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Experts slam property crash forecast

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Your Investment Property | 25 Jan 2012, 12:00 AM Agree 0
Australian property commentators have lined up to slam predictions made by a US real estate analyst that property prices here are set to dive by as much as 60%.

  • Bob the builder | 27 Jan 2012, 01:32 PM Agree 0
    With an increasing shortage of housing due to insufficient numbers of new homes being built for an increasing population which according to current demographics is wanting to move into increasingly smaller homes with increasingly smaller numbers of occupants (Baby Boomers - whose numbers going forward are bordering on dangerous and Gen Y - all wanting smaller homes in convenient locations) I struggle to see how apartments, townhouses and well located homes within 25 km of a capital city (depending on the size of the city) could drop so low in price. In my opinion supply and demand dictates price - look at Hong Kong property prices - 12 X average annual income and rising. Why? - very limited supply and a huge demand. Also, this would surely put house prices way below their cost. Who in their right mind would even consider purchasing the land and building a house on it and selling it for $262 400 in Sydney. The cost of having the house built alone would exceed this price unless inflation were to suddenly reverse at the same rate as house and land prices. The fact that pretty much everything - not just property - doubles in price every 10 years would lead me to believe the true annual inflation rate over the last 40 years has been 7% at least. These clowns making these wild predictions seem to forget that inflation will more likely run rampant going forward due to the world's monetary supply being increased at such a rapid pace by governments worldwide trying prevent the collapse of their economies. Money is just like beer. Water it down too much and we will need to swim in it to get drunk. That is the real reason Australian property is seemingly expensive - we are simply refusing to water down our beer unlike the rest of the world. This is why the A$ is also worth more now - US$1.05, 0.80 euro and NZ$1.30 - increases not totally incomparable to that of property in relation to the rest of the world. It's only a matter of time before they all catch up with this thinking. Inflation should eventually even everything out. It almost always has.
  • Kilburn | 27 Jan 2012, 02:25 PM Agree 0
    I never know what to believe. One person says one thing, another says something totally different. They're probably all wrong. Economists are nothing more than professional guessers, me thinks.
  • James | 27 Jan 2012, 07:10 PM Agree 0
    I cannot wait for the prices to crash! Me and the rest of young Australia. Of course your 'Experts Slam Property Crash Forecast'... because they don't want their 5 investment houses to dive in value... Stuff em I say. Australia is not Hong Kong... look at the two countries for gods sake?!
  • Christian | 29 Jan 2012, 09:03 PM Agree 0
    I live in an apartment in the city. It's starting to look shabby already after 3 years. When we moved in they were offering these apartments for $950k, they can't currently sell them for $750k. Not widely known, but the s&^$t has already hit the fan.

    We got a letter that was meant for the owner a few weeks ago, apparently he's 90 days overdue on his payments. They recently said our rent is going up.

    It's a real mess. They need these massive rents to pay these ridiculous prices, but it's just not worth the money, especially since there is so much cheap accommodation now available in Melbourne.
  • Kevin | 30 Jan 2012, 09:00 AM Agree 0
    @James - spot on! How is young Australia ever going to afford houses at their current value? Affordability is non-existent.
  • Danny | 30 Jan 2012, 09:04 AM Agree 0
    Great! Property owners are finally going to pay for their years and years of excessive greed. Property prices are going to drop by up to 60%... I say let 'em.
  • Leigh | 31 Jan 2012, 03:18 PM Agree 0
    Not all property owner are mogals. I have managed to buy property as a single parent with a single income. I achieved this through hard work and resent people who are renting thinking just because you own a property you are a greedy landlord. Sometimes these apartments belong to people who have worked hard and are just trying to get ahead. Go without a few things for a while and you too may be able to buy a property. If the bottom falls out of the market it won't really benefit anyone.
  • Mandy | 31 Jan 2012, 04:14 PM Agree 0
    All you can say is....... he would have to be an American.... he needs to get out more!!!!
  • Rod | 31 Jan 2012, 05:07 PM Agree 0
    Danny/James,
    I think your dreaming. Market forces wont allow a drop like that. Prices are always "about right" and the
    Australian banks are to conservative in their lending for large corrections like that to occur. The market is a little on the soft side now, this means that it is probably as affordable as it is going to get this cycle. (so get in when you can)

    on the other comment - Property owners aren't greedy......Most of them are Mums and Dads that are trying to save for their retirement and not be a burden on the social security system. They provide renters (like myself) with inexpensive places to live, and the freedom to move at short notice.

    My advice is that you should try to improve your own situation and not blame others for the one you are currently in ....R
  • al | 31 Jan 2012, 06:14 PM Agree 0
    its interesting that the experts who "slam"this pediction have a vested interest in the industry....ie that is their source of income. there are far to many "experts" claiming to be on to the next property hotspot, and selling off the plan houses that dont move for years......then they move on to the next hot spot and do it all over again........property prices could crash by 60% , they have dropped by that much and more in the good old usa, and even in japan in the 80's some real estate dropped by as much as 90%. our next door neighbours new zealand have over the last 6 years seen a decline of upto 50% in some areas....queenstown and wanaka, both big tourist hot spots have been smashed.........dont think it cant happen here too, i certainly hope it doesnt as i have a couple of investment houses and about to buy another ( not through an expert though)
  • Bob the builder | 31 Jan 2012, 11:40 PM Agree 0
    James, Kevin and Danny. Less than 5% of all residential property investors own more than one investment property. Less than 1% own more than two. This is because most residential property investors are ordinary people investing at their own expense for a better future. Do you seriously think a $500,000 property rented at 5.2% return ( $500 per week or $26,000 per year ) less the cost of financing the property at 6.5%, insurance , rates, land tax, rental management fees, ongoing maintenance costs and other associated expenses ( $770 per week or $40,000 per year ) is greedy. That's a $270 per week or $14,000 per year loss. If it were not for government support in the form of tax deductibility of the loss and depreciating the building i
  • Bob the builder | 01 Feb 2012, 01:58 AM Agree 0
    It would be difficult to justify investing in property at all. The only reason it is feasible is because the property doubles in value every ten years roughly while the mortgage stays locked in at the original purchase price and the rent increases with inflation, doubling every ten years roughly also. So most
    So-called "greedy" landlords have to wait ten to twenty years to actually reap the benefits of their sins. Funnily enough this works just as well for young Australians buying their own homes except their expenses aren't tax deductible. My parents bought their home in 1970 for $15,000 on an income of $45 per week. That was 333 times their weekly income. They are now retired and their home is worth approx $750,000. My wife & I bought our first home 6 years ago for $680,000 on an income of $2,000 - 340 times our income. We recently had it valued at over $800,000. I am 45 years old now, so in twenty years time I will be my parents age and if our home doubles in value twice in that time as they always have in the past up untill now, it will quite likely be worth approx $3,200,000 when I am retired. The best advice I ever received
    was from my Grandfather who told me when I was about 20 years old - property will never be cheaper than it is now. I sooooo wish that I had acted on that advice instead of waiting 25 years. My mortgage would probably only be about $1200 per month instead of $3800 per month and it would be paid for in another 10 years instead of the year before I retire. As unaffordable as it may seem , the first few years are the hardest, but then it just gets easier as inflation makes the loan seem insignificant and the value of the property seem unbelievable. My parents are still blown away by their $15,000 home being worth 50 times
    what they paid for it after owning it for just over 40 years (doubled in value every 7.5 years). I hope there aren't too many young Australians waiting for property prices to half so they're more affordable because by the time everyone figures out it isn't happening they become even less affordable. I know. I've been there - done that. Unless there is a huge oversupply, which is not the case in most parts of Australia, and a huge decline in demand, which is unlikely given the rising rents making the news, then prices won't drop much more than they have already.
  • glee | 01 Feb 2012, 02:55 PM Agree 0
    Good on you Bob the builder, I wish your message would sink into some of the young Aussie head, coming form Being there and done that experience. Well said and keep it up. glee Sydney
  • McLovin | 01 Feb 2012, 03:06 PM Agree 0
    @Bob the builder: investors aren't greedy? What do you call buying property and praying to god that it will have 20% capital gains over a couple of years? Property can't keep going up and up at the levels it went up over the beginning of last decade. At some point there has to be a levelling off period. Affordability is non-existent in our capital cities and until incomes start matching property prices, I suspect that a flat period of prices growth might be good for first homebuyers who have been condemned for entering today's market's because they simply can't afford to buy.
  • Bob the builder | 02 Feb 2012, 12:58 AM Agree 0
    McLovin, true property investors buy and hold their properties for the long term creating wealth by refinancing against the increased value of these held properties to purchase further properties i.e. compounding their wealth - the single most important ingredient of success in business of any form. Property investors aren't driving up prices by selling houses for a capital gain. They don't even realise a tangible monetary gain as such. True wealth is achieved through accumulation of appreciating assets. Property prices are driven higher by inflation with fluctuations in their increases driven by supply and demand and cycles similar to any other commodity. One thing I find helps put things in perspective is the price of other things. Take for example the good old Aussie HQ Holden of 1970 vintage - $3000 approx when sold new. 1980 commodore - $6000 approx. 1990 commodore - $12000 approx. 2000 commodore - $24000 approx. 2010 commodore - $48000 approx ( I paid $54000 for my SS sportwagon in 2009 ). 2020 commodore - $96000 ???????? - quite likely I think. Shock, horror and then laughter - young Australians may have to walk because of affordability issues. Don't let the government fool you into thinking inflation is only 3%. For things to double every 10 years it needs to be compounding at more than 7%. They know this. They want this. Inflation destroys debt. Who has the biggest amount of debt?. They do. The economy thrives on debt - our debt - not the governments. The economy needs us to lag behind financially. That way we need to borrow to get ahead. Smart investors know that the only way to get ahead of this system is to exploit it by using it to borrow to buy appreciating assets. Appreciating assets keep up with inflation and eventually provide extra income to help to compound your investments. Without the compounding, investing alone would not outpace inflation enough to get ahead. Maybe these greedy property investors are merely smarter not greedier. It always surprises me that property investors providing rental properties for the 30% of Australia's population who largely choose to rent ( like, who the hell else is going to provide it ) are considered to be greedy to the point they are worshipping a God for a 20% profit over 2 years, yet a dole bludger in a government provided home spending 20% of their hard earned cash on pokkies and lotto praying to anyone listening for a 1000% profit are "Aussie battlers". Too many people seem to have an entitlement mentality - at least property investors are going after what they want not sitting on their asses waiting for someone to hand it to them on a platter.
    You made a very relevant point about income though. Incomes are lagging behind which is making property less affordable for first home buyers. The only thing is though, once incomes catch up prices will take off again. Affordability creates demand, demand creates unaffordability and inflation happens - again damn it !
  • Bob the builder | 02 Feb 2012, 01:27 AM Agree 0
    McLovin, true property investors buy and hold their properties for the long term creating wealth by refinancing against the increased value of these held properties to purchase further properties i.e. compounding their wealth - the single most important ingredient of success in business of any form. Property investors aren't driving up prices by selling houses for a capital gain. They don't even realise a tangible monetary gain as such. True wealth is achieved through accumulation of appreciating assets. Property prices are driven higher by inflation with fluctuations in their increases driven by supply and demand and cycles similar to any other commodity. One thing I find helps put things in perspective is the price of other things. Take for example the good old Aussie HQ Holden of 1970 vintage - $3000 approx when sold new. 1980 commodore - $6000 approx. 1990 commodore - $12000 approx. 2000 commodore - $24000 approx. 2010 commodore - $48000 approx ( I paid $54000 for my SS sportwagon in 2009 ). 2020 commodore - $96000 ???????? - quite likely I think. Shock, horror and then laughter - young Australians may have to walk because of affordability issues. Don't let the government fool you into thinking inflation is only 3%. For things to double every 10 years it needs to be compounding at more than 7%. They know this. They want this. Inflation destroys debt. Who has the biggest amount of debt?. They do. The economy thrives on debt - our debt - not the governments. The economy needs us to lag behind financially. That way we need to borrow to get ahead. Smart investors know that the only way to get ahead of this system is to exploit it by using it to borrow to buy appreciating assets. Appreciating assets keep up with inflation and eventually provide extra income to help to compound your investments. Without the compounding, investing alone would not outpace inflation enough to get ahead. Maybe these greedy property investors are merely smarter not greedier. It always surprises me that property investors providing rental properties for the 30% of Australia's population who largely choose to rent ( like, who the hell else is going to provide it ) are considered to be greedy to the point they are worshipping a God for a 20% profit over 2 years, yet a dole bludger in a government provided home spending 20% of their hard earned cash on pokkies and lotto praying to anyone listening for a 1000% profit are "Aussie battlers". Too many people seem to have an entitlement mentality - at least property investors are going after what they want not sitting on their asses waiting for someone to hand it to them on a platter.
    You made a very relevant point about income though. Incomes are lagging behind which is making property less affordable for first home buyers. The only thing is though, once incomes catch up prices will take off again. Affordability creates demand, demand creates unaffordability and inflation happens - again damn it !
  • Bob the builder | 02 Feb 2012, 10:29 AM Agree 0
    One more thing McLovin. A 20% profit over 2 years is not even close to what true property investors expect as a return on their investment. If you leverage off an existing investment property that you already hold, that has already appreciated in value sufficiently , to enable you to finance your next one 100% including expenses involved in the purchase, you have effectively put in no money yourself to create the investment therefore any return whatsoever wil be infinite - e.g. $1 return divided by $0 put in equals infinite return. Try it on your calculator - it will have a meltdown because of the phenomenal return you've made. Just like Dire Straits said - "money for nothing and your cheques for free" - or was that chicks for free, they were rock stars after all - not greedy property investors.
  • James h | 25 May 2012, 03:36 PM Agree 0
    Jesus Bob......so many words to say so little. True wealth is achieved by spending less than you earn, investing the difference in productive assets and avoiding investment traps such as buying into asset bubbles. Inflation does destroy debt, thats why banks charge interest. As for the "smart" investors borrowing to get ahead (speculation vrs investment)........that mentallty caused the GFC in the first place and we know how that worked for everyone in Europe and the US. Overall, I think you are a bitter man with a narcisistic personality who will not realise half the wealth you think you will.
  • Over it | 26 May 2013, 10:09 PM Agree 0
    Investment bubbles? Man I've been hearing about this housing bubble since I finished high school. Seems like a mythical fairytale. I might sit around with you guys and wait for it to burst. Hopefully it doesn't take to many years longer cause then I'll be dead. Why don't we all just kill ourselves. A sad pathetic bunch aren't we? No fair u have what I want give it to me now! Not through hard work not through sacrifice just because I think it's unfair. If you think life is so unfair why don't you wish for the demise of the whole country while your there you pathetic bunch, I'm sure there is some poor refugee and his extended family that would love to come and work here. That's something I would certainly welcome.
  • MMM | 01 Jun 2013, 07:30 AM Agree 0
    Bob the builder is now a vested interest and it would ruin him for property to crash now that he has jumped on the bandwagon at unsustainable prices. The economy is now in freefall and businesses are closing down in record numbers, people are losing their jobs in record numbers but they wish to discard this. Interest rates just drop to record lows, now lower than the emergency lows of the gfc, for a good reason, because they are desperate to get this sinking ship moving. They are fast running out of tricks now. Bob is praying that property will double every so often, it simply cannot and is unsustainable, he says his property will be worth 3.2 million when he is older after paying 680k. I will show you how this cannot happen and why it is simply unsustainable. At first it seems possible but eventually becomes impossible. Eg if I asked you to work for me for month say 30 days, 30 days only , and would pay you 1 cent on the first day and double it everyday for the thirty days, so on the first day you would get 1 cent, on the second day you would get 2 cents, the third day you would get 4 cents, the fourth day you would get 8 cents and so on until the thirty day was up. After thirty days I would have paid you over 20 million dollars, yes that's right. 40 million if it was a 31 day month. As you can see it starts out alright and then becomes unsustainable, it is simply impossible for prices to just keep doubling like this. Bob is kidding himself with his figures. His commodore figures are way off too, he won't be buying a commodore in 2020 for 96k because they will close down before that, just like ford and many other businesses in our now collapsing economy. When people don't have jobs they cannot pay their mortgage or pay rent, prices will be forced to drop. Does not matter how low interest rates drop to , if you don't have a job you can't get a loan. Interest rates are now the lowest level in history because things have never been this bad in the history of our country or any others. Good luck to everybody, and this is coming from a property owner.
  • Steve the guesser | 24 Dec 2013, 07:18 PM Agree 0
    I have a mortgage and would love property values to decrease for the next generation even though I would stand to lose a lot because of it, however if values of a property valued at $500 000 came down to $250 000 the banks would lose massive amounts and would be in strife. In all honesty could you see the Government of the day letting that happen to the poor old banks. Sorry guys I predict property prices will grow at the very least along with inflation. My recommendation if you cant get into property is throw your money at Nuclear Energy shares or something similar...lol

    As far as your Car prices go, as long as we keep buying cars from countries other than Australia eventually there will be no cars built or assembled in this country and everything will be imported. Not long after that the countries of Automobile origin will lift there prices to ensure they make healthy profits at Australians expense and don't do as US or Australia are doing as we continue to purchase foreign cars and sympathize with Holden as they go broke in Australia.

    If we all bought Holden only, that would likely fix the problem, even if they are 15% more expensive. They still make a great car which in my opinion is worth the extra cost as most of us finance them anyway.
  • survive | 03 Jan 2014, 11:36 AM Agree 0
    If the rental prices drops with an ever increasing number of properties available for rent there is no way the prices of homes will not drop as well. The reason it when up will be the reason it will down- foreign investment and foreign disinvestment.
  • Ormond | 04 Apr 2015, 09:33 PM Agree 0
    I bought in peak recession in 2008 150K lesser than 2007 price.

    today 2015 its worth 400k more.

    property goes in cycles , long term hold= success. had i bought in 2007 want to sell in 2009 i would have made -150k loss.

    development will give more return as you decide market, buy and hold has to be >7 years ...

    thats my 2cents....
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