Why all the D&G on this forum now ?!

[buster]

Coasty Mike, If you buy property with a loan and inflation is 2.5%, the value of your loan in real terms has gone down 2.5%. If the value of the house goes up 2%. you have gained 4.5 % and this compounds year after year.
so on a 400k house, 10 k of loan paid of by inflation, and 8K gained in capital growth. If you borrow the money and the house would have to fall in value by 2.5% to be worse off, and that not counting tax depreciation, or building allowance write off, of over 10K.

 

[evand]

Not quite true. The inflation component is built into the banks' interest rate.

Coasty Mike, If you buy property with a loan and inflation is 2.5%, the value of your loan in real terms has gone down 2.5%. If the value of the house goes up 2%. you have gained 4.5 % and this compounds year after year.
so on a 400k house, 10 k of loan paid of by inflation, and 8K gained in capital growth. If you borrow the money and the house would have to fall in value by 2.5% to be worse off, and that not counting tax depreciation, or building allowance write off, of over 10K.

 

[lizzie]

Very encouraging to read this thread. What it highlights for me is that property investing will move back to requiring careful analysis and analysis of the particular market.

very true and thanks for the reminder.

i guess what some of us oldies forget is that we have experience and knowledge to look at a property and categorise it straight away as a "dismiss (95%)", "consider (4.99%)" or "grab it (0.01%)" ... without having to analyse too deeply.

perhaps that is why there is the d&g from those who haven't the experience - they see all properties, whereas those with knowledge only "see" those properties in the consider and grab it piles - 5%, or less, of properties on the market, and hence only see properties with potential ... the rest are skimmed over.

 

[zed_kid]

Kudos mike! Great post.

Research, DD, planning, structuring your finance, and actual work are back in vogue for the 2011 season

 

[Ausprop]

Not quite true. The inflation component is built into the banks' interest rate.

hence the importance of neutral or positive gearing - you need a tenant to pay for the debt deflation

 

[alexlee]

hence the importance of neutral or positive gearing - you need a tenant to pay for the debt deflation

At first, anyway. The loan amount doesn't change or falls. Appreciation, if we get it, acts on the whole property value.

 

[Ausprop]

At first, anyway. The loan amount doesn't change or falls. Appreciation, if we get it, acts on the whole property value.

yes it is a multi pronged attack - in a neutrally geared property you can almost bank on inflation to deflate your debt. then hopefully at some point there will be some capital gain as well.

 

[alexlee]

yes it is a multi pronged attack - in a neutrally geared property you can almost bank on inflation to deflate your debt. then hopefully at some point there will be some capital gain as well.

Will a negatively geared property be less susceptible to inflation? Inflation also acts on wages and rent as well.

 

[Ausprop]

Will a negatively geared property be less susceptible to inflation? Inflation also acts on wages and rent as well.

if you can afford to hold (and how many loss makers can you carry?) then over time it should sort itself out, the trouble is that it is effetively a savings plan... your losses are possibly equivalent to the debt deflation (in the early days). in a neutral property, the debt deflation is certain and the cap gains is icing

 

[Aaron Sice]

in a neutral property, the debt deflation is certain and the cap gains is icing

my strategy for the current market. don't bank on cap gain to magically improve your yield figures, but if you do get some cap gain, then clearly you've bought well.

 

[Intrinsic_Value]

It is easy for you to comprehend what 1% rates do to property prices in Vancouver, but you fail to acknowledge it can have the same impact here in Australia. RBA has the capacity to bring it down from 4.75% to 1% if there is a risk of prices collapsing.


Cheers,
Oracle.

I very much doubt this. The RBA could bring rates down somewhat, but their hands will be tied if inflation is bullish.
The high AU$ is helping to contain inflation, but even with the high AU$, inflation is potentially edging upwards.

We need productivity improvement, and we are not seeing it.
I'm becoming a mini Winston Wolf.

 

[VYBerlinaV8]

There are factors that have seen doubling every 7-10yrs the past 2 cycles. I don't believe this extrapolated trend pushed by the Somersofter's will continue. Sydney won't be up to $1.3mil median by 2018.

Sydney probably won't be up to $1.3M median by 2018, but I would be very interested to see the median price of property currently built, in 2018. If you take out the properties that will be built between now and then (which will largely be on the edges), the properties that currently stand (which will become relatively better located as the city grows) will likely grow ahead of the total market median. But by how much? Who knows...

We're probably in for a period of stagnation, and it will take careful analysis to choose IPs. What I'm more interested in is what happens about ten years from now, when we've had a long period of stagnation, but incomes have grown and other prices have risen, and Gen X average age is mid to late 40's.

 

[Intrinsic_Value]

We're probably in for a period of stagnation, and it will take careful analysis to choose IPs. What I'm more interested in is what happens about ten years from now, when we've had a long period of stagnation, but incomes have grown and other prices have risen, and Gen X average age is mid to late 40's.

this is one very possible scenario.
but consider
(a) opportunity cost, assuming your investment horizon of 10 years, that means no potential return for 10 years. Thats a long time horizon for not generating a return.

(b) negatively geared property, even worse, negative returns for 10 years. Cumulate those losses at the result is depressing.

 

[bluestorm]

Sydney probably won't be up to $1.3M median by 2018

Of course it will according to the bulls on here (Propertunity ;-)) . Prices double every 7-10yrs (the law of property says so). So Sydney will be $1.3mill, and Sydney LGA (which according to Propertunity's graph at $800K currently, will be $1.6mil.

 

[VYBerlinaV8]

this is one very possible scenario.
but consider
(a) opportunity cost, assuming your investment horizon of 10 years, that means no potential return for 10 years. Thats a long time horizon for not generating a return.

(b) negatively geared property, even worse, negative returns for 10 years. Cumulate those losses at the result is depressing.

Agreed completely. At this point, I'll probably only buy more IPs if:
a) I can get it/them at genuine firesale price;
b) they offer something that I think will bring, or can be used to create, significant value going forward; and/or
c) the yield is too good to refuse.

My current medium term plan is to do some more renovating, pay down debt and buy more shares. If and when we see some meaningful market moves upwards, or signs of another surge in prices, I'll go shopping again. I already have pretty much all the IPs I want for now anyway, so next time around I'll have to sit down and completely rethink my strategy.

 

[VYBerlinaV8]

Of course it will according to the bulls on here (Propertunity ;-)) . Prices double every 7-10yrs (the law of property says so). So Sydney will be $1.3mill, and Sydney LGA (which according to Propertunity's graph at $800K currently, will be $1.6mil.

Where do think the Sydney median will be in 2018? I don't hold any property there, and as such don't follow that market. My previous post was simply to make a point about the difference between an individual property's performance versus the market median.

I understand you disagree with some of the opinions on here, which is totally OK. Let's just attack the ball rather the man, eh?

 

[Aaron Sice]

this is one very possible scenario.
but consider
(a) opportunity cost, assuming your investment horizon of 10 years, that means no potential return for 10 years. Thats a long time horizon for not generating a return.

(b) negatively geared property, even worse, negative returns for 10 years. Cumulate those losses at the result is depressing.

neg geared property only 'works' if your cap gain per annum is greater than your out-of-pocket expenses - so it DOES work, just only in a bull market.

opportunity cost is positive if you source +ve cashflow investments - resi / comm / art / shares / whatever. you can use the surplus cash generated to pay down the debt even further to provide true multiple streams of income.

 

[buzzlightyear]

In case your not keeping up, unemployment in Australia is heading back up, as is now 5.6%.

Thought I would repay the favour. Just in case you're not keeping up, unemployment is at 5.2%

 

[bluestorm]

Thought I would repay the favour. Just in case you're not keeping up, unemployment is at 5.2%

I did see the news today. Expect some monthly variation. Possible a bounce after employers held off for a while with the undertainty of the pre and post election environment, etc. But I do expect things to come back in the new year 6% by Mar/Apr.

 

[bluestorm]

Just checked the latest Europe government bond yield. Slowly but surely creeping up. I'd expect that the remaining 3 will receive bailouts in 2011.
http://www.ecb.int/stats/money/long/html/index.en.html

But I know many on here do not believe this will have a large impact on Australia, and remain bullish on property. There are those that prefer to be more cautious.
For a start, you are talking about Spain and Italy countries with similar or greater GDP to Australia being bail out. Each of these countries is linked in with the other major countries (like France, Germany, etc). Ultimately it will reverberate around Europe.

Europe's Web of Debt
http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html?ref=globalhome

US is continuing with tax cuts, even though that puts them a further $800b in debt. (funny, 3yrs ago we thought $100B bailouts were huge. These days we are so desensitised that people just brush these off.)
I can see this all end badly. More riots in Europe as government have no option but to cut back on spending and increase taxes, or default. People spending less in these countries. Demand for Chinese goods falling. I remember post Xmas sales in Australia. These days retail is so in trouble, that it's nearly year round (and there are already 50-60% discounts).

All fun and games in 2011/2012. Interesting times. Times to be conservative with investing, I think.

I know Propertunity (property will double in the next 7-10yrs ;-) ). This is why I would never use BA's. Despite their claim to represent the clients interest, there is still an inherent bias in the advise, and it's in the BA's interest to talk up the market as this is how they generate their income. The advise will NEVER be fully neutral.