In the fifties we said the price of property could never go up because we’d lost half the
male population due to World War II and a recession, yet prices doubled. In the sixties
they said property prices would never rise again because of affordability and wages
couldn’t keep up, but prices doubled. In the seventies they said prices couldn’t increase
due to the oil crisis… yet prices doubled again. In the eighties they said prices couldn’t
increase due to the introduction of capital gains tax and high interest rates which
reached 22 per cent at one stage, but prices doubled. In the nineties they said prices
wouldn’t increase anymore due to low inflation and wages not keeping up, but prices
doubled. In the noughties they said prices couldn’t increase due to the introduction of
GST, but they doubled.
“In 2003 when the property boom was full-on and the stock market had bottomed and
was losing lots of money, I had clients coming to see me in a panic and wanting to sell
out. I told them the same thing I’m telling everyone now: just hang tight.
“All I can say when people make claims of gloom and doom is ‘yeah, yeah, yeah I’ve
heard it all before’. So why am I so calm when everyone panics? “One must understand
the fundamentals first before you can make a sensible analysis of what is happening.
“We’ve experienced world wars and depressions and recessions and high interest rates
and low inflation and high unemployment etc. but we’ve managed every time to move
through this and come out the other side stronger and wealthier.
“As long as the human race is wanting to ‘improve their lot’ then we’ll ride through the
economic ups and downs. A simple way of explaining this is if you’re uncomfortable in
your seat, you’ll move around until you’re comfortable again. This may happen straight
away or it may take some time but you will get comfortable again. This is the same as
economic conditions.
“As we bring more people into our country to maintain our standard of living we have to
provide more housing. In New South Wales alone there is a high building shortage and
the demand will continue to push the prices of properties upwards like it has done since
1901
I'm reading this great book ATM – it's called Lord Foul's Bane. It's well crafted work of fiction – total fantasy – but enjoyable to read and inspirational none-the-less:)
Yeah, there's another well crafted, great book of fiction written on how to pay the Federal Government NO, ZERO, 0, NADA tax – it's called Dianetics! Personally, I thought Battlefield Earth was better but that wasn't the one that sucked the money out of the gullible masses and kept it from tha taxman's coffers.
Educational post, thanks ALF1
Exactly what this forum needs sometimes – a bit of optimism!
Great read ALF1REMEMBER FOLKS: When the pessimists rise from under their dark rocks so do the opportunities for the astute investor!
The average annual compounding CG return for property in AU 1960 – 2006 was 8.7%.
See data here: http://www.retireonproperty.com/propertyinvesting/research/australian-property-prices-since-1960.html
You’ll notice that from 72 -75 (3yrs) house prices doubled – now look at the inflation rate for those years. Peaked at 15.23%
This simple compound calc was used for this result http://www.moneysmart.gov.au/tools-and-resources/calculators-and-tools/compound-interest-calculator
The figure does not allow for inflation, entry, holding and exit costs. These would dilute the return quite substantially.
Inflation figures for the same period
Year Mar Jun Sep Dec Annual
2006 2.9831% 3.9757% 3.9386% 3.2537% 3.5385%
2005 2.3595% 2.4862% 3.0261% 2.7986% 2.6687%
2004 1.9816% 2.4770% 2.3223% 2.5910% 2.3436%
2003 3.4407% 2.6890% 2.5993% 2.3656% 2.7707%
2002 2.9390% 2.8401% 3.2042% 3.0281% 3.0032%
2001 5.9904% 6.0222% 2.5210% 3.1226% 4.3808%
2000 2.7915% 3.1889% 6.0778% 5.8018% 4.4752%
1999 1.2469% 1.0744% 1.7312% 1.8048% 1.4654%
1998 -0.1660% 0.6656% 1.3367% 1.5833% 0.8535%
1997 1.2605% 0.3339% -0.3331% -0.2494% 0.2504%
1996 3.7489% 3.0981% 2.1259% 1.5190% 2.6124%
1995 3.8949% 4.4964% 5.0938% 5.0532% 4.6381%
1994 1.3774% 1.7383% 1.9126% 2.5455% 1.8950%
1993 1.2082% 1.8639% 2.2346% 1.9462% 1.8131%
1992 1.7013% 1.2264% 0.7505% 0.2788% 0.9859%
1991 4.8563% 3.4146% 3.1946% 1.5094% 3.2227%
1990 8.6114% 7.6681% 6.0575% 6.8548% 7.2784%
1989 6.7816% 7.5706% 7.9823% 7.8261% 7.5482%
1988 6.8796% 7.1429% 7.3810% 7.6023% 7.2564%
1987 9.4086% 9.2593% 8.2474% 7.1429% 8.4906%
1986 9.2511% 8.4648% 8.8359% 9.7662% 9.0845%
1985 4.4479% 6.5749% 7.7039% 8.1845% 6.7424%
1984 5.8442% 3.9746% 3.4375% 2.5954% 3.9370%
1983 11.3924% 11.1307% 9.2150% 8.6235% 10.0520%
1982 10.6000% 10.7632% 12.4760% 11.0497% 11.2289%
1981 9.4092% 8.7234% 8.9958% 11.2705% 9.6144%
1980 10.6538% 10.8491% 10.1382% 9.1723% 10.1863%
1979 8.1152% 8.7179% 9.3199% 10.0985% 9.0794%
1978 8.2153% 8.0332% 7.8804% 7.6923% 7.9507%
1977 13.8710% 13.5220% 12.8834% 9.2754% 12.3172%
1976 13.1387% 11.9718% 13.9860% 14.2384% 13.3508%
1975 17.5966% 16.8724% 12.1569% 14.3939% 15.1759%
1974 13.6585% 14.6226% 16.4384% 16.2996% 15.2955%
1973 5.6701% 8.1633% 10.0503% 12.9353% 9.2405%
1972 7.1823% 6.5217% 5.8511% 4.6875% 6.0403%
1971 4.6243% 5.1429% 6.8182% 7.2626% 5.9744%
1970 2.9762% 3.5503% 3.5294% 4.6784% 3.6873%
1969 3.0675% 3.0488% 3.0303% 3.0120% 3.0395%
1968 3.1646% 3.1447% 1.8519% 2.4691% 2.6521%
1967 2.5974% 2.5806% 4.5161% 3.1847% 3.2206%
1966 4.0541% 3.3333% 2.6490% 2.6144% 3.1561%
1965 3.4965% 4.1667% 3.4247% 4.0816% 3.7931%
1964 1.4184% 2.1277% 2.8169% 3.5211% 2.4735%
1963 0.0000% 0.0000% 0.7092% 0.7092% 0.3546%
1962 0.0000% -0.7042% 0.0000% 0.0000% -0.1770%
1961 4.4444% 3.6496% 1.4388% 0.7143% 2.5408%The figures below taken with the inflation figures show how much heavy lifting inflation does in pushing CG over time.
1960 – 1972 = 12 years
1972 – 1975 = 3 years
1975 – 1983 = 8 years
1983 – 1988 = 5 years
1988 – 2001 = 13 yearsThe average inflation rate for the period 1960 – 2006 was 5.47%. A net CG average of only 3.23%. When you include the various taxes associated with property the actual real return will be negative.
The problem with many of the figures I see bandied about don’t take into account inflation and its affect on buying power. A dollar today that turns into 100 in 10yrs is of little consequence if it buys the same or less.
Jack
Other issues are:
a. for individual properties substantial renovations may have been done so that when comparing the purchase price over a period of time a rise may be partly explained by renovations that have taken place
b. generally if we look sat at the 1960's an average size house might have been eg 12 squares, 1 bathroom, single garage – now it might be 20 squares, ensuite, double garage, insulated, solar hot water
JackFlash wrote:The figures below taken with the inflation figures show how much heavy lifting inflation does in pushing CG over time. 1960 – 1972 = 12 years 1972 – 1975 = 3 years 1975 – 1983 = 8 years 1983 – 1988 = 5 years 1988 – 2001 = 13 years The average inflation rate for the period 1960 – 2006 was 5.47%. A net CG average of only 3.23%. When you include the various taxes associated with property the actual real return will be negative. The problem with many of the figures I see bandied about don't take into account inflation and its affect on buying power. A dollar today that turns into 100 in 10yrs is of little consequence if it buys the same or less. JackJack that is the whole point of investing in property you borrow money the real value of your loan goes down more the higher inflation goes. So the amount you have to pay for the house goes down an average of 5.47% each year, if your net CG is 3.23%, you have an increase of 8.5% in your assets real networth plus perhaps 6% yeild, plus your tax deductions. Adds up to over 15% gain . Would you rather put money in the bank that you have paid tax on ,than pay tax on the interest received, if inflatioin 5.5% your going back wards quickly.
crusty wrote:Jack that is the whole point of investing in property you borrow money the real value of your loan goes down more the higher inflation goes. So the amount you have to pay for the house goes down an average of 5.47% each year, if your net CG is 3.23%, you have an increase of 8.5% in your assets real networth plus perhaps 6% yeild, plus your tax deductions. Adds up to over 15% gain . Would you rather put money in the bank that you have paid tax on ,than pay tax on the interest received, if inflatioin 5.5% your going back wards quickly.The 15% is not real. You’ve just added inflation back in and taken a gross operating profit for your model. Strip out costs, taxes and the erosion of buying power through inflation and your underwater in most cases. You need CG’s above trend and rental returns in excess of 10% to beat costs. Can work in the short term but CG gains fluctuate over time as do rental yields. Picking your timing is crucial to get it right but many strategies I see rely on Buy Hold and Hope. It’s no longer a viable strategy in todays market.
If you borrowed $1000 @ 6.5% over ten years it would cost you $319. $1000 now equals $681.
If we look at the buying power of $1000 and depreciate over 10yrs by an average inflation rate of 3% it could only buy $736 equivalent
Net real comparative figure is $417. You need a compound growth rate of around 8.8% to maintain equilibrium. That’s near trend. You now need operating cash flows to exceed operating cost to make a real profit.
That’s a fairly baseline model but it illustrates how erosive inflation can be at relatively modest levels. True inflation tends to be from 1 – 2% higher than doctored government figures.
Jack
History repeats itself. It is always ups and down. The whole world is down now: high unemployment rate, recession, debt and etc. It might get worse before it gets better, even though I always hope for the best.
Geez this is an oldie mattsa.. I wonder how Alf1 and ummester are doing a year on…
Hey Nguli, what have you been up to? Anything interesting to share?
Hi Mattsta,
I actually loved this original post by ALF1 so I was glad when it came back up in my email notifications! As for interesting things to share… Can't say I do
Just trying to pay down the PPOR loan so I can borrow again for my next IP! Hopefully before Christmas fingers crossed! How about yourself?-Nathan
nguli wrote:Hi Mattsta,I actually loved this original post by ALF1 so I was glad when it came back up in my email notifications! As for interesting things to share… Can't say I do
Just trying to pay down the PPOR loan so I can borrow again for my next IP! Hopefully before Christmas fingers crossed! How about yourself?-Nathan
I am glad you are doing good. Good luck with the loan! I am doing good. I am thinking about investing in apartment properties in America, but I have not decided yet. I am trying to consider all risk before I make this big decision.
Thanks. Sounds like exciting times! make sure you keep us all posted on your progress!
Thank you, Nathan. I will sure do! For now I am just researching this idea:trying to get as much information as I can. So far it looks that with all foreclosures it is more people rent apartments nowadays in the US.
mattsta have a look at Timor Leste (East Timor). It's one of the few places in the world with so much upside it's not funny.
It's also on your doorstep.
Gasp! My dear Freckle, are you endorsing property investment? (in East TImor?)
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Just trying to pay down the PPOR loan so I can borrow again for my next IP! Hopefully before Christmas fingers crossed! How about yourself?
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