed out big time. With Interest rates heading north, I wonder how many will be able to keep up with the repayments. Just make sure you have got reserve funds to back up these increases.

As long as you do DD and stick to your criteria, you can buy property, and make it work, in any market!

F
 
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