I just saw the Warburg Economist on TV about their projections. I suppose that gives them great credibility, and a lot of their argument makes great sense, conversly though we can all make a great counter arguments.
Some things to manage "risks" that some of my clients have employed.
1. Spread your interest rate risk if you have lost of exposire and limited income
2. Stay away from "units/flats" that do NOT offer some form of uniqueness, position, view, small complex etc etc.
3. Look for investments that are currently undervalued (doh, doesnt everyone do that, no I have found they do not)
4. Can you find something that you can develop thereby building in some retained value/profit.
5. Income protection and life insurance, off topic but important if you have a family
6. Have a clear strategy that you can use as a template. Do some what if scenarios, can I afford this thing if rates rise to x, or if yields drop etc etc. Can I hold my stock and NOT be forced to sell at a time when I dont want to ?
I wonder if this would be a good time for you to discuss your experience with banks attitudes to LOC's in 'tightening' times?
I think there are many who view a LOC as 'secure' a loan as a P&I Home Loan.
How often(do?) the banks review LOC's and what do you think the likelihood of banks reducing existing approved LOC amounts if we did see a 20% drop in property prices?
Let's face it, I guess from the banks point of view many of these LOC's have been taken to the max based on the max equity in related property. If property values do drop 20% then I guess there would be banks reviewing their exposure.
If that did occur I wonder how many would handle a 'margin call' type phonecall from their bank?
Most LOCs are reviewable at some point, some annually, some three yearly, but in any case are commonly repayable "on demand". This is usually focused more on looking at your serviceability than property values.
We have had this discussion about loan to valuation ratios increasing due to lowering of values before - time will tell.
Has anyone actually had a property that
dropped 20% in value. We started buying
property in 1973 and have never had a
property "go down". Flatline - yes. For a
couple of years - yes. . My sister got
burned in a property scam in Queensland
but.... in Sydney?....... anybody out there
have a story to tell???
Yes I'll be interested in this response too Donna.
Do many Sydney properties fall by 20%? I wouldn't have thought so. Have I heard, second hand of certain Units in certain areas only being able to be sold for less than 20% of their purchase price? Yes.
The people who say that property never go down remind me of the Share brokers who say that you "buy shares for the long term".
They seem to be very quiet at the moment. One wonders what will be said in two - four years time about property never going down.
it's better to be guided by your dreams than your fears
I agree, property has boomed over the last 6 years, as shares did, but where are shares now? Property WILL fall slightly and will stagnate for the next 4-5 years. Don't expect to see the capital gains we did over the last few years folks. People love to be reminded of the good times, but nobody wants to here the bad. Long term though, you can't go wrong if you play your cards right.
The gap between Land value and purchase price appears to play a fundamental roll in the fluctuation of property prices over time. In other words I believe that at different times in the property cycle the herd lose sight of the true value of property simply because there is market pressure and demand toward a certain products without taking into consideration the true land value against the improvements there upon.
That is possibly why cap growth appears to be slower for units compared to houses. Also the fluctuation of prices are less in blue chip suburbs because of higher land values.
I would be interested to hear views on say a comparative basis ie: to date we have mentioned Sydney / Melbourne. Let's step away from the high rise apartment market, how about a look at mid range, rather than top end, house and land.
Consider the likes of Adelaide, Perth & Brisbane. Brisbane pundits seem to still spruik "another 12 - 18 months growth", whilst those of us with interests in SA & WA may, or may not, feel that there is still some way to go for growth in these locales. In other words would it be fair to say that the likes of SA & WA may not tumble as quickly, or as far, as similar style properties in Sydney / Melbourne?
In the past we have certainly seen growth lag behind eastern states, but what about now after having had a period of significant growth?
I have invested in property since the early seventies and fortunately have been reasonably successful.
I have seen at least 3 cycles and there is no doubt that Melbourne property prices do go down.
One of my best friends bought his home in 1989 at the top of the boom and then compounded the situation by overpaying. He paid just over $900,000 for a top home (previously owned by a renowned architect) and sold it 7 years later for just under $800,000; after paying interest on his huge mortgage for all those years. It broke him financially.
That is an extreme example but a true one.
Already there are examples of properties going down in value.
I know of a number of people who bought inner city apartments off the plan and couldn't afford to settle and have sold at a loss.
Sure prices will go up over the long term- Melbourne and Sydney have averaged just over 9% compound per annum, but prices do stagnate and definitely do drop for periods.