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Where's the market going?

Discussion in 'Real Estate' started by Jacque, 21st Aug, 2005.

  1. Jacque

    Jacque Team InvestEd

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    Even the experts opinions differ when it comes to what the property market is going to do next, as evidenced by recent comments from four of them in the Herald (Aug 7):

    Bernard Salt (KPMG property analyst) believes that, if the cycle theory is correct, then a property upswing will begin, with Sydney first, in 2006/07 before spreading to other parts of the nation. His estimation places the next cycle as running from 2007 to a peak in 2011.

    A.Zigomanis (BIS Shrapnel) expects strong economic growth to maintain stablity in prices over the next 12 mths, with prices expected to weaken in the medium term as higher rates impact on affordability.

    Rod Cornish (Macq Bank head of property research) anticipates moderate capital city price movements over the next 18 mths with continued price drops in weak sectors such as generic apartments in oversupplied locations.

    Monique Wakelin (Wakelin Property Services) forecasts steady growth over the next 12-18 mths or so, with a moderate upturn to follow.

    With varied schools of thought, it's sometimes difficult to know what is going to happen. I'm sure that most of us would agree, however, that there needed to be an "adjustment of affordability", which seems to be currently occurring now (in NSW at least). What are other's thoughts?
     
  2. TakeStock

    TakeStock Well-Known Member

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    I believe that a fairly flat market would be a reasonable expectation for the next few years given the previous years of high growth.

    I know that bargains will make themselves evident to those who do their due diligence (incidentally, thanks for the great article re: due diligence Jacque) and keep their eye on the ball, however, overall they will be more difficult to find.

    Having said the above, the 'buy in gloom' mantra seems to be ringing loudly in my ears and I'm keeping an ever watchful eye on the suburbs I know well, although I am in no great hurry.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Haha, just to add some more dissension to the mix of "expert" views, JPMorgan's economists apparently believe that Australian property is 22% overvalued. They arrive at this conclusion by utilising a discounted cash flow (DCF) analysis.

    Apparently the outcome of their research is that:

    • Sydney - 37% overvalued
    • Melbourne - 22% overvalued
    • Perth - 9% overvalued
    • Brisbane - 4% overvalued
    • Adelaide - fairly valued
    • Canberra, Hobart & Darwin - undervalued

    The only bright spot according to the JPMorgan research is that due to the "emotional premium that Australians attach to owning their own home" any further decline in prices will be limited to 10%.

    So, the unique characteristic of residential property, as compared with all other asset classes is that we all need somewhere to live. This characteristic and Australians' parochial attachment to the great Australian dream is expected to put a floor under an otherwise unrealistically valued asset class - if we accept their view.

    If the JPMorgan people are right I guess the only bright spot is that the real estate market is extremely inefficient. So whilst these may be figures based on statistics, there's always a bargain out there somewhere.... ;)

    Hmmm food for thought.

    See mention of the report here http://www.theaustralian.news.com.au/common/story_page/0,5744,16235395%5E29277,00.html

    Cheers
     
  4. Glebe

    Glebe Well-Known Member

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    I would love a 10% Sydney fall. That's $65k in my hands when it's time to buy. Do I see it occuring? No. I guess I see Sydney flat for the next year though, so that's a 3.5% fall after inflation.
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I expect Sydney to fall by about 20% between now and about 3 years time, followed by a boom over the next 5-10 years that sees prices double or triple. Of course I have purely selfish reasons for this - and it's based on my wants, not on anything that even approaches economic reasoning :D
     
  6. perky

    perky Well-Known Member

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    The last cycle being 14 years was unusual according to Residex - it is usually more like every 7 or 8 years.
    A good article received in their last newsletter was this one here:

    Also if you check their website, this article talks about the 7 year cycle as well.
    I for one am hoping it is 7 years and not 14 as Kieran Trass believes in his excellent book "Grow Rich with the Property Cycle". :D :D
     
  7. Jenny

    Jenny Well-Known Member

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    I find the Canberra - undervalued very interesting. Canberra recently pushed Melbourne to third most expensive city (median prices), Canberra undervalued doesn't make sense to me :rolleyes:

    Are there any other Canberrans here?

    Jenny
     
  8. Tropo

    Tropo Well-Known Member

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    Jenny !.
    I found J.P.Morgans view more like a JOKE :D than reality...as properties in Canberra are as expensive as in Melbourne.
    :cool:
     
  9. Nigel Ward

    Nigel Ward Team InvestEd

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    I don't know which set of "experts" is right ... my crystal ball is busted. :p

    But remember the JP Morgan research used discounted cash flow methodology. So it focussed on the cashflows from the property and necessarily made assumptions about the appropriate "discount rate" to discount back to today's dollars those future cash flows (or negative cash flows)...so it would involve looking at rents in each city as a major factor in the valuation...

    Who knows...but buying well located quality property in capital cities at a fair price (rental reality can help there) will probably remain your best bet...

    Cheers
     
  10. perky

    perky Well-Known Member

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    Latest newsletter by Residex shows Melbourne and Perth, makes interesting reading here
    Shows Perth has some reasonable growth left in it - and Melbourne to take off around/after the Commonwelath Games.
     
  11. Here_To_Learn

    Here_To_Learn Well-Known Member

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    If the market is really falling in Sydney can someone give me REAL examples ? Not interested in low socio economic areas ( ie - Macquarie Park)

    With my limited research I see Sydney prices remaining fairly stable. Real Estate in Good locations like the Eastern Suburbs ( ie- Coogee, Bronte, Bondi, Randwick, Double Bay, Vauclause, Watsons Bay ) where people want to live in my opinion don't seem to fall. Either at the low or top end of the market.

    Maybe I am looking at the wrong areas ... if this is the case please enlighten me.

    Will be looking to purchase own PPOR within the next 5 yrs so trying to keep a close eye on what the market is doing ( just like the rest of everyone and their dogs in Sydney ! ) :D
     
  12. Glebe

    Glebe Well-Known Member

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    Macquarie Park is middle class, I think you mean Macquarie Fields!

    Big difference :)
     
  13. Here_To_Learn

    Here_To_Learn Well-Known Member

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    You are correct ... I meant Macquarie Fields !

    Agree ... BIG DIFFERENCE. :D
     
  14. Simon

    Simon Well-Known Member

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    There is an Article in todays SMH that suggests the slump has bottomed.

    Wishful thinking? Or good honest reporting?

    What do you think?
     
  15. Jacque

    Jacque Team InvestEd

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    I read that too Simon but the auction clearance rates are only one indication of how the market is going, as you would know. Agents can also skew these figures by pulling a property prior to auction, if it doesn't look likely to sell, or by simply not reporting results. Vendor bids also clearly don't allow you to see the last genuine bid, which I believe is highly misleading.
    I think the more important figures are the sales histories of properties and the medians within suburbs. The median sales prices for my own area have fallen in the last quarter but only time will tell with the next data release. Unfortunately, due to settlements, there is a lag time, so the information is usually 8-10 wks behind.
     
  16. kennethkohsg

    kennethkohsg Well-Known Member

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    ****************************************
    Dear Perky,

    1. I share Residex's views.

    2. Thanks.

    regards,
    Kenneth KOH