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Retreat to bricks and mortar ??

Discussion in 'Real Estate' started by Billv, 13th Aug, 2008.

  1. Billv

    Billv Getting there

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    Property or shares? Shares or property? The pair have been slugging it out for the investment crown ever since Adam Smith was a boy.

    But today, with market conditions in Sydney, there's an increasingly loud chorus proclaiming property investment the king of the ring, with many more happy returns.

    "We see the returns from residential property being above pretty well all other asset classes, in risk-adjusted terms," says economist Dr Alex Joiner, of ANZ Economics and Markets Research, who explains that risk-adjusted means the nominal yield is adjusted for the volatility of the asset class.

    "We see the next six to 12 months as a period of softness in Sydney - and nationally - but the overall fundamentals will continue to tighten."

    IN THE RED CORNER

    Intrinsic to the debate are the recent sharemarket falls. Australian shares lost 13.4 per cent of their value in the year to June 30, even after dividends were included in the market's performance. Listed property trusts fell by a collective 36 per cent.

    At the same time, a record low in new housing construction, combined with vigorous population growth, mostly through migration, smaller household sizes and a dozen rises in interest rates since 2002, have created a critical lack of homes.

    "The gap between supply [of residential property] and demand will support the market," says Joiner, who puts the shortage for next year at about 200,000 homes nationally. He also compares the returns from equities and property in the graph (see right).

    "This gap is set to get bigger over the coming years as pent-up demand becomes more acute and the population continues to expand."

    The most obvious result of this is the sharp rise in rents and fall in vacancy levels. In Sydney, vacancy rates are 1 per cent or lower and rents, now at a weekly median of $420, are rising at 6 per cent a year, and "could rise by up to 40 per cent over the next four years", says property commentator Michael McNamara.

    There are similar predictions from BIS Shrapnel, which says rents in Sydney will rise by 11 per cent a year over the next three years. In addition, there are opportunities to use superannuation savings to buy property (see right).

    This is all music to the ears of investors but there's a welcome encore: we won't be seeing substantial property price falls either. "We don't believe Australian property prices will fall particularly and certainly not on a sustained basis as we've seen in the US," Joiner says.

    THE BEST INVESTMENT?

    Property expert Margaret Lomas says the key to success is to ask the right questions when hunting the perfect investment house: What's the cash flow? What's the population growth? What are the rent trends? Is the property for sale at its true market value?

    "Rental yields are increasing incredibly, which makes being in property now a good opportunity," says Lomas, the founder of Destiny Financial Solutions, who's just released a new book, 20 Must Ask Questions For Every Property Investor.* "It also means that when things do take off, you are already there; you aren't competing with hundreds of others."

    But it's vital, no matter which property is chosen, that the investor be in for the long haul, says valuer Gareth Woodham, the NSW manager of the WBP Property Group. "I'm biased towards property as an investment but it's more important than ever to look at it as a long-term investment," he says.

    "There are no quick bucks to be made - and anyone who tells you otherwise has an ulterior motive. But with super and shares savaged, now is a good time to secure property for a rental income."

    His top tips include property in Kensington in the east, because of its variety of housing stock and its proximity to the university with lots of students wanting rental accommodation; Newtown in the inner west because of its proximity to the city, good public transport and lifestyle facilities; and Hurstville, where there's recently been plenty of money poured into infrastructure.

    "I also really like Bankstown," Woodham says. "Rents are around $320 a week for a bashed-up two-bedroom house, so yields are great, plus there's a lot of migrant population growth and good infrastructure."


    MORE HERE
    http://www.domain.com.au/Public/Art...alIndex&headline=Retreat to bricks and mortar
     
  2. Jacque

    Jacque Team InvestEd

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    It seems investors are really concentrating on yields at the moment, from enquiries I'm receiving. With future growth likely to be slower than past years, it's all about cashflow maintenance.
     
  3. dudek

    dudek Well-Known Member

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    If I had to choose location in Sydney I would never go close to Bankstown. Sims like everyone is avoiding to even mantion Top Ryde area. why? is it becouse it is guarantee to boom at the and of 2009 when the new shoping stards traiding?
     
  4. crc_error

    crc_error The Rule of 72

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    hopefully interest rates fall further, and rents climb further bringing the two closer together.

    I think its a interesting point he is making in the article, that property should be viewed as a long term investment... I say shares should also be viewed as a long term investment...

    I certainly am confident in my property holding.. long term I'm sure it will do well.
     
  5. 02bsure

    02bsure Well-Known Member

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    ahhhh the music starts,

    'its a long term investment'


    Personally, I prefer successful short term investments, but since you're a long term investment guy then , would you mind holding this bag ...I'll be back in 10yrs.
     
  6. Billv

    Billv Getting there

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    02,

    I think the situation will clear itself up before then.
    If you come back in 10 years you will pay a much higher price than today.

    IMHO

    Cheers
     
  7. 02bsure

    02bsure Well-Known Member

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    Rest assured that if real estate doubles over the next 10 years then a loaf of bread will cost $15.

    ...and the average wage currently 58K would be have to be 200K.

    there will be no hpi without massive wage inflation and a healthy credit market.
     
  8. Billv

    Billv Getting there

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    02

    I think it depends on what and where you buy.

    I agree that properties in some suburbs are way too expensive so their prices could come down or stagnate for a while.

    But in other suburbs I can find 2bedroom apartments selling for $180K and renting for $250/week. There is no way prices will come down anymore.
    Such a loan size at 9% interest will cost me $311/week

    At 8% interest my repayment will drop to $276/w and assuming a 5% rental increase pa the repayment will be exactly the same as paying rent in 24 months.
    You don't even need to wait 24 months.
    A one off 10% rental increase will bring the rent to the same level as the repayment.

    Now can you give me a reason why anyone who can afford to borrow and own this property will choose to rent it instead?

    Cheers
     
  9. Tropo

    Tropo Well-Known Member

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    Spot on !!:D
     
  10. 02bsure

    02bsure Well-Known Member

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    Personally, I still find that to be too expensive. I know its considered a bargain in Oz but elsewhere those numbers aren't fantastically attractive.

    To me, if the yield is less than a bank savings rate then its not worth my time. That scenario you've described is borderline and you are of course assuming 5% annual rent increases. Thats not sustainable without 5% annual wage increases.

    Consider this, I know a girl who just bought a very nice studio flat in Cologne in a totally renovated 200yo complex for 35K(EUR) ....thats right 35K(in 1994 it was sold for 80K), she rents it out for 350EUR / month. Her interest rate is 5%.

    Even more amazingly, she informed me recently that another has come up for sale for 25K (identical flat). I wanted to have it but it was snapped up by an insider.
     
  11. 02bsure

    02bsure Well-Known Member

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    As an interesting aside, take a look at the price development of this randomly chosen house in the sort after area of Napa , Ca.

    Suburb ( Napa, CA Real Estate and Homes for Sale | Zillow Real Estate )

    House 2509 Redwood Rd, Napa, CA 94558 | Zillow Real Estate

    10yr chart Data & Graphs - Real Estate Value, Local Real Estate Trends | Zillow Real Estate

    1999 valued at 178K
    2003 sold for 380K
    2006 valued at 600K

    Today - you could not sell it for 350K, I know the estimate says 446K but seriously (I know) you could not get 325K for it today. Furthermore, a year from now it will be under 300K.

    By 2010, this place will be 200K.

    Don't believe me? Save the link and watch.

    Scary charts like the above are coming to oz.
     
  12. Billv

    Billv Getting there

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    Ok we can revisit the issue in 2010

    Cheers
     
  13. 02bsure

    02bsure Well-Known Member

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    Sure thing Bill,

    Lets remember though that there will be many factors to take into consideration, namely inflation.

    Perhaps we should refer back to the international Big Mac index as a reference point.
     
  14. Billv

    Billv Getting there

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    Hold on mate.

    I did some rough figures and if the price of this particular property falls bellow $380k the repayment at the current US interest rate of 5.8% will be the same as paying rent.

    What makes you think that prices will fall below $380K?
    Are you telling me that people can't get a mortgage or that they prefer to rent?

    Cheers
     
  15. 02bsure

    02bsure Well-Known Member

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    In the US its a case of both, in CA you must have a 20% deposit (do you realise how many can't swing that?) and a perfect Fico (over 700) score.

    Whats more, rents are falling and that house would not rent for anything like the mortgage (although I'm not up-to-date on that).

    Its not a case of holding 380K, a house just up the road from this one just sold for under 325K.
     
  16. Billv

    Billv Getting there

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    You could be right there.
    Here finance is still easy to obtain and if we have less than 20% deposit we simply pay a one off mortgage insurance fee.

    Cheers
     
  17. crc_error

    crc_error The Rule of 72

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    A simular deal should be here.. make it that you need a 20% deposit.

    Its amazing how volatile the US housing market is, those yanks are crazy!!