Migration could be cut - National - smh.com.au So the status is now, - commodities crashing - migration to be cut - tourism fall off a cliff - unemployment increasing - credit contracting But property prices are going to boom, right?
On noooo, where am I going to find tenants for my properties??? Hold on a sec, I already have tenants and there are ques of people wanting to rent... If the doubling of the FHOG convinces people to go out and buy their own place then there will be some rental vacancies but there is an undersupply of properties already so I am not afraid. I think that we will weather this storm quite nicely...
02 let me get the facts straight Commodities crashing: come back in 6 months and you will see that commodity prices have stabilised and are going up. Migration to be cut: We still have severe shortage in engineering, medicine and possibly other sectors so those migrants will keep coming and migration for business people and those under the family reunion scheme will continue. tourism fall off a cliff: Tourists (due to our cheap $) have just got a 30% discount. I believe that tourism will increase in 2009. Unemployment increasing: I thought we've discussed this. Our unemployment is a bit over 4% so what if it goes to 5 or 6%? It's nowhere near the EU unemployment figures. Also, people move around, those people who had gone to WA to work in the mines could come back to the big cities where work is more consistent. Credit contracting: this is the big unknown for me, and it's the reason I haven't bought any more properties this year. However, I feel that things will improve soon. But property prices are going to boom, right?: I don't expect property prices to boom, but I don't expect them to drop either. Falling interest rates and the FHOG will help keep prices where they are today and in some instances we could see price increases.
Bill, even if we assume all of the points have a neutral out come (that is to say, they remain constant and don't deteriorate) that will still not be enough to support current real estate prices because so many property investors are leveraged to the eye balls and must achieve capital gain to make the deal work. When they finally realise they are slipping due to the capital gain situation not improving, they will want out. The pressures building on multiple fronts is slowly (although faster than I expected) squeezing many into a retreat.
possibly, but many of those people are already out. Capital gains is one factor to consider and +ve gearing is another. 1% more in interest rate cuts and all of my properties will be cashflow +ve. I will have no reason to sell. in fact my improved cashflow position will allow me to buy more IP's
if you reach the nirvana of cf+ and are able to stay there when property prices are decreasing and rental income is squeezed lower then you will survive intact. dare I say, most won't. For myself, I will start to look at real estate if interest rates in Germany hit 2-3% and look to have bottomed. Obtaining cf+ property investments should then be a cake walk. I'm not interested in capital gain (I view capital gain as a lucky bonus should it ever occur).
02 Buying IP's is a great way to build up wealth because any capital gain is multiplied by our level of gearing. I am interested to buy more IP's but first I will be taking measures to reduce my exposure to upwards movement of interest rates. I plan to start fixing my loans when IR's get down to 6.5%. My thinking is that our economy is still growing at around 2% and when the problems in world markets go away our economy will start growing faster and our "trigger happy" RBA will start increasing interest rates again. 2 months ago I was thinking of selling 1 IP and to buy a different 1 through my SMSF. This would have improved my cash flow and would have allowed me to start rebuilding my share portfolio. The recent cuts in interest rates came at a perfect time, my cashflow has improved substantially so I can start buying shares without having to use money from my offset account or to restructure my IP portfolio. It's all good now
I'm still of the belief that there are some disturbing u-turns to come. Right now we are in a deflationary stage which may last into 2009 sometime. But after that I think its probable that central banks will attack the situation by printing masses of cash (high inflation) ...and consequently cash will be a terrible place to be, paper gold will probably not work either because the paper will not be honored if the price rises dramatically. Property thats overvalued is still just one more assest that the worlds money will retreat from although it may continue to provide a stable income in real terms. I think JPY (yen) , physical gold , hard assests in the form of agricultural land (Jim Rogers mentality) will be about the only ways to preserve capital.
