Forums / Property Investing / Help Needed! / Best advice : Don’t invest into property : The australian market is CRASHING.

Viewing 13 posts - 621 through 633 (of 633 total)
  • Profile photo of Long JohnLong John
    Blocked
    @longjohnsback
    Join Date: 2014
    Post Count: 32

    Hi LJ, Wow, sounds like you are having two bob each way !!! I thought you were saying it was me doing that. :p

    The US and Australian markets are as different as chalk and cheese. To make comparisons and try to cross link causal affects is to not understand either market or its fundamental dynamics.

    Isn’t all of your talk about a “property crash in australia” arrived at by comparing to the US crash?

    Nope.

    And then, there was this

     

    National Consumer Law Center (NCLC), at least 10 states can be generally classified as non-recourse for residential mortgages: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington

    (The bolding was mine !!) So, if “at least” 10 states are non-recourse, that is way different to “at most” – in fact, it could mean that double that number, or more, are actually non-recourse, couldn’t it? A quick read of the “Overseas Forum” sees some members discussing Altanta and Florida having non-recourse loans – these two didn’t make your list. Could it really be “at least 20″ States after all?

    Nope.. Read this

    http://www.tampabay.com/news/business/realestate/walking-away-from-florida-mortgage-doesnt-always-clear-debt/1059927

    Yes, I am aware the GFC trigger was more about the “AAA rated” junk notes (so-called “backed by Real Estate”) that were peddled all around the world (some Local Councils in Australia lost money over them). Add to those though the “every man in the US should be able to buy a house” message, where banks were encouraged to lend to anyone/everyone at a low honeymoon rate a few years earlier. The kicker came when the rates were due to revert from (say) a 2% loan into a 3.5% loan. That 1.5% increase was really a 75% increase, wasn’t it? With no-one chasing them over a mortgage (non-recourse) many just handed the keys back to the bank, leaving them with truckloads of houses that they didn’t want, and this MUST have had an effect on their RE market, wouldn’t you say? Probably additive to the whole GFC thing, even if not the CAUSE. In Australia, I am not aware of anyone who has a non-recourse loan – thus, if you walk away from a house, and the bank can’t get their mortgage back, the Mortgage Insurers will settle with the banks, then chase YOU down for the rest. A way different scenario. Therefore, the same laissez faire approach to a mortgage doesn’t exist here as does in many areas of the US. In summary then, I still believe the differences in the way US handles RE as a whole is so far removed from the system used here, that such a violent crash is unlikely to occur in our market. But yes, there will be ups and downs over time. Benny

    Forget recourse vs non recourse. It wasn’t the cause or reason for the severity. Like I said default rates where only slightly above trend. There where warnings for years prior that the US property market was maxed out that economic conditions could trigger a collapse. That subsequently came true when the GFC hit and liquidity froze overnight. That literally took buyers out of the market overnight. That triggered a collapse that was compounded by economic conditions and still does to this day.

    If you don’t think a serious correction can happen in AU your not watching the ball. Will it? Everything I see says yes. When? Can’t tell but I think its much closer than many think. How bad will it be? How long’s a piece of string? What makes me so sure? Human nature. We never learn from the past.

    Profile photo of superAndrewsuperAndrew
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    @superandrew
    Join Date: 2014
    Post Count: 188

    A property crash is bad for people who have to sell their properties or can no longer afford their debt payments.

    For everyone else it is an opportunity to pick up bargains.

    My rules are:

    1. Don’t borrow more than you can afford to pay the interest on your loans for 2 years using your savings while having no income coming in; and
    2. Buy properties that will always be in demand. No matter what happens to the economy or the property market, people will need to live somewhere and pay rent if they can’t afford to buy. e.g. no luxury properties but properties that are affordable by most.

     

    superAndrew | Property Analyser and Finder Tool
    https://property-analyser.com.au

    Profile photo of Long JohnLong John
    Blocked
    @longjohnsback
    Join Date: 2014
    Post Count: 32

    A property crash is bad for people who have to sell their properties or can no longer afford their debt payments.

    For everyone else it is an opportunity to pick up bargains.

    My rules are:

    1. Don’t borrow more than you can afford to pay the interest on your loans for 2 years using your savings while having no income coming in; and
    2. Buy properties that will always be in demand. No matter what happens to the economy or the property market, people will need to live somewhere and pay rent if they can’t afford to buy. e.g. no luxury properties but properties that are affordable by most.

    Good advice.

    The problem for many though is that ‘serious‘ investors tend to have long acquisition phases in portfolio development. That invariably requires high leverage rates as PI’s try to build as fast as they can. In a high growth market that makes sense as one tries to capitilise on growth spurts before they fall back or collapse. The risk is in being highly leveraged if a correction occurs that can expose you to unsustainable market forces.

    Over the past 20 years the risk in this type of fast growth strategy was fairly low but still real. If one had chosen well you could expect to see leverage drop within just a few years before pushing into the next cycle of buying. Today is much different in that credit availability, affordability, wage growth, national and state economics (and to a larger extent international economic conditions) up the risk profile substantially.

    All markets correct at some point because abnormal rates of growth throw up distortions which eventually collapse that growth spurt. Distortionary forces are much larger and more powerful than they’ve ever been historically. To that extent one should be prepared for significantly bigger corrections back to norms than in the past.

    As Seth Klarman from Baupost Capital recently stated:

    “Can we say when it will end? No.

    Can we say that it will end? Yes.

    And when it ends and the trend reverses, here is what we can say for sure.

    Few will be ready. Few will be prepared.

    • This reply was modified 5 years ago by Profile photo of Long John Long John.
    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
    Post Count: 1,325

    Here’s a time capsule from Scamp (from his first post in May 2008)
    “Don’t invest into property : The australian market is CRASHING !!
    Can’t you see that 9 times annual wages per house is not sustainable and that the bubble is already bursting?
    It’s more than evident that the market is 50% overvalued. Take this from a seasoned property investor.”

    Well, Scamp – here we all are – in August 2016, with Sydney recently attaining a Median House Price of $1m. Could it be your words might be more valid today????? They didn’t work out too well eight years ago…

    Following your alarmist words in 2008, we DID have a period where prices corrected…. falls of 10%, and perhaps 20% in some areas. Oh but wait, we HAVE seen falls of 50 to 70% (but only in some mining towns where prices were jacked thru the roof – yes, these were true BUBBLES in those cases!!)

    It is a long thread, with umpteen differing views from many members. Let’s revisit a few of them in Summary, just for fun:-

    Seank – “I don’t know your motives but I reckon people like you should be banned from these forums, for giving out such false advice.”
    Units4me – “Are Scamp’s comments re a potential housing crash any more damaging than those who say property will keep on rising?”
    Scamp – “I’m not bearish, we’re past that point : I’m right.
    Do NOT buy yet, save your money, buy later ( January 2009 ) and offer only 30% in January 2009.”
    L.A Aussie – “I think we are all quite able to hear both sides and make up our own mind. As for Scamp’s big warning; I took it as a signal to get the check book out.”
    Scamp – “I know when to pull out, which is why I sell it this summer instead of december ( when I am expected to come to Australia to buy a nice property for a deflated bubble price ).”
    Tony B – “I also feel the banks are not stupid – they will not lend money for housing, (100% in some cases) if they think, as many on this site do, that property prices are about to fall.”
    blogs – “Michael Matusik is a joker – tell him he’s dreamin!!! lol interest rates have plenty of up before they can even THINK about coming back down…. (yep, they got to 9% then dropped like a hot potato – ‘cos they HAD to !! Benny)
    Bardon – “BIS Shrapnel predicts house prices will rise as much as 40% across the nation in the next five years, because of a growing shortage in housing.”
    Scamp – “Oh yes, banks won’t lend you more than 4 times your wages, and ‘equity’ can’t be used in getting new mortgages. Believe me when I say this will all happen.”

    Oh yes, Scamp, we believe you mate…. :p

    Everyone else, have a quick cruise through this old thread – there are some good laughs sprinkled throughout.

    How did YOU go these last 8 years? I hope you weren’t waiting for the prices to crash so you could buy in….

    Benny

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi all,
    As we near the end of 2017, I thought it would be interesting to take a look at this well-worn topic once again. Things have changed – as I am sure we are all aware. Like, Syd and Mel have continued their climb into the Stratosphere. To the point where Syd now shows as needing 12 x Annual wage to afford the median house.

    As Steve mentioned just a few weeks back, the super-low Interest Rates have contributed to these abnormally high prices (along with other factors). Meanwhile, wages have NOT kept pace, so the gap continues to grow. Recent signs seem to show that Syd might be settling lower after driving its Median Price into the $1million+ range.

    An earlier post (back a page) tried to shine a light on the “Demographia survey” that had so many calling Australia property expensive. This particular quote was an interesting one to me:-

    Another key issue with Demographia is that it compares cities in Australia with cities in only six other countries, yet the media proceeds to claim that Australia is the ‘most expensive country in the world’. The survey conveniently ignores all the many cities around the world with much higher house prices than Australian cities. For example Moscow, Tokyo, Oslo, Seoul, Hong Kong, Geneva, Zurich, Milan, Paris, Singapore, Monaco.

    The other link I had added back then, takes us to see many cities around the world with the darker colours (i.e. with affordability figures greater than Syd’s) and, as well as those mentioned above, a host of cities in India and the Middle East ALSO have figures above 12. Why are they not mentioned? What is on their agenda, in stating Australian cities are some of “the most expensive in the world?” And why did they leave out so many others who have figures WAY higher than Aussie?

    Let me post the link again here – http://www.numbeo.com/property-investment/gmaps_rankings.jsp

    Take a look at any “paddles” that have a colour approaching Red. Syd’s shows as a light brown with a figure of just below 12. But LOOK at all of the Red and Brown paddles that have figures higher than Syd (click on the paddle to show the “Price vs Income ratio”). Many European cities, but also SE Asian cities too, and even the Middle East, have MANY cities that are more unaffordable than Sydney.

    To be fair, the Demographia survey for Mid 2017 appears way more sensible than the previous one linked (2014) so they appear to have learned some things over the last few years.

    Meanwhile, echoing Steve’s latest Article ( https://www.propertyinvesting.com/australias-sub-prime-debt-shocker/ ), where do YOU see this heading? Is Scamp going to finally be proved right after nearly a decade? Or is this going to become an orderly settling down of values over the next year or four? A 10% drop? More? What do you see for Australia’s house prices?

    Benny

    Profile photo of Nigel KibelNigel Kibel
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    @nigel-kibel
    Join Date: 2005
    Post Count: 1,425

    When we look at the Melbourne market we have more than 100,000 people a year moving to Melbourne. That includes the highest net migration from NSW to Victoria since 1888. Why are so many people moving to Melbourne, the worlds most liveable city helps and it is still much cheaper than Sydney. Even new home areas such as Mernda are only around 25km from the CBD and you can buy homes in the $500,000 to $600,000 range. So I see prices levelling out I do not see anything that will cause prices to fall. Now their is the unknown factor such as war or recession but in the long term Melbourne looks like a good bet. The next market to rise should be Brisbane but it may still be a few years off.

    Nigel Kibel | Property Know How
    http://propertyknowhow.com.au
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    Profile photo of Luke TaylorLuke Taylor
    Participant
    @world-changer
    Join Date: 2005
    Post Count: 415

    Hey guys,Good discussion ,
    My take is just keep some good cash buffers and hold strong returning cashflow properties that would hold value ok in a downturn.
    Warren Buffetts company is holding from memory 96billion in outright cash atm .This is apparently the highest amount of cash they have ever held.They are thinking that there are some serious possibilities of issues in the world with N Korea,D Trump,Brexit,terrorism etc .This is worth listening to.Then if or when something does happen you can get the deals as most people will be struggling

    Luke Taylor | Hope Property Investing
    http://hopepropertyinvesting.com
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    Profile photo of StevenSteven
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    @steven1982
    Join Date: 2017
    Post Count: 155

    Even new home areas such as Mernda are only around 25km from the CBD and you can buy homes in the $500,000 to $600,000 range.

    What type of properties are them mainly?

    Did a quick search on realestates, seems the cheap ones are mostly properties with 200-400sqm land, and the ones that are bigger than 500-600sqm land are getting close to 700K.

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Well, I missed the Dec 2018 “anniversary” to update this (would have been 10 years). So here we are in Mar 2019, and we are seeing a price correction in play currently. Syd and Mel have had their values settle back somewhat from their recent highs. All to be expected. Pundits right now are stating “We will see a 20% drop before the trend changes back to positive” (Referring to Syd & Mel). Other areas are stagnant or dropping slightly. Recent articles call a 13% drop since last peak for Syd, and about 9% for Mel.

    We are in unusual times right now though – with a Federal Election imminent and the Labor Party in the ascendant (according to Polls). Meanwhile, Labor have stated that they will forgo Negative Gearing on all but new properties (1986 anyone?). As well as that, they want to bring in Death Taxes and also remove Franking Credits. With those kinds of policies, I would have thought the Liberals should steam back in again – BUT they are instead imploding with the recent antics of their more left-leaning members. So all bets are off re who will win !! And, depending who does, will (I believe) provide markedly different paths for property investors and investing over the next few years!!

    So, will house prices fall further (as Scamp had predicted over 10 years ago)? Like, 40% or even 50%? I see a possible larger fall should Labor win Govt in the next few weeks. But still not 40% nor even close. Perhaps the 20% that others have predicted recently. And if Libs get back in, less likely !

    What do YOU think though, friend? Does Scamp have a point? Or is he still licking his wounds from selling off what has been a strongly rising asset over the last 10 years despite his assertions?

    Benny

    Profile photo of StevenSteven
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    @steven1982
    Join Date: 2017
    Post Count: 155

    Labor have stated that they will forgo Negative Gearing on all but new properties

    I still don’t quite see how “new” is defined… if I buy something that is “new” (not that I will do anyway), does it stay “new until I sell it”? Or does it stay “new for X years” and then becomes “not new” whether I sell or not?

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
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    Hi Steven,
    Good question – I think Labor’s intent is to only reward those investors who are ADDING to the number of homes available. Buying second-hand doesn’t increase the total number of houses, so no “bonus” for these investors.

    But, as Steve had mentioned in an earlier article – “We really need to wait to see just what Labor proposes once they actually hold power” at which time we will be able to answer a heap more questions with some kind of certainty. For now, it is all conjecture,

    Benny

    Profile photo of StevenSteven
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    @steven1982
    Join Date: 2017
    Post Count: 155

    Good question – I think Labor’s intent is to only reward those investors who are ADDING to the number of homes available. Buying second-hand doesn’t increase the total number of houses, so no “bonus” for these investor

    Technically buying a new house is not “adding” to the number of homes available.

    If I knock down a house and build 2 units then I am adding up the numbers. Or if I buy a block of empty land and start building new housings, then I am adding up the numbers.

    If all I do is buying 1, then I am not adding any more houses (new or old), because I won’t be able to make any more housings after I buy what I buy.

    Also this means any investors who buy brand new houses are happily negative gearing for X number of years and “potentially” after a certain number of years they will “suddenly find themselves running into a huge loss that they cannot offset again”. Then what? nobody will want to buy from them because by then those are considered as second hand housing and whoever buys from them can’t negatively gear.

    Profile photo of BennyBenny
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    @benny
    Join Date: 2002
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    Hi Steven,

    Technically buying a new house is not “adding” to the number of homes available.

    It may be a matter of semantics – but to me, if there are (say) 600,000 rental homes in Australia, a builder builds a house, and I buy it as an investor and make it available to rent, then there are now 600,001 homes available for rent. If someone else bought it as their own home, then there is no nett gain in rental homes available. But you are right – the other aspect is this…. If I buy a second-hand home to make it a rental, then the available rental numbers again go up by 1. But there are no EXTRA homes in Australia – owner occupiers now have -1 and rentals have +1. Is that what they don’t like? I dunno !!

    …. nobody will want to buy from them because by then those are considered as second hand housing and whoever buys from them can’t negatively gear.

    BINGO !! And therein is where many of us see a major problem with the Labor plan to allow neg gearing only for new homes. For those already owning investment homes, it appears that Labor are thinking to allow neg gearing to continue IF it is already in place.

    This will likely lead to more market distortions – i.e. investors might rush to “fill up” on investment properties ahead of the election, perhaps lifting values temporarily – with the fall in value to come after….. As I said, it sounds like 1986 over again – and that hurt investors and renters !!!

    Benny

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