The Money Mustache Community
Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: potm on September 09, 2014, 12:16:42 AM
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Hello my fellow Australians,
I've noticed a distinct difference in attitudes to property on these forums and other financial sites and blogs compared to Australian specific forums when it comes to property discussion.
I thought it would be good to have a discussion on property, both for a ppor and investing with other rational mustachians instead of the heated emotional debates which usually occur.
My situation is that I'm looking for an apartment as a PPOR ideally in the Melbourne CBD. Whenever I mention this to anybody, they are always quick to tell me what a bad idea that is. That has me even more interested, the more everybody thinks it's a bad idea, the cheaper it must be and thus a better idea. Conventional wisdom is that you should invest in houses with land in desirable suburbs but of course that's where the free markets come in and price things accordingly. People don't seem to understand this though.
In terms of investing, I'm quite happy to stick to shares. I know more about them and there's a lot more information and tools available to research. Just trying to do research on apartments in the Melbourne CBD atm and am struggling to find any useful information. I wish there was some sort of database where I could download a list of all apartment buildings in the Melb CBD and filter by size and have recordings of all past sales.
It's a lifestyle consumption decision though and the biggest expense so not one that I'm taking lightly. With all this talk about new developments coming up and the glut of apartments, I figure that the next few years will present a good opportunity to acquire an apartment. Just monitoring prices from what little information is available, it seems like the last few years the prices have been pretty stagnent after a surge from 2009-2010. I am hoping that with more supply coming online that prices will decline in nominal terms and give me a better opportunity.
Any advice on researching property, specifically apartments and insights into the Melbourne apartment market would be appreciated.
Feel free to share your own situation and views regarding property.
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Where do you regard as the Melbourne CBD? This is not a trick question, as it could be the golden mile, or include Southbank, or include St. Kilda Road, or some other variation. I haven't looked into Melbourne real estate for some time, but at one stage I worked in a place on Victoria Parade, and one of my friends had a warehouse conversion they had done about a block into Fitzroy - it was one of the most beautiful homes I have ever visited. Several people I knew also lived just inside North Melbourne (a picture from their back gate included the Queen Vic Market). But none of these were in the CBD.
I do know some people who had an apartment in the golden mile, and exchanged it for another in the golden mile, because the first was too cramped, and the lift didn't work as well as it could have. The first was a conversion of a 4 story building (one apartment per floor, and the second and 8 story building (the same). Both had parking, which is somewhat rare in the smaller conversions. They had a child, and one of the problems at the time was trying to find schooling in the vicinity.
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I wish there was some sort of database where I could download a list of all apartment buildings in the Melb CBD and filter by size and have recordings of all past sales.
=Sell&PriceMin=Any&PriceMax=Any&Type[]=Unit&BedsMin=0&BedsMax=10&BathsMin=0&BathsMax=10&CarsMin=0&CarsMax=10&Activity=0&Layout=combined&AddRecentSearch=true&MapZoom=15&MapCenter=-37.8146,144.9703]Listing of past sales of Melbourne CBD apartments. (http://www.onthehouse.com.au/property_search/?Query=Melbourne,+VIC,+3000&Mode[)
Now, your other two wishes were...?
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Don't know too much about Melbourne, only to stay the hell away from Docklands.
Up here the rule was to invest where the Chinese are buying. Now that the Chinese are buying everywhere it doesn't hold as true anymore!
You are right though, the best time to buy is when everyone says not to. Watch out for strata fees - the new high rises will crucify you with fees for pools, gyms, spas, 24/7 security guards, lifts and management fees.
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I live in an apartment on the edge of the Perth CBD, so I'm commenting on the apartment versus house issue rather than the 'is an apartment a decent investment' issue. Personally I don't think any real estate in Aus is a fantastic investment right now.
Things that bother me about living in an apartment in the CBD:
Family/friends can't just park in the driveway/on the front verge. It's paid parking with a two hour max stay outside my building, six days a week. That's if there's any parking available in the first place.
The walk to and from your car bay may be surprisingly long. This is only an issue for me when I'm carrying something awkward or heavy, but YMMV.
If your neighbours smoke on their balconies (or inside their apartments with the windows open) and your windows are open, it will be like there's someone smoking right inside your lounge room.
Limited ability to garden.
Limited ability to be outside without being visible to neighbours (I miss being able to sit in the backyard in PJs with my morning coffee, sigh).
Drying clothes is harder.
DIY stuff is harder because you typically don't have a big enough outdoor space to build furniture etc.
If you have kids / plan on having them, it's really annoying to get prams etc in and out of an apartment building compared to a house.
People use your building's free visitor bays as their all-day parking while they're at work (seriously, I see people drive in to our visitor bays, go to work in the city and then come back and collect their car at the end of the day - so not cool. This generally means there are no visitor bays for my visitors during the week).
Strata fees are a bitch and our strata is useless as anything.
Lift works maybe 70% of the time.
Things that are completely amazing and so worth the above listed negatives:
Short commute, short commute, short commute.
Close to all possible amenities, including infrequent but cool things like fancy takeaway, or being walking distance from home at the end of a big night.
You can walk everywhere! Well, a lot of places.
When you do have to go out to the 'burbs, it's a relatively short trip by car or public transport.
In Perth, the central suburbs have free public transport.
Very little maintenance work / gardening.
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I don't know much about Melbourne so this is generic advice which has stood me in good stead.
Take your time and understand the local market where you are buying. For example my local market is driven by a)the Sydney market, when prices go up lots of people come looking since they can get more for their money and b)local geography which limits much further development i.e. more demand with limited supply. Our market has been hot hot hot for the last year, and coming into spring when things normally start moving fast we have the lowest number of houses on the market I've ever seen: so I suspect it will just go up even higher. You need to understand what drives the market in the part of Melbourne you have your eye on.
You make money buying low so you want to know exactly what you are looking for is worth. When you see a good deal move quickly. You have to watch the internet and see plenty of properties to know what a good deal is.
I create a standard search of postcodes I'm interested in on the most used real estate websites. I search the same way each time, so I can monitor how many properties are on the market, how quickly they turn over etc, and what they actually sold for.
If you are buying an apartment, at least in NSW, its possible to ask to view the body corporate minutes which will give you some idea if there are huge issues that you don't want to buy into.
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Thanks for the replies all,
I've seen that site along with a couple of others but the data is very incomplete and says contact agent half the time. It seems like it's up to the agent whether they want to report the sale at all.
What I need to do I think is create a short list of apartment buildings so I can monitor the sale prices and pounce when the right deal comes along.
I don't think there's any hurry at the moment though, prices aren't going anywhere and the more I save the better off I am.
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These are recommendations I was given from this very forum which have proven very useful to me so far:
http://somersoft.com/forums/ - a forum surrounding investment property in Australia.
http://petewargent.blogspot.com.au -
As for investing in the CBD itself - that is something that investors are generally wary of. A lack of height restrictions means that there is no limit on supply, which leads to oversupply and poor capital growth. The inner ring of suburbs are generally considered better investments for this reason.
Personally I live in Melbourne, but I'm considering an investment property in Brisbane. The entry points are lower and it's been a while since there has been capital growth there, which usually means it is still to come.
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Thanks for the replies all,
I've seen that site along with a couple of others but the data is very incomplete and says contact agent half the time. It seems like it's up to the agent whether they want to report the sale at all.
What I need to do I think is create a short list of apartment buildings so I can monitor the sale prices and pounce when the right deal comes along.
I don't think there's any hurry at the moment though, prices aren't going anywhere and the more I save the better off I am.
It does seem to depend on the local real estate agents how much they report sales on the internet. Often the sales reported are the ones where an outstanding figure is reached. Some areas I notice whats on the internet is quite incomplete.
3 ways to get sales info:
1. on realestate.com.au, when you look at a particular property, down the bottom you may see a list of recent sales in your area. It takes a week or 2 for properties to appear and they disappear a few weeks later. You can track sales prices this way. I'm not sure this appears everywhere, but it does in my local area and a few of the others I'm keeping an eye on.
2. Try Allhomes.com.au, and go to the research section. You can search the sales history of a property or a street. You can find out when a property last changed hands, and for how much. It takes a couple of months after a sale for the price to appear
3." Finger on the pulse method". Attend auctions and you'll know what it sold for, or if passed in what the bidding went to. Go to open houses and chat to the agent. Ask them if they know what a particular property went for. You can often pump them for quite a lot of info, since there may be a story behind the price reached. Agents worth their salt usually know what something sold for even if its not their listing.
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My understanding of the centre of Melbourne is that there have been a lot of apartments being built and there are still more to come. A lot of the apartments being built are also quite small (i.e. 1b 40m2 apartments). I know that the rental prices for a 2 bedroom in Essendon dropped by about $50pw+ between 2011 and 2014 (i.e. I was looking at moving to Melbourne around April 2011 and April 2014, but that is not in my current plans). I would assume that the rental prices have been affected by the availability of apartments coming online.
Personally I am not a fan of purchasing into high rise apartments, however that is more to do with the fact that after about 30-40 years the maintenance for them can be quite significant as things like plumbing and electrical wiring can become issues. The lifts also increase the amount of body corporate you need to pay.
If I were to be looking for an apartment in a high rise building, my preferences would be to look at something about 5 years old, that has a body corporate/strata report (builders are particularly dodgy in Canberra, I'm not sure about Melbourne). I would be looking at the size of the unit, e.g. I found a 60m 2 bedroom apartment that I used to live in an ok size, but due to the layout what was meant to be the lounge/dining area was not functional in my opinion so this may or may not be suitable for your purposes. I would be buying something at least 50m2, it is easier for potential purchasers to get finance at this size, though probably as its the Melbourne CBD.
Personally I don't think that the Melbourne CBD is necessarily a bad investment, however I would probably pick carefully what you purchase.
I remember there being a site that is meant to have accurate sales price data but you have to pay for it. I think it is: http://www.myrp.com.au/ but I cannot be sure.
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I remember there being a site that is meant to have accurate sales price data but you have to pay for it. I think it is: http://www.myrp.com.au/ but I cannot be sure.
www.onthehouse.com.au is another with past sales price data. you just need to register with an email and password (another bloody password to remember lol).
My understanding of the centre of Melbourne is that there have been a lot of apartments being built and there are still more to come. A lot of the apartments being built are also quite small (i.e. 1b 40m2 apartments). I know that the rental prices for a 2 bedroom in Essendon dropped by about $50pw+ between 2011 and 2014 (i.e. I was looking at moving to Melbourne around April 2011 and April 2014, but that is not in my current plans). I would assume that the rental prices have been affected by the availability of apartments coming online.
40sqm is tiny. A lot of banks won't finance anything under 50, at least without great difficulty. It's not that they're unliveable, it's more a case of who are you going to sell it to and/or what sort of tenant are you going to attract (itinerant uni bludger etc)
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Can't you just rent the same or similar apartment for 1/2 the monthly cost?
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Hey guys, don't know if this should go in the Australian Investing thread or this one on property, but I have a couple of questions about Australian REITs.
I want to invest in real estate but the high prices and my aversion to borrowing are keeping me out of the market at the moment. On MMMs blog he mentions how REITs are a passive way of accomplishing the same thing as real estate. However from what I've read Australian REITs are only invested in Australian commercial property.
1) Are there any Australian REITs that invest in residential property?
2) How correlated are Australian commerical and residential property?
3) If property prices go up, but rents don't, does the price of the REIT benefit in any way? Or are they simply tied to rental prices?
4) Are there any Australian REITs that move in line with the prices of Australian property?
Pretty much, I'm wondering if there an investment out there that gives me something similar to Australian investment property, which I don't have to pay hundreds of thousands of dollars for.
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I'm not sure about REITs as I haven't investigated them. But, commercial properties in Australia get better returns than residential property. However they are probably subject to more risk in that if there is a down turn in the economy it may take a while to relet the property, I'm not sure how REITs are affected by this.
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I thought there was a company called RUN that tried it a few years back (resi REIT). Maybe I'm dreaming it.
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I agree a lot with what happy said earlier about taking your time and doing your research.
I purchased my principal place of residence (ppor) in 2010 in an area where I had rented previously. This meant that by the time I was ready to buy I already knew the pros and cons of the area.
I bought a 2 bedroom unit which is one of 10 in a 30 year old block of units situated at the end of cul de sac in a suburb approximately 12 kms from the Brisbane CBD. The body corporate was low and as happy suggested earlier, I checked the minutes of the body corporate to see what the issues were, if any. After buying the unit, I also joined the body corporate, which has been helpful in many ways.
Although the unit is my home, I have kept resale in the back of my mind from the very beginning. If you have this mindset it will hopefully keep the emotion out of it when buying (and renovating) a home.
Even though my partner and I do not have children, I wanted a 2 bedroom unit because I wanted a flatmate to help pay the bills. This has worked out really well for us BUT make sure you wait for one year after you move in before renting out a room. You risk losing your ppor stamp duty concession if the Office of State Revenue find out.
Because having flatmates has been important to me, I caught public transport to my first viewing of the unit. This meant I had a first-hand understanding of what the bus schedule was like before I even saw the place. The excellent public transport in the area has turned out to be a great selling point when renting my spare room.
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I'm not sure why anyone would buy property in Australia right now. Aus, like Canada, is in the midst of a fairly large property bubble.
Don't buy an apartment-rent one.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not. There are issues with supply and demand that cause the prices of property to be so high. This is also another reason that Sydney is so much more expensive than Melbourne property wise. Melbourne has built a lot of new apartments in the CBD area, but I don't think Sydney has built as many.
That being said, Australia does have a property price issue and I'm not sure how things will go when interest rates begin to rise again.
Edit: I should also note tha the supply and demand thing is from people moving to/being born in australia, not from overseas investors.
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Edit: I should also note tha the supply and demand thing is from people moving to/being born in australia, not from overseas investors.
It is not only Australians who talk about the supply/demand thing. It's a while ago, and I cannot remember the exact authors of the international studies I refer to but:
1. I think it was the OECD who did a study about supply/demand in different economies around the world that decided that house prices were strongly related to the amount of regulation on the release of land. Australia was at the top of the list in this study, while I think the US was about the lowest. The study concluded that Australian house prices wouldn't go down until there was much less regulation, and from the graphs it appeared that there wasn't really a bubble.
2. "The Economist" has done several studies over the years which tend to be interpreted in a variety of ways by other media commentators (some say there is a bubble), but the attached commentary usually appears to say that Australian supply and demand is actually causing the bubble, and it won't disappear until this changes.
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I'm not sure why anyone would buy property in Australia right now. Aus, like Canada, is in the midst of a fairly large property bubble.
I literally cannot remember a time in my adult life when there hasn't been someone somewhere saying this. My first home ended up being my springboard into wealth when I sold it 4 years later for a whole lot more than what I originally paid. It was a townhouse.
Property is like any other investment choice. Do your homework before you buy and invest when you are ready.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
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In Australia they have been predicting a burst of the bubble for my entire adult life (12 years, and I would assume longer). Property prices have continued to climb throughout this period.
I do think that there is currently potentially a perfect storm with historically low interest rates, huge mortgages, and a potentially slowing economy/increased job losses (exactly how much of this is media hype I don't know in regards to the economy however I do not think that the current governments policies will help, though the lowering of the Australian Dollar to the US Dollar may). How much of a dip this would cause I don't know.
I am wondering how many people have overcommitted themselves in purchasing their PPOR and investment properties, and the ability of those people to repay the loans. Personally prior to purchasing I worked out as to whether I could repay the loan at 10% interest rates, the banks are required to figure out if you can repay it at 7%. 10% is doable for me, but would probably be slightly uncomfortable. From a personal point of view I would definately appreciate it if interest rates stayed low for the next 3 years or so while I am devloping a base for my offset account.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Canada's not a nation of immigrants?
If you think there is no bubble then there is no bubble. Until it pops......
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
There is always debate in a bubble if it is a bubble or not. If everyone agreed there was a bubble, people would realize property is overvalued and prices would crash. You can always find someone who's livelihood depends on prices going up for forever to argue that there isn't a bubble. If it costs twice a month to buy as it does to rent it seems like a pretty stupid investment. Whether it crashes tomorrow or 5 years from now, or is stagnant for 20, eventually prices will come back.
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From what I've read, property in Australia is probably more like property in the UK, than anywhere else.
Yes there was a price correction in most of the country. But it was the regional areas that got hit the hardest.
Was there a price correction in well located suburbs in London? Nope. People there had well paid jobs nearby, and therefore had the money to keep paying a premium to live close to their well paid jobs. Look up the performance of places like Mayfair. The returns on investment property there have blown all other investment competition out of the water, all the while the country has been in economic recession.
There may be a correction overall in Australia, but IMO* well located property in the capital cities won't be very badly affected. People living in the nicest areas of Sydney are going to have multiple income streams and the means to continue to pay a premium to live in the areas they wish to live.
*don't stake anything important on the opinions from random people on the internet
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Personally I would be happy with prices stagnating for the next 20 years. Prices dramatically falling would cause a number of issues (both with taxation and with people being underwater). However as AustralianMustachio has indicated, part of the issue is that people earn enough to pay for the mortgages and so long as people can afford it they will continue to do so. To have a price correction in our major cities there needs to be a major recession in Australia, or something seriously needs to be done about supply in the inner city areas. From what I can see there was a bit of a correction in 2008/9 however prices have simply risen since then (particularly with the lowering of the interest rates)
This indicates some of the economies around where people want to live, and why businesses want to be there in Australia: http://www.abc.net.au/radionational/programs/counterpoint/cities/5719632
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Canada's not a nation of immigrants?
If you think there is no bubble then there is no bubble. Until it pops......
Canada has a lot of immigrants, but significantly less than Australia.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Canada's not a nation of immigrants?
If you think there is no bubble then there is no bubble. Until it pops......
Canada has a lot of immigrants, but significantly less than Australia.
Permanent residency in Canada runs at about almost a quarter million people per year, the number is about 100k less for Australia. Furthermore, Canada's peak immigration year was 400k, Australia's was about 170k. Start with Wikipedia, move on from there to government sites, they all say roughly the same thing.
Canada has significantly more immigration than Australia. We have a housing bubble that will not be propped up by immigration. You have a housing bubble that will not be propped up by immigration. I'm sorry to tell you, but I think it's pretty clear.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Canada's not a nation of immigrants?
If you think there is no bubble then there is no bubble. Until it pops......
Canada has a lot of immigrants, but significantly less than Australia.
Permanent residency in Canada runs at about almost a quarter million people per year, the number is about 100k less for Australia. Furthermore, Canada's peak immigration year was 400k, Australia's was about 170k. Start with Wikipedia, move on from there to government sites, they all say roughly the same thing.
Canada has significantly more immigration than Australia. We have a housing bubble that will not be propped up by immigration. You have a housing bubble that will not be propped up by immigration. I'm sorry to tell you, but I think it's pretty clear.
As everywhere I had looked had said that the overseas born percentage of the current population is greater for Australia than for Canada, I was quite surprised by this post, so I looked it up. The 400,000 figure was for 1912, and I suspect that very few of these people are members of the current Canadian population. The huge influx in Australia started in the 1950's so most of these people would still be alive. It has also been more sustained. Also, Australia only has 2/3 of the population of Canada. So, while Canada might have more immigrants per year currently, Australia still has a greater percentage of overseas born people.
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My understanding is that there is some debate as to whether we are actually in a property bubble or not.
Some said the same thing here... (http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html)
48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Canada's not a nation of immigrants?
If you think there is no bubble then there is no bubble. Until it pops......
Canada has a lot of immigrants, but significantly less than Australia.
Permanent residency in Canada runs at about almost a quarter million people per year, the number is about 100k less for Australia. Furthermore, Canada's peak immigration year was 400k, Australia's was about 170k. Start with Wikipedia, move on from there to government sites, they all say roughly the same thing.
Canada has significantly more immigration than Australia. We have a housing bubble that will not be propped up by immigration. You have a housing bubble that will not be propped up by immigration. I'm sorry to tell you, but I think it's pretty clear.
As everywhere I had looked had said that the overseas born percentage of the current population is greater for Australia than for Canada, I was quite surprised by this post, so I looked it up. The 400,000 figure was for 1912, and I suspect that very few of these people are members of the current Canadian population. The huge influx in Australia started in the 1950's so most of these people would still be alive. It has also been more sustained. Also, Australia only has 2/3 of the population of Canada. So, while Canada might have more immigrants per year currently, Australia still has a greater percentage of overseas born people.
Deb, we're talking housing here, the stat of percentage of foreign born residents doesn't matter-it's the number of immigrants coming in. 250k to 160k-roughly a third more than Australia, slightly more per capita. Canada has more coming in and you would expect that this would buoy the housing market-but you'd be wrong. Both markets will crash. Australia has fewer immigrants coming in-so you'd be right in guessing that there is even less protection for the housing market.
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Well this bubble v lack of supply debate has been going on for quite a while here: time will tell. I really thought the Sydney market wouldn't go too much higher, but last year went up 15%, and still going up this year.
We all still need a place to live, so for PPOR I personally think one should do ones own rent v buy calculation. For me, already bought in, it was cheaper to stay put and pay the mortgage, than rent and sell. But definitely YMMV.
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buying a ppor is probably worth doing for most people, because of the tax benefits. And the govt will struggle to cut these benefits, because they will get voted out.
make sure you do your reasearch, get educated, and buy a place with good capital gains potential.
But it is a very emotional/lifestyle decision, and these factors can take higher precedence in some people. But don't let your emotions trick you in to buying a financial lemon :)
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We currently own our PPOR but we are looking to move out soon and rent.
The tax man will subsidise the rent to the tune of several thousand a year if we rent, and rent out our place.
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andy, keep in mind the six year rule
https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/
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If I'm 'stashing cash at a rate of 80k+ per year, with a rent of 26k, is it more beneficial for me to buy a PPOR now and pay it down quickly or wait until I have the full amount and buy it outright? If there's benefit to carrying a mortgage balance, what's the optimum deposit for me to put down? 25%? 50%? Are mortgages under 50% of the home value even a thing?
I dunno, it just makes more sense to me to take 'living situation' year by year rather than locking myself into the one place. That's not even thinking about the opportunity cost of all that money tied up in one place. Also stamp duty seems ridiculous, tens of thousands of dollars for the privilege of making a transaction, I can't see myself ever wanting to pay that particular gouge.
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The answer depends on a lot of factors, so no-one can just give a yes/no answer on this.
If you don't have long terms roots in an area its probably not worth buying PPOR, unless you buy something you could easily rent. What makes a good rental, is not always what you'd choose for your own longterm home, so its wise to work out what you are doing and why beforehand. Buying and selling houses is expensive and you can lose a lot if you buy and sell quickly.
If the housing market you are interested in is rising rapidly and you think thats likely to continue, then buying PPOR is a good move. On the other hand if you think your market of interest has peaked, or not likely to rise greater than inflation then the figures stack up differently.
The more you minimise interest repayments on a mortgage the better….whether thats by borrowing less, or paying down fast. Yes <50% mortgages certainly exist (I have one): the more equity you put in, the more favourably the bank will look at your request, since in the case of default they have a proportionally smaller amount of debt to recover. In Australia the pay the mortgage vs invest equation still probably leans on paying the mortgage down, unless you are a very good investor, and in a lower marginal tax bracket. There's still some discussion about this amongst the Aussies on this board, but mortgage rates are not as low as US and tax structures are different, so the numbers more clearly favour investing there.
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BattlaP, I would ask yourself where you want to live and retire. If you want to retire to somewhere else, how long until you retire, and if it is a long timer away, are you planning on staying in the same location until you do so. Plugging in a yearly mortgage repayment of 25k into How much can I borrow on https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/mortgage-calculator returns 350k.
Ultimately my mother (and a number of other people) say that you don't need to buy until you retire, it is also a lifestyle choice rather than necessarily a sound financial decision. My mother initially bought a place because of the scarcity of rental properties around at the time.
If you don't feel the need to buy at the moment, why bother, or if your thinking about buying but still happy renting you could try the lazy approach to buying (i.e. what I did). I set myself a price range, stuck to it, went to the occasional house inspection when I was in the mood, and bought something about 1.5 years after I started my randomish looking. This way I didn't get sick of the house inspection process and I bought something that I am happy with.
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Remember that it costs about 30% to sell a place and buy another. It really is much better to buy a PPOR if you are going to stay in it for a long time, and rent if you are not.
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48% of Australians were born overseas. We are a nation of immigrants, and, unfortunately, housing has not been built as quickly as the immigrants have arrived. I don't think any other country has this challenge. If it stopped, there would be more fundamental problems than a housing bubble bursting.
Let's see what the ABS http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3412.0Chapter12011-12%20and%202012-13 (http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/3412.0Chapter12011-12%20and%202012-13) has to say...
At 30 June 2013, 27.7% of the estimated resident population (ERP) was born overseas (6.4 million people). This was an increase from 30 June 2012, when 27.3% of the ERP was born overseas (6.2 million people). In 2003, ten years earlier, 23.6% of the ERP were born overseas (4.7 million people).
Persons born in the UK continued to be the largest group of overseas-born residents, accounting for 5.3% of Australia's total population at 30 June 2013. This was followed by persons born in New Zealand (2.6%), China (1.8%), India (1.6%) and Vietnam (0.9%).
If 48% of the population was born overseas, that would mean every second person you meet was born somewhere other than Australia...
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I remember thinking when I read that figure that it was HUGE - now where did I get it from? Thanks for that - maybe it was "have a parent born overseas" - which would be about right.
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Overall Australia is overpriced. Australia boomed on Chinese commodities demand. That demand is waning. So will the price of RE.
RE prices = money supply to buy. If money supply goes down (recession, lower population, higher interest rates, etc.) then prices drop.
There will be some areas that will do well - again based on demand. Here is San Diego the closer to the ocean the less likely to fall in value as the wealthy buyers' money supply is more constant (or rises during a recession if they hold cash).
With savings deposit interest rates approaching 4% in Australia the return on an RE deal would have to be pretty good.
I miss the near 8% days. Life was easy thanks to Aussies.
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There was an interesting article in fairfax media yesterday, which has a graph showing that I had the worst time paying for a house and that people currently don't have it so bad (she says tongue in cheek) - http://www.canberratimes.com.au/business/comment-and-analysis/gen-x-and-y-its-time-to-toughen-up-20150306-13wjy2.html
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The issue I see with house price affordability currently is not what people are currently paying out of pocket, but what will happen when interest rates rise. I am of the opinion that part of the reason that house prices are so high is that interest rates are so low. The other thing is that putting a bit extra onto the mortgage doesn't go as far now, as it would if the house prices were lower with interest rates higher. However there are now some nice features of loans like offset accounts.
On the deposit aspect I think it somewhat depends on what your income is. For example, it took me about 7-8 years to save the money I had for a deposit for the city I'm currently living in. But about 2/3 of that was saved in the last 2.5 years prior to me buying. The difference being the income that I was earning. I closed to doubled what I was earning prior (which was a crap amount) by a new job.
I have had some discussion about financial challenges now vs in the past with my parents (who are I think a few years older than the oldest baby boomers not sure what generation name was given to those born during the 2nd world war). From memory we decided that each generation has their own financial challenges. As an example it used to be that food was the majority of peoples household budgets rather than accomodation. I do think there is more disposible income now (or at least more flexibility with what you do with it). However if you are on a lower income then it is probably harder now than it used to be (because greater inequality and said disposible income making rents higher, and the fact that the public housing system has been seriously scaled back over the last 20 years or so).
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If I'm 'stashing cash at a rate of 80k+ per year, with a rent of 26k, is it more beneficial for me to buy a PPOR now and pay it down quickly or wait until I have the full amount and buy it outright? If there's benefit to carrying a mortgage balance, what's the optimum deposit for me to put down? 25%? 50%? Are mortgages under 50% of the home value even a thing?
I dunno, it just makes more sense to me to take 'living situation' year by year rather than locking myself into the one place. That's not even thinking about the opportunity cost of all that money tied up in one place. Also stamp duty seems ridiculous, tens of thousands of dollars for the privilege of making a transaction, I can't see myself ever wanting to pay that particular gouge.
no one has mentioned yet, you need to be a skilled property investor to buy a PPOR that goes up in value strongly in the long term. You need to know all about location, history, research, the council, construction, building alignment, town planning, noise, etc. all sorts of shit.
you don't need any intelligence or knowledge to buy a REIT or a shares index fund.
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If I'm 'stashing cash at a rate of 80k+ per year, with a rent of 26k, is it more beneficial for me to buy a PPOR now and pay it down quickly or wait until I have the full amount and buy it outright? If there's benefit to carrying a mortgage balance, what's the optimum deposit for me to put down? 25%? 50%? Are mortgages under 50% of the home value even a thing?
I dunno, it just makes more sense to me to take 'living situation' year by year rather than locking myself into the one place. That's not even thinking about the opportunity cost of all that money tied up in one place. Also stamp duty seems ridiculous, tens of thousands of dollars for the privilege of making a transaction, I can't see myself ever wanting to pay that particular gouge.
Because you pay an enormous amount to change your PPOR (sell the old and buy the new), it makes a lot of sense to STAY in your PPOR for many years. If your housing situation is flexible, rent.
The fees I am referring to include stamp duty (costs the buyer - there are a couple of other fees that are associated), real estate agents fees (which are expensive for the seller) and conveyancing (both). On a $300,000 PPOR stamp duty and associated costs can be up to $13,628, but the when I sold and bought I recall the auction fees being a lot more. So, you are losing 10% just by changing from one house to another - without including moving costs and mortgage fees.
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Hello my fellow Australians,
I've noticed a distinct difference in attitudes to property on these forums and other financial sites and blogs compared to Australian specific forums when it comes to property discussion.
I thought it would be good to have a discussion on property, both for a ppor and investing with other rational mustachians instead of the heated emotional debates which usually occur.
My situation is that I'm looking for an apartment as a PPOR ideally in the Melbourne CBD. Whenever I mention this to anybody, they are always quick to tell me what a bad idea that is. That has me even more interested, the more everybody thinks it's a bad idea, the cheaper it must be and thus a better idea. Conventional wisdom is that you should invest in houses with land in desirable suburbs but of course that's where the free markets come in and price things accordingly. People don't seem to understand this though.
In terms of investing, I'm quite happy to stick to shares. I know more about them and there's a lot more information and tools available to research. Just trying to do research on apartments in the Melbourne CBD atm and am struggling to find any useful information. I wish there was some sort of database where I could download a list of all apartment buildings in the Melb CBD and filter by size and have recordings of all past sales.
It's a lifestyle consumption decision though and the biggest expense so not one that I'm taking lightly. With all this talk about new developments coming up and the glut of apartments, I figure that the next few years will present a good opportunity to acquire an apartment. Just monitoring prices from what little information is available, it seems like the last few years the prices have been pretty stagnent after a surge from 2009-2010. I am hoping that with more supply coming online that prices will decline in nominal terms and give me a better opportunity.
Any advice on researching property, specifically apartments and insights into the Melbourne apartment market would be appreciated.
Feel free to share your own situation and views regarding property.
Hi there,
Long time MMM reader but only just found this post!
I currently live in Melbourne CBD (Docklands) and have been here for about 7 years, and have seen things around here change a lot.
We Own 2 properties here and a few in the Melbourne 'burbs. And aiming to retire MMM style within a few years in my mid 30s.
Despite media doom and gloom I read every week about Melbourne apartments, I personally feel that apartments (established ones anyway) currently offer great value for money.
Try looking at houses around inner Melbourne : Albert Park , South Yarra, Port Melbourne, etc. the areas everybody wants to live, and the prices are astronomical. Also look at Sydney apartments, $1m is buying something very normal.
Melbourne Apartments seem really cheap... You can buy great apartments with 2 bedrooms and parking starting for around $500k? And large ones for $700k+. You should be asking Why do people spend so much on a house to live far far away from jobs and everything else?
As someone who has travelled the world, I feel that Melbourne city is very underdeveloped. There is low rise and undeveloped sites everywhere, including in the middle of the city. We are not oversupplied.
Docklands itself has always had an "over supply" name to it. This is because when the suburb first started being developed about 2000, there was not much around the area and people did not want to live here compared to Southbank or other areas. The world has moved on however, the place is great, surrounding by everything you could ever need.
Whenever I have rented my apartment I have had no such issues and command a very decent rent with long term tenants and the prices have increased plenty!
What gives? I think people just have no idea what is truly going on, particularly the media!
Lastly in regards to future "over supply". Apartments themselves cost a fortune to build with the cost going up every year.
Think about the land, the infrastructure, the basements, the lifts.
If you purchase a $500k 1 bedroom off the plan, it probably Cost the developer $450k to build it for you! There is no great profit margin there. I feel that this will only get worse and the prices for new apartments will keep creeping up making the whole market increase.
Anyway I hope I give you some fresh thinking.
If you want to buy in the CBD then go for it.
Try to stick to established buildings where you can fix up or renovate to add a bit more value
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Hi there,
Long time MMM reader but only just found this post!
I currently live in Melbourne CBD (Docklands) and have been here for about 7 years, and have seen things around here change a lot.
We Own 2 properties here and a few in the Melbourne 'burbs. And aiming to retire MMM style within a few years in my mid 30s.
Despite media doom and gloom I read every week about Melbourne apartments, I personally feel that apartments (established ones anyway) currently offer great value for money.
Try looking at houses around inner Melbourne : Albert Park , South Yarra, Port Melbourne, etc. the areas everybody wants to live, and the prices are astronomical. Also look at Sydney apartments, $1m is buying something very normal.
Melbourne Apartments seem really cheap... You can buy great apartments with 2 bedrooms and parking starting for around $500k? And large ones for $700k+. You should be asking Why do people spend so much on a house to live far far away from jobs and everything else?
As someone who has travelled the world, I feel that Melbourne city is very underdeveloped. There is low rise and undeveloped sites everywhere, including in the middle of the city. We are not oversupplied.
Docklands itself has always had an "over supply" name to it. This is because when the suburb first started being developed about 2000, there was not much around the area and people did not want to live here compared to Southbank or other areas. The world has moved on however, the place is great, surrounding by everything you could ever need.
Whenever I have rented my apartment I have had no such issues and command a very decent rent with long term tenants and the prices have increased plenty!
What gives? I think people just have no idea what is truly going on, particularly the media!
Lastly in regards to future "over supply". Apartments themselves cost a fortune to build with the cost going up every year.
Think about the land, the infrastructure, the basements, the lifts.
If you purchase a $500k 1 bedroom off the plan, it probably Cost the developer $450k to build it for you! There is no great profit margin there. I feel that this will only get worse and the prices for new apartments will keep creeping up making the whole market increase.
Anyway I hope I give you some fresh thinking.
If you want to buy in the CBD then go for it.
Try to stick to established buildings where you can fix up or renovate to add a bit more value
Honestly I don't think $500K is cheap. That's what, seven times the median income? Isn't the generally accepted practice to spend no more than three times (or was it 5x) one's income on a place?
Then again, I think about whether a price is reasonable or not based on how many times my annual income it is.
I'm looking to buy (probably a two bedroom unit) in a couple of years, and looking at spending somewhere in the $300k range (maybe going up to $350k), once I get a 20% deposit together. If it means buying in a less fashionable suburb a little further out, then so be it. :)
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Hi there,
Long time MMM reader but only just found this post!
I currently live in Melbourne CBD (Docklands) and have been here for about 7 years, and have seen things around here change a lot.
We Own 2 properties here and a few in the Melbourne 'burbs. And aiming to retire MMM style within a few years in my mid 30s.
Despite media doom and gloom I read every week about Melbourne apartments, I personally feel that apartments (established ones anyway) currently offer great value for money.
Try looking at houses around inner Melbourne : Albert Park , South Yarra, Port Melbourne, etc. the areas everybody wants to live, and the prices are astronomical. Also look at Sydney apartments, $1m is buying something very normal.
Melbourne Apartments seem really cheap... You can buy great apartments with 2 bedrooms and parking starting for around $500k? And large ones for $700k+. You should be asking Why do people spend so much on a house to live far far away from jobs and everything else?
As someone who has travelled the world, I feel that Melbourne city is very underdeveloped. There is low rise and undeveloped sites everywhere, including in the middle of the city. We are not oversupplied.
Docklands itself has always had an "over supply" name to it. This is because when the suburb first started being developed about 2000, there was not much around the area and people did not want to live here compared to Southbank or other areas. The world has moved on however, the place is great, surrounding by everything you could ever need.
Whenever I have rented my apartment I have had no such issues and command a very decent rent with long term tenants and the prices have increased plenty!
What gives? I think people just have no idea what is truly going on, particularly the media!
Lastly in regards to future "over supply". Apartments themselves cost a fortune to build with the cost going up every year.
Think about the land, the infrastructure, the basements, the lifts.
If you purchase a $500k 1 bedroom off the plan, it probably Cost the developer $450k to build it for you! There is no great profit margin there. I feel that this will only get worse and the prices for new apartments will keep creeping up making the whole market increase.
Anyway I hope I give you some fresh thinking.
If you want to buy in the CBD then go for it.
Try to stick to established buildings where you can fix up or renovate to add a bit more value
Honestly I don't think $500K is cheap. That's what, seven times the median income? Isn't the generally accepted practice to spend no more than three times (or was it 5x) one's income on a place?
Then again, I think about whether a price is reasonable or not based on how many times my annual income it is.
I'm looking to buy (probably a two bedroom unit) in a couple of years, and looking at spending somewhere in the $300k range (maybe going up to $350k), once I get a 20% deposit together. If it means buying in a less fashionable suburb a little further out, then so be it. :)
I keep on flitting between 'yeah I might buy in a year or two' and 'nah fuck that, renting is better' all the time.
At this point, I might buy in 12-18 months. I figure if I've got 10-15% deposit (which shouldn't be too hard to get by then), I might still have to pay LMI, but it'll at least be pretty small (compared to the folks buying with 5%). I've identified that there are some areas around that look alright, aren't too expensive, and aren't too far from the city (I'd be OK with 15km) that might be worth looking into.
Is buying (as a PPOR) with under 20% deposit universally considered a really bad idea?
nath, I disagree on the idea of apartments costing $450K to build in order to sell for $500K. I see plenty of new apartment buildings going up around here and one bedders have often started under $300K. Although, I'm north of the river, prices are a little more sensible up this way :)
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We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
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Hi anatidaev,
I have been doing something similar to you - determining what higher interest rate I want to allow for to give myself adequate security of always being able to pay this future mortgage. In the end I've decided that my safety margin will be 7.5% interest rates AND for the loan at this rate to only be paid by either my partner's or my salary. That's a buffer I would be comfortable with because it would allow for one of us to lose a job or for me to go on maternity leave, at the same time as interest rates going back up to the long-term historical average. Alternatively it allows for the situation where we both are working but interest rates go higher than average (mortgage rates went up to around 10% in the not-so-distant 2008, so high rates are definitely something to consider!). If I wasn't allowing the worst case scenario of one partner not working, then I would probably pick an interest rate percentage of at least 10% when deciding a max borrowing amount.
The other thing I've been considering in terms of mortgage amount is calculating at what point it becomes better* cheaper to buy than rent. Typically this is after a certain high-enough deposit is saved the mortgage amount will be low enough that the interest paid on it is less than what would be paid in rent on a similar property. (*noting of course that even after this point you could still be better off investing the deposit and continuing to rent; I'm just looking at it from a non-investment perspective where you don't consider potential growth in house price versus growth in share market investments)
I would highly recommend saving at least a 20% deposit in order to avoid paying Lenders Mortgage Insurance, which is a waste of money. The Barefoot Investor explained it nicely in his newsletter yesterday: If you buy a $500,000 home with a 5 per cent deposit, you’ll be forced to pay LMI of $15,722.
It gets worse: because you’re borrowing for the policy, it’ll likely end up costing you $30,000.
It gets worser: if you switch banks to get a better home loan rate, Genworth will collect another $15,722. Remember, this insurance doesn’t protect you -- it protects the lender.
Regarding how much to offer, it depends on the property and suburb and seller.
For the property: how long has it been on the market? If it's already been a month or more, then the sellers will be more likely to accept a bigger discount on their asking price.
For the suburb: you can find a suburb's current average discount amount by looking at suburb profiles on http://www.propertyvalue.com.au . For Perth's more expensive suburbs ($1m+ median prices) the discount is currently about 10% (of how much properties are selling for under their listed prices). Cheaper suburbs ($350-600k medians) are averaging about 5% discounting.
For the seller: ask the real estate agent who's selling the place about the seller's situation. E.g. does the seller need to sell in a hurry? If yes, offer a bigger discount than what you otherwise would have!
My final comment since you're a fellow Perthite (woohoo) is that I wouldn't worry about buying in a hurry. Quite a few suburbs have ended up with prices exactly where they were ten years ago - Australia may have missed experiencing a house price crash so far but we could instead just stagnate for ages until we reach a healthier income vs house price ratio. There seems to be a general consensus in published articles (which I take with a grain of salt because they typically have a vested interest in promoting real estate purchases) that Perth property prices will stagnate another few years yet. My personal view is that they'll probably stagnate at least 5 years, just because our mining boom went for so long and so strongly and until so recently (2011/2012) that we have a long way to recover from that massive surge in our cost of living and house prices, now that the growth drivers have gone.
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Yeah at a 7.5% interest rate my income isn't high enough for much of a loan at all, and DH's probably is but it's not secure. I suspect we'll look around, run the numbers again and stick in the same place for another 6 months before we consider it again. Do you consider the whole mortgage or just the interest part?
At a nearly 20% deposit the LMI is only a couple of grand, so it may be worth the hit for the right property/right time, bur I think we'll only be in a better spot by waiting.
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Interesting post that I would follow.
I have personally started investing in RE here in OZ and am know really crunching numbers more than ever.
As a value investor, which we all are on the forum obviously, I have serious concerns when you see the current returns (rent) vs $ invested. And many other factors are pushing to think twice before the next move. And I include in my comment existing housing stock close to CBD: Income vs prices, LT gross yield, annual salary increases, unemployment, volume of new stock in the market (especially Melb and Bris), commodity pricing, current interest rate and dropping, dependence to china, housing debt, etc etc... All these can be a deadly combination.
Australia is actually doing not too bad vs many other countries in the same storm, especially to European standards. It doesn't say that it will in the future.
I'm ready financially to buy more properties but decided to move onto shares for international exposure and diversification.
Interesting on hearing other opinions.
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We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.
[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]
Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)
^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
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We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.
[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]
Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)
^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.
I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...
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We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.
[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]
Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)
^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.
I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...
If you have an offset account, same payment each month, but it means that more money is taken off the principle so your loan will end early. If the interest rates go up they increase your payments. If the rates go down they decrease your payments (hence how the reserve bank can use interest rates to control available consumer discretionary spending and therefore the economy... Tho of course, the rba model assumes people spend the extra money, rather than continuing with the higher payments, which isn't always true. If people won't spend lower interest rates won't stimulate the economy much. )
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We're looking at buying at the moment, and the low interest rates are a big factor. Until now, I had been assuming an 8% interest rate because it was conservative and decided we didn't have enough money to buy more than a slice of land to peg a tent. We've been DINKS for nearly a year now and with our available cash above $100k, we're thinking of buying in the $450k - $600k range, which should give us a 3 by 1 house or unit in the not-too-far-out suburbs. Or we move somewhere cheaper and rent, since rent has been dropping here too. How much contingency should I build into my calcs? We should manage a deposit >10% even with stamp duty by my calculations. Does anyone have advice for how we work out how much to offer the seller? Obviously we will look around to see the general market value, but how much below asking price is reasonable? I see a mix of "from $XXXX", a given range or just a number...
Rates are 4%, make sure you can still afford your payments at 8% and you're gravy - if they start heading north, you'd be able to fix your rate for 3 years well before this point (they won't jump from 4 to 8 overnight. At the end of the three year period, you'd hopefully have paid off enough (especially if you start making payments based on 8% from day one) that you could refi if needed, to keep your payments reasonable, even if the rates were >8% at that time.
[My take is given there is almost no gap between fixed and variable rates, the market assumes a stable rate environment. If the fixed rates cost a lot more than the variables, everyone assumes rates are heading north. If fixed costs less than variable, rates are likely to fall further.... the current "gap" is quite balanced - a variable loan will always be cheaper for a bank to provide as it involves less risk to the bank than a fixed one, so will always cost a little less if all things are equal, so a small gap like this says "stable rate environment." ]
Current discounting for Perth metro is about 7%, but you can get area specific discounting off RP data (gap between selling price and asking price.) A discount of x% per RP data could be a good starting point for an offer, unless
1) house has already been discounted (sellers more likely to hold out for new asking price)
2) loads of people at home open (possible bargain, market will likely bid up to market price) or desirable "rare" property (e.g. 4 bedder in an area with lots of 3-bedders, but good schools, making 4-bedders very popular) -if you need to 4 bedder, you'll probably have little luck discounting it, as others will be in the same position as you.
3) if 7% would push you through a "floor", round up - eg. asking price $530 less 7% = 492.9, I'd probably offer $500 or something in this situation. (A seller who has a number starting with a "5" in their head, may not be willing to accept a number with a 4.)
^^^ I don't own a house yet, currently shopping for one, but I have a business degree and have read lots of books on the subject. YMMV.
Oh, that information is very helpful.
I have another question - how is the required mortgage payment calculated each period? I know how it's calculated to begin with, interest + principle, but after that, with a variable interest rate, and a offset account or similar, the amount of interest you pay each period changes, yes? So do they have a calculated amount of principal to be paid off each period that is set in stone, and then the variable changes on top of that and means your mortgage payment changes? I think this question is a little confused because I'm a bit confused...
If you have an offset account, same payment each month, but it means that more money is taken off the principle so your loan will end early. If the interest rates go up they increase your payments. If the rates go down they decrease your payments (hence how the reserve bank can use interest rates to control available consumer discretionary spending and therefore the economy... Tho of course, the rba model assumes people spend the extra money, rather than continuing with the higher payments, which isn't always true. If people won't spend lower interest rates won't stimulate the economy much. )
Ok awesome, that makes more sense now you've confirmed how it works.
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If anyone wants to reply to my touchy feely post about some properties I am considering (in a sentence: I'm not sure if I am adult enough to "house") see below:
http://forum.mrmoneymustache.com/real-estate-and-landlording/house-vs-townhouse-%28australia%29/
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Interesting post that I would follow.
I have personally started investing in RE here in OZ and am know really crunching numbers more than ever.
As a value investor, which we all are on the forum obviously, I have serious concerns when you see the current returns (rent) vs $ invested. And many other factors are pushing to think twice before the next move. And I include in my comment existing housing stock close to CBD: Income vs prices, LT gross yield, annual salary increases, unemployment, volume of new stock in the market (especially Melb and Bris), commodity pricing, current interest rate and dropping, dependence to china, housing debt, etc etc... All these can be a deadly combination.
Australia is actually doing not too bad vs many other countries in the same storm, especially to European standards. It doesn't say that it will in the future.
I'm ready financially to buy more properties but decided to move onto shares for international exposure and diversification.
Interesting on hearing other opinions.
Am I the only one to believe that buying now seems to be insane considering the returns?
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Am I the only one to believe that buying now seems to be insane considering the returns?
No.
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Am I the only one to believe that buying now seems to be insane considering the returns?
No.
I'm struggling to find formulas around expectancy of returns. At this stage, I only make assumptions with what I see:
People I know entering the market "not to miss"
People having no problem taking 30 years loans 100% variable because "I have an offset account", and historic "low interest rates"
Crazy valuations made (starting with my PPOR) with no real tangible comparison
But that s only my findings, I can't put numbers on it and until I do, I can't seem to find what to do.
Same with shares, was ready to start investing in this asset class, but now considering a lot less of my portfolio in equities. I have almost all already in Super, which seems crazy, really.
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I think it all depends on what you buy - i.e. there are good real estate buys in any market, as there are bad.
Our 3 properties currently show between $7-10k cash profit each per annum - not including a couple thousand extra each tax refunds due to depreciation (won't be applicable after we FIRE).
Of course these returns could drop fast if interest rates went through the roof, but the rents would likely not drop more than 10-15% even in a severe situation.
All were purchased in the last 3 years, slightly below market value due to patience and good negotiation, and all are in inner-south Melbourne in an area with some of the lowest vacancy rates in Victoria.
Some tricks that have worked for us:
- be patient and wait until you find that property that the vendor wants to sell, but others have not paid enough attention to
- fully-furnished - this has increased our returns significantly and also differentiates the properties from 95% of the others on the rental market (you're talking less than $5k per apartment at IKEA to fit them out to a decent level)
- self-manage (if you have the ability) - this is not sustainable long-term but if you can manage this it's beneficial
- seek properties in the mid-range of price values, not the low end - having slightly higher-class tenants and higher rents means you can sign them up for 12 months leases, take a large bond, and never hear from them again until they leave
- when advertising for new tenants give yourself as much times as possible - you only need the 1 or 2 parties that will pay what you want and sign a 12-month lease to get the strong returns, even if most others who come through think it's overpriced
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I think it all depends on what you buy - i.e. there are good real estate buys in any market, as there are bad.
If one is looking for a PPOR (primary place of residence aka family house), Australian market is ridiculous. We are looking to buy a house within 30 minutes commute (train) from Melbourne CBD. Note we are looking for a detached house (not a townhouse, apartment, villa etc). The houses that are selling for $1.2M + $65K stamp duty (+ $4500 per year in rates and building insurance) are renting for ... $600 per week. That's about $2% annual rental yield not even considering any maintenance.
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It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.
The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...
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It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.
The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...
I agree. I don't see why this time it's different.
Thanks for the graph. Only goes through 09, I'm curious about what the last 5 years looked like.
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It seems like Australian property investment stopped being about yields and started being about speculation of capital gains around the year 2000, going by the attached graph which shows that on average rental properties are loss-making from an income perspective.
The problem with having the investment purely being a speculation on capital gains is that some time or later you're going to get a significant market downturn or stagnation, and who would want to be making an income loss every year while their asset also drops in price (or doesn't grow, which is still a drop after inflation)? Cue an increase in sales as investors decide to get out. If it was expected to be a short downturn I could see investors deciding to hold on to their properties for the next market upswing and cop the yearly losses on the chin, but we've just had the mother of all property booms that lasted much longer (and went stronger) than the usual market upswing and I suspect the downswing will similarly be lengthy...
I've been investing in property from an early age, many years before that graph starts. Each time I've bought, the rental yield has been roughly the same and stays about the same over the course of the investment. I use 4% in all of my calculations. And trust me, I do plenty of calculations as property is an investment, a business to me. Over the years each time I've bought there's been some nutter saying the property market is overvalued and due a crash. My favourite: http://www.abc.net.au/news/2010-02-16/economist-keen-to-walk-canberra-kosciuszko/333138
But steadily we've built up a nice portfolio, paying decent deposits for each, collecting some cash flow but admittedly not a lot as we've reinvested. Each year, the rents go up, the property on average gains some (highly varied on an individual year and property basis) and the loan reduces slightly and we save bucket loads of tax. Over the long term this is a great situation. However the kicker is the capital gains which have been stellar - if we sold them all now, paid back the loans, paid the capital gains tax we would be well in front of if we had just put the cash into ETF's unleveraged. And it's a far less volatile ride, but does require a bit of work along the wat.
A couple of caveats:
1. Do I think all property is a good investment? Absolutely not! I wouldn't buy an apartment at the best if times, but in the not too distant future the Perth apartment scene is going to have some nasty, nasty consequences for investors. And I wouldn't buy in Sydney at the moment either - won't see good capital growth there until the next cycle - Brisbane is our last investment location.
2. Do I think you should have just property in your retirement portfolio? Nope, definitely not. You can't sell a bedroom if you need cash in a hurry, and even if you sell, it's not a quick process. We also have equities and superannuation (401k ish, but rules change regularly and you can't do the sneaky roll over method you can in the 401k).
I think well thought out property investments are a good part of a wealth building plan. But that's just my opinion, albeit based on decades of experience.
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Another doom and gloom article to be taken with a grain of salt.
http://www.smh.com.au/business/the-economy/the-charts-that-suggest-the-housing-bubble-is-out-of-control-20160224-gn2b46.html#comments
With these type of articles, they raise some interesting points.
Then you have the deniers who seem to think astronomical growth is a given regardless of the consequences, socially and financially.
Cheap money is money is not helping the situation.
Then you have government interference in the market constantly priming the masses.
How long can it go on.
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40% of loans are interest only?
There's gonna be some pain coming. =/
Couldn't believe how far Australia's household debt as a percent of GDP was above the 75th percentile of the world average.
Very interesting article, thanks for the link.
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It's hilarious how after every yearly 'shocking wakeup call' is declared, the next week of media is devoted to article after article gently lulling the public back into blissful denial.
Here's Why Australia Is Different.
Here's Some Other Charts That Aren't So Worrying.
Here's Some New Record Sales Prices, And Look, Auction Clearance Rates Are Rising!
The only thing that I see making this year any different is that housing affordability may become an election issue. The "Aussie Mum and Dad Investors" are greying and I think the interests of the next generation are become more relevant to political discussions.
Step one is the loooong overdue negative gearing limitations proposed by Labor. Thank fucking god that Bob Snorten is finally making use of all the oxygen he's consuming.
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It has been proved that it's not "mum and dad" investors by the recent statistics. It's all the top 10%. And that's why it is such a problem for the Libs.
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Yeah I think that's pretty obvious to anyone who bothers to look into the subject. However the media portrayal is, pathetically, the most important thing that matters. I think (or hope) that as a narrative, the 'mum and dad' bull is starting to falter for various reasons, chiefly an aging population that actually cares more about their children owning homes.
Could all just be wishful thinking on my part.
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I will be interested to see if I've got myself caught up in buying a house in 12 months at what the market has actually done then. Australia pretty clearly is not in a good position, but we seem to be floating along unaware of it to some degree...
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I'm just sitting back, waiting to see what happens...
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40% of loans are interest only?
I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?
I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.
edit: so many spelling and typographical errors, my apologies.
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Interest only often indicates prices are too high because people are unable to afford full payments, they can only afford interest only payments.
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40% of loans are interest only?
I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?
I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.
edit: so many spelling and typographical errors, my apologies.
My understanding is that interest only is a good idea if it is for an investment property in Australia, because of the way our taxation system works. For PPORs the opposite is the case, especially if you put extra into an offset account.
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40% of loans are interest only?
I have no actual mortgage experience as I've never owned a home but isn't an interest only loan the best option if you can get it with a 100% offset account? Homeloans typically have low interest rates compared to other lending options and under the current tax system it can be advantageous to keep options open by not paying off the principle directly. Even if you never intend to negatively gear the property or use it as an investment, provided the offset account is utilised properly, why not keep the option open?
I've been putting off buying a home (to live in) for years because prices are difficult to justify and the old "get in at the very bottom and use it as a stepping stone" (i.e. piggyback off capital growth) seems to be becoming a higher and higher risk strategy. The way I look at it now, unless I'm buying a home that I intend to stay in for the foreseeable future, I'm not interested in buying it.
edit: so many spelling and typographical errors, my apologies.
My understanding is that interest only is a good idea if it is for an investment property in Australia, because of the way our taxation system works. For PPORs the opposite is the case, especially if you put extra into an offset account.
There is no difference in term duration or interest paid on a loan when you compare paying off a principle and interest loan vs paying an interest only loan + amount equivalent to the principle payment into an offset account though? If you decide to convert your PPOR into an investment, having set the loan up as interest only with an offset from the start offers tax advantages so why not, even just to keep the option open?
I suppose my I'm arguing that not everyone who takes out an interest only loan is over stretching themselves. It could also be a sign that lots of accountants are giving lots of people tax minimisation advice.
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Interesting article this morning on ABC: http://www.abc.net.au/news/2016-02-29/verrender-housing-bubble-is-building/7206678
What does everyone think?
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Bubble will only burst if there is mass unemployment.
Better than outside chance of it happening with the idiots currently in charge. How we ended up in a situation where the government of Australia does not have a tax policy is beyond me.
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There was some article the other day about a lady complaining that the bank had lent her millions of dollars and she invested in mining towns and suddenly she had way too much debt and declaring bankruptcy. From my point of view if you are purchasing several properties and they are all in mining towns (especially in the same town) then you are silly... Mind you the banks are silly for letting them borrow that much without location diversification...
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There was some article the other day about a lady complaining that the bank had lent her millions of dollars and she invested in mining towns and suddenly she had way too much debt and declaring bankruptcy. From my point of view if you are purchasing several properties and they are all in mining towns (especially in the same town) then you are silly... Mind you the banks are silly for letting them borrow that much without location diversification...
Kate Moloney... she's writing a book about it now. Have no idea how she managed to gear up so much so quickly.
Head over to the PropertyChat forum... quite a bit of discussion about her situation.
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I often wonder what happened to the 'millionaire' from Newman in WA who was on big brother a number of years back.
It very much sounded as though he had bought up highly leveraged properties in mining towns at the start of the boom, calming to be a multimillionaire at 25. I often wonder if he exited the market ahead or not. If he is still holding the properties he'd be in a wold of pain right now.
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Just as a quick thought, what's the maximum LVR for an investor loan?
I'm happy to rent my own place of residence for now (flexibility), but I've considered the idea of buying elsewhere and renting it out.
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Banks will give you 105% no LMI if you structure it right, even with no crossing of the loans.
80% against the new property, and 25% against equity in the existing one (the extra 5% to cover stamp duty, legals, fees and B&P inspection).
I've done this for my 2nd and 3rd properties.
If you don't already have one, there are some banks that will do 85% no LMI, 97% is usually the highest (because LMI gets capitalised to the loan). Cost becomes prohibitive at that range.
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Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!
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Banks will give you 105% no LMI if you structure it right, even with no crossing of the loans.
80% against the new property, and 25% against equity in the existing one (the extra 5% to cover stamp duty, legals, fees and B&P inspection).
I've done this for my 2nd and 3rd properties.
If you don't already have one, there are some banks that will do 85% no LMI, 97% is usually the highest (because LMI gets capitalised to the loan). Cost becomes prohibitive at that range.
Thanks for that. Yeah I wouldn't want to borrow 105%, but maybe around 90%, I noticed LMI was a lot lower at 90% than at 95%. Depends on the decision I make closer to the time. At this stage it'd be either buying a middle-suburbs unit here in Melbourne and living in it, or buying a unit/house in a growing large regional area and renting it out.
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this may not be the right place for this question - but i have really been pondering how in the australian market people make the trade off between being close to where they need to be, and not spending too much on property...
we live in the outer eastern suburbs of melbourne, close to a train line and own a property that is slightly above the median price for the suburb we are in (we built about 5 years ago - energy efficient, and did a heap of things to the house for us as we planned to stay a long time). we ended up choosing a school for our kids that is a 20-25 minute drive from home. we have been thinking about whether to move close to the school (walking/riding distance) which would still be close to a train line to the city. the issue is that the closer we get to the city the more expensive things get. so even downsizing we would be looking at spending basically what our current place would get, plus stamp duty etc etc. we would be able to go to one car, which would save us money, but over 10 years i think we would be 30-40k worse off because go the stamp duty, but we would save quite a bit of travel. (it seems like we would have to travel back in time to buy something less expensive than our place, so our plan is to spend about what we would get if we do it)
decision #2 - we could pay off the loan in 2 years, even with moving, if we diverted all our savings/investing and current non super based investments into the loan, but we would then be starting off from 0, outside super when the loan was done. i have been going backwards and forwards on this decision for months. we would continue to max out the pretax super contribution for the one of us currently working, then would focus our 50-60% saving rate on investing, which would increase once two of us are working again.
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^^ that was supposed to be worded in a way inviting comment on the sensibleness/mustachianismness of the two decisions
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green trees. It's a personal decision. You've given 2 alternatives, but survey 100 people here and they'll give you 100 alternatives.
I'm happy with a long commute and a paid off mortgage. Many are not and will happily eat the increased housing costs.
Everyone is different, and not all will follow the maths when it comes to choosing where to live.
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Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!
I'm getting a little shy about it, so haven't said too much about it. Now that the numbers are getting bigger it's a bit of a worry putting too much info out there.
Leaning towards buying 1 more (a PPOR house). Requires a partner and the fortitude to take out a non-deductible PPOR loan which I'm not inclined to do right now.
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^^ that was supposed to be worded in a way inviting comment on the sensibleness/mustachianismness of the two decisions
re #1. Agree with Marty998, its a personal decision as to what you trade off. But definitely do the math as accurately as you can i.e. moving costs vs commuting costs vs saving in mortgage interest vs how long you are staying vs how long to payoff any downsides. It will be different for any scenario….I worked out mine and even though I live in a big clown house (oops…doh...bugger once I read MMM), its not yet worth it in $ terms to move.
Once you know the costs, you can add in personal factors like what you'd rather do. Usually there's a trade-off.
re #2. Many here favour pay off the house first (see the Aussie investing thread). I favour 50% extra repayment towards your mortgage principle and 50% investing ( both in and/or out of super - again this is another question to decide which is also individual). But again - do you want 4-5% risk free ( pay off the mortgage) or do you think you can do better investing albeit with some risk?
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Interesting question green trees and I definitely agree with Marty and Happy, the decision will be different for everyone.
We are about to move to be closer to Poopsie's children. As they're already established in a school and won't be living with us full time (50/50), then we are forced to live in a particular area so that they have access to the school bus (our jobs don't allow us to do drop off and pick up).
It's a good area and compared to where we currently live in Newcastle, very affordable and we likely will buy a house and pay it off in 6-8 years.
But... it's a 25 minute drive for us to work. We do work at the same place so we commute together, but it's still a distance that adds up over time.
For us, it's better to have the paid off house and the kids on the bus than it is to live closer to work. Everyone will make the decision based on what is important to them. Good luck, I'd love to hear what you ultimately decide to do!
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Greentrees, you don't say whether the train line for the school is the same as the one you are on. When I went to school, I rode a bike there, but lots of the kids came by bus or train. I was at a reunion some years ago, and someone mentioned that going to and from school each day with the same kids meant that they talked each journey, and as a result became friends. I certainly noticed that I didn't have that much to do with my friends apart from when we were at school because I rode, and because my parents worked (so no-one came around after school...). As a result, I would be happy for the kids to go by public transport to school if it was easy.
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Marty, I knew you'd bought a second property but I didn't know you were up to your third, I must have missed that. Well done!
I'm getting a little shy about it, so haven't said too much about it. Now that the numbers are getting bigger it's a bit of a worry putting too much info out there.
Leaning towards buying 1 more (a PPOR house). Requires a partner and the fortitude to take out a non-deductible PPOR loan which I'm not inclined to do right now.
MArty, is there a chance on earth you tell me (PM) or us which bank or broker you use?
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I don't use a broker, but I get a staff interest rate discount at a major bank.
Interestingly the IR discount would probably be greater if I went through a broker, but the staff benefit includes no wealth package fee (about $400 per year?)
So it's not necessarily comparable if I say which Bank... you won't get exactly the same options.
My loans begin reverting to P&I in 2019 (about $470k) and 2021 (about $580k). There may be an option to extend the 2019 loans for a little bit longer however with Basel IV regulations due to take effect in 2018, chances are the Banks will tighten their lending criteria further and IO options will be heavily restricted.
At the moment I have $250k in offset, and so net property loans of $800k... buying up shares at present as much as I can in the meantime before any repayment decisions need to be made. It would be good to still have the cash of $250k + shares of $250k by 2019 so that I have further options in terms of how I would go about repaying the loans when the time comes.
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OK, that make sense as you work in the industry. Wealth package is $395 indeed.
2 comments you made really interested me:
- What are these Basel 4 regulations? Never heard of them? Is that mean that all loans will revert back to P&I?
- Why are you placing your extra in shares instead of offset? I'm doing the exact opposite as I have started to repay the IP loan for two reasons: I have not planned to buy a new one (I believe it is a bit risky with the current level of speculation property) and I want to stop losing $ each year as it s negatively geared
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Basel Accords are the regulations made on the global financial industry by the central banks. Basel 4 were the set designed to avoid a future global financial crisis. They kick in over a period of years. Banks are supposed to have more money per loan than they used to have...
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Well, I guess it might have the opposite effect if repayments actually are affected.
Not that I will as I hope to have repaid entirely or close to the IP by then but for those who are heavily in debt...
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update: we have decided to stay where we are. there were just too many compromises if we moved. to compensate we are going to change to cheaper and more fuel efficient cars.
We have also decided to pay down the loan ASAP, which we should be able to in a maximum of 2 years, and then concentrate again on investing. I think financially it works out slightly worse, but once that loan is gone we have a lot more flexibility in terms of job decisions etc, and will end up in the same place not too much later, and since freedom is the goal that gives us some other freedom in the meantime.
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Good to hear you've made your decision. We are also currently looking at more fuel efficient cars. What are you leaning towards?
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I<3 my 2009 Prius. 5.0l/100km
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I<3 my 2009 Prius. 5.0l/100km
That's the same as I get in my Fiat 500! Only without the expensive batteries...
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Yes a number of smaller cars will give around that e.g. Yaris. The batteries came with the car and didn't cost extra!
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We settled on a used 2012 VW Polo for $10 500. 5.5l/100km. We pick it up today. Bought cash of course... now we just have to sell the gas guzzler we are replacing. Anyone want a 2010 Toyota Rav-4?
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I've been keeping an eye on buying a place (this time to live in, cbf with the investment property thing at this point in time). There's two bedroom units around in alright areas that are in a price range I consider comfortably affordable.
All good, except for the deposit. My original plan was to save up 10%, of which I'm currently about $10,000 short. Then again, part of me wonders whether I should buy sooner using what I have now (and pay a bit extra LMI) or just wait until I've got the extra.
Especially with the anticipated interest rate cuts likely to give the housing market yet another sugar hit.
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My car is a subaru, which i love, but its used for school runs, so its drinking a lot. I would like to replace it with a prius at around the 10K price range - they seem to have a reasonable amount of space in them for their fuel usage. it seems like all other fuel efficient cars are really small. I am happy to have a smaller car than we currently have and use a roof box for trips, but there needs to be enough room for the day to day stuff. I am trying to research whether the options MMM talks about for cheaper servicing and battery replacement is an option in Australia. Hubby has heard many nasty stories about what happens to them in crashes, which sound crazy to me, so I also need to do some research into that (always so much research to do, and so little time).
Hubby's station run car is going to die soon (needs major repairs that are not worth doing considering the servicing and fuel costs of it and how little it's worth now) so I am leaning towards a yaris or something. I know he would love a fiat 500 but i am yet to see how cheaply we can get an older one and what the servicing costs are
@happy - have u any feedback on the cheap serving and battery replacement options here?
@primm - do you have an feedback on fiat 500 servicing costs?
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or, the subaru could become my husbands car, so it only does really short trips, but we still have it for bigger trips where we have heaps of gear or want to borrow the parents' caravan, and i get something like a yaris for the school run...
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I ve seen the Honda Jazz here, which I believe is also one of the cheapest car to run that I have seen on the list on the US?
Redbook gives you an idea of consumption etc...
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My car is a subaru, which i love, but its used for school runs, so its drinking a lot. I would like to replace it with a prius at around the 10K price range - they seem to have a reasonable amount of space in them for their fuel usage. it seems like all other fuel efficient cars are really small. I am happy to have a smaller car than we currently have and use a roof box for trips, but there needs to be enough room for the day to day stuff. I am trying to research whether the options MMM talks about for cheaper servicing and battery replacement is an option in Australia. Hubby has heard many nasty stories about what happens to them in crashes, which sound crazy to me, so I also need to do some research into that (always so much research to do, and so little time).
Hubby's station run car is going to die soon (needs major repairs that are not worth doing considering the servicing and fuel costs of it and how little it's worth now) so I am leaning towards a yaris or something. I know he would love a fiat 500 but i am yet to see how cheaply we can get an older one and what the servicing costs are
@happy - have u any feedback on the cheap serving and battery replacement options here?
@primm - do you have an feedback on fiat 500 servicing costs?
Re: Servicing a hybrid. I'm researching this currently since I'm not happy with my toyota dealership servicing. From my reading, many jobs on a hybrid are exactly the same as a petrol engine and can be done by any good mechanic. Anything to do the the electrical engine/traction battery (200V) needs some extra training/certification and apparently some specialised tools. So you need to find a mechanic who has hybrid skills. Haven't found anyone in my regional centre yet, but quite possibly more likely if you are in capital city. If you were doing home servicing you need to know enough to stay away from that 200V traction battery! I have managed to fill up the oil my self without it being a shocking experience, so to speak, but not the vehicle to learn to DIY repairs.
Battery replacement is Toyota genuine parts only at this point. The replacement battery includes its housing or something like that, and its not cheap. Haven't got a price on one. Mine has done 140k km with no signs of battery fade at all. There is a big uptake of Priuii by taxi's now, which serves to reinforce in my mind longevity/economy. I think the fear of replacing the battery is overstated in the general public...and that equates to cheaper prices secondhand - good if you want to buy a secondhand one. The petrol engine doesn't run continuously, and I wonder if that actually means the engine lasts longer too...since for 100km of travel the engine won't be running all 100km. No data on that , just wondering.
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haha we need a separate Vehicles in Australia thread. I guess everyone is finally exhausted over Australian property.
I was hideously disappointed that Labor's negative gearing restrictions won't get the chance to see the light of day. All discussion on the policy has disappeared from the media and the status quo has returned. Couple that with more dropping rates and it's now just farcical. The only chance I will have to ever own property in the Sydney basin now is inheritance.
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haha we need a separate Vehicles in Australia thread. I guess everyone is finally exhausted over Australian property.
I was hideously disappointed that Labor's negative gearing restrictions won't get the chance to see the light of day. All discussion on the policy has disappeared from the media and the status quo has returned. Couple that with more dropping rates and it's now just farcical. The only chance I will have to ever own property in the Sydney basin now is inheritance.
Dropping rates will actually mean there is less of a negative gear (all things being equal) so the tax office will benefit slightly.
All else is not equal though because as you rightly imply, people can take on bigger loans now!
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haha we need a separate Vehicles in Australia thread. I guess everyone is finally exhausted over Australian property.
I was hideously disappointed that Labor's negative gearing restrictions won't get the chance to see the light of day. All discussion on the policy has disappeared from the media and the status quo has returned. Couple that with more dropping rates and it's now just farcical. The only chance I will have to ever own property in the Sydney basin now is inheritance.
Yeah, I've decided to gear my focus of the next year or so into saving a deposit to get a PPOR in Inner Adelaide. Just something cheap, an old solid unit like what I'm renting right now. I don't need much else. Otherwise I reckon I'd never be able to FIRE or own a place within cooee of the CBD and work (I realise the concept of FIRE and work together in the same sentence is strange...)
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haha we need a separate Vehicles in Australia thread. I guess everyone is finally exhausted over Australian property.
Yes to vehicles thread...Nope to the property question.
I was going to post a question but got distracted by the question for me re Priui. Then internet dropped out.
Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns. Issues seem to be poor capital gain, but I am interested in yield. Other issues in the rural setting might be vacancies, and can you get a sharp property manager in the country ( since probably too far away to do it yourself). Anyone got any experience they care to share?
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Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns. Issues seem to be poor capital gain, but I am interested in yield. Other issues in the rural setting might be vacancies, and can you get a sharp property manager in the country ( since probably too far away to do it yourself). Anyone got any experience they care to share?
This article (posted just two months ago) is relevant:
http://www.adelaidenow.com.au/realestate/buying/property-investors-should-not-be-so-negative-but-look-to-positively-geared-property-instead/news-story/7e72df7dace59c820360f44828c02c98?nk=f42688e8fb61b3fa33ca0d48dad22389-1470311131 (http://www.adelaidenow.com.au/realestate/buying/property-investors-should-not-be-so-negative-but-look-to-positively-geared-property-instead/news-story/7e72df7dace59c820360f44828c02c98?nk=f42688e8fb61b3fa33ca0d48dad22389-1470311131)
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Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns.
I get regular emails from a buyers agent. In the past they seem to have found positively geared situations for their clients based on buying a house and large yard in say Western Sydney and then putting a granny flat up cheaply which almost doubles the rent. However, I've heard that there's now a glut of granny flats out west so vacancies would be a problem. I think recently they've been spruiking dual occupancy new builds in Queensland. I think there may be positively geared property in Queensland in general but you'd need help to find good stuff not being from there. Also, I'm thinking ahead to what will happen to returns once interest rates go back up to long term averages (7%?).
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Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns. Issues seem to be poor capital gain, but I am interested in yield. Other issues in the rural setting might be vacancies, and can you get a sharp property manager in the country ( since probably too far away to do it yourself). Anyone got any experience they care to share?
This article (posted just two months ago) is relevant:
http://www.adelaidenow.com.au/realestate/buying/property-investors-should-not-be-so-negative-but-look-to-positively-geared-property-instead/news-story/7e72df7dace59c820360f44828c02c98?nk=f42688e8fb61b3fa33ca0d48dad22389-1470311131 (http://www.adelaidenow.com.au/realestate/buying/property-investors-should-not-be-so-negative-but-look-to-positively-geared-property-instead/news-story/7e72df7dace59c820360f44828c02c98?nk=f42688e8fb61b3fa33ca0d48dad22389-1470311131)
Thanks Rebs, it aligns nicely with my philosophy.
Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns.
I get regular emails from a buyers agent. In the past they seem to have found positively geared situations for their clients based on buying a house and large yard in say Western Sydney and then putting a granny flat up cheaply which almost doubles the rent. However, I've heard that there's now a glut of granny flats out west so vacancies would be a problem. I think recently they've been spruiking dual occupancy new builds in Queensland. I think there may be positively geared property in Queensland in general but you'd need help to find good stuff not being from there. Also, I'm thinking ahead to what will happen to returns once interest rates go back up to long term averages (7%?).
Yes the granny flat concept is all there age in my area also - 2 yields from the one investment. But the cost to buy the property is still around $500k. by buying somewhere where the property costs half of that or less, it seems to me, not only can you positively gear, but if interest rate rise you are not looking at a rise on 500k or more, and if the property market tanks, lets say by 50%, you are losing (if you sell) 50 or 100k, not half a million.
My FIRE numbers look a whole lot better if I can create an additional income stream of around 5-10k a year. I could work a little in an alternative low stress job (not that keen), or create that with one or two positively geared rentals.
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My FIRE numbers look a whole lot better if I can create an additional income stream of around 5-10k a year. I could work a little in an alternative low stress job (not that keen), or create that with one or two positively geared rentals.
Can't you just take the money you'd invest in a property and put it to work in another investment that yields better?
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Is anyone doing positively geared IPs? You can occasionally find them if you look very hard - in rural towns.
I get regular emails from a buyers agent. In the past they seem to have found positively geared situations for their clients based on buying a house and large yard in say Western Sydney and then putting a granny flat up cheaply which almost doubles the rent. However, I've heard that there's now a glut of granny flats out west so vacancies would be a problem. I think recently they've been spruiking dual occupancy new builds in Queensland. I think there may be positively geared property in Queensland in general but you'd need help to find good stuff not being from there. Also, I'm thinking ahead to what will happen to returns once interest rates go back up to long term averages (7%?).
Granny flat strategy is tried and tested, until you run out of tenants that want to live in one. But I think it's a really good idea for young singles who can't afford to move out of home but want a little independence.
Regarding rates, there's a school of thought taking root that interest rates will be lower for longer.
You can bet as soon as everyone assumes so we'll start getting rampant inflation and rates will start going up up up.
My properties will be pretty awfully negatively geared at 7%, much more so than they are now at 4% (about $50 a week per property after depreciation and tax). To get there though will take 12 interest rate rises and at least 3 years (given part of my loans are fixed).
On the flip side if inflation goes up then rents could probably be adjusted up too which will offset the pain.
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My FIRE numbers look a whole lot better if I can create an additional income stream of around 5-10k a year. I could work a little in an alternative low stress job (not that keen), or create that with one or two positively geared rentals.
Can't you just take the money you'd invest in a property and put it to work in another investment that yields better?
This is why people buy for capital gain instead of yield (in Sydney anyway).... example (using my actual numbers)
I purchased a 2 bed, 1 bath apartment at the end of July 2014. Standard 3 story walk up, nothing special at all about it.
Purchase price: $450,000
Stamp duty taxes, legal costs and fees: $18,055
Total purchase price: $468,055
Funded by loans: $468,000
Funded by cash: $55 (hehehe)
FY 2015 (July 2014 to June 2015)
Rent income FY15 (Sep14-Jun15): $16,374
Interest expense: ($17,151)
Other expenses: ($6,288)
Cash loss: ($7,065)
Depn and Capital works deductions: ($5,521)
Net taxable loss ($12,586)
Tax benefit: $4,909
Net cash loss 2015: ($2,157)
FY 2016 (July 2015 to June 2016)
Rent income FY16 (Jul15-Jun16): $20,559
Interest expense: ($22,272)
Other expenses: ($5,896)
Cash loss: ($7,609)
Depn and Capital works deductions: ($4,573)
Net taxable loss ($12,183)
Tax benefit: $4,751
Net cash loss 2016: ($2,858)
Total cash losses over the 2 years: ($5,015)
Valuation at 30 June 2016: $575,000
Profit: (575-468-5) = $102,000
Return on equity: A Lot! ($55 remember :P)
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
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Granny flat strategy is tried and tested, until you run out of tenants that want to live in one. But I think it's a really good idea for young singles who can't afford to move out of home but want a little independence.
My neighbour just built a two storey granny flat with 2 small bedrooms but a parking space and a nice square of lawn and has successfully rented it at $825 incl. utilities. It's hardly meeting the aim of the affordable housing planning act but he sure is getting a fabulous return on a ~$150k build. Next door another one is going up with a LUG and 2 bedrooms, no yard though. In my area the only affordable rentals are apartments so a stand alone building, normally pet friendly, is quite appealing to the general market not just the singles.
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Interesting article from Michael Janda re property and interest rates: http://www.abc.net.au/news/2016-08-04/janda-big-banks-do-rba-a-favour,-even-if-it-doesn't-realise-it/7689246?section=analysis (http://www.abc.net.au/news/2016-08-04/janda-big-banks-do-rba-a-favour,-even-if-it-doesn't-realise-it/7689246?section=analysis)
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
Meanwhile in Australia we have plenty of companies yeilding 6%+ including franking. The latest company I bought has a gross yeild of over 14% and growing! Nobody cares though, all too busy leveraging up into negatively geared property and maybe a little bit of bank shares for 'diversification'.
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My properties will be pretty awfully negatively geared at 7%, much more so than they are now at 4% (about $50 a week per property after depreciation and tax). To get there though will take 12 interest rate rises and at least 3 years (given part of my loans are fixed).
It usually takes a lot less time than that for the interest rate to go up that much, if you look at the figures.
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I have an NRAS property that was positive cashflow due to NRAS bonus. I was hoping that rents would increase to at least cover costs by the time the 10-year NRAS bonus runs out. However, they've just substantially dropped, so it looks like no.
It's also deep into capital loss territory at the moment. Should've done more research, the developers have driven that area far into oversupply.
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My FIRE numbers look a whole lot better if I can create an additional income stream of around 5-10k a year. I could work a little in an alternative low stress job (not that keen), or create that with one or two positively geared rentals.
Can't you just take the money you'd invest in a property and put it to work in another investment that yields better?
Well my plan would be to finance on an interest only loan, so to do an alternative investment, I'd need to margin loan on shares. Too scary for me. Plus I firmly believe its not the right time to buy majorly into stocks. It might be an Aussie thing but am much happier taking finance on a positively geared property. There's a few places that will still positively gear, but as I say not so good on capital gain, and not liquid at all, it could take a long time to sell if you ever wanted to.
It seems to me the negatively geared plan worked really well in the 70s, early 80s when inflation and capital gain were high- so were interest rates- but all you had to to was buy and hold and your property would increase in value, and the loan would decrease in value - by about 10% PA when inflation was that high. Any loss you could claim as a tax deduction. I think Aussies got sold on this formula...it doesn't work near so well now. I want to retire soon, so neg gearing is not a good strategy for me , even if I believed in it.
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
Err yes, looking for positive cash flow real estate is one thing. Finding one that you can actually be able to live off is the unicorn we search for here :)
I don't see what I've done as speculating or gambling... with such a high population growth and a market that places a very high premium on home ownership you can pretty much assume long term growth of 3-4% on average over a cycle.
I am fully aware I will likely have 3-4 years from now of flat price growth. The cost of holding for the next few years is less than $10k, which will more than be compensated for when the next upswing of the cycle comes around.
The cost of exiting, paying capital gains tax, and then paying 4% stamp duty re-entering the market is the bigger problem, which is why you only go into property for very short term reno and flip or very long term holds (10-20 years). Those that go in and out in 3-5 years are the ones who don't do very well at all.
All IMHO. Your experiences may be different.
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Hi
My exit plan atm is to pass(sell?) my properties to my kids...i bought years ago with that vague notion in mind that i am locking in prices for them....hence a long investing horizon in a quirky sort of way...
and yes, they are all positively geared...my worst one was neutrally geared at the start and then rents started to rise...(and yes positively geared at 100% loan)
I do not like negative gear ... it's like hoping for a bigger fool...
There is a disconnect between demand and supply (at least in Sydney atm)...but be patient...those off-the-plan will be in trouble soon ..
I see no value in the market and so spend my time throwing excess monies against my loans...which then leads to more positive gearing and then more tax !
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Interesting article from Michael Janda re property and interest rates: http://www.abc.net.au/news/2016-08-04/janda-big-banks-do-rba-a-favour,-even-if-it-doesn't-realise-it/7689246?section=analysis (http://www.abc.net.au/news/2016-08-04/janda-big-banks-do-rba-a-favour,-even-if-it-doesn't-realise-it/7689246?section=analysis)
Interesting read
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
Err yes, looking for positive cash flow real estate is one thing. Finding one that you can actually be able to live off is the unicorn we search for here :)
I don't see what I've done as speculating or gambling... with such a high population growth and a market that places a very high premium on home ownership you can pretty much assume long term growth of 3-4% on average over a cycle.
I am fully aware I will likely have 3-4 years from now of flat price growth. The cost of holding for the next few years is less than $10k, which will more than be compensated for when the next upswing of the cycle comes around.
The cost of exiting, paying capital gains tax, and then paying 4% stamp duty re-entering the market is the bigger problem, which is why you only go into property for very short term reno and flip or very long term holds (10-20 years). Those that go in and out in 3-5 years are the ones who don't do very well at all.
All IMHO. Your experiences may be different.
I think from a US point of view, he wanted to explain that we don't know what a recession is and the damages that it does here in OZ. From what I see as a foreigner, I can see that we're not prepared at all for a crash. In fact, an entire generation has never witnessed economic downturn in Australia. If they had, they probably would invest more conservatively. We LOVE property here and it provides huge benefits one of them gearing... but if all goes bad - and it will - I can see no one (that I personally know) preparing for it.
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
Err yes, looking for positive cash flow real estate is one thing. Finding one that you can actually be able to live off is the unicorn we search for here :)
I don't see what I've done as speculating or gambling... with such a high population growth and a market that places a very high premium on home ownership you can pretty much assume long term growth of 3-4% on average over a cycle.
I am fully aware I will likely have 3-4 years from now of flat price growth. The cost of holding for the next few years is less than $10k, which will more than be compensated for when the next upswing of the cycle comes around.
The cost of exiting, paying capital gains tax, and then paying 4% stamp duty re-entering the market is the bigger problem, which is why you only go into property for very short term reno and flip or very long term holds (10-20 years). Those that go in and out in 3-5 years are the ones who don't do very well at all.
All IMHO. Your experiences may be different.
I think from a US point of view, he wanted to explain that we don't know what a recession is and the damages that it does here in OZ. From what I see as a foreigner, I can see that we're not prepared at all for a crash. In fact, an entire generation has never witnessed economic downturn in Australia. If they had, they probably would invest more conservatively. We LOVE property here and it provides huge benefits one of them gearing... but if all goes bad - and it will - I can see no one (that I personally know) preparing for it.
I have $260k cash in offset accounts right now and my overall gearing is around 55%.
So yeah, I'm trying to be as prepared as I could be in the event of catastrophe. But honestly I do not see it happening.
Consider that it is generally accepted (barring incorrect census data) that 1/3 of homes are owned outright, 1/3 carry a mortgage, and 1/3 are rented.
If a major recession were to hit, the no-mortgage homeowners will be ok, and of the ones paying a mortgage the average LVR is about 45-50% according to the big banks. This is because not everyone is at 80% (most people are several years into their loans) and there's quite a bit of equity built up with the rise in prices, and those prices are not going to drop like a stone overnight.
My units? One I live in, one is rented to someone who has indicated he will be there long term and works in a recession proof industry, and the 3rd is very much in a desirable location with a major hospital, schools and recreation facilities in walking distance. Perfect for Docs, nurses and teachers.
Hold for the very long term and ride it out. If I'm forced to sell tomorrow I'll be smart about it, list it for lower than comparables and get it done... no use hanging out for $5-$10k here or there which is small change in the grand scheme of things.
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Sure, people speculate in the States, too. So you gambled, with leverage, and it went up. It works out a lot of the time, until it doesn't. What's your exit point? Clearly 10% YOY forever is unsustainable, so at what point are you going to find the biggest sucker and bail?
My question you quoted though wasn't related to speculating though. My question was related to a positive investment that will yield money for happy for ER.
Err yes, looking for positive cash flow real estate is one thing. Finding one that you can actually be able to live off is the unicorn we search for here :)
I don't see what I've done as speculating or gambling... with such a high population growth and a market that places a very high premium on home ownership you can pretty much assume long term growth of 3-4% on average over a cycle.
I am fully aware I will likely have 3-4 years from now of flat price growth. The cost of holding for the next few years is less than $10k, which will more than be compensated for when the next upswing of the cycle comes around.
The cost of exiting, paying capital gains tax, and then paying 4% stamp duty re-entering the market is the bigger problem, which is why you only go into property for very short term reno and flip or very long term holds (10-20 years). Those that go in and out in 3-5 years are the ones who don't do very well at all.
All IMHO. Your experiences may be different.
I think from a US point of view, he wanted to explain that we don't know what a recession is and the damages that it does here in OZ. From what I see as a foreigner, I can see that we're not prepared at all for a crash. In fact, an entire generation has never witnessed economic downturn in Australia. If they had, they probably would invest more conservatively. We LOVE property here and it provides huge benefits one of them gearing... but if all goes bad - and it will - I can see no one (that I personally know) preparing for it.
I have $260k cash in offset accounts right now and my overall gearing is around 55%.
So yeah, I'm trying to be as prepared as I could be in the event of catastrophe. But honestly I do not see it happening.
Consider that it is generally accepted (barring incorrect census data) that 1/3 of homes are owned outright, 1/3 carry a mortgage, and 1/3 are rented.
If a major recession were to hit, the no-mortgage homeowners will be ok, and of the ones paying a mortgage the average LVR is about 45-50% according to the big banks. This is because not everyone is at 80% (most people are several years into their loans) and there's quite a bit of equity built up with the rise in prices, and those prices are not going to drop like a stone overnight.
My units? One I live in, one is rented to someone who has indicated he will be there long term and works in a recession proof industry, and the 3rd is very much in a desirable location with a major hospital, schools and recreation facilities in walking distance. Perfect for Docs, nurses and teachers.
Hold for the very long term and ride it out. If I'm forced to sell tomorrow I'll be smart about it, list it for lower than comparables and get it done... no use hanging out for $5-$10k here or there which is small change in the grand scheme of things.
Sounds like you are pretty well prepared. But hopefully it doesnt come to that :)
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I could have been much more aggressive with LVRs and acquiring more properties... I just judged that there was not enough value to be had for risk involved, and not enough in reserve if I lost my job etc.
At the moment I was be stretched if I did lose my income, but if you don't take a risk or a chance you will never get ahead.
I feel I've struck a middle ground and a balance. The results could have been a lot better if I was more aggressive, but I'm happy to do without the "seat of your pants" risk involved in that.
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So yeah, I'm trying to be as prepared as I could be in the event of catastrophe. But honestly I do not see it happening.
Consider that it is generally accepted (barring incorrect census data) that 1/3 of homes are owned outright, 1/3 carry a mortgage, and 1/3 are rented.
If a major recession were to hit, the no-mortgage homeowners will be ok, and of the ones paying a mortgage the average LVR is about 45-50% according to the big banks. This is because not everyone is at 80% (most people are several years into their loans) and there's quite a bit of equity built up with the rise in prices
The US data when our bubble burst wasn't that different. 1/3 renting, same as you (about 66% home ownership), of the owners, around 1/3 had no mortgage, and the average equity was about 20%
So worse than yours, yes, but not drastically so, and there were people making the same arguments you're making.
and those prices are not going to drop like a stone overnight.
That's exactly what happened here though. They dropped fast enough that one couldn't sell--there were suddenly no buyers. Homes sat on the market, and kept dropping prices. So sure, it may not have been overnight, it may have been 6 mo - 1 yr before they sold at a much lower price, but since they couldn't sell in the meantime, it effectively was overnight, going from "high valuation" to much lower at the time it could be sold.
The same thing won't happen, but it's still good to be prepared for different eventualities, and recognize it is speculating.
Speculating is not inherently bad, but you can't do it forever without getting burned. Taking a short term gamble on appreciation and then cashing out can be a smart play. Counting on it to keep going up, forever...maybe not as much.
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Get what you're saying but surely not every market in the US was burned in exactly the same way in 2007?
Markets within markets, suburbs within cities etc.
We've seen little mining towns here drop like a stone overnight when the tide turns, so it does happen. But across the board? Never say never, but it's not so likely that you should sit on the sideline and refuse to play the game.
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Get what you're saying but surely not every market in the US was burned in exactly the same way in 2007?
Markets within markets, suburbs within cities etc.
Pretty much the whole country, yeah.
Our Federal Chairman at the time (Ben Bernanke) said the same thing as you, almost word for word.
"It's a pretty unlikely possibility. We've never had a decline in house prices on a nationwide basis."
https://mises.org/library/ben-bernanke-was-incredibly-uncannily-wrong (https://mises.org/library/ben-bernanke-was-incredibly-uncannily-wrong)
But yes, it turned out to be country-wide. Of course, some places were hit harder than others (ones that rose the most generally had the most to fall), but the whole country was hit.
You really should read about the US mortgage crisis. At the very least, if it doesn't turn out applicable, it's interesting. :)
We've seen little mining towns here drop like a stone overnight when the tide turns, so it does happen. But across the board?
Sure, and we'd seen certain areas have their own cycles. That's typically how it is. For you guys, maybe mining towns, for us a similar example would be towns in Texas very dependent on oil in the '80s.
But this was unique, and across the board.
Never say never, but it's not so likely that you should sit on the sideline and refuse to play the game.
Sure, but at what point do you pull back?
I'd rather take more risk up front and then scale it back rather than take a medium amount of risk all throughout. I.e. going all in in 2012-2013, then scaling back by 2015-2016, rather than doing a moderate amount in 2012, 13, 14, 15, 16, and still being there. If you're going to speculate, IMO, recognize it and then do it quick. YMMV. :)
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One huge difference here is that people actually owe the money to the banks. They cannot just send their keys in, because they still owe the mortgage money. And bankruptcy is more draconian here than in the US. This means that a drop shouldn't be quite as significant. I remember times when a lot of people had tosell their houses (when mortgages went to 18% and people just couldn't keep up), but there wasn't a drop because of those two things.
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Good point deborah. There are consequences here... you can't just walk away and say it's the bank's problem.
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Good point deborah. There are consequences here... you can't just walk away and say it's the bank's problem.
This is true in many states as well, it's a state-by-state thing if you're still responsible or not (recourse or non-recourse).
But that does make it seem less likely people will default...but more likely they'll be stuck in situations they can't get out of.
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My understanding of the property market in the US and Ireland was one of oversupply, which led to a collapse in prices. I think in Australia, well Sydney at least, undersupply is still a massive problem. This is why when all the indicators say we should have a correction, it doesn't happen. If there's a big recession and 10% are unemployed, 90% still have jobs and would eagerly await a few mortgagee auctions to pick up a bargain because they haven't been able to compete to get a residence, let alone investment properties.
There's supposed to be a glut in units soon so maybe prices and rents might plateau for a bit but as soon as the population increases enough we'll be off again, that's my prediction! I'm interested to see what happens this spring because I heard last weekend the auctions were a bit crazy after the interest rate was cut.
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Australia is no different to any other country. Every crisis had their own reasons (US, Spain, Greece, Portugal, ...) but there was a crisis.
My unit has put on 45% on in two years. In Brissie, IP went up by 11%. This is just not sustainable.
I like Marty's approach which is the "taking the risk" by being in the market but being sure you're safe by staying not too much geared.
I believe Marty also points out to the fact that in the future australia's capital cities will do better than regional. I agree again. Safer bet.
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
Been in our current PPOR since 2008 and haven't adjusted it's value in my spreadsheet since its initial purchase. I know it will have gone up since then, but without getting it valued I don't know by how much. And for some reason just this week I became curious as to how much its actually worth (without selling it).
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
Been in our current PPOR since 2008 and haven't adjusted it's value in my spreadsheet since its initial purchase. I know it will have gone up since then, but without getting it valued I don't know by how much. And for some reason just this week I became curious as to how much its actually worth (without selling it).
I just get a rough estimate based on other sales in my area.
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
Been in our current PPOR since 2008 and haven't adjusted it's value in my spreadsheet since its initial purchase. I know it will have gone up since then, but without getting it valued I don't know by how much. And for some reason just this week I became curious as to how much its actually worth (without selling it).
Any real estate agent is very interested in doing this for free (if it was written it would be charged) - I'm surprised that one hasn't knocked on your door!
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
Been in our current PPOR since 2008 and haven't adjusted it's value in my spreadsheet since its initial purchase. I know it will have gone up since then, but without getting it valued I don't know by how much. And for some reason just this week I became curious as to how much its actually worth (without selling it).
Any real estate agent is very interested in doing this for free (if it was written it would be charged) - I'm surprised that one hasn't knocked on your door!
Don't get me wrong, the local real estate agents are quite happy to provide me with one, but the associated crap that goes with it isn't worth it IME, especially as we're not looking to sell.
Scoped out http://www.domain.com.au/property-profile and https://www.realestate.com.au/property yesterday with over $100K variance between them. Will just take the lower value and work from there.
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with over $100K variance between them. Will just take the lower value and work from there.
Difference in asking price or sold price?
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Everything will have a range... depends on how unique your property is.
Mine is an apartment... so I can always go off comparable sales +/- $20,000 or so.
Houses are a little more tricky.
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with over $100K variance between them. Will just take the lower value and work from there.
Difference in asking price or sold price?
Not sure, I don't want to assume, but it's likely that they're taking their prices from sold values for the area.
Did a quick number crunch of house purchase price and the average house increase from the ABS data here http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/6416.0Main+Features1Mar%202016?OpenDocument and on the Past & Future Releases tab and it worked out to be <$40K difference between it and the lower value provided by the other wesbsites. Value calculated by number crunching was lower, so gives me something closer to a possible reality based on actual data.
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
I use http://www.onthehouse.com.au/ (http://www.onthehouse.com.au/), which seems to correlate reasonably with what I see happening in our local market.
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Just wondering whether anyone is keeping track of the growth in their PPOR and what are they using to do it? Are you getting it valued by a valuer or are you using an online freebie service?
I use http://www.onthehouse.com.au/ (http://www.onthehouse.com.au/), which seems to correlate reasonably with what I see happening in our local market.
Generally I just keep in touch with what our local market is doing and note the price of comparables. I just used onthehouse and it seemed about right, although the comparables it used were way off - i.e. weren't the most recent sales of very comparable property..
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Thanks, checked out http://www.onthehouse.com.au/ and it's definately on the high side in comparison to the other sources.
Might just average them all out :)
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Thanks, checked out http://www.onthehouse.com.au/ and it's definately on the high side in comparison to the other sources.
Might just average them all out :)
I cannot believe what it thinks my house is worth! I suspect that it is on the high side, and it is interesting to see the variation it has for the properties in my street.
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On the house values properties in my area way under! One big fancy one that just sold was valued at about 500k under. I think in my area there is such variation in quality from fibro shacks to new build palaces that it's impossible to get it right.
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OTH is on the low side for my property compared to other sources. There's a $50-$60k difference between some of them (and that's about 20% in my case!).
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Well, I've just been checking out the prices in my area against OTH. They seem to be consistent - all the ones that have sold relatively recently are within about $20,000 of what they got! So I guess they might be right about my place. However, it's amazing that houses in the same (short - I've counted and there are 50 houses) street vary by $300,000 in price.
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Interesting articles I saw today:
http://www.smh.com.au/money/ask-an-expert/the-downside-to-investing-in-property-for-retirees-20160819-gqwoqh.html
It's helpful when I am debating this with DH that Noel has chimed in.
http://www.domain.com.au/news/the-result-of-sydneys-property-boom-a-city-of-millionaires-on-the-verge-of-a-class-divide-20160826-gqwc1z/
This makes me all the more certain that although we could downsize and retire elsewhere today, unless we keep property in Sydney we'd never be able to come back.
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My fear in a few years time too... selling up and never being able to get back in. And then future kiddos not being able to get in.
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My fear in a few years time too... selling up and never being able to get back in. And then future kiddos not being able to get in.
Prices increasing faster than inflation is unsustainable in the long run. Think about compound interest, and the difference a few extra percent make.
Now say inflation is 3-4% and house increases are 7-10%. Run that out for a few decades, and see what would happen. No one could afford to live anywhere. It doesn't make sense.
Reason from first principles to see what will have to eventually happen.
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My fear in a few years time too... selling up and never being able to get back in. And then future kiddos not being able to get in.
Prices increasing faster than inflation is unsustainable in the long run. Think about compound interest, and the difference a few extra percent make.
Now say inflation is 3-4% and house increases are 7-10%. Run that out for a few decades, and see what would happen. No one could afford to live anywhere. It doesn't make sense.
Reason from first principles to see what will have to eventually happen.
Sydney currently has a housing shortage. One of its problems has always been that it has limitations in where it can expand - especially with it being surrounded by the harbour, National Parks and a World Heritage area, but the geography of Sydney itself has always provided a number of limitations because it is full of cliffs.
But it cannot sustain the growth of the million dollar suburbs as per that graphic Freshwater posted. Something has to give at some point.
However, if you move somewhere else, surely you would do so because you liked your new place better. Every capital city in Australia is extremely worth living in. In some international livability comparisons Melbourne comes first, some have Sydney first, some have Canberra first (when it is included)... but all the capitals come very high in every comparison that includes them all - for instance, one I was looking at recently had every Australian capital in the top 16 in the world.
We are very lucky that we have so many wonderful places to live in Australia. Why would you want to go back to Sydney once you had left it? As a mad keen cricketer, there are a number of options for you!
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My fear in a few years time too... selling up and never being able to get back in. And then future kiddos not being able to get in.
Prices increasing faster than inflation is unsustainable in the long run. Think about compound interest, and the difference a few extra percent make.
Now say inflation is 3-4% and house increases are 7-10%. Run that out for a few decades, and see what would happen. No one could afford to live anywhere. It doesn't make sense.
Reason from first principles to see what will have to eventually happen.
We have run it for a few decades. It is still going up. You may think no one can afford to live anywhere but the city carries on. The median house price here in a city of 4.5 million is over $1.1million and climbing. It's not just a small pocket.
I disagree with you that house prices exceeding inflation is unsustainable. A better argument would be house prices exceeding real wages growth is unsustainable, because real wage growth has always been higher than inflation in the long run.
The wildcat is foreign investment, which neither cares about real wages, nor plays by the same rules.
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There isn't enough land in Sydney for the amount of people that want to live there. There are people who want to buy that can't physically find a place in my suburb, people just don't sell. It was like that when we bought our current place in 2013 and it's the same now, our place has increased in value 50% in that time, I am not exaggerating. So obviously the temptation is to sell up and move out of Sydney so that we can retire right now. Obviously I don't think there'll be another 50% increase in prices, but it's such a risk switching asset classes. What if down the coast is just too....quiet ;)
Even where there is land release in Sydney, developers won't sell too many lots each year so as to maintain their profits so there will be no dramatic correction in Sydney without some economic catastrophe. There will be plateauing of prices at certain times, possibly a drop of 5%, maybe 10% one year in certain suburbs if the NSW economy or population growth slows. But I still think the general idea in the article is true - inequality in Sydney is growing.
I understand that if we put $1m in a fund we'd have a good chance with compounding that we'd keep up with the median house price growth in Sydney, but even if we weren't withdrawing on that fund for retirement there's no guarantee I'd be returning in ten years my suburb or somewhere as desirable because there will always be someone with more money than me that will pay more for something so scarce. Like you say, Marty, that person could well be from overseas. That was me a while ago, I wasn't born here. Of course we could live somewhere a bit less desirable in Sydney or in an apartment if we really needed to come back for certain services or something.
Anyway, I doubt we'll leave. Although we could be happy anywhere near the coast or in the mountains, this place has everything and is practically paradise. I love you, Sydney, and I'm glad I bought a bit of you when I did.
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One can move out of Sydney, but one can't move out of Melbourne. Not when one's DH is a devoted Collingwood supporter. Our radius of retirement is 30 min drive from the MCG. Median house price 1M.
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One can move out of Sydney, but one can't move out of Melbourne. Not when one's DH is a devoted Collingwood supporter. Our radius of retirement is 30 min drive from the MCG. Median house price 1M.
Go Pies! (as my brother would say)
There are 14 games per year that the Pies have at the G this year. Assuming that is representative for each year, and a motel room for the weekend in the middle of Melbourne (for instance Hilton on the Park - where he can walk to the G) is $400 (it's actually $309). That would be about $5000 per year. You can live anywhere!
An uncle was a member of the MCG, so they always had tickets to the final. They lived in Albury, traveled by train and stayed at the Windsor whenever they went to a fixture there.
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I disagree with you that house prices exceeding inflation is unsustainable. A better argument would be house prices exceeding real wages growth is unsustainable, because real wage growth has always been higher than inflation in the long run.
Sure, I use them almost interchangeably when talking about housing, because real wages are mostly flat over the last few decades, so inflation and wages have been the same, save for the top 1%, but technically correct, wage growth is the more important factor.
We have run it for a few decades. It is still going up. You may think no one can afford to live anywhere but the city carries on. The median house price here in a city of 4.5 million is over $1.1million and climbing. It's not just a small pocket.
You understand how compound interest works. It kicks in fierce at the back end. That's why someone at 60 who has been stocking away since their 20s (40 years) versus their 30s (30 years) has SO MUCH more. That extra 10 years on the back end.
Yes, it may have grown for decades. But it's not sustainable. 1.1MM (the current amount) really isn't that much. But if the houses increased 10% this year, that's another 110k higher (say, about double the average annual wage). Then 10% next year. Then the next year. And the next year. Keep going and soon it gets silly. It's literally not sustainable.
I mean, say house prices go up by 10%, and inflation/wage growth is 3%. Prices go up by 7% real then. Run that out another, say, 30 years, when you'll be in your mid-60s. The median price will be 8.37 million in today's dollars. That's nonsense. The median wage will be the exact same (since we're talking in real dollars.. in nominal, it'll be 2.43x higher, but then the housing prices in nominal dollars will be 17.45x higher, at 19.19MM). Even if one put down 50% (so the mortgage balance was 4.18MMM) and got a 5% rate, their monthly P&I (ignoring taxes, insurance, and all other costs) would be $22,439 (in real dollars). Annual? 270k. Literally 1% of the population could afford to buy, and no one would--it wouldn't make sense to buy.
That clearly is not sustainable, right? If the prices today were 8.37MM for the median house price, with all wages staying the same (which is what we're comparing when we use an increase above inflation/wages, and then run it out a few decades), would you agree that such a situation couldn't be sustainable?
Now add another decade, to put it out 40 years. Suddenly home prices are 16.4MM in real dollars. Another decade? 32MM (we're about doubling every decade, with a home value growth of 10% and inflation of 3%, so roughly 7% real, using the rule of 72). 10 more (so we're at 60 years out, maybe about the time your future kids are in their 40s or 50s, since you mentioned being worried about them being able to buy in) and we're at 63.7MM. At that rate, even if one won the lottery of 50 million dollars (in real, 2016 dollars) and use that as an entire down payment, their monthly payment on the remaining 13.7MM balance would be 73,765 per month! Someone winning 50MM in the lotto and putting it all down on the average house, and still having the monthly payment be higher than the median annual wage is obviously crazy.
Like I said, run scenarios out where increases are above inflation/wages. It just doesn't work.
Worrying about your kids, decades from now, "not being able to buy in" is a crazy worry, IMO.
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Real wages haven't been flat in real terms, though? 4% wage index vs 2% CPI.
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Real wages haven't been flat in real terms, though? 4% wage index vs 2% CPI.
I think you're right, absolutely. But I also think it's irrelevant (see the bottom of this post as to why, because I'll veer slightly to answer that question)
Of course, a key question, is always: over what time frame?
I google "real wages australia," and the first link is a blog post Real wages falling in Australia (http://bilbo.economicoutlook.net/blog/?p=33031)
From the intro:
The Australian Bureau of Statistics published the latest – Wage Price Index, Australia – for the December-quarter yesterday and annual private sector wages growth fell to 2.0 per cent (0.5 per cent for the quarter). This is the fourth consecutive month that the annual growth in wages has recorded its lowest level since the data series began in the September-quarter 1997. Real wages in the private sector are now in decline. In the Mid-Year Economic and Fiscal Outlook published in December, the Government assumed wages growth for 2014-15 would be 2.5 per cent rising to 2.75 over 2016-17. They also assumed real wages (the difference between growth in the nominal Wage Price Index and the Consumer Price Index would be positive (0.5 per cent in 2016-17). On current trends, neither assumption will be realised
From the conclusion:
Nominal wages growth is now at the lowest level since the Wage Price Index data series began (September-quarter 1997).
Depending on how we measure inflation, real wages growth is slightly negative or slightly positive at present but on any measure it is well below the labour productivity growth rate.
But yes, I agree with you that real wages are up, slightly, over most time frames.
But here's why that doesn't matter: in no way have they grown as fast as property values over most any timeframe you look at (1 year, 10 year, 30 year, etc.). And that's what we're discussing, when property values outstrip real wage growth. It's not sustainable.
Even if real wages are up 4%, if property values are up 8%, or 10%, or whatever, it just doesn't work when you run that out a few decades, because of how compounding works. You can have growth like that for awhile, but eventually it can't work, because of exponential growth.
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Wouldn't apartments be what would become the "affordable" housing, though? So you might buy your house, sit on it, and have it become a very pretty piece of real estate, while developers produce apartments that the next wave of buyers can afford because they're cheaper than the now impossibly expensive houses? What effect does that have?
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Wouldn't apartments be what would become the "affordable" housing, though? So you might buy your house, sit on it, and have it become a very pretty piece of real estate, while developers produce apartments that the next wave of buyers can afford because they're cheaper than the now impossibly expensive houses? What effect does that have?
Exactly. This is one (of many) mitigating factors that keeps limits on unsustainable growth, and something that acts as an eventual cap on housing prices (people can argue they're different, and they are, but if you literally can't afford a home, and need somewhere to live, you live where you can afford it).
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Wouldn't apartments be what would become the "affordable" housing, though? So you might buy your house, sit on it, and have it become a very pretty piece of real estate, while developers produce apartments that the next wave of buyers can afford because they're cheaper than the now impossibly expensive houses? What effect does that have?
That article I originally posted said we're shifting to a more european system of a smaller proportion of property owners and a larger proportion of long term renters but I guess if enough apartments are built then we will avoid that in a way.
With more apartments people might still get to own, but inequality will still increase in the long term I guess because house appreciate faster than apartments.
Australia has less space between the top earners and bottom earners than many other western countries. There are various trains of thought I suppose but I'm of the belief that low income inequality = less crime, generally a better place to live. I wish I hadn't posted my comment that I'm worried about moving away now... I'm much more concerned with the nation's wellbeing than my own rich-person's problems :)
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One can move out of Sydney, but one can't move out of Melbourne. Not when one's DH is a devoted Collingwood supporter. Our radius of retirement is 30 min drive from the MCG. Median house price 1M.
Go Pies! (as my brother would say)
There are 14 games per year that the Pies have at the G this year. Assuming that is representative for each year, and a motel room for the weekend in the middle of Melbourne (for instance Hilton on the Park - where he can walk to the G) is $400 (it's actually $309). That would be about $5000 per year. You can live anywhere!
An uncle was a member of the MCG, so they always had tickets to the final. They lived in Albury, traveled by train and stayed at the Windsor whenever they went to a fixture there.
True but if one is a Collingwood supporter, one wants to raise his son in the same spirit :) so Auskick since 6y.o., taking junior to the games etc. Can't move even to the South Eastern suburbs of Melbourne. It's North and North East for us.
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One can move out of Sydney, but one can't move out of Melbourne. Not when one's DH is a devoted Collingwood supporter. Our radius of retirement is 30 min drive from the MCG. Median house price 1M.
Go Pies! (as my brother would say)
There are 14 games per year that the Pies have at the G this year. Assuming that is representative for each year, and a motel room for the weekend in the middle of Melbourne (for instance Hilton on the Park - where he can walk to the G) is $400 (it's actually $309). That would be about $5000 per year. You can live anywhere!
An uncle was a member of the MCG, so they always had tickets to the final. They lived in Albury, traveled by train and stayed at the Windsor whenever they went to a fixture there.
True but if one is a Collingwood supporter, one wants to raise his son in the same spirit :) so Auskick since 6y.o., taking junior to the games etc. Can't move even to the South Eastern suburbs of Melbourne. It's North and North East for us.
Go Pies!
Ah, that's easy, buy in somewhere like Greensborough for 4-500k and take the train in. Driving to the G is folly. :)
I see housing here as a case of the following:
Affordable. Spacious. Close to the city/in a nice area. Pick any two.
I'm probably going to buy next year and I'm trying to find a good balance between the above. I don't mind being a half hour train ride from the city if I can walk to the station, and a two bedroom unit is plenty. If I wanted to live in Brunswick or similar, I'd be buying a one bedroom. If I wanted a house, I'd be out in woop-woop.
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I have just sold in Greensborough (haha). Nothing to be found for $500K any longer. 800K if walking distance to the station.
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When I bought my PPOR, I knew the value at the time by comparing all below:
- Check realestate.com.au that gives the median sale price
- Check the sold price recent from nearby properties
- price per sqm - for the land
- Ask the agent for rent or check rents for similar properties and divide by rental yield of the suburb
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Another article about the property bubble in Australia
http://www.news.com.au/finance/economy/australian-economy/housing-bubble-a-recession-risk/news-story/20cbf8d00e353b825e784c097e54f567 (http://www.news.com.au/finance/economy/australian-economy/housing-bubble-a-recession-risk/news-story/20cbf8d00e353b825e784c097e54f567)
seems to be a new one every week
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I'm in a position where I'm looking to buy a place around the middle of next year.
Would the suggestion be to get a minimum of 10% before looking seriously?
I've got an idea of what places I could afford and be reasonably happy with are going for.
Of course, the next six or twelve months are anyone's call. The area could go up by $100,000 or down by the same amount.
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You can always start looking now. Took me a year to find the right place for me.
Will you get a stamp duty concession? If not, 10% won't be enough. On top of that, budget for $3,000 for loan application fees, conveyancer costs, strata report (for a unit) or Building & Pest report (for a house).
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You can always start looking now. Took me a year to find the right place for me.
Will you get a stamp duty concession? If not, 10% won't be enough. On top of that, budget for $3,000 for loan application fees, conveyancer costs, strata report (for a unit) or Building & Pest report (for a house).
+1, the LMI rises a lot if you don't have at least 10% deposit plus money to cover stamp duty and other purchasing costs.
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Auction clearance rate hit 85% in Sydney over the weekend.
Clearly, there is still a lot of pent-up demand being unleashed... scary territory some of the medians being bandied about.
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scary territory some of the medians being bandied about.
Yeah it's crazy what some people are prepared to pay. I'd hate to have their mortgage.
You can always start looking now. Took me a year to find the right place for me.
Will you get a stamp duty concession? If not, 10% won't be enough. On top of that, budget for $3,000 for loan application fees, conveyancer costs, strata report (for a unit) or Building & Pest report (for a house).
I'll get a 50% discount on stamp duty. I'd also be eligible for a FHOG if I wanted a new build, but I'm not interested in new builds because they're probably either an overpriced tiny apartment or in some housing estate in woop woop.
I've kept an eye out looking for what's available, but I haven't gone to inspections yet. I've found a few places online that I'd be happy with (reasonable area, scope for improvement to the place, walking distance to a train station, etc) and could afford.
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An article from the ABC (aussie version).
Why Gen Y should hold off buying a home
http://www.abc.net.au/news/2016-10-21/gen-y-should-consider-delaying-home-purchase/7951922
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scary territory some of the medians being bandied about.
Yeah it's crazy what some people are prepared to pay. I'd hate to have their mortgage.
You can always start looking now. Took me a year to find the right place for me.
Will you get a stamp duty concession? If not, 10% won't be enough. On top of that, budget for $3,000 for loan application fees, conveyancer costs, strata report (for a unit) or Building & Pest report (for a house).
I'll get a 50% discount on stamp duty. I'd also be eligible for a FHOG if I wanted a new build, but I'm not interested in new builds because they're probably either an overpriced tiny apartment or in some housing estate in woop woop.
I've kept an eye out looking for what's available, but I haven't gone to inspections yet. I've found a few places online that I'd be happy with (reasonable area, scope for improvement to the place, walking distance to a train station, etc) and could afford.
In 20 years time the woop woop housing estate will be the highly desirable spot.
I thought Schofields in Sydney was end of the world, but with the expansion of the Hills district, suddenly this suburb 50kms from the CBD is the next booming area.
There are plans for massive housing developments south of Macarthur in the south west... up to 75kms from the city centre.
It's all getting ridiculous.
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The town of Pakenham got swallowed up by the suburbs of Melbourne a few years back, it's 62km from the city centre.
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In 20 years time the woop woop housing estate will be the highly desirable spot.
I thought Schofields in Sydney was end of the world, but with the expansion of the Hills district, suddenly this suburb 50kms from the CBD is the next booming area.
There are plans for massive housing developments south of Macarthur in the south west... up to 75kms from the city centre.
It's all getting ridiculous.
Yeah, Melbourne has a lot of land out west and north that's likely to be swallowed up by housing over the next 30 years or so. There's plenty of development in the Geelong area, and I bet some of it's made up of Melbourne commuters.
My view is that for the money I'm prepared to comfortably spend, I've got three options:
- A one bedroom inner city apartment within 5-10km of the city.
- A two bedroom unit/townhouse maybe about 15km out.
- A house in the new developments or suburbs 30km+ from the city.
I'm not confident that buying a one bedroom apartment is a good longer-term option, but I really don't want to live in a car-dependent 'estate' with such a hefty commute, so I'm looking at the middle option. I can deal with a half hour train ride :)
I'm renting an inner suburbs one bedroom apartment now, and while I'd happily continue to rent one, I'm reluctant to buy one, especially given the glut that's likely.
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Don't think I've posted in this thread before, but just got back from a trip to Melbourne with my partner (where we used to live) and did several inspections while we were there for studios and 1-bedroom apartments. I kind of don't mind the idea of renting indefinitely but he likes the idea of our very own place. So we're looking. We're back in Perth now (where we currently live) but we are most likely moving back to Melbourne sometime next year. Some of the places we looked at seemed alright, like - "we could work with this". But I don't think we'll commit to anything while we're still in Perth, given none of them were of the "this is awesome let's snap this up before someone else does" level. I'm sure there will still be viable options when we eventually return to Melbourne again.
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Perth is still falling no?
The rest of WA isn;t too flash either... the carnage in Port Headland must be tough to swallow for a lot of investors who did not sell out. Down 60-70% and counting?
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
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Perth is still falling no?
I haven't been monitoring, but having looked at it on and off recently, the prices do look quite reasonable by Australian standards. Cheaper than Melbourne, at least.
There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
I've been hearing a lot about this "apartment glut" situation lately, too... wonder when it'll start to show in the prices?
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There has recently been an article in most newspapers about over 65's and all their spare bedrooms - see http://www.stmarysstar.com.au/story/4244557/where-20-years-of-housing-is-tied-up/?cs=1256 (I'm sure it is the same story I read in Fairfax). Basically, a study has looked at what percentage of households over 65 have 2 or more spare bedrooms in Sydney, and have drawn a map of the shires and the % over 65 with two spare bedrooms. It is an interesting map, and shows that there are a lot of spare bedrooms in the middle ring of Sydney suburbs.
However, I wonder just how many people under 65 have two or more spare bedrooms, and just what constitutes a spare bedroom. For instance, my parents recently bought a 4 bedroom house (they are downsizing - and the house is a lot smaller than their previous house). It has a spare bedroom for guests, and a study for mum (I think she will sleep in it when dad snores) and a study for dad, as well as their main bedroom. I know of many elderly couples were they sleep in separate rooms for similar reasons. Are all couples assumed to only need one bedroom? I know a lot of people under 65 who have studies and hobby rooms. And I think that many couples buy a house with more than one bedroom, and use the second as a study.
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There has recently been an article in most newspapers about over 65's and all their spare bedrooms - see http://www.stmarysstar.com.au/story/4244557/where-20-years-of-housing-is-tied-up/?cs=1256 (I'm sure it is the same story I read in Fairfax). Basically, a study has looked at what percentage of households over 65 have 2 or more spare bedrooms in Sydney, and have drawn a map of the shires and the % over 65 with two spare bedrooms. It is an interesting map, and shows that there are a lot of spare bedrooms in the middle ring of Sydney suburbs.
However, I wonder just how many people under 65 have two or more spare bedrooms, and just what constitutes a spare bedroom. For instance, my parents recently bought a 4 bedroom house (they are downsizing - and the house is a lot smaller than their previous house). It has a spare bedroom for guests, and a study for mum (I think she will sleep in it when dad snores) and a study for dad, as well as their main bedroom. I know of many elderly couples were they sleep in separate rooms for similar reasons. Are all couples assumed to only need one bedroom? I know a lot of people under 65 who have studies and hobby rooms. And I think that many couples buy a house with more than one bedroom, and use the second as a study.
I suspect the main issue might be that downsizing may affect eligibility for the age pension. I'm sure that there'd be a bunch of people who would consider it if they weren't going to lose the pension by downsizing to a smaller (and cheaper) house.
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I was reading that article the other day. It made me think how my parents live in a 4 bedroom house, their adult son (me) lives in a share house of 4 people. Meanwhile, my grandparents would have lived 4 to a room! My example isn't necessarily representative of most people, but I was thinkingWe can't seem to get the balance right.
I don't think the oldies should be forced to move from their houses, but we definitely seem to have a problem of underutilised housing stock. An investor driven apartment industry doesn't build well designed multi occupancy dwellings that cater to families in different stages of the life cycles.
The idea that retirees should make financial decisions based on preserving their entitlement to the pension is absurd. To sit, cash poor, in a $1.5m+ house, that costs a bomb to insure and maintain, to ensure that the Commonwealth pays you a pittance, seems a waste of capital and resources. Sure get the pension if you need it. But those who don't need it, but are entitled to it due to PPR exemptions, put undue pressure on the system for all those in genuine need.
It's a tricky problem. Retirees in multi-million dollar houses wouldn't have necessarily wished for the huge price gains. And given how conservative and risk averse the general population is in relation to financial matters, it would be a big ask to expect cash poor pensioners to suddenly become financially astute and nimble and adopt volatile investment strategies with greater returns. But it's frustrating that so many of the older generation are sitting on housing that they don't need, meanwhile everyone else is bidding up property to crazy prices.
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It's a policy problem. Assets need to be included in pension assessment so that wealth can't be hoarded. Then oldies would liquidate those million dollar properties because the government shouldn't be buying their fucking groceries when they've got networth in the millions.
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
Hmmm, I think $6k a month rental ($1,384 per week) might be overstating it for a one bedder in the cbd. Did I read this right?
This one bedder with one car park is going for $2080 per month.
http://www.realestate.com.au/property-apartment-vic-melbourne-412600467
Assuming it is valued at $400k, that's a 6% gross yield.
But don't forget the heinous strata levies these complexes tend to have. Someone has to pay to clean the gym and pool and polish all the shiny.
Meanwhile, $1k per week gets you this in East Melbourne - walking distance to the CBD and much nicer. Although no shops or really anything for that matter!
http://www.realestate.com.au/property-terrace-vic-east+melbourne-418520838
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It's quite close to Gertrude St. and the Fitzroy shops, and YOU CAN WALK TO THE G!
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
Hmmm, I think $6k a month rental ($1,384 per week) might be overstating it for a one bedder in the cbd. Did I read this right?
You read it right, but my opportunity cost is not properties in Australia. :)
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
Hmmm, I think $6k a month rental ($1,384 per week) might be overstating it for a one bedder in the cbd. Did I read this right?
You read it right, but my opportunity cost is not properties in Australia. :)
Oh yes. Yields on property in Australia are terrible. Don't quite understand why people bother, as an investment. But ah yes, capital gains will continue indefinitely.....
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It's quite close to Gertrude St. and the Fitzroy shops, and YOU CAN WALK TO THE G!
True true. I love East Melbourne. I live in Fitzroy currently and East Melbourne is extremely sedate, peaceful and luxurious. But there's no immediate amenity - apart from a great library. As well as that sports ground you mentioned.
But some people prefer to be perched 30 stories up. Press a button on a wall. And seconds later be slurping up ramen/laksa/dumplings. I can see the appeal of that.
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
For reference, you'd probably pay $1500 a month to rent it, although you'd get more for your rental dollar by going into the suburbs a bit :)
The suburbs themselves can be hubs as well, and if the city is a short tram or train ride away :)
I suspect our not having had a recession since the early 90s probably contributes to our views on capital growth of residential housing.
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There's an awful lot of apartments being built in Melbourne right now, it's expected that there'll be a glut, especially in the CBD.
Although I personally would rather a larger kitchen than places like this offer:
https://m.domain.com.au/listing/2012756767?sp=3&adtype=standard
Agreed on the kitchen, but that location!
Hard to justify 300k on a place like that for me though, when it could be in rentals grossing 6k (netting 3k) per month. Presumably you could rent for cheaper than 3k/mo?
But man, I would love to live in Melbourne right there near Chinatown. Probably one of the few major cities that we've visited that we would live in.
Hmmm, I think $6k a month rental ($1,384 per week) might be overstating it for a one bedder in the cbd. Did I read this right?
You read it right, but my opportunity cost is not properties in Australia. :)
Oh you are so polite.
One thing I have wondered about, is if Australian property is such a good deal/proposition why isn't big business in the game of owning and renting property.
I feel the whole sector has a gold rush feel to it.
Businesses will get you to the fields, sell you shovels, pans and food but won't take the risk of prospecting.
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One thing I have wondered about, is if Australian property is such a good deal/proposition why isn't big business in the game of owning and renting property.
I feel the whole sector has a gold rush feel to it.
Businesses will get you to the fields, sell you shovels, pans and food but won't take the risk of prospecting.
That's an astute observation. Same thing here in the US, during our crash, was often people buying extra properties as rentals and counting on appreciation. The big businesses hurt were the construction companies, and the banks lending the money.
Then at the bottom of our crash, 2012-2013, that's when what I bolded above happened. Feb 2012 Warren Buffett says "I'd Buy Up 'A Couple Hundred Thousand' Single-Family Homes If I Could (http://www.cnbc.com/id/46538421). The major hedge funds came in and starting buying up properties by the thousands. They spotted that our markets had overcorrected, and rentals were a good deal again.
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Big business is in the game. It's mostly private companies though. Developers don't really need to go listed, they just keep all the profits for themselves by staying private.
Mr Meriton (Harry Tribugoff) still owns thousands of the ugly shoebox apartments that his company has built.
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A colleague of mine just bought...
$1.5m on a single $80k salary. Had plenty of cash from previous sale.
The problem is, and according to him:
"I just hope that the interest rate doesn't go up too quickly and that my salary will keep on increasing otherwise, I would be bankrupt in 2 months"
He was saying this as it was funny.
I don't want to see him being wiped out. That's just a matter of time before he gets unfortunately...
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A colleague of mine just bought...
$1.5m on a single $80k salary. Had plenty of cash from previous sale.
The problem is, and according to him:
"I just hope that the interest rate doesn't go up too quickly and that my salary will keep on increasing otherwise, I would be bankrupt in 2 months"
He was saying this as it was funny.
I don't want to see him being wiped out. That's just a matter of time before he gets unfortunately...
I'm surprised a bank would even lend that amount to someone on 80k (or even half that amount).
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I know he went with $400k cash and his brother as a guarantor...
But you're right, the number just don't stack up. With $1,1m mortgage (unless interest only?), he would be paying more than $5k per month... and with his salary, this means that his repayments are 100% of his salary...
They also have two cars and two kids!
I will ask him more questions...
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A colleague of mine just bought...
$1.5m on a single $80k salary. Had plenty of cash from previous sale.
The problem is, and according to him:
"I just hope that the interest rate doesn't go up too quickly and that my salary will keep on increasing otherwise, I would be bankrupt in 2 months"
He was saying this as it was funny.
I don't want to see him being wiped out. That's just a matter of time before he gets unfortunately...
thats crazy and scary!
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The other thing is that you could probably buy a house in the outer suburbs of many Australian cities (except maybe Sydney) for that $400K cash, and have no mortgage at all. Even if it's a long commute, that'd have to be far less stressful than being a million in the hock on an $80k income.
I thought on one 80k income the bank would be unlikely to lend more than maybe 550-600?
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Sounds like USA 2007 all over again to me...
-W
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Yeah, something doesn't add up... when I was earning 40k-ish, and went to get a pre-approval, the bank said I could borrow around 200k... so someone earning 80k should really only be able to borrow around 400k.
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Yeah, something doesn't add up... when I was earning 40k-ish, and went to get a pre-approval, the bank said I could borrow around 200k... so someone earning 80k should really only be able to borrow around 400k.
+1 last year the bank would only lend me &DH $600k, and we were earning about $100k before tax, I think?
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A few years back we were told $900k on ~$140k by a broker.
We didn't go through a formal approval process because it was just a ridiculous amount for us to even consider. I was skeptical that we'd actually get approval for it if we tried but he was very confident.
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Yeah, something doesn't add up... when I was earning 40k-ish, and went to get a pre-approval, the bank said I could borrow around 200k... so someone earning 80k should really only be able to borrow around 400k.
+1 last year the bank would only lend me &DH $600k, and we were earning about $100k before tax, I think?
It said upthread that the person put down 400k, so the bank has a decent amount of protection (25% drop when all losses are on his end, before they lose any), and said the brother was a guaranteer. So it wasn't just on his 80k salary, most likely, but plus whatever the brother had.
He'll have to PAY it on his 80k, most likely, but the bank may have looked at both incomes, if the brother is on the hock for the mortgage as well.
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Don't forget that when banks given a big $ amount preapproval a lot of people get excited and take it as a compliment. Wow. Bank X is willing to give me $XXXk. I'm an important person!
They don't realise that the bank is being upfront and saying, 'This is how much we are going to fatten you up. We are willing to go this high, and squeeze it back out of you, slowly".
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Yeah, something doesn't add up... when I was earning 40k-ish, and went to get a pre-approval, the bank said I could borrow around 200k... so someone earning 80k should really only be able to borrow around 400k.
+1 last year the bank would only lend me &DH $600k, and we were earning about $100k before tax, I think?
It said upthread that the person put down 400k, so the bank has a decent amount of protection (25% drop when all losses are on his end, before they lose any), and said the brother was a guaranteer. So it wasn't just on his 80k salary, most likely, but plus whatever the brother had.
He'll have to PAY it on his 80k, most likely, but the bank may have looked at both incomes, if the brother is on the hock for the mortgage as well.
I have actually seen this mate on the week end, but didn't really know how to ask and what to ask...
But something doesn t stack here. Even with a guarantor, the mortgage has to be paid every month... And on $80k, you would put all the salary just paying back the mortgage.
I'm really interested to see how he got this approved and how he plays around to pay the mortgage every year...
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Yeah, something doesn't add up... when I was earning 40k-ish, and went to get a pre-approval, the bank said I could borrow around 200k... so someone earning 80k should really only be able to borrow around 400k.
+1 last year the bank would only lend me &DH $600k, and we were earning about $100k before tax, I think?
It said upthread that the person put down 400k, so the bank has a decent amount of protection (25% drop when all losses are on his end, before they lose any), and said the brother was a guaranteer. So it wasn't just on his 80k salary, most likely, but plus whatever the brother had.
He'll have to PAY it on his 80k, most likely, but the bank may have looked at both incomes, if the brother is on the hock for the mortgage as well.
I have actually seen this mate on the week end, but didn't really know how to ask and what to ask...
But something doesn t stack here. Even with a guarantor, the mortgage has to be paid every month... And on $80k, you would put all the salary just paying back the mortgage.
I'm really interested to see how he got this approved and how he plays around to pay the mortgage every year...
Assistance from the bank of mum and dad?
Also never underestimate how generous the Family Tax Benefit scheme is. Can be worth many 10's of thousands per year.
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Speaking of the bank of Mum and Dad, this article http://www.canberratimes.com.au/comment/the-downside-to-the-bank-of-mum-and-dad-20161028-gsd5wc.html says that over half of new home buyers are getting assistance from it, and suggests that it is a big player in increasing house prices.
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I'm wondering if the guy on 80K has a side business that's cash in hand? Or maybe yeah, mum and dad are paying the mortgage.
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I was thinking earlier that as the Reserve Bank typically uses interest rates as a method of keeping inflation in a certain range, how is housing treated in the 'basket of goods' that makes up CPI?
If house prices are increasing at 7% per year, then surely that would be reflected in inflation figures, or is it based only on renting? If it is based on renting only, then it's under-reporting inflation for many groups of the population. How is housing reported to have increased at 1.8% year on year?
Am I on the right track, or the wrong train? :)
http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0
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From the FAQ page http://abs.gov.au/websitedbs/d3310114.nsf/home/Consumer+Price+Index+FAQs:
Q. Why doesn't the CPI reflect the prices I see?
A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is unlikely for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.
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Janda vs. Robertson:
http://www.abc.net.au/news/2016-10-21/gen-y-should-consider-delaying-home-purchase/7951922
http://www.abc.net.au/news/2016-11-01/why-gen-y-should-buy-a-house-from-a-baby-boomer-parent/7983592
I find Robertson's argument for "home ownership builds wealth, renting doesn't" hilarious - basically he's saying, oh, the figures show that people who own property are richer, people who rent are poorer. Therefore, you should buy, and then you will be richer in the long run. Er - has he ever thought that it's because people who can afford to buy property in Australia were already richer to begin with?
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And then of course, is this article http://www.canberratimes.com.au/business/the-economy/the-gen-y-housing-crisis-its-not-just-us-boomers-20161103-gsh2al.html about how it is the Gen X crowd that is stopping Gen Ys from having a house (I think - it goes all over the place).
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Janda vs. Robertson:
http://www.abc.net.au/news/2016-10-21/gen-y-should-consider-delaying-home-purchase/7951922
http://www.abc.net.au/news/2016-11-01/why-gen-y-should-buy-a-house-from-a-baby-boomer-parent/7983592
I find Robertson's argument for "home ownership builds wealth, renting doesn't" hilarious - basically he's saying, oh, the figures show that people who own property are richer, people who rent are poorer. Therefore, you should buy, and then you will be richer in the long run. Er - has he ever thought that it's because people who can afford to buy property in Australia were already richer to begin with?
my FIL sent me the "why gen y should buy" article, and I ripped it apart for shoddy statistical work, fear mongering, and implied he thought we were stupid and unable to save without external motivation. But politely, because I want him to rebut with interesting counter points :D
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my FIL sent me the "why gen y should buy" article, and I ripped it apart for shoddy statistical work, fear mongering, and implied he thought we were stupid and unable to save without external motivation. But politely, because I want him to rebut with interesting counter points :D
Kind of scary the writer of the article is apparently trained to be a financial planner, but not once did he address the fact that it's possible to save and invest while renting and build wealth in that manner. Noooooo it's property all the way for him. With such a huge omission it's kind of hard to take him seriously.
Please do share if there are any interesting counterpoints from your FIL!
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ANZ Bank posted their 2016 results today.
Embarrassed to say I struggled to figure out what story they were trying to tell. Their accounts were all over the shop with impairments, write-downs, accounting policy changes, bad debt provisions.
It looked like a dogs breakfast, especially the "pro-forma adjusted cash earnings" number. They tried to do what Westpac did earlier last year and exclude software write-offs from cash profit..
Credit growth came to a standstill at 1%... for many years the majors were running at lending book growth of 7-10%. At 1% it implies there is not going to be a lot of growth in house prices, because new mortgages are only just replacing old ones, and the overall size is not increasing anymore.
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The thing is that for most people, property is a really good investment because it is the only way they can save. Many people end up at retirement age with just a property (their PPOR) because they have frittered away any other money they ever had. Of course, now that superannuation is a reasonable amount, they will end up with that as well - but nothing else.
If you look at the people who answer finance questions in the papers, they do advise owning your own home because it is a form of saving that most people can accept. Not because it is the best way to save, or the most reasonable (given that it costs so much to sell your existing PPOR and exchange it for a new one, and that people tend to move once every 7 years, it actually isn't such a good investment) and every so often one of them actually says this.
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Yes.. because how many renters actually save the difference between rent and a mortgage...
anecdotally it does happen, (and renters on here probably do) but I wouldn't say it's the norm.
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Yes.. because how many renters actually save the difference between rent and a mortgage...
anecdotally it does happen, (and renters on here probably do) but I wouldn't say it's the norm.
Yup, I definitely have friends who deliberately bought a house because they knew enough of their own psychology and habits to know it was a way that would work well for them.
Part of my argument back to my FIL was based around 1. Stop pressuring us to make a hasty & therefore bad decision, and 2. Economics is individual, and this may work for some but not us given *list of reasons*.
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From the FAQ page http://abs.gov.au/websitedbs/d3310114.nsf/home/Consumer+Price+Index+FAQs:
Q. Why doesn't the CPI reflect the prices I see?
A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is unlikely for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.
Fair enough, but I'm still amazed that they get a 1.8% year on year increase in the cost of housing. Even if you include Perth. :)
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From the FAQ page http://abs.gov.au/websitedbs/d3310114.nsf/home/Consumer+Price+Index+FAQs:
Q. Why doesn't the CPI reflect the prices I see?
A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is unlikely for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.
Fair enough, but I'm still amazed that they get a 1.8% year on year increase in the cost of housing. Even if you include Perth. :)
There are things in the basket that cost less year on year, and things that cost more. For instance, you pay fewer $ now than 20 or 30 years ago for electronic equipment, airfares, clothes... if only those things were included, CPI would have gone DOWN.
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From the FAQ page http://abs.gov.au/websitedbs/d3310114.nsf/home/Consumer+Price+Index+FAQs:
Q. Why doesn't the CPI reflect the prices I see?
A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is unlikely for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.
Fair enough, but I'm still amazed that they get a 1.8% year on year increase in the cost of housing. Even if you include Perth. :)
There are things in the basket that cost less year on year, and things that cost more. For instance, you pay fewer $ now than 20 or 30 years ago for electronic equipment, airfares, clothes... if only those things were included, CPI would have gone DOWN.
I'm aware of that, but the ABS website shows that housing costs alone increased by 1.8% :)
If house prices are increasing by 7-10% per year (and rents also increasing), that should be reflected in the inflation figures :)
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Yes.. because how many renters actually save the difference between rent and a mortgage...
anecdotally it does happen, (and renters on here probably do) but I wouldn't say it's the norm.
Well, I happen to expect more intelligent and comprehensive articles from ABC that offer more than just an oversimplified one-note argument targeted at the lowest common denominator, but perhaps that's too much to ask. :)
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From the FAQ page http://abs.gov.au/websitedbs/d3310114.nsf/home/Consumer+Price+Index+FAQs:
Q. Why doesn't the CPI reflect the prices I see?
A. The CPI measures the changes in price of a fixed basket of goods and services based on average household expenditure by capital city households across Australia, not of any specific family or individual. For example, it includes both rental and owner–occupier house purchase costs in the basket, which is unlikely for a single household. It is unlikely that any individual experience will correspond precisely with either the national index or the indexes for specific capital cities.
Fair enough, but I'm still amazed that they get a 1.8% year on year increase in the cost of housing. Even if you include Perth. :)
There are things in the basket that cost less year on year, and things that cost more. For instance, you pay fewer $ now than 20 or 30 years ago for electronic equipment, airfares, clothes... if only those things were included, CPI would have gone DOWN.
I'm aware of that, but the ABS website shows that housing costs alone increased by 1.8% :)
If house prices are increasing by 7-10% per year (and rents also increasing), that should be reflected in the inflation figures :)
According to this RBA paper from 2014, http://www.rba.gov.au/publications/bulletin/2014/mar/pdf/bu-0314-4.pdf (http://www.rba.gov.au/publications/bulletin/2014/mar/pdf/bu-0314-4.pdf):
The CPI takes the approach of evaluating the price of buying a newly built, free-standing house (excluding the cost of the land). Changes in the price of established housing are NOT taken into account, as these largely reflect changes in the value of an asset (land) and, moreover, the purchase of existing housing represents a transfer within the household sector (which means that there is zero net expenditure by the household sector in these transactions)
In other words, Australia's favourite financial sport of flipping existing properties to each other is excluded from CPI and only the build, not land (which is what has mostly gone up), cost of newly built houses are factored in.
Edit: Further to above, the CPI housing category also includes rent for renters, rates, maintenance for owners and utilities for everyone. See: http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6440.0Appendix102011 (http://www.abs.gov.au/ausstats/abs@.nsf/Lookup/6440.0Appendix102011) for more detail. Land price changes are still not included.
There's your 1.8%.
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It's the recessionary interest rate we had to have ( I can hear PK throwing that line around.)
http://www.abc.net.au/news/2016-11-03/monetary-policy-is-creating-the-next-generation-of-rich-and-poor/7991828
I have decided it's time for me to cash out of real estate. I have listed my Shitney PPOR. To be sold before xmas.
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How about this for an interesting article on Negative gearing - http://www.canberratimes.com.au/money/investing/governments-are-powerless-to-make-housing-more-affordable-for-firsthome-buyers-20161103-gsgzh1.html
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A Brighton beach box sold for $326k this weekend...
http://www.domain.com.au/news/brighton-beach-box-on-dendy-foreshore-sells-for-record-price-at-auction-20161217-gtdaar/
...
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I also agree that it is time to cash out of the Sydney property market.
Other than Harbourside/ beachside premium property, which probably has no limit given Inter-generational wealth transfer in Australia (Australia needs a death tax of some sort), as soon as interest rates edge up the houses in vast suburbia will start selling for less.
Unfortunately, in my case my hands are tied for the moment.
I need to move back to Sydney, to take advantage of the 6 year PPOR rule, and avoid cap gains tax on the crazy growth over the past 3 years.
It's a bit sad that tax laws may drag us back to Sydney earlier than we would otherwise choose, but with prices having risen 60% in 6 years avoiding the tax bill is a huge consideration.
i love Sydney and really don't like that we will not be living there in retirement, but it just doesn't make any financial sense to have so much wealth tied up in a roof over my head.
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As has been pointed out, we do actually have an equivalent of death tax - CGT.
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Australia needs a death tax of some sort
No doubt. Unfettered transfer of wealth between generations is at odds with social mobility, meritocracy, and even free market capitalism (http://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers).
Not sure it will ever get traction here, though. Getting people on board for something that, on average, is good for them and their descendants is a lot harder than it should be.
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Fair comment on CGT, although I would imagine that a lot of the really premium property are pre-CGT assets held by the family for many years.
If you inherit a house that was a PPOR of your parentsand you make it your PPOR, do you have a CGT issue if/when you sell the place?
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https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Inheriting-a-dwelling/
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Haha. Thanks for aiding and abetting my laziness.
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Did anyone see the government report on housing affordability that made no recommendations because they didn't think there was a problem?
For a moment I thought it was April Fools Day.
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they didn't think there was a problem?
As of maybe two years ago, you seemed to think the same, about there being no problem (that the housing value growth was in line with the population growth/demand, high, and not sustainable forever, but fine at the time), IIRC.
I'm curious what has changed over the last few years, if it's your opinion, or if it's the market, or something else.
Especially interesting to hear from a landlord w/ 3 properties who's actually in the thick of it, and how opinions/markets change. :)
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Everyone thinks there is a problem with housing affordability, just not a housing bubble that will burst and bring down prices quickly.
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Everyone thinks there is a problem with housing affordability, just not a housing bubble that will burst and bring down prices quickly.
Ah. Thanks for the clarification.
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Everyone thinks there is a problem with housing affordability, just not a housing bubble that will burst and bring down prices quickly.
Ah. Thanks for the clarification.
Yeah that's right, you can still buy if you want to, and as long as a significant proportion of the world wants to buy Sydney real estate then it still makes sense to be "in the thick of it".
It just takes a stupidly disproportionately high amount of capital to do so.
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Everyone thinks there is a problem with housing affordability, just not a housing bubble that will burst and bring down prices quickly.
Ah. Thanks for the clarification.
Yeah that's right, you can still buy if you want to, and as long as a significant proportion of the world wants to buy Sydney real estate then it still makes sense to be "in the thick of it".
It just takes a stupidly disproportionately high amount of capital to do so.
And an even more stupidly higher amount of capital after you to make it worth it.
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Everyone thinks there is a problem with housing affordability, just not a housing bubble that will burst and bring down prices quickly.
Ah. Thanks for the clarification.
Yeah that's right, you can still buy if you want to, and as long as a significant proportion of the world wants to buy Sydney real estate then it still makes sense to be "in the thick of it".
It just takes a stupidly disproportionately high amount of capital to do so.
And an even more stupidly higher amount of capital after you to make it worth it.
Amazes me where all the money comes from for this to happen. How the fuck can medians be over $1.1 million for houses?
lots of very wealthy people floating around town :/
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lots of very wealthy in debt people floating around town :/
Fixed that for you. :)
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lots of very wealthy in debt people floating around town :/
Fixed that for you. :)
I do know a couple that have a 1.9m mortgage. But their income is north of 500k and they have 700k offset in case one or both are out of work for a year. There are lots of people making a shedload of money!
My new neighbours paid over 2m in cash, but their money was made overseas. I'm looking forward to exchanging my homemade marmalade for a bottle of Moet, ha. EDIT: I should add that I know a friend of the estate agent, hence the inside goss on the cash sale!
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There are not lots of people making a shedload of money. you just happen to live in a neighbourhood where people buy very expensive houses. The average Australian HOUSEHOLD has in income of $106k, while the median household gets $80k. However the top fifth are getting much richer than the other 80% - see https://www.theguardian.com/business/grogonomics/2015/sep/10/australias-rich-are-getting-richer-everyone-else-is-stagnating
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There are not lots of people making a shedload of money. you just happen to live in a neighbourhood where people buy very expensive houses. The average Australian HOUSEHOLD has in income of $106k, while the median household gets $80k. However the top fifth are getting much richer than the other 80% - see https://www.theguardian.com/business/grogonomics/2015/sep/10/australias-rich-are-getting-richer-everyone-else-is-stagnating
I was just joking around Deborah, I'm well aware those people are not the average....!
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its a bit crazy in Sydney
http://www.news.com.au/finance/real-estate/buying/pintsized-apartments-snapped-up-for-top-dollar-as-governments-crack-down-on-minimum-sizes/news-story/a79761925759e9dc498e4cb236f48ee1 (http://www.news.com.au/finance/real-estate/buying/pintsized-apartments-snapped-up-for-top-dollar-as-governments-crack-down-on-minimum-sizes/news-story/a79761925759e9dc498e4cb236f48ee1)
A micro-apartment in inner city Sydney, which has just 14sq m of floor space, has its toilet right next to its kitchen sink. And it sold last week for a whopping $350,000 — a total of $25,000 per square metre.
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Well, this is not going to finish in good shape for the Aussie prop market
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Apparently we are contemplating a move to Melbourne from Brisbane, this could be fun, I checked prices for the equivalent of what we have and had a lol.
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I had a look at Adelaide prices earlier. It's cheap compared to here or Sydney. That said, I can still find somewhat affordable housing in Melbourne, but if I lived in Sydney I'd be considering a move.
I wonder how Adelaide housing would fare as an investment? Easier entry point and all of that.
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I had a look at Adelaide prices earlier. It's cheap compared to here or Sydney. That said, I can still find somewhat affordable housing in Melbourne, but if I lived in Sydney I'd be considering a move.
I wonder how Adelaide housing would fare as an investment? Easier entry point and all of that.
A young friend of mine got into housing by buying in Geelong - better than a lot of places because it has a number of employers, and quite cheap. Then she bought a couple of other places in carefully selected regional Victorian cities with diverse industries. She seems to be doing very well.
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I had a look at Adelaide prices earlier. It's cheap compared to here or Sydney. That said, I can still find somewhat affordable housing in Melbourne, but if I lived in Sydney I'd be considering a move.
I wonder how Adelaide housing would fare as an investment? Easier entry point and all of that.
A young friend of mine got into housing by buying in Geelong - better than a lot of places because it has a number of employers, and quite cheap. Then she bought a couple of other places in carefully selected regional Victorian cities with diverse industries. She seems to be doing very well.
Yeah Geelong isn't a bad area for that ($400K would get a house in many areas), especially the southern/south western suburbs. I'd be wary about buying in parts of the northern suburbs of Geelong as it might struggle after the closure of the Ford plant (it's already a lower SES area, and a major employer closing is never a good thing). Although is it a great idea to buy in an area with new housing being built nearby (there's lots of new development to the south of Geelong)?
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Funny!
https://www.domain.com.au/news/tennis-court-and-pool-sell-for-53-million-in-manly-house-not-included-20170313-guwvbw/
I walk up this street often, half the places look like shit boxes to me, or just too mansion-y! Spectacular views though.
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Some of the best views on the northern beaches. The street where it is located is where we park to go down to Shelly Beach and snorkel. Still, you have to deal with Manly traffic, parking and locals. There are better places in the State for that type of dosh so looks like a trophy land buy.
There's a nice house, looks decrepit compared to its neighbours, with a gate and few steps that opens directly to Shelly, just across the forest walkway and cafe. Now, that would be a lovely buy. That, and the couple of fibro houses located at the bottom of Tamarama gully.
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We're all boned. Sydney is getting out of control.
I would have preferred if the boom ended 6 months ago and we flatlined... that way we would have been unlikely to have a crash. Every % it ticks up now means a bit more pain for those buying in now.
Absolute stupidity going on. 2 bed units going for over a million near where I am, ~30km from the city centre. Madness.
I actually agree with Abbott on this one (probably the only thing I agree with him on). The city is being choked with unchecked immigration... don't cut immigration completely, but politicians need to stop pretending the city can absorb over 100,000 immigrants a year + natural increase without straining the existing infrastructure, and without putting pressure on house prices because there are not enough houses near employment centres.
We are adding a population the size of Hobart to Sydney every 18 months. As I said, madness.
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Even more madness is the fact that Melbourne is growing faster than Sydney, and is expected to overtake it at some point. But Sydney is pretty constrained (Blue Mountains, Royal National Park, Harbour and Ocean, and Ku Ring Gai NP), whereas Melbourne's surrounds are pretty flat.
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Some of the best views on the northern beaches. The street where it is located is where we park to go down to Shelly Beach and snorkel. Still, you have to deal with Manly traffic, parking and locals. There are better places in the State for that type of dosh so looks like a trophy land buy.
There's a nice house, looks decrepit compared to its neighbours, with a gate and few steps that opens directly to Shelly, just across the forest walkway and cafe. Now, that would be a lovely buy. That, and the couple of fibro houses located at the bottom of Tamarama gully.
The worst bit is, they aren't even buying it, it's leasehold. I'll have a look for that house, but I don't fancy sweeping the sea out every year when there's a storm. I'd rather be on a cliff, but a couple of hundred metres back...
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I'm interested in keeping an eye on this thread, even though I've decided that it would take a substantial dip in prices before I would consider buying into standard market real estate products.
I also agree with marty998 about massive population growth being at the core of the affordability problem.
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Is it really increased demand from new immigrants causing price growth in Sydney at the moment? Maybe if all the immigrants were on significant investor visas. Higher prices should cause people to look elsewhere. I think it's just rampant speculation and fomo overdrive. It's like the point of capitulation but the other way.
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Is it really increased demand from new immigrants causing price growth in Sydney at the moment? Maybe if all the immigrants were on significant investor visas. Higher prices should cause people to look elsewhere. I think it's just rampant speculation and fomo overdrive. It's like the point of capitulation but the other way.
I should probably clarify that I think there's a whole number of contributing factors that collectively cause the housing affordability problem. Rampant speculation is certainly part of it, I'd agree. The population growth in our cities exacerbates infrastructure deficiencies in things like transport, schools, and housing; but at the same time it also reassures property investors that there is a base level of demand for their properties.
The "higher prices should cause people to look elsewhere" idea is true for people looking to buy property for its housing value, but for people looking at property as an investment market, higher prices cause higher demand for investment products.
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http://www.watoday.com.au/business/banking-and-finance/apra-moves-to-tighten-mortgage-rules-20170330-gvaigd.html (http://www.watoday.com.au/business/banking-and-finance/apra-moves-to-tighten-mortgage-rules-20170330-gvaigd.html)
There are now some restrictions on the number of interest only loans that banks can issue, it will be interesting to see if this does have a bit of affect on housing prices like the government seems to be hoping
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Most of the banks have written around 40% of their loan book as interest only loans. APRA has asked them to come down to 30%.
Back of the envelope suggests that's about $160billion in loans I reckon that need to be switched to P&I in the next little while. I reckon the Banks will ratchet up interest rates on IO loans to force it to happen.
If tomorrow's auction clearance rate remains at record highs with record medians then you have to question the sanity of buyers who should know they are about to get slaughtered.
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Our IP will go on the market in about 3/4 weeks, it's the earliest we can do, but I'm starting to crap myself that all these crazy buyers will evaporate before then. Even my credit union just raised rates. What is the market looking like in everyone else's neck of the woods? Our IP is in bluechip Sydney and the surrounding area is still looking strong but obviously I've been talking to real estate people recently and they are clouding my judgement with all their optimism.
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Money Magazine has an interesting comparison this month about house price data between the ABS, Core Logic, SQM and one other provider I forget the name of.
The % growth figures are all over the shop for all of them in all capital cities.
Hard to know who to believe these days.
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Interesting...
The real estate agents I'm using seem to think that we'll get a buyer. I just can't grasp how there can be more out there other than the other 2 or 3 buyers that bought in the price range nearby but I'm told it's just the price to get into property now and people are just paying it. Hubby says not to underestimate the number of people who just need to buy right now for whatever reason, and are getting help from parents or who have come into money etc etc.
The agents don't see a crash coming, I don't know if they have been in the industry for so long that they've drunk the koolaid, or are just saying what they think I want to hear, or whether they honestly believe people will just keep buying at these prices. If there's a crash we won't sell but we'll be out of pocket for the various pre-sale expenses - quite expensive entertainment but it is keeping me engaged!
Was RP Data the other source? \
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I've been talking to real estate people recently and they are clouding my judgement with all their optimism.
When are real estate people ever NOT optimistic about the outlook for property? :)
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Was RP Data the other source? \
Probably, or it could have been Fairfax/Domain.
I've been talking to real estate people recently and they are clouding my judgement with all their optimism.
When are real estate people ever NOT optimistic about the outlook for property? :)
Spruiker of 7:30 report today trying to say "do whatever possible to buy... just buy, even if you have no money just buy something, anything"
It's all gone mad. Saving grace is the RBA not raising interest rates, but the banks are already doing it for them anyway.
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I've been talking to real estate people recently and they are clouding my judgement with all their optimism.
When are real estate people ever NOT optimistic about the outlook for property? :)
No, never, but I'm not normally in contact with them :)
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I wish some of that boom would average itself out over here in Perth :(
My IP has lost almost 1/4 of its value and my mum is having a lot of difficulty selling her home, despite very reasonable pricing.
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I wish some of that boom would average itself out over here in Perth :(
My IP has lost almost 1/4 of its value and my mum is having a lot of difficulty selling her home, despite very reasonable pricing.
So, sell Sydney housing, buy Perth housing instead?
I wonder how many SMSFs are buying houses these days with leverage, and what limits on LVR apply to houses purchased by an SMSF? Should we look into limiting LVR on housing loans to SMSFs to 50% or less? Especially since the typical person with an SMSF is likely to be older (ie: closer to preservation/retirement age) and would be affected more heavily by a crash?
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I wish some of that boom would average itself out over here in Perth :(
My IP has lost almost 1/4 of its value and my mum is having a lot of difficulty selling her home, despite very reasonable pricing.
So, sell Sydney housing, buy Perth housing instead?
I wonder how many SMSFs are buying houses these days with leverage, and what limits on LVR apply to houses purchased by an SMSF? Should we look into limiting LVR on housing loans to SMSFs to 50% or less? Especially since the typical person with an SMSF is likely to be older (ie: closer to preservation/retirement age) and would be affected more heavily by a crash?
Was under the impression most limit it to an LVR of 70% and there's a max % of your fund that can be invested in an asset.
There's also a liquidity issue - what happens when you turn 70 and you need to withdraw a 6% pension but your property is only yielding 3.5% after costs? You can't sell a house brick by brick...
So even though you're supposed to have a liquidity buffer... that could get eaten away quite quickly if there is a price correction. Suddenly there could be a lot of SMSF's needing to sell at the same time to meet pension obligations.
This is exactly what's "different" this time. In previous booms & busts, most people were not forced sellers - as long as they met their mortgage repayment they were fine.
This time around, many SMSFs could be forced to sell whether they are meeting their loan repayment obligations or not.
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I wish some of that boom would average itself out over here in Perth :(
My IP has lost almost 1/4 of its value and my mum is having a lot of difficulty selling her home, despite very reasonable pricing.
So, sell Sydney housing, buy Perth housing instead?
I wonder how many SMSFs are buying houses these days with leverage, and what limits on LVR apply to houses purchased by an SMSF? Should we look into limiting LVR on housing loans to SMSFs to 50% or less? Especially since the typical person with an SMSF is likely to be older (ie: closer to preservation/retirement age) and would be affected more heavily by a crash?
Was under the impression most limit it to an LVR of 70% and there's a max % of your fund that can be invested in an asset.
There's also a liquidity issue - what happens when you turn 70 and you need to withdraw a 6% pension but your property is only yielding 3.5% after costs? You can't sell a house brick by brick...
So even though you're supposed to have a liquidity buffer... that could get eaten away quite quickly if there is a price correction. Suddenly there could be a lot of SMSF's needing to sell at the same time to meet pension obligations.
This is exactly what's "different" this time. In previous booms & busts, most people were not forced sellers - as long as they met their mortgage repayment they were fine.
This time around, many SMSFs could be forced to sell whether they are meeting their loan repayment obligations or not.
A further complication would be that if house prices were to have a significant correction, some people close to retirement age who may be currently fairly close to self-funded might end up being forced onto the age pension if they had a lot of their portfolio in leveraged residential housing. That of course starts a 'should the government dictate how people invest their super?' argument, which is probably outside the scope of this thread :)
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So it's been just over 2.5 years since I started this thread. At that time I was interested in buying an apartment in the city to live in.
I've since totally lost interest in that idea. I love my shares that give me money too much to sell them to buy something that will cost me money.
I did have a look today at the apartments that I was interested in buying at the time. It seems like prices are still at the same level, they haven't had any growth. In fact there's been no price growth in these apartments since about 2010. I guess it's not too surprising for the Melbourne apartment market.
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http://www.abc.net.au/news/2017-04-20/inflation-data-suffers-from-exclusion-of-housing/8457718
I mentioned something in a similar vein in this thread six months ago. :)
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http://www.abc.net.au/news/2017-04-20/inflation-data-suffers-from-exclusion-of-housing/8457718
I mentioned something in a similar vein in this thread six months ago. :)
I know house prices in Melbourne and Sydney are crazy, but the statistic of 44% growth nationally over the last few years, can that be true? Given the losses in WA and the stagnation in many regional areas, it's kind of misleading.
I can never get my head around all the macroeconomic levers, but including my capital appreciation in CPI seems intuitively wrong since I can't spend it. Increasing wages (for those that are linked to CPI) won't counter the supply problem, so it would probably just increase prices even further. I hope that one day someone has the balls to just address negative gearing. In the US their investment income is taxed at lower rates and that seems to increase inequality, so I'm wary of things that lead to an uneven playing field. And to have a bit of a boomer-esque rant, even though I'm not a boomer, maybe the first time buyers should consider life outside of the capitals, because that's where I lived and bought my first place back in the olden days. It might be the first time I've agreed with Barnaby Joyce on something!
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Colleague at work just bought a small shoebox apartment in Pymble for $689,000 off the plan. Settlement in just over a year when he'll have to stump up stamp duty of over $30k.
Developers are still cashing in...hopefully for his sake the banks will still be lending.
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I wonder how many SMSFs are buying houses these days with leverage, and what limits on LVR apply to houses purchased by an SMSF? Should we look into limiting LVR on housing loans to SMSFs to 50% or less? Especially since the typical person with an SMSF is likely to be older (ie: closer to preservation/retirement age) and would be affected more heavily by a crash?
I work with SMSFs and have found that those that leverage property tend to be younger than average SMSF members. Like late 30's / early 40's compared to the majority of clients being over 60.
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Was disappointed to hear Blib Shotten on TripleJ this morning touting the changes Labor are proposing, none of them were to do with fixing negative gearing.
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Was disappointed to hear Blib Shotten on TripleJ this morning touting the changes Labor are proposing, none of them were to do with fixing negative gearing.
I think that is because they are about to anounce new policies - they already have a NG policy
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Was disappointed to hear Blib Shotten on TripleJ this morning touting the changes Labor are proposing, none of them were to do with fixing negative gearing.
I only skimmed an article about their proposals but I thought they looked liked they might be a step in the right direction without doing any complete fuckwittery e.g. accessing super for PPOR deposits. Here's their policy on NG:
http://www.alp.org.au/negativegearing
Sounds legit but what are the odds of Labour winning an election I wonder.
There was this yesterday too:
http://www.abc.net.au/news/2017-04-20/housing-affordability-decisions-made-by-big-property-investors/8454978
It says only 10% of the population own investment property and a whole lot of these are politicians!
Apart from the fact that it would affect them and their pals, is there an economic reason put forward by the Libs not to get rid of negative gearing? I would assume that the money saved from NG goes to wealth building and not consumption.
ETA: I was thinking about this some more - if only 10% of people have IPs, and some of these are positively geared, is NG such a big issue in the housing market after all? I guess the stats don't tell us how many properties are held by each member of that 10%. Or how many are owned by companies and trusts and the like.
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An article on news.com.au today basically said the idea of raiding super for property is a bad idea.
http://www.news.com.au/finance/real-estate/buying/the-great-super-swindle-100k-poorer-and-still-no-deposit/news-story/f59f50f3782c349964398921e3be1a03 (http://www.news.com.au/finance/real-estate/buying/the-great-super-swindle-100k-poorer-and-still-no-deposit/news-story/f59f50f3782c349964398921e3be1a03)
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There was an interesting article in the Fairfax papers - http://www.canberratimes.com.au/business/the-economy/the-five-charts-that-prove-there-is-a-housing-affordability-crisis-20170414-gvla09.html
The graphs are not at all equal, as they are for different time periods. However, the last graph, which shows the % of the household budget spent on different things is very interesting. I have known for a long time that a lot of things are so much cheaper than they used to be, and the graph shows this clearly. However, I added the expenditure of all five things for the most recent point in the graph and for September 1991 (picked at random) - 43% now versus 41% in 1991 of the budget was consumed by these five things. And people had a lot fewer clothes in 1991 than they do now.
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Pretty good description of the different housing tribes of Sydneysiders
https://www.domain.com.au/news/which-nightmare-sydney-housing-horror-scenario-is-right-for-you-20170428-gvu3yb/
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Haha. That pretty much sums things up.
The only sensible option is to leave. Sure Sydney is a nice place, but there is sure to be other places that once would find almost as nice for a fraction of the cost.
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Nice article, good to have a laugh :)
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That article is rather depressing. Makes me glad I don't live in Sydney.
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I will go against the flow and say, the property prices in Melbourne are not crazy. Still plenty of cheap 4/2/2 houses on the West. A colleague of mine lives in Melton South and works in the CBD. We hire fresh graduates on 70-75K plus super. For a couple of young graduates it is very easy to afford a nice house with a backyard in Melton. Express train to CBD is 26 minutes. Drive to CBD is 25 minutes on the week-end. Schools in Melton are ok (not criminal), and for 8-11K a year you get your child into an excellent private school.
There are many other still affordable suburbs on the West (Werribee) and North (Epping, Mernda) that have access to a train station. Easy to afford a house on two starting salaries.
But if a couple of graduates want a house with the backyard in Brunswick while having 2 cars and brunch every Sunday, then yeah, life is tough. But maybe it meant to be like this?
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(http://i.imgur.com/6BDzjdI.jpg)
Don't give in to the ridiculous conservative rhetoric of smashed avocado brunches. A generation of average income earners have been priced out of the market by government policies (CGT discount and negative gearing) that have fuelled speculation to a ridiculous degree. It's a vicious transfer of future wealth from young people to older people who bought when housing was more affordable and personally I refuse to participate until there is some sort of regression to the mean. Plenty of other avenues to wealth (despite what the average Australian will tell you).
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Be interesting to see that graph against the participation rate of married women in the workforce.
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Let's see. My in-laws bought a slightly better then median house in Melbourne in 1975. A doctor and a nurse. They were 30 y.o. Let's see: they had a small 10 y.o. Toyota Corolla. No mobile phones. No aircon. One bathroom. Laminate kitchen. No garage, just a carport. No gas ducted heating. No public transport and basically nothing within walking distance: no buses or trains, no child care, schools or shops. Must drive everywhere. Imho, the 20-th percentile house today is probably comparable to the median house 40 years ago.
My in-laws had no flying holidays for 15 years after buying that house, driving to the shore couple of times a year was all they did. They lived with no carpets for a year, just bare floor boards, had only second-hand furniture, and ate out 5-6 times a year on major occasions. Second car was bought in 6 years when the born kids could not fit into Corolla any longer. They didn't struggle but had to budget extremely carefully, until their late 30s when their income increased.
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Be interesting to see that graph against the participation rate of married women in the workforce.
That's the thing I can't understand. When we bought our first house in 2010, we were working two full time jobs on median wages 65K-70K each. Making $8K after taxes and superannuation total. We could comfortably spend 60% of our net income on a mortgage.
The dream of supporting a family with kids and buying a median property on a median income in a major urban area is well and truly dead. No country in the world can offer such a lifestyle any longer.
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Sorry mate, anecdotes are not evidence, no matter how many of them you have.
Here's data up to fairly recently on a bunch of countries, you will find a range of results under the prices vs average income. Australia is in the top range of all indicators. Japan, South Korea, Singapore have the lowest current ratios but a bunch of EU nations are on fairly average ratios too.
http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
Here's your women in the workforce for Australia. A slow, steady rise, nothing that would explain sudden, dramatic price increases like those seen in the late 90's, early 00's.
(http://i.imgur.com/gi61t1h.jpg)
Look I'm not saying that people can't buy property. The average (or more precisely, the median) wage is exactly that; half of people will be above the median and relative to their income property will look like not such a bad deal. If your wage is above that line, it's fairly good chance that you are going to have friends, family and associates also above that line - and in your little world it will look like it's not such a big deal. For the 50% of people below the line, poor government policy has failed to either keep property speculation to a minimum and/or keep wage growth in line.
You/other people are much too willing to throw your hands in the air and call the death of affordable property (or any other ultimately temporary political/economic situation). The world economic climate is a major contributor but there are still strong actions our government could potentially take. Instead they fail to act in the positive - which in my opinion means they continue to act in the negative through inaction - by failing to change policies that exacerbate the situation (easily within their power) they are continually deciding to worsen the problem. I'm going to get political here and say the reason why is because many of the politicians in power and those that influence them are all high-income property investors and from their perspective, and the perspective of those that they choose to listen to, the problem is not actually a problem.
You will see conservative media constantly try and reinforce this perspective with push-pull housing bubble articles (article today says yes, housing bubble, the one tomorrow will say no), blaming the victim (eg smashed avocado brunches and young people generally being terrible with money - not like responsible boomers in the 80's), cherry-picking data (here, look at this one single person who is under 30 and has 10 properties! tomorrow we will have found one more to show you!).
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I agree with a lot that you say. Our politicians have no urge to act. Several recent articles show why - they own a lot of investment properties themselves - http://www.abc.net.au/news/2017-04-20/housing-affordability-decisions-made-by-big-property-investors/8454978 - and get kickbacks - http://www.couriermail.com.au/news/opinion/opinion-plan-to-end-developers-involvement-in-council-elections/news-story/f227dd7821134afc6b74cca3edb34911 (I couldn't fond the original crime commission report).
However, as per my recent post, although the percentage of income spent on housing expenditure per household has gone up considerably, the percentage of income used for household expenditure on a basket of things - housing, food, clothing, health and education has remained pretty consistent over 30 years. Which I find quite staggering. It appears that as other things have become less expensive, we have possibly increased our expenditure on housing to match.
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It's a good point and one worth considering.
Found this, which is AU data, covering from all the way back to 1900. It's overall consumer spending rather than the breakdown of one household.
(http://i.imgur.com/SNTYqSS.png)
It's not the best set of data to work from for this particular conversation, but I thought I'd put it here if only to prove your point - groceries (here 'non-durables') are way down. Health and education costs are actually increasing as a proportion, though not by much. Tax has been a big increase over the long-term but fairly steady since 1980. Housing here would, I think, be a mix of the rent, savings, and capital/finance factors which are collectively creeping up over 40%.
A few points to the other direction I can think of would be - oil prices are up and we're probably driving a lot more - particularly with housing distant to CBDs. We spend way more on technology 'gadgets' that just didn't exist 30-40 years ago. People used to do a lot more 'in-sourcing' of handyman type things and stuff in general used to be a lot more repairable instead of replaceable so general maintenance and outsourcing costs will have increased.
I wouldn't argue that yes, people in general are using a lot more of their income to spend on property. My argument would be that they are doing so not because they are rationally thinking about what percentages they can spend on what expenditures, but because government policy has made property an overly attractive option for wealth preservation/creation. That excess investment money would otherwise have gone into savings/shares/bonds/business/etc instead of driving up the price of housing.
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Story doing the rounds this morning in the papers about possible tax breaks for first home buyers saving for a deposit. Salary sacrifice type arrangement or some such.
There's going to have to be limits on it... imagine an 18 year old lifelong renter who salary sacrifices for 47 years saving for a "first" home and buys one when they are 65.
Can see the budget being in deficit for a very very long time if this comes in... negative gearing remaining for existing investors and tax breaks for renters too.
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Sorry mate, anecdotes are not evidence, no matter how many of them you have.
Here's data up to fairly recently on a bunch of countries, you will find a range of results under the prices vs average income. Australia is in the top range of all indicators. Japan, South Korea, Singapore have the lowest current ratios but a bunch of EU nations are on fairly average ratios too.
http://www.economist.com/blogs/dailychart/2011/11/global-house-prices
The article is behind the paywall unfortunately.
Anyway, there is no need to argue on this. I completely agree that Australian cost-to-income property ratio is higher than European or Asian. What I am saying is that it meant to be that way. Australian median property is of much, much higher quality that median property in Europe or Asia.
Also it is difficult if not impossible to compare property ratios in different countries. Depending on sources, Singapore, for example, has only 20% of private housing, the rest is public. It is easy to control the market when you own 80% of it, right? Denmark state controls 25% of the housing. In France low-rent housing represents 40% of the whole rental market. What is it in Australia? 4.2% of the total housing stock. Throw the tenancy laws that are severely biased towards landlords, and we have what we have.
Immigration doesn't help either. Property prices in Shanghai (and other 7 Chinese major cities) increased 20% in 2016, and this should have a direct impact on Sydney, no matter what politicians do. Unless maybe 50% of tax on purchases by foreigners introduced? Only half kidding.
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Suddenly there could be a lot of SMSF's needing to sell at the same time to meet pension obligations.
This is exactly what's "different" this time. In previous booms & busts, most people were not forced sellers - as long as they met their mortgage repayment they were fine.
This time around, many SMSFs could be forced to sell whether they are meeting their loan repayment obligations or not.
According to the ATO statistics (source: article from "the Australian", would love if anyone could find a more credible source) shows that SMSFs do not invest in a single asset class on a major scale. Portfolios are relatively diverse with real estate investment forming part of the fund’s overall asset allocation. Australian residential property is only 4 per cent of all SMSF investment and represents only 0.4 per cent of the total of Australian housing market.
As an anecdote, we have 420K in superannuation, none of that is invested in property. Same for anyone I know. For exactly same reasons: inflexibility at pension stage.
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Anyway, there is no need to argue on this. I completely agree that Australian cost-to-income property ratio is higher than European or Asian. What I am saying is that it meant to be that way. Australian median property is of much, much higher quality that median property in Europe or Asia.
Also it is difficult if not impossible to compare property ratios in different countries. Depending on sources, Singapore, for example, has only 20% of private housing, the rest is public. It is easy to control the market when you own 80% of it, right? Denmark state controls 25% of the housing. In France low-rent housing represents 40% of the whole rental market. What is it in Australia? 4.2% of the total housing stock. Throw the tenancy laws that are severely biased towards landlords, and we have what we have.
Immigration doesn't help either. Property prices in Shanghai (and other 7 Chinese major cities) increased 20% in 2016, and this should have a direct impact on Sydney, no matter what politicians do. Unless maybe 50% of tax on purchases by foreigners introduced? Only half kidding.
Since it sounds like we agree so I'll point out but not push the issue that you just moved the goalposts from 'affordable property is dead worldwide' to 'australia is different'.
Foreign investment is an issue.
(http://i.imgur.com/fn6kQQI.jpg)
China is the largest single purchaser, yes. However as a proportion of total investment they are less than a quarter. Personally I think that focusing on Chinese to the exclusion of other foreign investors is racist and subject to extreme confirmation bias (think a young couple pointing out all the Chinese families at an auction and getting frustrated and conveniently ignoring all the white American and Canadian investors). I would support government policy that heavily taxed foreign property investment if it was part of a broader approach to affordability. I would not support it if it was a policy standing out on its own that was directed at China in a subtly racist "us-vs-them" manner.
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I consider my overall assets for diversification. Since I hold property outside super, I hold none in my smsf. General I fibbing this to be true anecdotally. I am an accountant specialising in SMSFs. Most clients have no property in super. Larger clients tend to have indirect property via managed trusts. Less than a handful have direct property. Even less with lrbas. My firm might not be indicative of the market overall. In my almost 20 years experience I've only seen one smsf be "forced" to sell to meet pension payments and even then, they just stopped the pensions. Just my experience.
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When I said "affordable property dead worldwide", I actually said "a median property and a family on a median income is dead worldwide". And yes, I meant "Australian quality affordable, ie a house on land".
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BattlaP that is an AMAZING graph. You are telling me that CANADIANS (of whom there are about 50% more than Australians) own similar amounts of Australian property to the Chinese and Americans (both of whom have vastly more people than us)! How can that be? Why would they do it?
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It's a couple years old but it was indeed the case at that time. More recent years have seen spikes in investment from China, but at other times in recent history the major contributor was the US or Singapore. Japan jumped high up the list to 3rd in 2015. My point is that it is fluid and depends a lot on what markets real estate companies choose to target. Obviously they are going to target Chinese investors if they have the capital to spare.
For example, here's an article targeting Canadians from 2014 that lists all the advantages for them: http://www.eastcoastbuyersagents.com.au/canadians-are-big-buyers-of-australian-real-estate-boom-times-are-over-for-canadas-housing-sectors/
It shouldn't matter where the investment is coming from, if it's causing issues within the local market it is our own problem to deal with politically. Because I love graphs, here's another one:
(http://i.imgur.com/q0Y1WuQ.jpg)
Vancouver prices, the dip recently is where they introduced a hefty property tax for foreign buyers. Mainly in the detached houses category. Early days yet, but while it hasn't reduced prices a great deal I would say it would look to be effective in dealing with the 'sharp edge' of foreign speculation on a local market without an apocalyptic housing crash.
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The graph from the Vancouver market shows that there hasn't been much of a price drop at the entry level / apartments. Whereas detached houses have dropped from 1.8 to 1.5m, that's a massive drop that could send some people underwater. I guess in the medium term improved affordability at the top for those wanting detached housing might free up stock at the entry level?
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Anyone know if auction clearance rates and medians were up or down this weekend?
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Trying not to be judgey here (but failing to do so) but houses in the suburb I live in Sydney's west are now going for nearly $2M.
It is COMMON for people buying such homes (I live in a flat) to have mortgages in excess of $1.5M.
Now, by my calculations that is a fortnightly repayment of around $5K, or $10K a month or $120K to $130K a year excluding extra repayments. The mind boggles.
All I can say is WTF and how risky the banks are by being complicit here. How can you approve multi-million dollar mortgages to working couples?! Ok, sure there is a willingness on the buyer/s part but sheesh, I would have thought banks would want bigger deposits and family money as surety can only go so far.
If the deposit doesn't kill you, the repayments will. I continue to be boggled by the insanity going on in this fair city. When the tide goes out, there is going to be a lot of debt holders.....
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Anyone know if auction clearance rates and medians were up or down this weekend?
Back up to 80% in Sydney, however, for the past 2 weekends the median price has been almost exactly the same, within 1%, of the same weekends last year. A few more weekends of no year in year growth and the sentiment in the market will shift quickly. Especially if there is an interest rate rise.
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Trying not to be judgey here (but failing to do so) but houses in the suburb I live in Sydney's west are now going for nearly $2M.
It is COMMON for people buying such homes (I live in a flat) to have mortgages in excess of $1.5M.
Now, by my calculations that is a fortnightly repayment of around $5K, or $10K a month or $120K to $130K a year excluding extra repayments. The mind boggles.
All I can say is WTF and how risky the banks are by being complicit here. How can you approve multi-million dollar mortgages to working couples?! Ok, sure there is a willingness on the buyer/s part but sheesh, I would have thought banks would want bigger deposits and family money as surety can only go so far.
If the deposit doesn't kill you, the repayments will. I continue to be boggled by the insanity going on in this fair city. When the tide goes out, there is going to be a lot of debt holders.....
1.5M mortgage at 4% is $7200 monthly. Add council rates and insurance, call it $8000 monthly. We could easily afford such repayments on 120K and 100K salaries (before super) even with some (not much) child care costs. These salaries are easily earned by a couple of white collar professionals in their 30s in Sydney. Now, the question is what happens when interest rates go up, whether there is any safety margin in these numbers. I guess we will soon find out :)
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I stand corrected. I still am gobsmacked with what is considered the new normal in mortgage loan amounts. And repayments. $8-10k per month is freaking humongous. 😳 I must be so out of touch with the mortgage game in Sydney.
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If as a couple you are grossing 100K and 120K, so are netting maybe 170K, you would be foolish to commit to paying 96,000 in housing costs..... for the next 30 years!!!
A 3% rise in interest rates and boom, your remaining $74K disposable income is cut to $29K per year. Now how would you pay for childcare?
Even with low interest rates my personal opinion is that a couple should not borrow more than 4x their gross income as an absolute max, and if one of the couple's wages is a lot higher than the other, then best take only 3x the salary of the high earner i.e.: a couple earning 70k and 150k should not borrow
more than 4 x 70k + 3 x 150k = 730k.
I took out a very large mortgage with my wife 7 years ago, and whilst it has paid off due to high appreciation of property in sydney (assuming we sell our house), having the large debt weighing on us is becoming increasingly annoying. And as we have fallen in love with our home, selling to settle the debt is also annoying. We wouldn't borrow as much if we had our time again, even though on paper, being significantly leveraged was the right financial move.
Our mortgage at the start was 3.3x our combined incomes.
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I'm just hoping prices chill for a while here. I'm just about in a position to buy (and I've found places I could afford fairly comfortably), so I'd rather not have the goalposts shift too much between now and then.
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Looking at Auction results in Sydney this past month or more, it appears to me that despite the strong auction clearance rates, prices are pretty much exactly where they were 12 months ago.
Looking at this weekend, 79% clearance rate is very high, but the median sale price is almost exactly the same as it was 12 months ago.
"Top is in".....hahaha
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I want housing prices to tank for selfish reasons, but I don't want the many people I know who are tied up in property to suffer too much, it's a bit hard.
A 20-30% drop would be great!
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Ours will go to market in August and Auction in September, hopefully nothing tanks too much between now and then.
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Ours will go to market in August and Auction in September, hopefully nothing tanks too much between now and then.
Good luck!
Our IP goes on the market in 2-3 weeks. Bit nervewracking as we were going for the early winter sale when there is less competition but there seems to be a bit about all of a sudden.
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Indeed. Also looking to put our inner city sydney terrace on the market very soon and am paranoid (hopefully unneccessarily) we're on the precipice of a downturn. This has craziness has to stop at some point...
Sent from my SM-G925I using Tapatalk
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I'm hoping the crazy Sydney market will rub off on Brisbane in a few months. We're planning to sell our unit there after the end of the financial year. Last time we attempted to sell, the market tanked after the 2011 floods. Wish us luck this time around.
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Altair Asset Management hands back cash to clients citing looming correction (http://www.watoday.com.au/business/markets/fund-manager-hands-back-cash-to-clients-citing-looming-correction-20170529-gwfgua.html)
Mr Parker outlined a roll call of "the more obvious reasons to exit the riskier asset markets of shares and property".
They included: the Australian east-coast property market "bubble" and its "impending correction"; worries that issues around China's hot property sector and escalating debt levels will blow up "later this year"; "oversized" geopolitical risks and an "unpredictable" US political environment; and the "overvalued" Aussie equity market.
But it was the overheated local property market that was the clearest and most present danger, Mr Parker said.
It will be interesting to see how this pans out for his company.
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Saw that article today - quite a bit of discussion amongst my colleagues.
Some are jokingly calling him the Steve Keen of the stockmarket.
I am too tired to give a considered view.... it's 1am and I'm in a cab home from work. Long day!
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I am now in the situation where our tenants have moved out of our IP so no more money coming in, yet we are throwing money at it to spruce it up and stage it for sale asap. Feeling a bit on edge.
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Has anyone any experience in selling apartments in this hott-ish (coming off the boil?) market? Our agent has set the auction date at exactly 2.5 weeks after the listing went online and that's taken us by surprise. There was no mention of this before so we had just assumed it would be a standard 4 week campaign.
She is willing to discuss it, but I don't know if I should just be led by her experience - she says that people see it on two Saturdays and are ready to act by the third (auction day). We offered on our PPOR the week after the 1st viewing (there was a shortage of stock) so I guess I understand the principle. But on the other hand - the weather report is saying a solid two weeks of rain (outside space is supposed to be the star feature of the place), plus we've got the public holiday in NSW this weekend. I feel like the agents are rushing this through and I'm wondering if there is something else at play behind the scenes (e.g. another competing property they want to bring to market straight after).
What do you reckon - see how it plays out with interest this weekend or insist on extending the date now before anyone notices?
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The agent just wants it sold as quickly and easily as possible. They (generally) don't even really care what the price is.
Are there clear market comps (i.e. Do you have a good idea what it will sell for)? If so, 2.5 weeks should be fine. Otherwise I would be asking for 4. Or setting a particularly high reserve price. Make the agent work for their commission.
Are you selling now because you think the market has peaked? If the outdoor space is a key feature, I would think that selling in winter is not going to do you any favours.
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With your outdoor space being a prime selling point, and rain predicted, I'd be concerned about being pushed into a 2.5 week campaign.
We'll have a four week campaign for our Auction, aiming for a mid July listing.
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I'd say that if you're changing it (I probably would), do it quickly before anyone notices.
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Has anyone any experience in selling apartments in this hott-ish (coming off the boil?) market? Our agent has set the auction date at exactly 2.5 weeks after the listing went online and that's taken us by surprise. There was no mention of this before so we had just assumed it would be a standard 4 week campaign.
She is willing to discuss it, but I don't know if I should just be led by her experience - she says that people see it on two Saturdays and are ready to act by the third (auction day). We offered on our PPOR the week after the 1st viewing (there was a shortage of stock) so I guess I understand the principle. But on the other hand - the weather report is saying a solid two weeks of rain (outside space is supposed to be the star feature of the place), plus we've got the public holiday in NSW this weekend. I feel like the agents are rushing this through and I'm wondering if there is something else at play behind the scenes (e.g. another competing property they want to bring to market straight after).
What do you reckon - see how it plays out with interest this weekend or insist on extending the date now before anyone notices?
Is this a PPOR you are selling or an investment? If the latter it would be great to have the contract date in July instead of June.... possibility of delaying payment of CGT for up to 21 months.
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The agent just wants it sold as quickly and easily as possible. They (generally) don't even really care what the price is.
Are there clear market comps (i.e. Do you have a good idea what it will sell for)? If so, 2.5 weeks should be fine. Otherwise I would be asking for 4. Or setting a particularly high reserve price. Make the agent work for their commission.
Are you selling now because you think the market has peaked? If the outdoor space is a key feature, I would think that selling in winter is not going to do you any favours.
The funny thing is that the outdoor space is too hot in summer but pretty damn wonderful on a sunny winter day. June has low rainfall normally and Feb/ March are the soggy months. It's just a freak couple of weeks really.
The agent is on tiered commission, so low up to our reserve and then very high for anything above that. So the incentive is to work hard.
Thanks GT and Deborah also. I'll call her tomorrow.
Marty it's our IP. Does the CGT event occur when contracts are signed or settlement? We worked out that it won't matter which year for tax amount but yeah, good to delay. If we extend one week that's 1/7 for auction day.
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It's contract date for cgt.
Good luck.
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So we had our first open and quite a few groups through - but only one interested party. They've made an offer already and we are 99% going to take it as it's fair - it's actually more than I thought we'd get when it first entered our minds to sell and exactly equal to what my hubby wanted when he said "I'll only sell it if we get $X". It's $50k less than what the agent thought we could get if we had two competing buyers. I'm pretty happy with it - not mind blowing but definitely more money than I'd pay for it, and that's the key question right?
We could hang on another couple of weeks for a competing buyer but then we may lose this one as they say they have an option B. They have increased their offer by $20K from their initial and they want to sign tomorrow.
A bird in the hand is worth two in the bush, I reckon.
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So we had our first open and quite a few groups through - but only one interested party. They've made an offer already and we are 99% going to take it as it's fair - it's actually more than I thought we'd get when it first entered our minds to sell and exactly equal to what my hubby wanted when he said "I'll only sell it if we get $X". It's $50k less than what the agent thought we could get if we had two competing buyers. I'm pretty happy with it - not mind blowing but definitely more money than I'd pay for it, and that's the key question right?
We could hang on another couple of weeks for a competing buyer but then we may lose this one as they say they have an option B. They have increased their offer by $20K from their initial and they want to sign tomorrow.
A bird in the hand is worth two in the bush, I reckon.
Take the offer, it's there, on the table, waiting for you to accept, and meets both your criteria for amount.
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So we had our first open and quite a few groups through - but only one interested party. They've made an offer already and we are 99% going to take it as it's fair - it's actually more than I thought we'd get when it first entered our minds to sell and exactly equal to what my hubby wanted when he said "I'll only sell it if we get $X". It's $50k less than what the agent thought we could get if we had two competing buyers. I'm pretty happy with it - not mind blowing but definitely more money than I'd pay for it, and that's the key question right?
We could hang on another couple of weeks for a competing buyer but then we may lose this one as they say they have an option B. They have increased their offer by $20K from their initial and they want to sign tomorrow.
A bird in the hand is worth two in the bush, I reckon.
Take the offer, it's there, on the table, waiting for you to accept, and meets both your criteria for amount.
Yes, it is done. I guess there is a nailbiting 48hr wait now until we have all signed contracts. Less stressful than if it had already been on the market for weeks tho!
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So we had our first open and quite a few groups through - but only one interested party. They've made an offer already and we are 99% going to take it as it's fair - it's actually more than I thought we'd get when it first entered our minds to sell and exactly equal to what my hubby wanted when he said "I'll only sell it if we get $X". It's $50k less than what the agent thought we could get if we had two competing buyers. I'm pretty happy with it - not mind blowing but definitely more money than I'd pay for it, and that's the key question right?
We could hang on another couple of weeks for a competing buyer but then we may lose this one as they say they have an option B. They have increased their offer by $20K from their initial and they want to sign tomorrow.
A bird in the hand is worth two in the bush, I reckon.
Take the offer, it's there, on the table, waiting for you to accept, and meets both your criteria for amount.
Yes, it is done. I guess there is a nailbiting 48hr wait now until we have all signed contracts. Less stressful than if it had already been on the market for weeks tho!
Its one of the reasons we are going with an auction this time around, it sells on the day, no backing out. And if it doesn't sell, than there's always the standard listing and selling practice you've just gone through.
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Congrats Freshwater. Fingers crossed it makes it to settlement without a hitch.
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Nice work, Freshwater!
As someone who is looking to buy, it's interesting for me to hear from the side of the seller about the worries you guys have on getting to a successful settlement. So I'm wondering if there are any tips for me as a buyer to harness that to my advantage? E.g. if I was to make an offer, would a seller be willing to accept a lower offer if say finance is 100% not an issue (e.g. if my partner and I have the cash and don't need a bank loan)?
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Nice work, Freshwater!
As someone who is looking to buy, it's interesting for me to hear from the side of the seller about the worries you guys have on getting to a successful settlement. So I'm wondering if there are any tips for me as a buyer to harness that to my advantage? E.g. if I was to make an offer, would a seller be willing to accept a lower offer if say finance is 100% not an issue (e.g. if my partner and I have the cash and don't need a bank loan)?
I think if you have cash and can offer the quickest possible settlement that would be very attractive to sellers, especially in a market that is plateaued or cooling down. If two people were offering the same or very similar amount, we'd probably go with the cash buyer. Whether we'd take a lower offer... we had a price in mind and we don't have to sell, so we probably wouldn't have accepted a lower offer than we thought it was worth.
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Thanks, Freshwater. Will keep that in mind! :)
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Does anyone have any idea how this LMI malarkey works?
If little Johnny wants to buy a $400K home, and let's assume that LMI is a flat $10K and the banks require a minimum of 5% deposit, does that mean that Johnny's required to come up with $20K upfront (5%) or $30K (5% + LMI)?
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LMI is usually capitalised into the loan.
You end up paying quite a bit of interest on top of the LMI premium....
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You can do it either way.
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Hey guys, reviving the thread a little.
So the GF and I are considering buying a place in 2019 - we'll have a deposit of around $100k by that time and are budgeting for around 400-500k prices. We're looking primarily at 2-3 bedroom apartments in the Canberra burbs (5-10km from the city), not interested in over-spending, probably not interested in new places.
However, I'm a bit wary of property so I'm looking to learn as much as I can. I've read the thread through and there's a lot of great information (and a lot of information that went above my head).
I have a few questions:
1. If you are looking at property how do you know what a fair price is?
2. If a place is going to auction, but the agent lists a price guide, does that bear any reflection on the end price? Or is it a crap shoot?
3. We're thinking of buying because Canberra will be the place for us for the next 5-10 years, so from our PoV it makes sense to try and set up a longer term base and make it ours - however, happy to hear any criticisms
4. How do I learn more about property - I know very little, almost nothing - about the property itself, about the process of buying and about the loans themselves. I've never had debt or loans of any kind so I'm a babe in the woods
5. Advice? Tips? Words of warning? Things to double check?
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Hey guys, reviving the thread a little.
So the GF and I are considering buying a place in 2019 - we'll have a deposit of around $100k by that time and are budgeting for around 400-500k prices. We're looking primarily at 2-3 bedroom apartments in the Canberra burbs (5-10km from the city), not interested in over-spending, probably not interested in new places.
However, I'm a bit wary of property so I'm looking to learn as much as I can. I've read the thread through and there's a lot of great information (and a lot of information that went above my head).
I have a few questions:
1. If you are looking at property how do you know what a fair price is?
I'd recommend starting to read through the property mags, especially the sold price section. You can also purchase suburb reports from places like RP Data but things like median data and recent sales are normally freely available. You'll get a feel for reasonable prices.
2. If a place is going to auction, but the agent lists a price guide, does that bear any reflection on the end price? Or is it a crap shoot?
In Sydney, property would usually go for about 10% above the auction guide. It certainly won't go for under the guide. If it goes 20% above either people are going crazy or the agent needs reporting for under-quoting.
3. We're thinking of buying because Canberra will be the place for us for the next 5-10 years, so from our PoV it makes sense to try and set up a longer term base and make it ours - however, happy to hear any criticisms
Makes sense to me to buy where you are planning to live for 10 years. 5 years and I wouldn't be as keen. You're going to sink a lot into stamp duty and other buying fees.
4. How do I learn more about property - I know very little, almost nothing - about the property itself, about the process of buying and about the loans themselves. I've never had debt or loans of any kind so I'm a babe in the woods
There are guides online that take you through the steps. The first thing to do would be to get pre-approval on a loan, which means researching banks and loan options. Some people use a mortgage broker, we just researched rates online - see sites like Canstar. Then you'll know roughly how much you'll get loaned. (Then once you've found a place and made an offer, you do a proper application, and the bank will value the property and review again how much they will loan you.) The whole process of making an offer is terrifying, I'm not great on tips. All I can say is, the real estate agent is working for the seller not you, so take everything they say with a pinch of salt. I've had agents blatantly lie about other offers, the number of people interested.
5. Advice? Tips? Words of warning? Things to double check?
Hmmm, best tip would be - review credit unions for loan offerings. We went with CUA, got a low rate and zero fees. I know people that have got great rates from the big banks because they qualified for a staff discount and aren't paying fees. I don't know that the deal is that great for everyone else though.
If you're really worried about such a big decision, I'd suggest using a buyer's agent. When we were buying a $1m property we were terrified and paid $10k for assistance in valuing and negotiating a price. At that time in that market, places were selling in one week and it was invaluable to have that help, and it definitely paid for itself. In a slower marker it would be less important.
Lastly, if you are buying a unit, you'll get a strata search done, where an independent person will review the strata minutes and finances and flag anything. I'd pay for that, but also do it yourself. Look for complaints about noise, maintenance issues. Although in theory, owners can be fined and so on if they are inconsiderate, practically it is very difficult to change anyone's antisocial behaviour. Ask me how I know.
In a newish build, see if the strata fees seem v low - sometimes they are set low when built to encourage people to buy, but later they are greatly increased to cover maintenance. Find out who built the block and google to check they are still in business / ask around whether they've had any insurance claims - e.g. waterproofing. Again, ask me how I know!
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Thanks for the tips!
Also HOW DO YOU KNOW?
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You don't know. It's a leap of faith you've just got to take.
Check out www.onthehouse.com.au for free sales data, and allhomes.com.au for Canberra realestate ads (more focussed on the ACT, as opposed to the big boys RE.com and domain).
ACT stamp duty is decreasing quite substantially year on year. They're slamming investors with YUUUUUGE land tax bills. Pretty soon there won't be any investors left in Canberra apartments, screwing the lot of us with a ridiculous Land Tax formula that charges a higher marginal rate for low value units than for houses worth many multiples more.
I agree with Fresh Bread, the whole process is terrifying the first time around. You make an offer, sign the contract, THEN go talk to the Bank. Like I said, leap of faith!
It gets easier after that. First loan I got I was dressed in my best suit. Last loan I got I was in a singlet, boardies and thongs. The level of stress tends to go down over time. First week is "holy shit I owe the Bank fuckloads what the fuck am I doing am I a fucking idiot" etc etc you get the gist.
After a while you realise the bank is never going to call in the loan, they want you paying it off forever and your stress levels go down.
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You don't know. It's a leap of faith you've just got to take.
Check out www.onthehouse.com.au for free sales data, and allhomes.com.au for Canberra realestate ads (more focussed on the ACT, as opposed to the big boys RE.com and domain).
ACT stamp duty is decreasing quite substantially year on year. They're slamming investors with YUUUUUGE land tax bills. Pretty soon there won't be any investors left in Canberra apartments, screwing the lot of us with a ridiculous Land Tax formula that charges a higher marginal rate for low value units than for houses worth many multiples more.
I agree with Fresh Bread, the whole process is terrifying the first time around. You make an offer, sign the contract, THEN go talk to the Bank. Like I said, leap of faith!
It gets easier after that. First loan I got I was dressed in my best suit. Last loan I got I was in a singlet, boardies and thongs. The level of stress tends to go down over time. First week is "holy shit I owe the Bank fuckloads what the fuck am I doing am I a fucking idiot" etc etc you get the gist.
After a while you realise the bank is never going to call in the loan, they want you paying it off forever and your stress levels go down.
Yes, that's how I was in my early 30s..... then one day in my early 40s I reverted back to "holy shit I owe the bank fuckloads. What the fuck am I doing. Am I a fucking idiot." This was shortly followed by what are my options? which in turn led me to MMM.
.... at some point I just got sick of being a slave to my job, and my mortgages were making me a slave... they still are for now (bring on 2019).
But whilst it sucks having a big mortgage over your head, having big mortgages has been the main way that I have generated wealth. I got lucky with the timing of my becoming an adult and have ridden a 20 year property boom. I'd roll the same dice in my mid 20s again.
However, I do think the game of taking massive leveraged positions on Aussie property to make big capital gains is not likely to be as fruitful as it has been. There's more downside risk than upside opportunity on Australian residential property today I reckon.
Talking of leaps of faith, the last place I bought was very casual and quite a leap of faith.
I flew up to Brissy for a weekend away with the DW, and decided to poke my head in to a few open houses (much to DW's annoyance) to fill in a spare hour.
I'd never been to the suburb where we were that day and have never been back since. But after a quick squiz at a few places it occurred to me that I could get close to a 6% gross rental yield in Brissy (compared to closer to 3% in Sydney) and could lock in a 5 year fixed interest loan at 4.6% at the time. With almost positive cashflow from day 1, I figured buying in Brissy was a pretty safe bet.
I took the plunge borrowing 110% of the purchase price the next day and did the whole transaction over the phone. I never met my banker, my lawyer or the selling agent. I have never met the agent I use to rent out the place either. Lol. I've never even been back to visit the house I bought.
The house hasn't proven to be a truly great investment yet, but given that I didn't put 1 cent of my own money on the table to buy, and only a little since i call it a small winner. I've had it around 4 years now. Maybe a little more.
I'd say it's been getting 4.0% net rent yield + 3.0% capital gains each year. So a 7% return against a borrowing cost of 4.6%... plus a little tax sheltering from the depn deductions as well. As I said, not a massive get rich scheme, but $10,000 a year net gain from not 1 cent originally invested of my own money is not so bad.
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I live a low information diet lifestyle but turned on the radio to find an earnest discussion about policy surrounding rental housing, negative gearing and the property market.
My ears pricked up since for the first time I've entered the rental game and this year at least will post some sort of negative gear.. So folks what do we think about this? If this got up, will it destroy the property market or will there just be a gentle correction that the Sydney market is certainly overdue. Labour is saying they will remove neg gear if they get in.
( I've recently sold my clown house and purchased a few acres in an urban area south of Sydney with a PPOR, and a 2br cottage and a duplex which are rented. Currently I have a neg gear, which I don't really believe in, but there is some limited opportunity to subdivide, and once at least part of this is accomplished (timeline 1-2years ) my debt will be minimal and I will be well and truly positively geared. There are number of margins of safety in this deal, so I'm not at all worried, more just interested in what you might think about the topic)
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Probably the discussion was because the ABC got a FOI request about negative gearing - see http://www.canberratimes.com.au/federal-politics/federal-election-2016-opinion/why-treasury-thought-turnbull-was-wrong-on-negative-gearing-20180108-h0f481.html
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Yeah I heard that too on the radio today.
I'm looking to buy another property locally which would be a family home ideally. The market in Perth is soft / dead, and the property people have always been like, "It's picking up!" which is then followed by an article months later saying it hasn't. I am curious to know how long it does take boom and bust markets that WA has to recover though?
I have been house hunting on and off for a while though. Some friends are also looking for 'family homes'. A lot of the homes seem to be not the nicest homes - I think it's mostly debt stress that people are selling off (or divorce). And if they are really nice homes, for some reason nobody seems to want to buy them. There's even two homes I know of that passed at auction and then the property's price jacked up like $200k more or something ridiculous like that. I wonder if it's the same agent recommending that strategy...
There are a lot of new apartments coming up not only in the city but also in South Perth, Scarborough (beach side suburb). It makes me wonder why though because we have an apartment glut...
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We just jumped into property... We bought our first family home and get the keys in a couple of weeks. The market in Perth really has worked in our favour to let us save a deposit much faster than the stagnant prices moved, no matter how many awkward articles my FIL sent us saying "buy now!!". FWIW we saw a lot of homes in very crap condition, and many where they'd been extremely superficially renovated so you couldn't see how crap their condition was. Finally settled on a solid 90's brick house that has barely been upgraded, because it was looked after. Looking forward to all the little surprises I'm sure we didn't know to look for and the stuff that breaks as soon as you move in :D
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Congratulations!!
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We just jumped into property... We bought our first family home and get the keys in a couple of weeks. The market in Perth really has worked in our favour to let us save a deposit much faster than the stagnant prices moved, no matter how many awkward articles my FIL sent us saying "buy now!!". FWIW we saw a lot of homes in very crap condition, and many where they'd been extremely superficially renovated so you couldn't see how crap their condition was. Finally settled on a solid 90's brick house that has barely been upgraded, because it was looked after. Looking forward to all the little surprises I'm sure we didn't know to look for and the stuff that breaks as soon as you move in :D
Congratulations!
Hopefully no surprises in there
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So both Melbourne and Sydney have had quarter on quarter declines. Auction clearance rates in the 50s.
Temporary blip or a sign of more to come?
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More to come
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More to come
That'd be nice, my wife keeps ignoring our decision to rent for the rest of our lives and keeps sending me links to property and I don't want to look at them, because if they're any good I'll have to go back to work to afford to buy them.
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More to come
That'd be nice, my wife keeps ignoring our decision to rent for the rest of our lives and keeps sending me links to property and I don't want to look at them, because if they're any good I'll have to go back to work to afford to buy them.
Are you me?
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From what I understand the banks are stricter on lending now so people can't pay ridiculous amounts of money for property they probably can't afford anymore, accounting for the decline? Plus the introduction of some restrictions on property investments etc.
I've noticed that not only are auction clearance rates down, but also the number of properties on the market / up for auction are much fewer than last year. So this indicates to me that prices are going down, but also a bunch of people will just not sell if they can't get a good price for it.
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Houses in Sydney and Melbourne are crazy expensive. They have to go down.
When interest rates finally climb a little, whenever that might be, prices will suffer a little.
In Sydney prices have dropped 5-7%. I’d expect the same again, taking around 15% off the market from the peak. It could even end up being 20%. There is plenty of room for values to drop.
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Looks like Aussie mortgage lending will get tighter and tighter with the royal commission continuing.
The general living expenses calculations have been very low for a long time, giving people access to more credit than was sensible.
Now though many people people will not be able to get another mortgage again, and apparently up to 50% of mortgages are declined. Kinda not surprising considering how indebted and over committed some have become, they are dreaming spending so much on housing.
$1million mortgage on your own home is not for normal income families, hello!
Many will get a shock if they plan to sell off investments to quit while they are ahead too, as in the future they may not be able to buy again..
For the markets though the headline news does not tell much of the true story (as usual). There is many many variances and many markets within each big city. For instance if Toorak or Point Piper prices dropped 10-20% do you think the owners actually need to sell? No way. They just hold out for a few years until the price is right. More than 50% of prestige property owners have no mortgage at all.
But cheap house and land packages are built for the masses, most of those are mortgaged at 70-90% and it will effect their overall equity if the market drops but once again are they interested in selling if prices drop? Probably not either. So you end up with a lot less stock on the market and then you will see stupid news articles pointing to all the negative stats as usual. However with a lot less stock the market is hardly dropping and 5 or 10% is not much anyway compared to year after year of double digit growth we have experienced.
In the end it all evens out and prices continue to climb over the long term as anybody with basic economics understanding will tell. There is inflation, federal monetary policy, population growth, jobs growth all playing a factor here.
I’ll keep my investments forever and when I do my spreadsheet projections all I would expect is 5% growth on apartments and maybe 7-8% on houses but history shows the market usually performs much better than that.
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I am willing to be the moron that says this time is different.
There is absolutely no reason for an apartment to go up in price 8% year on year. An apartment creates the same value in real terms every year - it is a roof over peoples heads. That is all. It makes more sense that apartments go up in value in line with wages,
House prices have grown like crazy because households are now generally forced to be double income, which was not the case a generation ago (or maybe 2 now as I’m getting old) and because interest rates are at all time lows. Foreign investors and wealthy baby boomers feeding on a diet of tax favouritism has also played its part.
Households can only spend a certain percentage of their income on housing and polygamy is not likely to become mainstream soon.
Small upward movements in interest rates will really curtail any possible upward movement in house prices.
Well, this is theory A anyway. Theory B is Sydney becomes Hong Kong and house ownership climbs out of the reach of most families, unless you are happy to live with your kids or n a 50 Sqm studio.
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What would it take for house prices to return to something more affordable?
Saying, the median house price somewhere around 4-5x the median salary?
Even if you have a dual income household, median salary is ~$78k, so $150k x4 = $600k
The median house price in Melbourne and Sydney is well north of that.
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What would it take for house prices to return to something more affordable?
A recession? Look how average prices in Perth have fared since the end of the mining boom. Rising unemployment or lower income would cause more forced sales and fewer purchases, and a weaker economy would result in lower net migration, easing pressure on prices.
A recession would of course have all sorts of unpleasant side effects. However, we've had 27-28 years since the last recession, it's folly to assume that there'll never be another one.
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What would it take for house prices to return to something more affordable?
A recession? Look how average prices in Perth have fared since the end of the mining boom. Rising unemployment or lower income would cause more forced sales and fewer purchases, and a weaker economy would result in lower net migration, easing pressure on prices.
A recession would of course have all sorts of unpleasant side effects. However, we've had 27-28 years since the last recession, it's folly to assume that there'll never be another one.
Chicken and egg - Housing price falls may cause a recession, because construction is such a large part of the economy.
I am suddenly mad keen to buy another property, but my head says prices still have a long way to fall in Sydney and then stabilise for a number of years.
Tried out a lending calc yesterday. The Bank's cal cut the maximum loan at such a point where I still had $20,000(!) excess income available. Even at P&I and 7.5% interest rate.
$20,000 excess income could normally service at least $300,000 of debt, which means everyone's borrowing capacity has been reduced by that much due to APRA and ASIC regulations.
So someone looking to buy a $1.5m property would now only be able to get a loan for a $1.2m property....
So yes, prices will come down. Just how much is the million dollar question.
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Auction Clearance rates in Sydney are now at or below 50% and interest rates haven’t even started climbing yet. This correction is going to pretty big I think. The air has been sucked right out of the market.
I don’t think it is time to buy yet. Maybe next year.
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drop, prices, drop
gf and I are holding cash, this is goooood for us if there's a massive correction.
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For those of you that are landlords, and renting it out through a rental manager, what is the percentage cut of the rent? And is anyone offering a gardening service with their rental, if so at what increase to the rent?
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For those of you that are landlords, and renting it out through a rental manager, what is the percentage cut of the rent? And is anyone offering a gardening service with their rental, if so at what increase to the rent?
My property manager takes 10% and there are no other fees associated with that.
I dont offer gardening services
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The Market rate for property managers is between 5 - 8% + gst.
If you have multiple properties or high rental value properties with the same agent they will charge you less overall.
How’s everyone’s mortgage / refinance applications going lately?
It appears to be getting extremely tight from what I have been seeing and hearing.
I’m still keen to buy another investment though if the time is right for me. I’m more worried about cash flow to cover expenses than a major sell off on the markets now, as the prices will always recover over an infinite holding period like mine. :).
Ideally I would want an old house on largish decent land that’s something I can build a nice house on in the future.
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Agents commissions vary dramatically depending where you own property. On an expensive property in Sydney we pay 5%. On a cheaper place in Brissy we pay 7.5%.
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I had this suggested to me.
"2. I hope you took care to obtain a valuation of the place you lived in for 14 years before renting it out. As you plan to sell it you need to think about future capital gains taxes, and protect yourself."
I asked my real estate agent, if they could recommend a company to do the valuation. They came back and asked me if it was a valuation or an appraisal I was after.
And, I do not know.
Could anyone advise me.
Thank you for your time.
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A trained valuer will do a valuation. An appraisal is done by a real estate agent usually associated with some intention to sell. You need a valuation.
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Thanks Happy. Much appreciated.
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I pay 5.5% + a small re-let fee once a year. For a new tenant it is 1 week's rent. Not bad all things considered.
I have a feeling anything over $1.5 million is going to drop quite sharply, on the scale of 20-30%. Your average person simply cannot get the deposit or mortgage to pay $2m for a shack + stamp duty.
This time is different - every time is different. People simply haven't experienced a correction on the scale of hundreds of thousands in their lifetime here - and it will hurt.
Apartments in my area are already down 10%, and the developers simply haven't gotten the message and are sitting on unsold OTP stock that won't be selling anytime soon.
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What do you do in this situation marty? Just hold on? Are your properties holding up in value?
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I’m expecting a larger drop in newly built apartments and possibly in houses >150% of median, but a smaller drop (if any) on houses in the outer suburbs.
Although, I’m ready to buy a place and a bargain is always appealing :)
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I’m expecting a larger drop in newly built apartments and possibly in houses >150% of median, but a smaller drop (if any) on houses in the outer suburbs.
Although, I’m ready to buy a place and a bargain is always appealing :)
I am going to go the other way. Housing in the burbs will drop by at least as much as inner city housing.
The very top end properties, which are not being paid for by people on wages, will not necessarily move with the masses. I am not talking 150% of median here, but more like 500% plus.
I am talking Sydney here. I don’t know Melbourne.
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What do you do in this situation marty? Just hold on? Are your properties holding up in value?
@potm - holding for now. I live in one, and the other is still under a fixed rate loan for another year. They are holding up quite well actually, mine never "boomed" the way most of inner, north and western Sydney did, but still went up a reasonable amount.
4 years ago I took out a fixed rate loan to stop me from doing anything stupid like selling up early. They've done well, I've got about 750k equity between them at present, and leave them for another 10-12 years I can easily see them both being fully paid off worth a million each. After tax the IP costs about $1500 a year to hold, don't really want to eat break-fees, sales agent fees, CGT and then stamp duty again when buying in again.
If a good one comes along that ticks all the boxes and can be had for a well below market price I will try and jump all over it. My problem will be financing, not equity - it's too hard to get credit on a single income beyond the debt I currently have.
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Does anyone else watch Martin North's "Digital Finance Analytics" on utube? [The site is called Walk The World].
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Clearance rates this weekend are in the forties in Melbourne/Sydney/Brisbane.
Seems the market has well and truly gone cold.
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Clearance rates this weekend are in the forties in Melbourne/Sydney/Brisbane.
Seems the market has well and truly gone cold.
We’ve been looking for a house 12 months in Brisbane and while yay prices haven’t really gone anywhere in that time, the quality of listings at the moment is woeful.
A few people I know who are also looking have commented the same.
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Does anyone else watch Martin North's "Digital Finance Analytics" on utube? [The site is called Walk The World].
I've been watching him for 6 months now, very interesting analysis of your property market and news. I admit I am a bit of a voyeur to your housing woes, probably because they remind me of our own 10 years ago. Best of luck down there.
While I don't think in this cycle we are as irrationally exuberant about our housing market as you all this time around (and a far cry from the mid-2000's), we are starting to see many of the signs of a housing market hitting its top (sluggish sales and rising rates) but so far have not had outright price declines (at least not nationally).
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Got talking to an agent on Saturday. She's retelling several stories she knows of couples in the 50s and 60s trying to downsize who have bought OTP units a year or so ago and were relying on the sale of their own house to fund the purchase plus their retirement.
Their houses are no longer worth as much as the unit they've committed to buy, and the banks won't lend for the difference because of their plans to retire.
Going to be an interesting 12-18 months ahead.... a lot of people are simply stuck with no real good options.
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Such a high-risk strategy.
Why wouldn't you sell at the same time that you commit to the OTP purchase and rent for the construction period? In some cases they probably could have rented their own place back from the purchaser!
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Such a high-risk strategy.
Why wouldn't you sell at the same time that you commit to the OTP purchase and rent for the construction period? In some cases they probably could have rented their own place back from the purchaser!
I agree with everything you say, but the wisdom of hindsight is a wonderful thing.
I can imagine the driving force behind the actions was the desire to move house just one time. I take your point that maybe they could have rented their sold house, but that’s really a maybe (dependent on suburb, likely buyers etc).
They took a big risk and it didn’t pay off. Bad time of life to be taking such risks.
Still, I hope their home wasn’t too big a percentage of their NW and (given house prices have dropped <10%) they can still retire as they will have planned for so long.
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Melbourne Clearance rates are continuing to drop, around 40% now.
Not sure why people are still auctioning their properties, the agents must be sweet talking them into an advertising campaign just to get their name out there.
In my area (inner Bayside VIC), properties are still selling for similar money to last year, just a lot less transactions going through. I noticed one older couple selling their house in my street, it passed in and then they just took the board down and took it off the internet. I think people (buyers and sellers) are all waiting to see what happens like dear in the headlights.
If I was cashed up ready to buy another house there is currently the opportunities of a lifetime out there. I am sure there will be a few desperate sellers around as some properties are sittting on the market for months.
I havent applied for a mortgage for a few years but everyone sure seems to think it’s hard to get approved.
It could be the best of times or the worst of times depending on your situation and plans.
I think it’s best to ignore the noise and continue on with my own investment plan to acquire and keep for life quality rentable property.
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That's just it.
Myself and my gf and many of our friends have a >20% deposit waiting and some of us are hoping to time the market, etc. My philosophy is buy what's affordable that's also what we want and the time that suits us. It's a place to live in the long term, so if we try to move too quickly or conform to people's commentary of what's going on then we're likely to expose ourselves to short term thinking.
Our hope is to buy a place in Canberra late 2020.
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More to come
That'd be nice, my wife keeps ignoring our decision to rent for the rest of our lives and keeps sending me links to property and I don't want to look at them, because if they're any good I'll have to go back to work to afford to buy them.
This is my dilemma: rent forever or buy something. Sydney to me is a perfect city nd it would be great to have an apartment here that I could live in while I’m here, rent out when I travel around the world for 10 years and then move back to when I return. Do I roll the dice in a year and buy something cheap but in an area that I want, if it’s jsut me as a single guy? I could get a mortgage for what I’m paying in rent, if not less. Is it worth it if I don’t have to put a lot down to get it? I’ve already extended my FIRE plans by 2 years so it won’t affect that. So confused!!!
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Owning property/ not owning property. On these forums it’s a debate more dangerous to wade into than religion or politics.
It’s a personal choice. For me personally, I like the idea of owning my home even though I am renting at the moment. There is a sense of security knowing you won’t be kicked out and have to move, and aren’t exposed to bad landlords, and can make any changes you want to the place.
It’s quite likely we will continue to rent for some time as we don’t know where we want to FIRE to. We have a house in Sydney (that was our home prior to taking a job o.s), but it’s too expensive for our FIRE plans. We also like Sydney, so could sell our house and buy an apartment in the same neighborhood or try somewhere else. We were prob going to sell our place in Sydney around 2022 so plenty of time for more market excitement.
Property forecasts are like bum holes (everybody has one), but I am expecting prices to level off in the 2nd half of next year, unless interest rates start rising in which case prices will keep falling. I don’t see any major recovery in the foreseeable future as prices are still very high, but I don’t see prices dropping much more than 20% unless there is a sharp hike in interest rates.
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In response to the person who asked, my property manager charges 5.5% + GST.
I am a big proponent of property investment. To me it gives me a sense of security knowing that tenants are generating passive income which I will eventually retire off. The negative gearing thingo is just the cherry on top (though its use has now been severely curtailed since you can't claim depreciation on existing plant any more, meaning you can't now generate ridiculous depreciation claims to drop your wage income, which was the main point of NG).
I've got one property paid off and am paying off the other, and looking to buy my third within a few years. When I bought my second property a little while ago I managed to get my bank manager to do a few sneaky favours - I won't mention them here (they did not relate to serviceability) - but I don't think you can do that any more in the wake of the Royal Commission. Shame. I think the main effect of the RC is to make everyone's mortgage a little smaller, which will no doubt flow on to property prices, though I think the effect will be modest, and mainly felt around the margins.
I think we are seeing a shift in society from one where most families can afford a house to one where some can afford to pay and some can only afford to rent. That probably explains why property prices have detached from median incomes - because the median family is now perhaps renting rather than buying. So, while I think there is not much room for real property growth (beyond the rest of the market) in future, I don't see it shifting down in real terms either, after this current correction which is mostly produced by structural reforms. I guess I could be wrong though - if they make taxation of IPs more and more punitive that will damage house prices and I might have to look at other ways of generating passive income instead.
I would advocate property (under the existing rules - caveat) as a good conservative investment though - tenants will always need a roof over their heads. Buy in good areas and vet your tenants carefully.
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Seems the market is continuing to slow. I’m seeing a few places listed with ‘revised’ prices of about 5% lower than they originally listed for a month or two ago (although still about 10% above what they would have been in early 2016).
44% auction clearance rate in Melbourne, although still over 1000 listings so people are still trying their luck.
I’m currently in the situation where I’ve got enough saved that the LMI on any place I’m looking at is fairly low (5K or less), a pre-approval arranged for a fair bit under what the mortgage broker said I was eligible for (I didn’t want to over-extend), and saving plenty, in a falling market.
I am looking around to buy (and kinda sick of my rental), but I am tempted to wait another six months or so and see what happens. *cue the Coles ‘down down, prices are down’ jingle*
I was very close to making an offer on a place back in October. I’m bloody glad I didn’t (especially at the price it went for).
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It's pretty commonly acknowledged as a huge bubble, and it's following the same trajectory as ours circa 2006-7 in the USA (inventory rises, sales drop, prices are initially sticky until people who *need* to sell start getting desperate, builders stop building/everyone associated with RE loses their job which helps kick off a recession) so I'd definitely stay the heck out of the Australian property market for a good long while if I were you.
It's funny to hear people saying the same things as we heard here in the US too - ie "this time it's different" in various forms.
No, it's not. Prices got completely out of touch with incomes. 2 things can happen - incomes can rise, or prices can (at some point) fall.
-W
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Without wanting to say ‘This time it’s different!’, I’m not sure that the ‘Australian market’ compares so well to the American.
Almost all of the focus in these stats is on Sydney and Melbourne, the two largest cities and very desirable places to live. There are so many people waiting to enter the market, many regretting that they didn’t do so the last 2 times pundits were calling a long term downturn. They are not going to be another Detroit. And from what I understand, lending laws are very different with many Americans able to ‘walk away’ which is not possible here.
I think the biggest risk areas will be inner city low quality apartments and new constructions on the urban fringe. Established properties in good locations might stall or fall a little but I don’t think it will be drastic. Cities/towns outside Sydney and Melbourne won’t necessarily be linked with this trend (Perth has already fallen in step with the mining downturn, I think).
Just my uneducated opinion. I should check back in a year and see if I was right!
That said, I would not rush into buying a property just now either, unless it was your perfect home at a great price. I would be hoping for a fall.
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It's pretty commonly acknowledged as a huge bubble, and it's following the same trajectory as ours circa 2006-7 in the USA (inventory rises, sales drop, prices are initially sticky until people who *need* to sell start getting desperate, builders stop building/everyone associated with RE loses their job which helps kick off a recession) so I'd definitely stay the heck out of the Australian property market for a good long while if I were you.
It's funny to hear people saying the same things as we heard here in the US too - ie "this time it's different" in various forms.
No, it's not. Prices got completely out of touch with incomes. 2 things can happen - incomes can rise, or prices can (at some point) fall.
-W
Without wanting to say ‘This time it’s different!’, I’m not sure that the ‘Australian market’ compares so well to the American.
Almost all of the focus in these stats is on Sydney and Melbourne, the two largest cities and very desirable places to live. There are so many people waiting to enter the market, many regretting that they didn’t do so the last 2 times pundits were calling a long term downturn. They are not going to be another Detroit. And from what I understand, lending laws are very different with many Americans able to ‘walk away’ which is not possible here.
I think the biggest risk areas will be inner city low quality apartments and new constructions on the urban fringe. Established properties in good locations might stall or fall a little but I don’t think it will be drastic. Cities/towns outside Sydney and Melbourne won’t necessarily be linked with this trend (Perth has already fallen in step with the mining downturn, I think).
Just my uneducated opinion. I should check back in a year and see if I was right!
That said, I would not rush into buying a property just now either, unless it was your perfect home at a great price. I would be hoping for a fall.
Each market in the world collapses in their own unique way. I tend to agree it's not like the US, and the only Detroit style wipeouts you'll see have already occurred in mining towns like Port Headland and Gladstone.
I agree it is the inner-city Meriton shoeboxes that will be hit hardest. No demand, high-strata fees, transient renters (students, working holiday visa holders). That is where the bloodbath will be.
However there's a second group that will also be hit - those in the north and north west of Sydney who pushed suburb medians towards $2m. Seeing half a million or more wiped away does a lot of damage to mental health. A few forced sales in those locations will really kill sentiment.
I've wiped $100k from my net worth in the past year. Still, even after that, I've experienced double digit % returns overall.
Holding boringly average, low-maintenance, well located properties and a bucket of patience is the key to success here.
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Yep I agree with ChasingtheGoodLife and Marty.
I think my PPOR may have fallen 5% since the peak and may fall another 5% (it's in a solid area) but you have to remember that it increased 80% in about 4 yrs in a lot of Sydney. We are just taking the crazing edge off by making sure people can no longer borrow beyond their means.
Only a small fraction of people bought at the peak and everyone else is still way ahead - unless I guess they constantly re-financed and spent the money. I do know a couple who did that and then split up, ouch.
I know another family that just got a $2mill bonus at work. The economy seems to be ticking along with very low unemployment.
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As I live in Canberra, there are two market drivers - Sydney people who can’t afford there, so buy here, and the public service and their periodic layoffs. As such, we’re experiencing a mild downturn now, but we have a lot of blips this century that other Australian markets haven’t had. The graphs that came out the other day had my postcode having a snake like line gradually going up, just wobbling slightly around a straight line - including recently - with none of the contortions in some other places.
Property might go up here in June, you never know.
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I generally agree with what Marty says. If property does go down it just means that rental yields go up (there is no reason for rents to go down in line with property prices; rents are subject to very different market forces - since people obviously don't require credit to pay the rent).
At the end of the day, buy decent properties in areas reasonably close to schools or other amenities and in which you see population expanding. Population growth usually leads to gentrification as long as you stay out of the crappy corridors.
I also think landlords should operate a little bit more like a cartel - we have a lot of power to set rents, if we just band together a little bit more. Unfortunately, the sheer number, and disparate incentives, of landlords/property managers makes this very difficult. Rent-seekers ought to act a bit more like rent-seekers if you ask me.
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What has it been, 2 generations since Australia had even a mild recession?
It will be really interesting to see what happens, that's all I will say.
-W
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What has it been, 2 generations since Australia had even a mild recession?
It will be really interesting to see what happens, that's all I will say.
-W
1989-1991 - we are closing in in 28 years of uninterrupted economic growth.
At various times certain states and parts of the countries have experienced booms/busts and recessions, but overall growth has always ticked up on a rolling 6 month basis.
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Edwin Almeida was talking on Sydney's property market on Martin North's program (Digital Finance Analytics) on Sunday and it was not a positive outlook but was informative if not a little scary (at least to me).
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Prices here in Melbourne and in Sydney are down around 10% year on year. I guess the question is 'how much lower it will go'.
I've heard people say it's about to start/started increasing, and reports saying that the prices look to continue to fall.
I wonder how many of the more bullish publications rely on RE advertising heavily for revenue or have substantial investments themselves?
I'll start looking again in a couple of months. Should be fine but just need to wait for the right place to pop up.
I will say though, in plenty of the 'sold' sections of the RE sites, the prices are shown as 'contact agent'. Presumably the agents don't want to reveal the pricing because it's below what they expected originally.
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We also have to keep in mind that RE agents don't really care about the price. They just want high churn, so will tell buyers and sellers whatever they think helps them achieve that.
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I'm watching the market with a passing interest - would consider upgrading PPOR if the right place came along at the right price. In the areas I'm looking (Canberra), things are getting less competitive, but prices themselves are only slightly moderating so far. I also suspect that the next recession will be ugly for housing. As to when that will be, no idea.
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Since Australian property is quite expensive I have been trying to figure out whether it is worth buying or continue renting and put the deposit/ rent saved into index funds. Seems much easier to buy in places like the U.S where you can buy for cheaper than renting and even make money renting out the spare room etc..
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The house next door to me is up for sale for 70k less than it was purchased for 5 years ago. Seeing as it is basically identical to mine, I'm feeling a little bit depressed...
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The house next door to me is up for sale for 70k less than it was purchased for 5 years ago. Seeing as it is basically identical to mine, I'm feeling a little bit depressed...
That sounds like a massive drop. What location are you MrCheese?
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The house next door to me is up for sale for 70k less than it was purchased for 5 years ago. Seeing as it is basically identical to mine, I'm feeling a little bit depressed...
Which city?
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This is in Perth. I'm guessing they want a quick sale.
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The bank just lopped $80,000 combined off the valuations of my properties last week.
I am still well up overall on them, but that was not a nice feeling. My net worth "growth" for the year is suddenly -$2000.
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IDK how it works there, so can you explain to me why the bank was evaluating the value of them at all? (For us, it would only be done when selling, refinancing, etc.)
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I’m also curious about that?
I’ve just been using On The House, and for the unit other sales in the block, to get a rough idea.
Have been meaning to ask some REAs for estimates but haven’t quite got around to it.
Curious to know how others track their valuations?
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IDK how it works there, so can you explain to me why the bank was evaluating the value of them at all? (For us, it would only be done when selling, refinancing, etc.)
@arebelspy My Bank (through its app and online banking system) has a function which is basically a net worth calculator - it knows all your transaction, savings and loan accounts, and the property assets used as security. You can manually add your shares not held through the Bank's brokerage arm, or any other assets and loans and voila, a net worth spat out for you.
The Property valuations are sourced from a combination of RPData and CoreLogic which is the local property industry's companies that track all sales and purchases (your equivalent of Zillow(?)) and are updated whenever new data is input - generally 2-3 months after enough recent sales have occurred in the area to re-calculate an estimated value.
The Big 4 banks here control about 85% of the entire home loan market, so they basically know everything about everyone anyway. Not too dissimilar to certain tech companies in that regard, although much more highly regulated...
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I love the data on On The House for the history. My neighbour bought their place for $83k back in the day :) They've just sold it for over $2m and should have a pretty nice retirement (moving to a cheaper area). I reckon they have achieved about 10% down from if they'd sold in the crazy peak, maybe 15%, but you just wouldn't care after 35 yrs, would you, it all seems like crazy money.
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I love the data on On The House for the history. My neighbour bought their place for $83k back in the day :) They've just sold it for over $2m and should have a pretty nice retirement (moving to a cheaper area). I reckon they have achieved about 10% down from if they'd sold in the crazy peak, maybe 15%, but you just wouldn't care after 35 yrs, would you, it all seems like crazy money.
Yeah I've always found On The House quite useful, but I've noticed lately its estimated property value ranges are becoming wider and wider.
It's never an exact science I'll admit, but I don't want to have to say my net worth is between a several hundred thousand dollar range :)
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Yeah I've always found On The House quite useful, but I've noticed lately its estimated property value ranges are becoming wider and wider.
I use On The House too, but last month it was way off the mark saying our house price dropped $135K in a month and that my MIL's place increase by over $100K, with both houses being in a relatively flat market at the moment. Big grain of salt with estimates from this site lately.
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Whilst I do look at On The House and other online valuations of my specific properties (which are quite different from web site to web site), on a month to month basis, I have little faith in them.
In practice I use the Core Value Index for Sydney and Brisbane to approximately track changes in value of my houses. I also monitor sales most weeks and from time to time there is a sale that is a very good reference to my places, which might result in me making a judgemental change to the value I carry them on my spreadsheet. I try to stay on the conservative side with my valuations.
Currently on my house in sydney, Ia showing a value in my spreadsheet that is $100K below ON The House.
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On the House is only useful for history and looking up what your neighbour sold for when the other sites say "price withheld" ;)
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On the House is only useful for history and looking up what your neighbour sold for when the other sites say "price withheld" ;)
Allhomes is useful for this too
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Mixed reports around. Some are saying the downturn has further to run, yet auction clearance rates in Melbourne and Sydney are trending up and are around 60% now.
Together with whatever the RBA decides on Tuesday, it'll be interesting to see what happens.
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Suspect downturn still has a bit to run, assuming Labor gets into power, cuts out negative gearing, and its tax hikes hit high-income earners. All those things will hurt demand.
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Everything I read says it has further to go, no matter who’s in government. But no one seems to be very good at gazing into a chrystal ball these days. When they were predicting the downturn, they all seemed to be saying it would last three years.
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Suspect downturn still has a bit to run, assuming Labor gets into power, cuts out negative gearing, and its tax hikes hit high-income earners. All those things will hurt demand.
Wonderful.* Perhaps then Property investments will stack up on their merits like they do in the US, rather than require help from the taxpayer to make the investment case work.
Also wonderful, in that I might be able to buy a house without having to pay lottery winning type money to do so.
*Note I am the target subset of the population who will be slammed by the proposals, but, at the end of it all, I'll still be better off than others, because I won't throw my toys out the cot like a baby and sell everything. I'll continue to invest where it makes sense.
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I hope property stays stagnant for a while but ideally I don't want governments trying to help FHB over investors - I've never seen housing as anything but an investment asset. I think the ideal of everyone owning their own house is a little outdated.
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I hope property stays stagnant for a while but ideally I don't want governments trying to help FHB over investors - I've never seen housing as anything but an investment asset. I think the ideal of everyone owning their own house is a little outdated.
I don't see it that way. Owning a house outright and having a job/income is the best antidote to poverty. Too many people, women especially, enter retirement with neither a home, nor a nest egg to their name.
You can't rent in retirement and be on the age pension in Sydney. Surefire way to homelessness, and the consequences of taxpayers picking up the bill for that are much worse.
I can see you sit on the side of not using taxpayer dollars to help anyone. I'd rather the government spend a little now to help people into the housing market, and save a hell of a lot more money in future in not having to pay for things like rent assistance and other welfare benefits.
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Although I don't disagree with what you said, I have two major objections to the current state of gov't intervention:
1. The smattering of FHOG/FHB stamp duty exemptions do nothing other than push up property prices. In other words, they're inefficient and don't help the people they're intended to help.
2. Whilst I sympathise with the need to give people a nest-egg in retirement, the current system is actually overly generous to retirees, because their PPOR is not counted. This means the government is effectively subsidising the passing on of property from one generation to another - by paying people a very generous pension despite them owning a property. There is no justification for this, and it leads to all sorts of distortions.
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Although I don't disagree with what you said, I have two major objections to the current state of gov't intervention:
1. The smattering of FHOG/FHB stamp duty exemptions do nothing other than push up property prices. In other words, they're inefficient and don't help the people they're intended to help.
2. Whilst I sympathise with the need to give people a nest-egg in retirement, the current system is actually overly generous to retirees, because their PPOR is not counted. This means the government is effectively subsidising the passing on of property from one generation to another - by paying people a very generous pension despite them owning a property. There is no justification for this, and it leads to all sorts of distortions.
I agree with both of these points (quite strongly in fact). The challenge is if you don't provide direct assistance to the first home owner then some of the concessions afforded to the seasoned investor need to be wound back.
The extent to which those concessions should be wound back is a debate without an answer I feel, because the circumstances of every property market in Australia is different.
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Given the recent issues in Sydney with structural issues in apartment buildings and subsequent evacuations, I suspect the values of many apartments have plummeted. I certainly wouldn't buy one.
p
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Anecdotally there seems to be an awful lot more people at inspections lately. Slightly annoying as I'm ready to buy now haha.
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As a Canadian I find this thread fascinating.
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Hi, ya'll.
Thinking of getting on the debt train, and getting a PPOR. Have some money in ETFs and shares, and some in cash. Currently seeing a broker and I'm considering paying LMI, as it's likely that we'll live in it for a short while (~18 months), rent it out for a few years, then return (thus, some of the LMI is likely to be tax deductable). Plus, I like the idea of having some 'emergency' cash (~10%) for if things get tight.
With that in mind, I was trying to calculate/work out numerically when it may be beneficial? A Google search yields everyone trying to avoid it, but I can see benefits of copping it, even though we are able to pay it, if required.
Eg, 700k property, 10% deposit LMI ~=17k
Eg, 700k property, 15% deposit LMI ~= 8.5k
Those prices seem linear (that was the first search I did, but I've also seen others that are not).
So, does anyone have a yardstick as to when it's worth paying it? In the lame example above, having an extra 8k in the 'sleep at night'/offset could be fairly reassuring, vs paying LMI.
Thanks.
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Hmm generally you would try to avoid paying LMI as it’s no benefit to you and quite expensive.
This means a 20% deposit on most properties, possibly more on some apartments,
unless you can get one of Scott Morrison’s specially subsidized first home buyer offers. Which is limited to only 10,000 people and postcode and price dependent.
If putting 20% down means you will be out of cash for a while and be living on the edge while rebuilding savings then so be it. You could always have a credit card for emergencies
As for LMI being tax deductible on an investment property, it just comes off the capital base so it is only deductible from your capital gain when / if selling. If you borrow to pay for it The interest on that LMI could be deducted annually.
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Anecdotally there seems to be an awful lot more people at inspections lately. Slightly annoying as I'm ready to buy now haha.
It's worth setting up realestate.co.au to send you an email weekly on auction clearance rates for your area. It will give you 3 months or more early notice of where the market is heading and confirm or deny anecdotal evidence for you.
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Tenant paid his rent on my property for March (up to the end of the first week of April). I know his job has been put on ice so I'm expecting a call at some point about negotiating a discount or rent free period.
Has anyone received the dreaded "sorry I can't pay" call yet?
What have you been able to negotiate so far?
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Tenant paid his rent on my property for March (up to the end of the first week of April). I know his job has been put on ice so I'm expecting a call at some point about negotiating a discount or rent free period.
Has anyone received the dreaded "sorry I can't pay" call yet?
What have you been able to negotiate so far?
I'm waiting for more details about the support packages. My tenants are self employed and one industry disappeared in a puff of smoke. The other is in property.
I hope that a) they have savings and b) they don't ask for rent holidays without spending those first. There's obviously no way of knowing. We don't have a mortgage but the rent is our income so it's either them spending down their cash or us. If it comes to it I hope we can share the hit eg 50% reduction for 6 months. I wouldn't be evicting them even if it was permitted.
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Tenant paid his rent on my property for March (up to the end of the first week of April). I know his job has been put on ice so I'm expecting a call at some point about negotiating a discount or rent free period.
Has anyone received the dreaded "sorry I can't pay" call yet?
What have you been able to negotiate so far?
I'm waiting for more details about the support packages. My tenants are self employed and one industry disappeared in a puff of smoke. The other is in property.
I hope that a) they have savings and b) they don't ask for rent holidays without spending those first. There's obviously no way of knowing. We don't have a mortgage but the rent is our income so it's either them spending down their cash or us. If it comes to it I hope we can share the hit eg 50% reduction for 6 months. I wouldn't be evicting them even if it was permitted.
We should be Ok. Our house has 2 cousins, one is a nurse and the other is a school teacher. Their jobs are safe.
Our unit is just leased to an operator for BHP, who is FIFO to the Kimberley. I assume he is OK given what I have heard so far.
We would not evict if they couldn't pay anyway. They are good tenants and will be after this. I also could not do that in this climate. Stay at home means just that.
We have mortgages on both properties, and can probably service them ourselves for 4 or 5 months from savings and earnings before it would get tight. Wr would talk to the bank before then.
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My tenant is a commonwealth government contractor. I'm hopeful that they stay employed - I suspect govt will need all the IT capacities it can get while things are being done remotely. However, you never know. I also wouldn't evict in the current circumstances, but don't know how I will respond yet. Hopefully I don't need to!
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One of my tenants has had a 50% reduction in their work volume, the other is working from home. I also hope they will stay sufficiently employed. I wouldn't evict even if I was able to, and would try to negotiate something fair and reasonable if approached.
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Still no details from NSW on support for renters. There is so much money flying around now that will cover food & essentials, loans have been sorted with payment holidays, so really it's just rent left to sort out. I kind of want the burden to be heavy on the landlords for social equity reasons, even though I am one!
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You don't need to worry about social equity. The $500 billion that's been spent will have to be paid back by high earners. They will be big losers from this crisis. I'm already projecting a 10% drop in disposable income due to the effect of the rescission of stage 2 and 3 tax cuts and the pending tax hikes to cover for the government spending.
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Property prices seem to be hit very hard where I am, and the vacancy rate is skyrocketing in both Sydney & Melbourne for rentals
Auction clearance rates fell by more than half during the covid-19 period as well in the major capitals of Sydney & Melbourne.
As the Government has announced Jobkeeper and paying employees $1,500 a week at a minimum it may cushion the blow
Just wondering how policies by the big 4 are going to affect it, for instance Westpac (https://www.westpac.com.au/personal-banking/home-loans/manage-home-loan/repayment-options-when-separating/) is giving 6-month repayment holiday mortgages so I wonder how the market will be after this 6-month period ends and unemployment is still high
Very interesting times ahead for Australian property in the next year
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Hoping for a fall of 10%+ in Melbourne so we can buy, if we don't want to move to another city.
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Property prices seem to be hit very hard where I am, and the vacancy rate is skyrocketing in both Sydney & Melbourne for rentals
Auction clearance rates fell by more than half during the covid-19 period as well in the major capitals of Sydney & Melbourne.
As the Government has announced Jobkeeper and paying employees $1,500 a week at a minimum it may cushion the blow
Just wondering how policies by the big 4 are going to affect it, for instance Westpac (https://www.westpac.com.au/personal-banking/home-loans/manage-home-loan/repayment-options-when-separating/) is giving 6-month repayment holiday mortgages so I wonder how the market will be after this 6-month period ends and unemployment is still high
Very interesting times ahead for Australian property in the next year
I didn't see big drops in prices in the numbers released yesterday. I did see a big drop in clearance rates which will probably feed into prices in the future.
Rent prices are forecast to drop the most, but there has also been a fall in new home approvals, so supply is not necessarily going to free up a lot.
I think prices will continue to go sideways. Immigration being at zero will have more effect on Melbourne and Sydney prices over the next year or two than most other markets.
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Yeah I'm the silly bastard who bought a place just before everything went to crap. Settlement in about two and a half weeks. Whatever, even if it drops 25% now, it'll probably be worth at least as much as I paid in five years time. Hey, it fit all the criteria and I was sick of looking :)
Regarding LMI, I view it as a hedge against increasing prices. Paying $10K LMI now might not be such a bad idea compared to saving the 20%, only for the place to be worth 50K more by the time you've saved the extra.
Just given notice to the agent for my current place. I'm sure the landlord is ecstatic for the joint to be vacant in a down market, but that's not my problem. It's a cheap one bedder flat in an inner suburb so there'll always be demand for it.
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Tenant paid his rent on my property for March (up to the end of the first week of April). I know his job has been put on ice so I'm expecting a call at some point about negotiating a discount or rent free period.
Has anyone received the dreaded "sorry I can't pay" call yet?
What have you been able to negotiate so far?
I'm waiting for more details about the support packages. My tenants are self employed and one industry disappeared in a puff of smoke. The other is in property.
I hope that a) they have savings and b) they don't ask for rent holidays without spending those first. There's obviously no way of knowing. We don't have a mortgage but the rent is our income so it's either them spending down their cash or us. If it comes to it I hope we can share the hit eg 50% reduction for 6 months. I wouldn't be evicting them even if it was permitted.
We should be Ok. Our house has 2 cousins, one is a nurse and the other is a school teacher. Their jobs are safe.
Our unit is just leased to an operator for BHP, who is FIFO to the Kimberley. I assume he is OK given what I have heard so far.
We would not evict if they couldn't pay anyway. They are good tenants and will be after this. I also could not do that in this climate. Stay at home means just that.
We have mortgages on both properties, and can probably service them ourselves for 4 or 5 months from savings and earnings before it would get tight. Wr would talk to the bank before then.
Tenant missed most of April rent. Job keeper hadn't come through and tenant has been trying to access his Super.
Supposably he is up to date now but I won't know until the end of the month when the payment comes through from the Property Manager.
I feel really bad, I would have been ok with a long term payment plan. But I guess I've got a PM who is paid to be hard nosed about it. If the rent doesn't get paid she doesn't get paid either.
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Have not seen any falls in prices yet near me. The bank helpfully revalued my properties up this month!
Have seen reports of a glut of inner city apartments because of all the AirBnB and international students going MIA. The AirBnB apartments are coming back onto the market as normal rentals and dragging rents lower everywhere.
Rents seem to be holding up in my area though. It's really location dependant for what is happening.
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I was happy to see that both of my sets of tenants paid their rent in April as per normal (old normal 😉).
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My tenants have not missed a payment but I was asked to sign a rent assistance form. I looked up rent assistance and I think the max they can get is about $80 a week so would hardly make a dent in the rent. Hopefully tenant 1 will completely change his business or get a job elsewhere because I reckon his industry is down for at least a year!
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Saw this headline today:
NSW government may buy up spare housing in $500 million stimulus plan
https://www.smh.com.au/politics/nsw/nsw-government-may-buy-up-spare-housing-in-500-million-stimulus-plan-20200427-p54noc.html
""This would afford the Land and Housing Corporation the opportunity to either on-sell at a later date or keep as part of the Land and Housing Corporation social housing stock," it says."
Am I crazy or does this reek of moral hazard?
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The headline's a bit click baity, isn't it. Reading the article, it seems like there are social housing developments that are both needed and ready to build and just need funding and fast tracking. Don't see anything wrong with that, it's a shame it took a crisis.
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Did you miss the parts about buying up existing, unsold stock?
"It lists several projects in Parramatta, Westmead and South Granville where the government could "negotiate with the developer" to buy dozens of unsold apartments."
""Private sector developers are dealing with low demand, which could last for a long time – both due to declining consumer confidence, and reduced population growth. Banks will be hesitant to loan money for development without that consumer demand.
"We therefore urge the government to further its stimulus in a sector that will make an enormous impact to the vulnerable in our community.""
Seems like a backdoor way to bail out developers. Maybe more people could afford properties if prices were permitted to drop?
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Yeah I saw it, but 'dozens' of apartments in a city of 5 million? So what.
I think I'm reading the quoted bits differently too. To me, it says there's no demand in the private sector so the government will build public housing to keep the construction companies going. That's a good thing.
Anyway it was only an advisory paper, it's not like it's impending policy. And there will be lots of NIMBY neighbours protesting the apartment next door being sold into social housing, even in Granville.
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Wouldn't surprise me if those dog box apartments start showing problems in the coming years like Opal and Mascot Towers.
It would be an insane idea for a government to take up the risk of that, but the way politics is, it just might happen so the taxpayer gets taken for a ride.
@Wrenchturner - developers have so corrupted the political system here that a buyer of a toaster or a blender at the local $2 shop has more consumer rights than the buyer of new $700,000 apartment. The certification process for large buildings is not done by government certifiers or engineers. It's done privately by contractors engaged by the developer. The government doesn't care because it gets its 4% pound of flesh in stamp duty.
If it turns out your building has defects you basically have no rights, and even if you could sue the developer, they would have already liquidated their Company and become untraceable.
People are being financially destroyed with these apartments. The whole system is rigged for everyone to make money except the buyer.
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Wouldn't surprise me if those dog box apartments start showing problems in the coming years like Opal and Mascot Towers.
It would be an insane idea for a government to take up the risk of that, but the way politics is, it just might happen so the taxpayer gets taken for a ride.
@Wrenchturner - developers have so corrupted the political system here that a buyer of a toaster or a blender at the local $2 shop has more consumer rights than the buyer of new $700,000 apartment. The certification process for large buildings is not done by government certifiers or engineers. It's done privately by contractors engaged by the developer. The government doesn't care because it gets its 4% pound of flesh in stamp duty.
If it turns out your building has defects you basically have no rights, and even if you could sue the developer, they would have already liquidated their Company and become untraceable.
People are being financially destroyed with these apartments. The whole system is rigged for everyone to make money except the buyer.
Canada is very similar. While it's abated some in the last few months, the overwhelming FOMO and pervasive idea that RE only goes up, has people lined up around the block to get in on these deals where they literally sign away all their rights. I would not touch these contracts with a 10 foot pole.
While it's true what they say about a fool and their money, I fear these fools will be the first ones crying to the government to help them.
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Wouldn't surprise me if those dog box apartments start showing problems in the coming years like Opal and Mascot Towers.
It would be an insane idea for a government to take up the risk of that, but the way politics is, it just might happen so the taxpayer gets taken for a ride.
@Wrenchturner - developers have so corrupted the political system here that a buyer of a toaster or a blender at the local $2 shop has more consumer rights than the buyer of new $700,000 apartment. The certification process for large buildings is not done by government certifiers or engineers. It's done privately by contractors engaged by the developer. The government doesn't care because it gets its 4% pound of flesh in stamp duty.
If it turns out your building has defects you basically have no rights, and even if you could sue the developer, they would have already liquidated their Company and become untraceable.
People are being financially destroyed with these apartments. The whole system is rigged for everyone to make money except the buyer.
Canada is very similar. While it's abated some in the last few months, the overwhelming FOMO and pervasive idea that RE only goes up, has people lined up around the block to get in on these deals where they literally sign away all their rights. I would not touch these contracts with a 10 foot pole.
While it's true what they say about a fool and their money, I fear these fools will be the first ones crying to the government to help them.
I think Canada is going to have a hard time managing a national real estate market. The situation on the prairies is much different than the west coast or Toronto area. It is funny how quickly the CMHC blinked though. Apparently they might need a bailout already. That's Canada's mortgage insurance organization.
One difference from Australia though is that our inspectors are still government certified, if I'm not mistaken.
The tide is going out and we get to see who's wearing pants. Probably nobody on a federal level.
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Wouldn't surprise me if those dog box apartments start showing problems in the coming years like Opal and Mascot Towers.
It would be an insane idea for a government to take up the risk of that, but the way politics is, it just might happen so the taxpayer gets taken for a ride.
@Wrenchturner - developers have so corrupted the political system here that a buyer of a toaster or a blender at the local $2 shop has more consumer rights than the buyer of new $700,000 apartment. The certification process for large buildings is not done by government certifiers or engineers. It's done privately by contractors engaged by the developer. The government doesn't care because it gets its 4% pound of flesh in stamp duty.
If it turns out your building has defects you basically have no rights, and even if you could sue the developer, they would have already liquidated their Company and become untraceable.
People are being financially destroyed with these apartments. The whole system is rigged for everyone to make money except the buyer.
On that note, we have a development with lots of units and serviced apartments, that has been marketed to the hilt as luxury, resort-like etc etc etc. Its only recently finished maybe 2-3yrs ago, but a builder friend tells me has already been engaged to fix numerous problems with bathrooms, concrete cancer etc etc: some of these things are normally associated with units that have been up for decades. Cheaper for the developer to just whack up the building to a price point, then argue/dodge fixing the resultant issues later.
Yet as a "mom and pop" level developer, you are subject to much more intense scrutiny and regulation.
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My new property purchase settled today. Say a prayer for me that CBA's worst case price predictions don't come true ;)
3 apartments, combined value $2.03m, loans of $1.27m less cash in offset of $250k.
Combined rents coming in of $1,240 per week from the 2 investments. Should be slightly cash flow positive now with the interest rate reductions.
Going to fix the new IP loan at 2.69% soon. Just need to make a decision on how much of it to pay off first with some of the excess cash I have at the moment. Undecided whether I should just bite the bullet and start buying shares again, rather than just trying to smash these loans at such low rates.
Could pay off all the debt and own the lot outright within 10 years.
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Nice, good luck Marty.
Hopefully the government supports property investors as much as it's been supporting other parts of the community.
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Why? Investors deserve the least support (ok, multinationals that pay little tax deserve the least, you got me there), especially property investors.
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Yeah I have to agree LonerMatt.
I really don't want to be taking any government support at this time. I want my tenants to pay their rent, so if their employers and businesses are forced to close by the government then I want the government to support them.
@Bloop Bloop if governments start supporting investors too all that will do is further stop you from getting your tax cuts ;)
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Why? Investors deserve the least support (ok, multinationals that pay little tax deserve the least, you got me there), especially property investors.
Everyone deserves to have one basic safety net subject to an income and assets test, and beyond that, equal standing under the law. No more or less support for one group than the other.
Letting tenants default without consequence is a ridiculous and stupid strategy.
The government needs to let that end so that the rental market can go back to being a "market".
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Why? Investors deserve the least support (ok, multinationals that pay little tax deserve the least, you got me there), especially property investors.
Everyone deserves to have one basic safety net subject to an income and assets test, and beyond that, equal standing under the law. No more or less support for one group than the other.
Letting tenants default without consequence is a ridiculous and stupid strategy.
The government needs to let that end so that the rental market can go back to being a "market".
However, allowing tenants to be evicted at a time of a pandemic is likely to make the pandemic worse. I am also a property investor, but I agree with @LonerMatt that we don't need this type of investment propped up. If the people paying the rent are supported, then the wheels can all go around.
Markets are never truly free anyway.
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How is allowing an eviction for a rental breach (in the usual way) "propping up" a market? It's just allowing the rule of law to continue. I don't see employers being forced to keep employees on that they don't want.
If you want to pay rental subsidies to tenants who've lost their income (similar to the Job Keeper for employees), you can do that, though I would advocate for an income and assets test to make sure only struggling people get that.
The current measures are overly generous / non-targeted when it comes to workers who've lost their jobs and they are irrationally restrictive when it comes to landlords.
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How is allowing an eviction for a rental breach (in the usual way) "propping up" a market? It's just allowing the rule of law to continue. I don't see employers being forced to keep employees on that they don't want.
If you want to pay rental subsidies to tenants who've lost their income (similar to the Job Keeper for employees), you can do that, though I would advocate for an income and assets test to make sure only struggling people get that.
The current measures are overly generous / non-targeted when it comes to workers who've lost their jobs and they are irrationally restrictive when it comes to landlords.
Regulators probably don't want the courts exposed to COVID breakouts, or widespread homelessness, or civil unrest from evicted renters. I see your point but it's worth noting that there will be consequences for renters that act this way. some of them might see rulings against them and they will definitely not receive a reference. It sucks for landlords that are getting screwed but it seems that regulators have made their choice.
There is a similar situation unfolding with hotel owners on the west coast of Canada, where they are being forced through emergency decree to start housing homeless people:
https://www.vicnews.com/news/b-c-enacts-provincial-order-to-move-homeless-at-victoria-encampments-into-hotels/
Edit: because emergency legislation is being used, a lawsuit for damages against the city will not be available.
These homeless people will also be supplied with drugs:
https://vancouverisland.ctvnews.ca/doctors-say-homeless-at-victoria-hotels-arena-will-have-access-to-safe-drug-supply-1.4926465
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https://www.betootaadvocate.com/uncategorized/property-investor-with-vacant-dwelling-appalled-at-having-to-pay-his-own-mortgage-for-once/?fbclid=IwAR1WE1VwKwPHxtDqPu1AK-HQauuHhxGjOBqfsO76H9oztLNlg6mhUML7mt8 (http://Property Investor With Vacant Dwelling Appalled At Having To Pay His Own Mortgage For Once)
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How is allowing an eviction for a rental breach (in the usual way) "propping up" a market? It's just allowing the rule of law to continue. I don't see employers being forced to keep employees on that they don't want.
If you want to pay rental subsidies to tenants who've lost their income (similar to the Job Keeper for employees), you can do that, though I would advocate for an income and assets test to make sure only struggling people get that.
The current measures are overly generous / non-targeted when it comes to workers who've lost their jobs and they are irrationally restrictive when it comes to landlords.
Regulators probably don't want the courts exposed to COVID breakouts, or widespread homelessness, or civil unrest from evicted renters. I see your point but it's worth noting that there will be consequences for renters that act this way. some of them might see rulings against them and they will definitely not receive a reference. It sucks for landlords that are getting screwed but it seems that regulators have made their choice.
There is a similar situation unfolding with hotel owners on the west coast of Canada, where they are being forced through emergency decree to start housing homeless people:
https://www.vicnews.com/news/b-c-enacts-provincial-order-to-move-homeless-at-victoria-encampments-into-hotels/
Edit: because emergency legislation is being used, a lawsuit for damages against the city will not be available.
These homeless people will also be supplied with drugs:
https://vancouverisland.ctvnews.ca/doctors-say-homeless-at-victoria-hotels-arena-will-have-access-to-safe-drug-supply-1.4926465
Our Victorian tenancy tribunal won't list cases either. That's fine. A lot of cases are not proceeding. Point is, that's different from disallowing evictions altogether. There might be the same practical effect, but there's at least a deterrence measure in allowing evictions in theory; it keeps the integrity of the landlord-tenant contractual relationship.
When people lose their jobs because of Covid-19 the government falls head over heels to compensate them - but when landlords lose tenants, the government says landlords are legally barred from mitigating their loss. It makes no sense.
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Jobs aren't investments, stop being stubborn.
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You lose your job, you lose your rental income, you lose your dividends, it's the same thing in the end - loss of income. So let's concentrate on who really needs an income supplement, rather than making arbitrary classifications. Treat everyone the same: everyone should be entitled to access Centrelink subject to an income and assets cap.
In practice, this means landlords will probably be less able to access it, since they'll be over the assets threshold. But that's fine. Point is, we shouldn't class people as "worker" or "tenant or "landlord" and have different rules for different categories because doing so potentially over-benefits workers (or tenants) on high incomes who don't need extra protection. We should just have a universal safety net that you can access once you run down your savings.
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You lose your job, you lose your rental income, you lose your dividends, it's the same thing in the end - loss of income. So let's concentrate on who really needs an income supplement, rather than making arbitrary classifications. Treat everyone the same: everyone should be entitled to access Centrelink subject to an income and assets cap.
In practice, this means landlords will probably be less able to access it, since they'll be over the assets threshold. But that's fine. Point is, we shouldn't class people as "worker" or "tenant or "landlord" and have different rules for different categories because doing so potentially over-benefits workers (or tenants) on high incomes who don't need extra protection. We should just have a universal safety net that you can access once you run down your savings.
Sounds like you are arguing for a universal basic income. Good on you! Such a simple solution to so many problems. Now we just need a Buffet tax and a Tobin tax. Next we will be calling you a radical leftie!
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I know you're being facetious, but I'm obviously not, since no UBI requires you to meet an assets or income test.
I really just want our tax dollars to go supporting people who genuinely need it for basic necessities, not people temporarily down on their luck but who have savings or property to fall back on. Everyone in that basket should get nil assistance.
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I know you're being facetious, but I'm obviously not, since no UBI requires you to meet an assets or income test.
I really just want our tax dollars to go supporting people who genuinely need it for basic necessities, not people temporarily down on their luck but who have savings or property to fall back on. Everyone in that basket should get nil assistance.
Actually I wasn't being facetious. Anyway...
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I really just want our tax dollars to go supporting people who genuinely need it for basic necessities, not people temporarily down on their luck but who have savings or property to fall back on. Everyone in that basket should get nil assistance.
Not that easy to simply liquidate a property in this environment. But people can borrow against them. I still maintain that if the Government has forcibly shut down your business or employment for a purpose such as Covid, then the government is obligated to compensate.
You lose your job, you lose your rental income, you lose your dividends, it's the same thing in the end - loss of income. So let's concentrate on who really needs an income supplement, rather than making arbitrary classifications. Treat everyone the same: everyone should be entitled to access Centrelink subject to an income and assets cap.
In practice, this means landlords will probably be less able to access it, since they'll be over the assets threshold. But that's fine. Point is, we shouldn't class people as "worker" or "tenant or "landlord" and have different rules for different categories because doing so potentially over-benefits workers (or tenants) on high incomes who don't need extra protection. We should just have a universal safety net that you can access once you run down your savings.
Firstly, the government has made quite a point that Jobkeeper is primarily a business support mechanism. Politics prevented the Government from simply handing the cash to business, for the sake of getting re-elected in two years time they had to tie it to workers.
Secondly, absolutely we should be treating workers differently to property speculators like me. People who are taxed at PAYG rates and don’t have the benefit of fucked up shit like trusts and companies and the like to pay no tax on earnings like some of us “investors” have. We lie and say trusts are for bullshit reasons like “asset protection” but it’s really just a way to funnel income to zero rate taxpayers.
The government had one week to design the scheme and about one week more to implement it to cover 50% of the workforce.
There is going to be some waste, there are some losers as we know. Fine, what did we expect for a scheme this large. All things considered it’s a fucking miracle the whole shebang didn’t collapse.
Financial markets are still standing. The property market is still standing. No bank has collapsed. There are no reports of mass death or starvation or homelessness. You do benefit greatly from all of these things, and it is the confidence and money that the assistance packages give that deliver this.
A budget deficit and having to pay a little more tax never killed anyone. Make your peace with it and be grateful you are not in need of assistance.
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You lose your job, you lose your rental income, you lose your dividends, it's the same thing in the end - loss of income.
It's not.
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with absolute opinions, you may find yourself alone Matt :)
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You lose your job, you lose your rental income, you lose your dividends, it's the same thing in the end - loss of income.
It's not.
I'm mostly agreeing with Matt here. The COVID bailouts are intended to produce an income floor, so people don't start starving. Renters tend to be closer to the floor than landlords, so they are getting preferential treatment.
To your point Bloop, maybe evictions should be able to occur if a court order was established prior to COVID. But after the shutdown of courts, tenants cannot receive court dates and therefore they are remaining innocent until proven otherwise.
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If the COVID bailouts were solely designed to produce an income floor I'd be okay with it. But the lack of evictions assists ALL tenants even those who have kept their jobs (and income) just fine. That's why I don't like that policy. It's not targeted.
Likewise I'm okay with JobKeeper in principle but it's not well targeted. Someone could have heaps of savings and a high income and still be entitled to it, whereas normally you wouldn't be and shouldn't be entitled to income supplement till you run down part of your savings.
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Do you think the government would have been capable of delivering a targeted support package in the time available?
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Yes. Considering Job Keeper requires proof of 30% reduction of income for self-employed, and proof of employee status for employees, some sort of vetting mechanism was baked into the process. All they had to do was to add a requirement that the person declare their total assets. It would have been impossible to investigate on an individual level but it would have at least required an honesty test with the potential for repayment later on if found rorting the scheme.
They could have also said "no evictions subject to proof of financial hardship" for tenants.
It's not brain surgery.
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How are you defining financial hardship? What evidence is acceptable? Who is qualified to review and test that evidence? Does it differ between metro and regional areas? Single v families? How do you define and value ‘total assets’?
What you are suggesting would have been significantly harder to design and implement in the time available, for limited practical upside.
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with absolute opinions, you may find yourself alone Matt :)
I don't know, it seems a few people agree with me! Lucky duck!
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How are you defining financial hardship? What evidence is acceptable? Who is qualified to review and test that evidence? Does it differ between metro and regional areas? Single v families? How do you define and value ‘total assets’?
What you are suggesting would have been significantly harder to design and implement in the time available, for limited practical upside.
Financial hardship can be defined by the current Centrelink asset and income tests. You know, the same tests that have applied to those seeking assistance for years and years.
What evidence is acceptable? See above.
You could even relax the evidentiary requirements in times of crisis - as long as it was made clear that there are such requirements, so that citizens have to abide by the honesty principle. Noting again that there are already requirements and evidentiary requirements in place for JobKeeper anyway, so it's not like there's any fundamental shift.
Who is qualified to review and test that evidence? Centrelink. Like always.
Does it differ between single & Families? Of course it does. Just like the existing tests.
How do you define and value total assets? See the existing assets thresholds.
"Limited practical upside" - when your deficit is $140 billion (or whatever it is), saving money on non-targeted assistance has major practical upside.
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Yes. Considering Job Keeper requires proof of 30% reduction of income for self-employed, and proof of employee status for employees, some sort of vetting mechanism was baked into the process. All they had to do was to add a requirement that the person declare their total assets. It would have been impossible to investigate on an individual level but it would have at least required an honesty test with the potential for repayment later on if found rorting the scheme.
They could have also said "no evictions subject to proof of financial hardship" for tenants.
It's not brain surgery.
That sounds like another opportunity for Stuart Robert to start a Robodebt scheme with more disastrous consequences. I see flaws in the system as it was implemented, but I am happy we haven't taken a US style "free market" approach and left up to 25% of the population unemployed and with little to no welfare to keep the cogs ticking over.
It may have been possible to bake in a "no evictions subject to proof of financial hardship" for tenants as you suggested, but it may also have taken longer to implement. The states were pushed fairly hard on this issue, and they came to it after other things were in place. I suspect the "no evictions" rule will be one of the first to go.
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Yes. Considering Job Keeper requires proof of 30% reduction of income for self-employed, and proof of employee status for employees, some sort of vetting mechanism was baked into the process. All they had to do was to add a requirement that the person declare their total assets. It would have been impossible to investigate on an individual level but it would have at least required an honesty test with the potential for repayment later on if found rorting the scheme.
They could have also said "no evictions subject to proof of financial hardship" for tenants.
It's not brain surgery.
JobKeeper doesn't actually require proof of reduced turnover as such. You answer yes to the question in a drop down form thingo.
What if someone has lots of assets but is cash poor and relies on their job income? Who even knows what their assets are worth day to day if they are in the markets? Also, the employees have to fill in a form and give it to the employer to say they want to sign up to JobKeeper via them - would you want the employer to know their employees assets? This form doesn't get sent anywhere btw, it's just for employers' records. As other people have said, this system was put together in a week or so, there's no time to process anything or check anything.
There is a requirement to state monthly turnover so the government can track how businesses are going. I assume that will factor into the timing of its withdrawal.
Although I kind of wish there was a hardship requirement for tenants, it's also none of my business what they are worth and next to impossible to verify changes in income to two self employed people that collect money irregularly. Just pausing the evictions gave everyone a chance to catch their breath. And more importantly, not rock up to work when we were trying to get people to stay home in those early days.
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How are you defining financial hardship? What evidence is acceptable? Who is qualified to review and test that evidence? Does it differ between metro and regional areas? Single v families? How do you define and value ‘total assets’?
What you are suggesting would have been significantly harder to design and implement in the time available, for limited practical upside.
Financial hardship can be defined by the current Centrelink asset and income tests. You know, the same tests that have applied to those seeking assistance for years and years.
What evidence is acceptable? See above.
You could even relax the evidentiary requirements in times of crisis - as long as it was made clear that there are such requirements, so that citizens have to abide by the honesty principle. Noting again that there are already requirements and evidentiary requirements in place for JobKeeper anyway, so it's not like there's any fundamental shift.
Who is qualified to review and test that evidence? Centrelink. Like always.
Does it differ between single & Families? Of course it does. Just like the existing tests.
How do you define and value total assets? See the existing assets thresholds.
"Limited practical upside" - when your deficit is $140 billion (or whatever it is), saving money on non-targeted assistance has major practical upside.
Of course - and that system works so well today (middo has pointed out just one of the many issues), and clearly has enough spare capacity to carefully assess the extra claims and provide guidance and support to the wave of people who have never dealt with Centrelink before and are now unemployed. You seem to be the only person in here who can't see the trade-off between speed of execution and design nuance.
You might also be right that a more targeted approach would be preferable, but haven't provided any evidence to demonstrate that the additional cost of designing and administering such a program would be more than offset by lower payments. If there's a large cohort of rich/wealthy people out there receiving money under this scheme that they are not morally entitled to I would be greatly surprised.
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That sounds like another opportunity for Stuart Robert to start a Robodebt scheme with more disastrous consequences.
Some people have not signed up as they are so fearful of robodebt. The fact that it's via ATO is scary as !!
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If there's a large cohort of rich/wealthy people out there receiving money under this scheme that they are not morally entitled to I would be greatly surprised.
I just had 10k drop into my business account and will get another 10k in a few months. Because they set a minimum amount for the "cash flow boost" and it's $20k. I'd forgotten all about it tbh & don't need it. I'm going to use it to stimulate the economy I guess.
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JobKeeper doesn't actually require proof of reduced turnover as such. You answer yes to the question in a drop down form thingo.
I don't know what form of "proof" it requires but for self-employed it requires 30% loss of income plus monthly updates after that.
This stops self-employed people like me from claiming it willy-nilly.
As I said, even if there was no true proof required, but just a stat dec along those lines, it would deter people from claiming welfare they don't need. This is why I'm not claiming Centrelink. Surely it would not be onerous to do the same to all the other forms of welfare. The compliance costs are nearly zero given that there's already a process required to claim it, verify income (for self-employed) and update income monthly (for self-employed).
What if someone has lots of assets but is cash poor and relies on their job income?
Then liquidate the assets. Otherwise I would be able to claim Centrelink, since I'm cash poor and all my business income goes into shares/property. Do you want me to get Centrelink? It would be a waste of resources for all involved.
Who even knows what their assets are worth day to day if they are in the markets?
That's like saying "Who knows what your bank accounts are worth day by day." You can check and self-declare. The market has a day to day value.
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Are you out of work, Bloop Bloop?
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Nope.
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Centrelink is Services Australia now, perhaps with the not insubstantial shifts in their processes in the 2-3 months leading up to new welfare measures one could be a bit more understanding of why there weren't more controls, as is the system was inundated for weeks! Is this, gasp, another indication Bloop doesn't know anything about poverty or working class Australia? Shocked yet again!
Many self-employed people (eg, artists) don't qualify. Seems it's easier to keep the money rolling in if you're at the top, as it always is.
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Many self-employed people (eg, artists) don't qualify. Seems it's easier to keep the money rolling in if you're at the top, as it always is.
I think it's sorted out now for sole traders, so those issuing invoices with an ABN for ad-hoc work are ok, but those on casual contracts eg for a show, then another show are screwed. At least there's double Jobseeker. I have a friend who's self employed in the arts but luckily set up as a company so like me he's getting the cash boost.
I had an employee leave & start up her own thing in Feb so she's a sole trader that doesn't qualify, that sucks too. We talked about me claiming JobKeeper for her bc I gave her some of my clients as I'm winding down and now I feel bad.
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Yes, artists often don't have an ABN because they need to be making a lot before they need to get one.
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Yes, artists often don't have an ABN because they need to be making a lot before they need to get one.
Anyone earning enough to keep themselves would have an ABN though. You have to have one if you are operating a business not a hobby, there's no $ amount. It's $75k before you need to register for GST.
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Yes, I got it wrong. Sorry.
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I drove to Tamworth & back today. Some of the towns along the way are pretty average but there were some nice ones too. Murrurundi really caught my eye. It's scenic, there's some nice cafes & shops and it looks well kept, there's a heap of money there. I assumed it would be well exxy but checked domain... You can get a 3-bed place for $215k!
https://www.domain.com.au/66-o-connell-street-murrurundi-nsw-2338-2014180264
Google says they ran out of water last year, but hey.
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I drove to Tamworth & back today. Some of the towns along the way are pretty average but there were some nice ones too. Murrurundi really caught my eye. It's scenic, there's some nice cafes & shops and it looks well kept, there's a heap of money there. I assumed it would be well exxy but checked domain... You can get a 3-bed place for $215k!
https://www.domain.com.au/66-o-connell-street-murrurundi-nsw-2338-2014180264
Google says they ran out of water last year, but hey.
That's a pretty good deal by Canadian standards. It's my understanding that incomes are higher in Australia due to purchasing power parity or inflation or something, is that a pretty good price?
What is that strange room with the utility sink?
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I drove to Tamworth & back today. Some of the towns along the way are pretty average but there were some nice ones too. Murrurundi really caught my eye. It's scenic, there's some nice cafes & shops and it looks well kept, there's a heap of money there. I assumed it would be well exxy but checked domain... You can get a 3-bed place for $215k!
https://www.domain.com.au/66-o-connell-street-murrurundi-nsw-2338-2014180264
Google says they ran out of water last year, but hey.
That's a pretty good deal by Canadian standards. It's my understanding that incomes are higher in Australia due to purchasing power parity or inflation or something, is that a pretty good price?
What is that strange room with the utility sink?
Laundry. The area next to the trough (what you’ve called a utility sink) is for your washing machine. This is fairly standard here.
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I drove to Tamworth & back today. Some of the towns along the way are pretty average but there were some nice ones too. Murrurundi really caught my eye. It's scenic, there's some nice cafes & shops and it looks well kept, there's a heap of money there. I assumed it would be well exxy but checked domain... You can get a 3-bed place for $215k!
https://www.domain.com.au/66-o-connell-street-murrurundi-nsw-2338-2014180264
Google says they ran out of water last year, but hey.
That's a pretty good deal by Canadian standards. It's my understanding that incomes are higher in Australia due to purchasing power parity or inflation or something, is that a pretty good price?
What is that strange room with the utility sink?
Laundry. The area next to the trough (what you’ve called a utility sink) is for your washing machine. This is fairly standard here.
Ah. Not so strange then.
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I drove to Tamworth & back today. Some of the towns along the way are pretty average but there were some nice ones too. Murrurundi really caught my eye. It's scenic, there's some nice cafes & shops and it looks well kept, there's a heap of money there. I assumed it would be well exxy but checked domain... You can get a 3-bed place for $215k!
https://www.domain.com.au/66-o-connell-street-murrurundi-nsw-2338-2014180264
Google says they ran out of water last year, but hey.
That's a pretty good deal by Canadian standards. It's my understanding that incomes are higher in Australia due to purchasing power parity or inflation or something, is that a pretty good price?
What is that strange room with the utility sink?
Yeah, that place in my suburb would cost $3m or more because of the land size alone. If it was on a typical plot (510sqm) it would go for $1.8m on my street. I'm in a wealthy suburb in Sydney. So it's an amazing price. Compared to other country areas, Murrunrindi looks like a smaller version of a fancy country town like Berry where a small home would cost four times that.
I just had no idea it existed, I've never been to the very very Upper Hunter. However, a lot of places in Australia look nice in autumn and spring but seem unliveable to me in winter or summer. I wasn't born in Australia so the brown landscape isn't appealing. I'd have to go there in a drought at the height of summer and see what it felt like!
I looked further into why it felt like such a fancy place. From the road I could see VERY well maintained fencing and a nice looking stable complex, and there is a big thoroughbred breeding place there. Lots of money passing through. Plus there's all the coal mines. Air quality would be a big issue to look into before settling there. And then when all the mines are gone and drought hits again, the whole area could just collapse.
I think I'll be back for a holiday, check out the nice cafe/delis in a neighbouring town called Willow Tree. ETA: Also I want to visit Burning Mountain because WTAF! Had never heard of this. https://en.m.wikipedia.org/wiki/Burning_Mountain
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There's a lot to see in NSW, if you like a good drive.......
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Arghhhh, I hate the Sydney property market so much! Any other city in Australia you can find a decent place for what you’d pay in Sydney for a shoebox. And with Covid, I don’t want to be dependent on public transport, or worry about riding my bike to work and all the hassle with that. So you either pay a high rent or buy an expensive place that isn’t worth the money if you want to be within walking distance to the CBD. So frustrating!
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Tamworth and back is a bit of a drive. Burning Mountain is so cool, I've never been there but its on my list of domestic destinations to go to @deborah.
There is a lot of money around Scone, due to racehorses and pastoralists.
@MrThatsDifferent: one solution to your dilemma is to move out, if you are fortunate enough to be able to find work elsewhere. I moved out to Australia's 3rd most expensive city 25 years ago and don't regret it for a second. Having grown up and lived in Sydney nearly all my life it was a bit of a scary decision to leave ( FOMO!) but I don't regret it for a second.
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Head a bit further North to Quirindi and have a look at the plains from 'who'd a thought' lookout, the houses up there on the hill are probably even cheaper and much nicer than Mururrundi :)
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Tamworth and back is a bit of a drive. Burning Mountain is so cool, I've never been there but its on my list of domestic destinations to go to @deborah.
There is a lot of money around Scone, due to racehorses and pastoralists.
@MrThatsDifferent: one solution to your dilemma is to move out, if you are fortunate enough to be able to find work elsewhere. I moved out to Australia's 3rd most expensive city 25 years ago and don't regret it for a second. Having grown up and lived in Sydney nearly all my life it was a bit of a scary decision to leave ( FOMO!) but I don't regret it for a second.
Thanks @happy . Trust me, I’m thinking about it but a number of factors make it difficult, the biggest is my job is specific to Sydney unless my company lets us WFH indefinitely, which I don’t foresee. I won’t make what I make in Sydney anywhere else. My only hope is that housing drops 15-30% as predicted in 2 years. Oh and they get rid of stamp duty.
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Tamworth and back is a bit of a drive. Burning Mountain is so cool, I've never been there but its on my list of domestic destinations to go to @deborah.
There is a lot of money around Scone, due to racehorses and pastoralists.
@MrThatsDifferent: one solution to your dilemma is to move out, if you are fortunate enough to be able to find work elsewhere. I moved out to Australia's 3rd most expensive city 25 years ago and don't regret it for a second. Having grown up and lived in Sydney nearly all my life it was a bit of a scary decision to leave ( FOMO!) but I don't regret it for a second.
Thanks @happy . Trust me, I’m thinking about it but a number of factors make it difficult, the biggest is my job is specific to Sydney unless my company lets us WFH indefinitely, which I don’t foresee. I won’t make what I make in Sydney anywhere else. My only hope is that housing drops 15-30% as predicted in 2 years. Oh and they get rid of stamp duty.
Yes its certainly not straightforward. By moving out I essentially limited myself to working in 2 or 3 less desirable locations and dropped status ( but not money) in my career. I was pleasantly surprised that COL was a bit lower than in Sydney which I wasn't expecting.
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Fixed my new $600k investment loan for 2 years at 2.59%.
Holy shit. At that rate, I have positive cash flow even after principal repayments and before capital allowance building claim.
Never thought I'd see the day.
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Hi Marty,
Do you mind me asking which mortgage lender you went with?
I'm making an offer on an investment property and offering very low ball cash, or moderately low ball with finance.
If they take the finance option I'll be chasing a lender.
Cheers
Murdoch
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Fixed my new $600k investment loan for 2 years at 2.59%.
Holy shit. At that rate, I have positive cash flow even after principal repayments and before capital allowance building claim.
Never thought I'd see the day.
One of our properties is positive cash flow, before we think about the deductions. Low interest rates make a good investment even better.
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Hi Marty,
Do you mind me asking which mortgage lender you went with?
I'm making an offer on an investment property and offering very low ball cash, or moderately low ball with finance.
If they take the finance option I'll be chasing a lender.
Cheers
Murdoch
I’m with CBA. They’re not the cheapest, but their loans are the most flexible if you want to “do” something. Like fixing for example. Or setting up easy to use offsets. I love how much can easily be done through the app or Netbank.
Why would a seller care if you need to finance or not? They’re not going to sell for less just because you’re paying cash yourself. Whether you pay them cash or your bank pays them cash for you makes no difference to them...
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Cheers Marty.
I figured that the cash offer would result in much faster settlement following due diligence, and had less risk of falling through if the banks did not approve the loan etc...
I'm not sure how many accepted offers fall through due to lack of finance becoming available to the purchaser though.
Would only matter if the vendor needed the money ASAP.
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Cheers Marty.
I figured that the cash offer would result in much faster settlement following due diligence, and had less risk of falling through if the banks did not approve the loan etc...
I'm not sure how many accepted offers fall through due to lack of finance becoming available to the purchaser though.
Would only matter if the vendor needed the money ASAP.
If the IP is negatively geared (and they generally are if you've borrowed 80%) then a longer settlement is better. After all... why would you want to start losing money sooner?
I happily took a 13 week settlement on my new property, but then realised it was going to be positive so gave myself a slap on the wrist. D'oh!