Where and when to buy?

[Steve Navra]

It looks to me like this info gives a great indication of when prices are at a peak and it's probably not a good time to buy. For example it says don't buy anywhere in 1989 which was spot on. Also not to buy in Sydney in 2003, Brisy in 2004, Perth in 2007 etc. The peaks are spot on.

However it doesn't seem to do as good a job with the time to buy? It says it was time to buy in Sydney and Melbourne in 1990, just 12 months after the peak? In reality, this was a bad time to buy. It was better to wait till 1997. It doesn't show that it was time to buy in Perth in 2003.

It shows that everywhere was great buying in 2009? It's too early yet to say if that is correct so the answer lies in the years ahead.


Is that what others see? Or am I reading it all wrong?

Hi topcropper,

You are spot on actually!

Rental Reality is all about not overpaying for an asset. Nobody can tell the future.
What I am suggesting is that the heatmaps will give an accurate indication as to when to buy, within Rental Reality value and then it is anyone's guess as to how long it might take the market to trend up and create equity.

The purchaser who sooner acquires an asset at good value, will always be better placed to make equity gains compared to an investor who first waits to see the growth occurring!
The time it takes to accrue the equity is unknown, but time in the market from a good start will always leave the investor better placed.

Regards,
Steve

 

[Steve Navra]

Steve, assuming you update these monthly, how can we access them?

Hi Ms Jade,

Your comments and investing rationale is good.

I update the heat maps quarterly as the data comes out from Residex.
We supply this info at no cost to our clients.

Kind regards,
Steve

 

[silverx]

Hi Silverx,

Sorry, I only research the major cities

Regards,
Steve

we are the 5th largest city you know

 

[Rixter]

is it ok if i can have for gold coast as well i know it's a dump but would be interested to see how the graph would look like

we are the 5th largest city you know

where are the 4 bigger dumps a head of you?

 

[topcropper]

we are the 5th largest city you know

GC is a distant 6th. Way behind Adelaide in 5th.


See ya's.

 

[silverx]

hahaha i stand corrected
gold coast, the place to be

 

[Steve Navra]

hahaha i stand corrected
gold coast, the place to be

Gotta love the GC.

Currently we only recommend property purchases in Sydney, Melbourne, Brisbane and Perth.

Not to say other cities are not good, just that our criteria include employment opportunities for potential tenants.

Kind regards,
Steve

 

[Deltaberry]

Where - in booming economies with 5%+ GDP growth like Hong Kong, 2% fixed borrowing rates for 3 years and 5% yields on properties, at a high Australian Dollar

When - any time in the next 24 months

Where Not - places that have 6% mortgage rates, 4% yields (if even), peaking market, domestic economy slowing down... whoops I'm talking about Syd and Melb

When - for a while

People talk about markets within markets blah blah. But reality is when the country is struggling, even the better mini-markets are still underperformers. Why buy in an underperforming market in general?

To demonstrate some numbers, at 70% gearing (which I can achieve as a HK citizen) that's 5% yield - 2% interest x 70% gearing. So 3.6% return on asset, which is 12% return on equity. When A$ mean reverts, that becomes 24% return on equity. Let me know if you find something that is smack bang in a 7-8 million people top 4 international city, close to public transport, within 5 minutes of the equivalent of CBD that returns 24% on rents alone in Australia.

 

[Peter Lau]

Amazing Charts! The question is: are they accurate? Im not quite sure I fully understand them and of course there are "bad buys" and good buys in every city, no matter what the "charts " say! In saying that, Ive also been looking at Brisbane and Sydney, think Brisbane is way more affordable. These charts seem to confirm that Brisbane looks to be a great buy, if I have read them correctly?

 

[tropic]

The purchaser who sooner acquires an asset at good value, will always be better placed to make equity gains compared to an investor who first waits to see the growth occurring!
The time it takes to accrue the equity is unknown, but time in the market from a good start will always leave the investor better placed.

Regards,
Steve

I completely agree with the statement but how do I know it's a good value?
With what is going on in the world and prices are still down (or going down??).
Considering Australia has one of the most expensive property prices in the world, how do you justify buying now?
I can't get myself to buy now unless they are neutral or +grearing.
The statement probably also applies to the stock market. Do you buy now or wait and see? Just in case the world is going into depression.

 

[Rixter]

I completely agree with the statement but how do I know it's a good value?

Courage backing yourself based on your due diligence with the understanding that no potential opportunities come risk free.

 

[Deltaberry]

I completely agree with the statement but how do I know it's a good value?
With what is going on in the world and prices are still down (or going down??).
Considering Australia has one of the most expensive property prices in the world, how do you justify buying now?
I can't get myself to buy now unless they are neutral or +grearing.
The statement probably also applies to the stock market. Do you buy now or wait and see? Just in case the world is going into depression.

a) You can justify it if you take a long term view but there are far superior investments if you were a globalised person

b) There are also plenty of neutral and + gearing properties but that is not enough given an ailing east coast, highly indebted population, inability of government to rein in debt

The difference between here and Asia is that in Asia, governments have already clamped down on the market with tough stamp duty rules and tough LVR rules, yet the market is still resilient. I'll have more confidence in the market here if the government can do the same and the market holds up. If it doesn't, perhaps it was never meant to.

With lower prices across the country right now, I think this place is in general an okay buy, but not a good buy and definitely not a great buy. More importantly, the high A$ means the buying power of your money today - if invested here - will be diminished, in fact up to halved, in the future.

I understand markets within markets. That's like saying there's stocks that go up too despite the market taking a hammering. Check out HUN. Could've made a bucket load on the takeover announcement.

 

[StefanA]

To clarify, my understanding of rental reality is as per Steven's explanation linked to earlier in the thread in this post which refers to Steven's explanation here on the InvestEd website

In short,

'Reality reality' calculates the value of a property at which the current expected gross yield equals the average gross yield of the last 5 years.

If an investor pays a price that returns a gross yield equal to or higher than the average yield over the last 5 years, then this is putated to be a reasonable safeguard against buying a property at the peak of cycle, or paying too much at any other time.

Steven's heat map data from which the charts are generated show percentages. These percentages are the amount by which residex capital city median values deviate from 'rental reality' derived cap city values.

As mentioned earlier, Steven's data is the premium of actual capital median value to rental reality value. When that premium is negative, actual market value is lower than rental reality value, and therefore indicates a reasonable time to buy.


However, there's two points that might be considered to further sharpen timing of purchases.

1. There's no consistency in how long current market value stays below rental reality value. In the charts, this situation is represented by a negative percentage. To avoid buying a property at the beginning of a sustained downtrend (as when structural change occurs in credit or macro economic conditions), one might
- wait for the premium to begin to turn up from a low (i.e. Melbourne late 1991)
- wait for the premium to cross above a specific percentage (i.e. 0%, or +2% as indicated by the top border of the green shading in the charts). However, this risks buying in a sharply rising market when vendors of better quality property negotiate harder.

2. The pitfall of using 5 yr average yield to determine current fair value is this:
- firstly, after a boom, values often fall as they are doing in Brisbane currently.
- secondly, during a boom, yields fall because rent rises lag price rises.
These two points when combined can result in a rental reality value that is higher than actual market value, and thus mislead one into paying more than actual market value. This is best illustrated by the red shading in the chart below.

Does this mean rental reality is useless? Not necessarily, as long as one also understands this artefact, and the economic forces that caused and ended the boom.

 

[willair]

a)


I understand markets within markets. That's like saying there's stocks that go up too despite the market taking a hammering. Check out HUN. Could've made a bucket load on the takeover announcement.

That's the way a lot think,the maximum returns in these equity markets are made over very short terms 24-60 hours,markets within markets only takes you so far,but it always starts with a rumour,and ends in a payday.