Word of caution for the newbies.

[feihong]

I don't know if it is equity that counts, those who've lost it all may have some good pointers for beginners?

My apology for not making my point clear. What I was trying to say is that number of property transactions does not necessarily correlate to being "seasoned" or "successful".

 

[JoannaK]

folks, unfortunately we've had to do a major clean up on this thread.

a clean up of this magnitude really should not be necessary at all. Can't you all control yourselves and conduct civil discussion and debate without it resulting to a slanging match?

for those of you who have problems with other forums, take them to the other forums. for those of you who disagree with the opinions of various posters; fine, disagree. But do it respectfully.

One more post such as those that have been deleted will see the thread locked.

Thank you.

 

[FHB]

OK Thanks, overall I think it has been a constructive discussion. Thanks for keeping it open.

 

[keithj]

Great post thread
Thanks for the clean up Joanna

I agree the world can look like it's coming to an end.....
however, it looks like it's coming to an end every 10-20 years or so......
some are too young or naive or easily influenced to understand.....
some don't even try to understand cycles.....
many here have tried their hardest to educate them.....(with some success)

It's always been hard to buy a house (if it was easy then everyone would have a few ) - get used to it.
Life will go on, the cycle will continue, those with the right mindset & risk management will continue to thrive....

First-timers - keep reading, you'll soon work out who to ignore

 

[LynnH]

Thank you JoannaK. Devo76 started such a great post which, I feel, would have been an excellent reference for newbies and not-so-newbies alike - it is a huge pity that the 'discussion' had degenerated to such an extent. Unfortunately, I feel this is happening all too often on the forum of late.

Cheers
LynnH

 

[devo76]

Yeah guys please keep it clean.There is some good info and opinions from both sides here. It would be a shame to end it.

 

[Jacque]

Great post thread
Thanks for the clean up Joanna

I agree the world can look like it's coming to an end.....
however, it looks like it's coming to an end every 10-20 years or so......
some are too young or naive or easily influenced to understand.....
some don't even try to understand cycles.....
many here have tried their hardest to educate them.....(with some success)

It's always been hard to buy a house (if it was easy then everyone would have a few ) - get used to it.
Life will go on, the cycle will continue, those with the right mindset & risk management will continue to thrive....

First-timers - keep reading, you'll soon work out who to ignore

My thoughts exactly Keith- a man after my own heart
Well said indeed.

 

[Les]

I agree entirely - this thread is worthy of staying around !!!

One to watch (for sure) and to clean up now and then - but the good points that have come from it are very useful to many !!

Opposing views should be useful, considered, and respectful !! If not, they DESERVE to be trashed. But my point is that opposing views CAN be useful, so long as they remain "considered, and respectful" too.

So let's keep it that way, and keep on discussing these differences in such a way that threads like these CAN remain open and useful to all.

Many here are already mindful of that - let's keep it going - for all that follow,

Regards,

 

[Sunfish]

Property doubles every 10 years, and other absurdities.

I would love a $ for every time I have read "property doubles every 7/10 years" on this forum.

I found this on utube which may appeal to the more sceptical among us:

http://www.youtube.com/watch?v=F-QA2rkpBSY&feature=related

(I can't find the last two (of 8) parts so if anyone does, please post the link, but it doesn't matter really.)

Take particular note of the "grains of wheat on a chess board" story and try to calculate what a nice property on the banks of the R. Taber that Julius may have owned would now be worth if it had doubled every decade of the last 200. There is little practical limit to how far a currency can depreciate, however, as you simply add more zeros to the numbers on the bank notes (a la Zimbabwe) so the ticket price of an asset can grow exponentially in nominal terms but not in relative terms.

I will, however, concede that in long periods of peace (as we are experiencing) assets can increase in both nominal and relative terms for much the duration of the peace. Make of that as you will!

 

[wylie]

and they will rent it to those who can't afford to buy at less than the cost of buying out of the goodness of their hearts ...

Two things......

1. I don't care why somebody rents from me. I don't care whether they think they are getting a bargain or not. This is because renting to people has made us a lot more money that not renting to people.

2. I don't do it out of the goodness of my heart.

 

[Pom]

hello,

exactly, the great divide which has been around in europe for many many years,

certain people wont be able to buy prop, big deal!

those with the money will,

my partner lived in europe for 35yrs and I can tell you they all would love to own a place,

thanks
myla

Erm, housing is more affordable on a wages ratio in every European country compared to Australia.

Yieldmatters has already pointed out the folly of your post on a rental yield basis so I won't trouble you further in that regard.

Thanks

 

[Shadow]

Nice list which somewhat explains the past (especially point 3 and 4!). But considering many are negatively geared now what on your list will change in the future to allow increases in prices even further?

I believe these are the main factors that will allow real house prices in key areas to continue to increase over the long term...

5) Shortage of supply in desirable locations means that sought after properties tend to flow towards those with most wealth.
6) Existing stock is passed down to children, which captures past property wealth for future generations to build upon.
8) Natural population increase and immigration, without adequate supply-side response.

And of course the nominal price always tends to increase as a result of inflation, both CPI inflation and inflation of the money supply.

Shadow.

 

[Pom]

Two things......

1. I don't care why somebody rents from me. I don't care whether they think they are getting a bargain or not. This is because renting to people has made us a lot more money that not renting to people.

2. I don't do it out of the goodness of my heart.

I think what Yieldmatters is driving at is that there is a ceiling on how far prices can continue to rise in real terms into perpetuity (long term).

Myla argued that if some people couldn't afford to buy, big deal, the rich would buy up everything and the poorer masses would rent.

All well and good but wages will only support a certain amount of rent (you can't make money out of thin air) so what will continue to hold prices at current levels? What will drive real growth into the long term from the present level of house prices? Perhaps yield does matter after all?

If I had any advice to newbies it is this: there are a lot of very seasoned investors on this forum who have a great deal of experience and have made a great deal of money from property investment. However, they started out earlier than you and have EQUITY in their properties. They are in a much better position to ride out a storm and cycle into the next boom (which, in my opinion, cannot physically happen without a reasonable downturn first).

The danger to newbies is that they jump in with both feet now when downside risk is at its greatest level in over 15 YEARS. By all means listen to what seasoned investors have to say on this forum but temper that advice to your own circumstances.

Numerous individuals say now is the best time to buy. It may be for them - they have equity in other property (and other investment vehicles) and can spread the risk accordingly. A newbie may literally have all of their eggs in one basket and personally I wouldn't be comfortable with that.

Patience is a virtue and could save you money.

 

[BoatBoy]

Patience is a virtue and could save you money.

As can failing to pull the trigger when a good opportunity comes up

Dave

 

[stumunro]

Nice list which somewhat explains the past (especially point 3 and 4!). But considering many are negatively geared now what on your list will change in the future to allow increases in prices even further? Justifying current prices isn't enough - we need to put some fundamentals under future price rises or there is no reason to hold loss making property. (before LA Aussie and others jump down my throat - I say "loss making" in the economic sense of the word - market yield is less than the prevailing interest rate)

The only one I can think of that makes sense is higher density.

yM you can always justify to yourself why property doesn't work or doesn't add up, or why you won't be successful at it, the following are some basic fundamentals about why I find property investing works for me (and it does);

- Increasing yields vs a stagnant debt
- Increased wages vs a stagnant debt
- Increased rental demand with an increasing population (low vacancy)
- Capital appreciation

Whether you like it or not, house prices will start moving again

 

[Pom]

As can failing to pull the trigger when a good opportunity comes up

Dave

Erm, quite. A perceived good opportunity may not actually turn out to be one so, yes, failing to pull the trigger can also save you money!

Perhaps you meant to say that failing to pull the trigger can cost you money?

 

[keithj]

I would love a $ for every time I have read "property doubles every 7/10 years" on this forum.

You forgot to add the bit about over a reasonable timeframe.

I will, however, concede that in long periods of peace (as we are experiencing) assets can increase in both nominal and relative terms for much the duration of the peace. Make of that as you will!

The timeframe most are considering is less than 50 years. Your chessboard example (I didn't watch the youtube link) would be over a 64 decade time period, so is irrelevant.

Using property as an example - CBD property doubled until it got changed to a higher use. That higher use (commercial office buildings) has different yield/growth characteristics. Yield is high (roughly same as IRs) and growth is low (roughly inflation).

With flawed analagies, you can also prove -

• with population growth @ 1%pa there will only be standing room on earth within a few million years
• 4% CPI will mean there will be dozens of zeros on the end of all banknotes well before then
• disposable income rising @ 6%pa (or 3% above CPI) will mean we can all afford beachfront houses by the year 3000..... unless of course house prices grow faster than that

.... exponential stuff happens until things change. IPers are banking on that change being later rather than sooner. Based on human behaviour being slow to change, it's probably a good risk .

 

[stumunro]

With flawed analagies, you can also prove -

• with population growth @ 1%pa there will only be standing room on earth within a few million years
• 4% CPI will mean there will be dozens of zeros on the end of all banknotes well before then
• disposable income rising @ 6%pa (or 3% above CPI) will mean we can all afford beachfront houses by the year 3000..... unless of course house prices grow faster than that

.... exponential stuff happens until things change. IPers are banking on that change being later rather than sooner. Based on human behaviour being slow to change, it's probably a good risk .

awesome

 

[BoatBoy]

Erm, quite. A perceived good opportunity may not actually turn out to be one so, yes, failing to pull the trigger can also save you money!

Perhaps you meant to say that failing to pull the trigger can cost you money?

I'm glad you new what I meant

Dave

 

[keithj]

I believe these are the main factors that will allow real house prices in key areas to continue to increase over the long term...

5) Shortage of supply in desirable locations means that sought after properties tend to flow towards those with most wealth.
6) Existing stock is passed down to children, which captures past property wealth for future generations to build upon.
8) Natural population increase and immigration, without adequate supply-side response.

And of course the nominal price always tends to increase as a result of inflation, both CPI inflation and inflation of the money supply.

Shadow.

9) Disposable income rising faster than wages. The graph below shows disposable income increasing at an average of 6%pa for the last 15 years. This is above the average wages increase (of 4%pa) and also above CPI (@3%pa for the last 15 years).

It roughly corresponds with increasing house prices (averaging 7%pa).
Using Average Wages to Median House Price as an affordability ratio is misleading at best.


Graph sourced here