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The Forum > Article Comments > Contagion > Comments

Contagion : Comments

By Ross Elliott, published 10/11/2015

Some parts of the real estate market are experiencing a new feeling they haven't known for some time: fear.

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You don't come across tenants who would invest in rental properties if they could.

Maybe they know something those despised(?!) 'aspirational' mums and dads property 'investors' don't.
Posted by onthebeach, Tuesday, 10 November 2015 9:56:43 PM
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I do have a worry.

My youngest daughter, married 12 months, is about to build her first home. They have opted for an acre, well out of the city, but reasonably close to their present employment.

I do worry that they may be right at the top of the market, & also that future employment could mean a lot of traveling. I guess they don't have much choice. If they want their own home, they have to take the chance, & just get on with it.

Like Rhrosty, for me, future movements don't matter much if you are free of debt. My place is now valued at over 4 times what I paid for it. This of course does nothing for my wealth, as any replacement would be a similar price.
Posted by Hasbeen, Tuesday, 10 November 2015 10:04:13 PM
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ttbn, Cobber the hound, onthebeach, plantagenet, mac, Rhosty & Hasbeen, guys we are living in a dreamland where real estate only ever rises in price. it has gone up in bubble markets before & when the bubble bursts SOME people lose money. Regulation of the banksters was altered in 1972, again in 1983 & poverty has been created ever since. We had a sub prime mortgage crisis during the "recession we had to have" which was deliberately created by the workers friend to impoverish the workers.

Remember "%#$@& Homes, no deposit, no legals, no stamp duty, no worries"? Heaps of young Aussies were conned into a 100% home loan with the government first home buyers scheme cash being used to cover all costs including sales commissions. They were then left with a home worth 50% to 60% of the mortgage after the real estate market crashed.

Why didn't the banks go bust? Because the powers that be ALLOWED them to steal from YOU to cover their losses on sub prime mortgages. EG, interest rates on ALL deposits were lower than they should have been & interest rates on ALL loans were higher than they should have been. EG, interest rates on credit cards allow them to do high stakes gambling which YOU pay for. Kruddy/Swanny bailed out the banks with YOUR money so the big 2 banks could takeover St George & Bankwest.

if you think stopping the real estate bubble from bursting isn't going to create poverty in other ways then you are mad. Housing affordability is out of control, foreign criminals are money laundering with our children's birth right, buying the farm, mine, beach front resort. Where will your children get jobs if foreigners are allowed to own ALL businesses & bring in their own staff?

Why did we fight in WW2 to keep the Japanese out if we are going to sell everything to the communist Chinese?
Posted by imacentristmoderate, Wednesday, 11 November 2015 5:40:04 AM
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The contagion that is abroad is the inexplicable willingness of people to suspend their own judgement and life experience to accept what 'pundits' in the media tell them.

The market lags for years then rises, slows and then rises a bit more to where the correction is a bit past cumulative inflation for the period before. Finally there is a small fall. Then the cycle starts again.

Those are not 'bubbles' and any 'experts' who call them 'bubbles' to scare the public need to be scrutinised closely.

For increases in prices the public needs to look at demand, continual new records being set annually in immigration and for donkey's years; all layers of government but especially the federal government regarding rental property as a milch cow for more taxes and charges; house design (extra bathrooms and expensive landscaping and so on); shameless profiteering by banks and finally the blow-out in single person and fatherless homes.

As for small investors in rental property taking advantage of 'negative gearing' driving up prices, pig's derriere to that! That is an absolute joke. Again, consider what secondary gain the politician or lobbyist might have before swallowing the spin. There are very obvious forces that would kneecap quick smart any small investor who pays too much. That about it!

It is ridiculous for anyone to claim that small investors speculate and make big returns. How? If an exceptionally lucky one could be found, there are hundreds with burned fingers and lost deposits and years.

On the other hand, owner occupied property is usually over-capitalised. The reasons why are obvious and many here would have personal experience.

Personally, I would not put a $1 into rental property because of the myriad serious risks (eg regulatory risks) that any renter could list in a flash and a renter would know!
Posted by onthebeach, Wednesday, 11 November 2015 10:10:16 AM
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The force behind property prices is, as always, contained in the laws of supply and demand. Where (and when) property is scarce, prices go up. The converse is also true: property prices will ease off when supply moves ahead of demand.

And yes, there are two basic types of investment here. One is the investment in your own home, an asset that can give you some comfort in your old age...

>>Good! I own my house and am hardly affected if the bottom drops out of the market leaving a few lazy or "ASPIRATIONAL" investors looking for relief? I will still have a place to live, although I might have to fork out a little less on rates and insurance? Goody!<<

Well put, Rhosty. Although I suspect your hope that ancillary costs will decrease are a touch naive. We'll see.

But there are others in the property market who invest for different reasons. As the author illustrates...

"...especially the flood of new stock of one bedroom apartments, not designed for living in but for investor price points."

Of course, it may just be that I live in Sydney, but the "one-bedroom apartments" here tend to provide ideal, affordable rental accommodation for people, especially students and young couples, who are unable, or unwilling, to buy for themselves.

The "affordable" part is critical. If the rent is pitched too high, the property becomes unviable as an investment - even with negative gearing - because there won't be enough tenants.

The excitement here is caused by the fact that interest rates are at record lows, which means that both developers and investors can borrow in order to feed the supply-side of the equation (see earlier observations on the impact of supply and demand on prices). And as interest rates increase again, this bargain-basement holiday will gradually come to an end.

But as they say in the trade, "a rising tide lifts all boats". So, along with higher interest rates, we will (all) experience CPI increases, the impact of which won't be confined to the property market.
Posted by Pericles, Wednesday, 11 November 2015 11:23:44 AM
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Property development is high risk and very tight. You need deep pockets, for small developments too.

By way of example, a duplex site that was always zoned duplex and has services connected (existing house), but the council demands $25,000 up front for an 'extra' service. But wait, there's more...

Even with the most astute planning and management a development can go sour very easily.

No mention here as yet of the expectations of renters and home buyers. That is another story.
Posted by onthebeach, Wednesday, 11 November 2015 12:18:35 PM
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