yields detach from capital values

[Ausprop]

was a really interesting read here... is this sustainable? is this an insight into the future of our own property markets?

http://www.bloomberg.com/news/2014-...n-in-billionaire-backyard-as-prices-soar.html

I sold an awesome flat there and regret it now. Would love to buy in but sounds like it doesn't add up anymore

 

[Deltaberry]

It's usually just a function of interest rate, except in peculiar cases like Japan.

 

[Ausprop]

not sure I follow... low IRs would make ownership cheaper, thus drawing rents and ownership together?

 

[C Stewart]

I'd read that article as lower IR's make the cost of borrowing lower - meaning investors can accept lower yields and still maintain their returns.

So lower IR's would encourage faster growth investment (the article suggests some of it might be foreign in this situation) - and faster growth in prices - than the growth in rents.

 

[Deltaberry]

not sure I follow... low IRs would make ownership cheaper, thus drawing rents and ownership together?

Lower interest rates fuel high house prices because borrowing is cheap.

But rent's don't increase because salaries haven't actually gone up.

Hence yield becomes low. Look at most countries and you'll find over time the yield tracks the interest rate.

Same thing as what guy above me said.

 

[Truly Exotic]

Its all common sense and logic,

an area is going to get high interest if there is good investment incentive, ie yields or CG, CG is hypothetical, yields are real,

higher yields=more investors

more investors = more demand

more demand to buy=increased prices while rents stay the same

ie lowering yields

 

[Ausprop]

I'd read that article as lower IR's make the cost of borrowing lower - meaning investors can accept lower yields and still maintain their returns.

So lower IR's would encourage faster growth investment (the article suggests some of it might be foreign in this situation) - and faster growth in prices - than the growth in rents.

this is a circular argument as the lower IRs should be decreasing the gap - being the same demand that is driving cap values. if cap values increase and IR's fall its possible that cost of ownership doesn't change, (or even lowers) but we are not talking here about cap values vs rents, we are talking about cost of ownership vs rent.

In this case we are not considering a cause/effect relationship, this is a complete detachment. It is a complete rebuttal to any 'house bubble' / affordability debate

 

[Deltaberry]

To put in a rudimentary way, and this is not entirely correct, but simply put rent as an absolute figure has nothing to do with IRs.

IRs only affect yield, not rent.

 

[antistar]

There is a lot of white noise around IRs, tields, movements of valuations etc all the time. If you buy a good property with a point of difference (dual aspect, water front, good views, different to those around it etc) at a good price none of the above white noise factors will matter. There will always be people wanting to rent it off you and over time it will grow as the population / market / economy grows. Buy well (both in purchase price and unique property features) and the rest will sort itself out. Or you could spend hours of your day each day looking at graphs charts and statistics and trying to predict where things are going. Complete waste of time imo.

 

[Intrinsic_Value]

musical chairs?

 

[MTR]

There is a lot of white noise around IRs, tields, movements of valuations etc all the time. If you buy a good property with a point of difference (dual aspect, water front, good views, different to those around it etc) at a good price none of the above white noise factors will matter. There will always be people wanting to rent it off you and over time it will grow as the population / market / economy grows. Buy well (both in purchase price and unique property features) and the rest will sort itself out. Or you could spend hours of your day each day looking at graphs charts and statistics and trying to predict where things are going. Complete waste of time imo.

You have hit the nail on the head.

Also, I have not been watching the UK market, perhaps we are now seeing the property cycle change and London being the first to recover.

This is what is happening in USA at the moment, not comparing these markets but certainly economy for both starting to recover.

 

[sanj]

You have hit the nail on the head.

Also, I have not been watching the UK market, perhaps we are now seeing the property cycle change and London being the first to recover.

This is what is happening in USA at the moment, not comparing these markets but certainly economy for both starting to recover.

Actually London property prices started to recover quite a while back and have grown strongly from their lows. I believe that growth phase has just about ended though and prices have started to drop a bit.this is just going off a few articles I skimmed so I could be wrong.

 

[MTR]

Actually London property prices started to recover quite a while back and have grown strongly from their lows. I believe that growth phase and just about ended thiugh and prices have started to drop a bit.this is just going off a few articles I skimmed so I could be wrong.

OK, that is interesting, I can only guess what prices you would pay in London, and it wont be my budget

 

[Graemsay]

London prices dipped, but never really had a significant correction, and then were driven upwards by a wall of money seeking a safe haven. The impact on the market from foreign investors has been way in excess of what you're seeing in places like Sydney and Melbourne, with roughly 75% of new builds in the centre being sold to non-residents.

The London market rose by nearly 20% last year. This is at a time when wages have been below inflation, and the economy is recovering but still below the highs of 2008.

Like Australia, the UK has a bunch of property price indices. The main ones are:

• The Nationwide's, based on prices reported due to successful mortgage applications.
• The Halifax's, which is a rival version to the above.
• The Land Registry's, based on all sales data that the government receives, and lags the above by a couple of months due to reporting times.
• FT / LSL Acadmetrics, which is based on the Land Registry dataset.
• Rightmove's, which is based on advertised asking prices on their (think Realestate.com.au) sales listings.
• And RICS, which is from a vote as to whether property surveyors believe that prices will rise or fall in the short term.

The reported falls are in the Rightmove and RICS indices, which indicate sentiment rather than actual price changes. So we're not seeing a crash or slump here right now.

That said, the Rightmove index has been increasingly astray from actual market data, which is possibly due to a different average being used (mean versus median), or sellers being increasingly optimistic. The change could simply be realism creeping in.

Sentiment is being affected by predictions of interest rates rising, along with an election being due in the first half of next year. Two of the three main parties are calling for a mansion tax on properties worth over ?2 million, which has put a bit of a dampener on the top end.

Oh, and the Bank of England has brought in macroprudential rules for mortgage lending. It seems to be getting fashionable...

 

[Deltaberry]

Disagree.

In Melbourne, the CBD dwellings you talk about which are being bought by non-residents have not risen in value at all. In fact they've lost value over time, and lost even more value once inflation is taken into account.

The only things rising are the suburbia dwellings, which are driven up by residents and Australian citizens.

 

[Intrinsic_Value]

Disagree.

In Melbourne, the CBD dwellings you talk about which are being bought by non-residents have not risen in value at all. In fact they've lost value over time, and lost even more value once inflation is taken into account.

The only things rising are the suburbia dwellings, which are driven up by residents and Australian citizens.

This is not true at all Deltaberry, its just that they have a separate sub-cycle and are more prone to supply increases when the market is hot.

I have done very very well out of Melbourne CBD properties.

Both from a yield and capital appreciation basis.
One factor with cbd properties that people forget is that whilst body corporate rates may be high, there is a minimal land component, so one can effectively own multiple properties and pay next to no land tax.

I admit that this year, there has not been any growth in prices. The last major spike in prices occurred around 2010 when prices jumped around 40% over a few years

 

[Deltaberry]

This is not true at all Deltaberry, its just that they have a separate sub-cycle and are more prone to supply increases when the market is hot.

I have done very very well out of Melbourne CBD properties.

Both from a yield and capital appreciation basis.
One factor with cbd properties that people forget is that whilst body corporate rates may be high, there is a minimal land component, so one can effectively own multiple properties and pay next to no land tax.

I admit that this year, there has not been any growth in prices. The last major spike in prices occurred around 2010 when prices jumped around 40% over a few years

Maybe depends on what. Our businesses have a staff who bought a 2-bedroom in QV I think for somewhere in the 600s, in the 2000s era, and is struggling to sell it for the same price now. New apartments are priced much cheaper.

I hold some and family holds a bit more CBD land properties - those have experienced astronomical growth because every Asian wants to get into the market these days.