The "Business Sunday" poll, in response to the question "Do you think there will be a property slump next year (2004)?" is running

Yes 76%
No 20%
Unsure 4%

Probably be best to go with the majority on this one.

Of course, property is a pretty general concept, and there are many sub-classes.

Most pundits think that inner city apartments will suffer, but there should be some resilience in general housing, not the investor type of places.

Also interest rate impacts: the effect may e less dramatic than worst case scenarios postulate. A lot of investors finance through fixed loans, up to 5 years and often principal only, and many home owners (more correctly, part owners, with the bank) are getting sophisticated and are paying off faster than the loan amount specified. In this instance, depending on the buffer, the bank may not pass on the last few rises, but just re-extend the period. Ditto, offset accounts. Mainly those poor saps who bought recently will be hit. And tightening of 'non-conforming' loans will just deny access to quite a few hopefuls who are destined to be renters for a while longer.

Just postulating one further concept on the investor and interest only aspect. If the property on interest only is not cash flow positive from day one then I presume the investor is relying on capital gain to make a profit. Should the market go into an extended slump for the period then the capital gain may not be there. Wonder if this situation could cause a further slump when the investor sells.

And I never ever believe real estate data. Reporting of auction results is only voluntary I believe so if a real estate agent has a very very bad week of auctions then it may not be reported. Sort of skews the stats. As for capital gain, buy a place for $500k, undertake $150k in renovations and due to poor market, sell for $600k. And watch the spruikers say "Look! A 20% gain in value. You'll be rich." It happens.

judd,
you are spot on.I read an article a few months ago about the auction results in the papers.The report stated most results were above average properties,giving the impression they were the norm,to beef up the market.The author gave an example of a house bought for 500k,and 150k spent on renovations.It sold for 650k which was more than any other place in the street was worth.Another place came on the market,and the agent told an interested party they could buy it for 500k,and by spending 150k on renovations they would have a 650k house.It makes you wonder how these agents think.When comparing properties it is a must to compare like with like to get a true value.Not an original place with one which has expensive renovatios.
PS,we have a unit which our managing agent says is worth 450k+,as one was sold in the same bloch for 450k mid year.I have spoken to the agent who sold the other unit,he works for the same firm as our bloke,and he states it went for 360k.If an agent tells you it is raining,look outside,and get wet first before you beleive him.

The Weekend Australian reports that the ACCC is launching a landmark 'pricebaiting' action against a Melbourne real estate agency for, it claims, deliberately underquoting price ranges in a house auction.

The advertised price ranges on a Caulfield property were $600,000-plus and $650,000, then at auction the property was passed in at $781,000.

The other side of the coin is where agents 'overquote' to the vendors, which also seems, from anecdotal evidence, to be common practice.

The NSW Govt has introduced legislation banning both practices.

Good to see something is finally being done about these scams.

Judy

Hi Folks!
I just gotta getthis one off my chest! Two examples up here in Brisneyland!
Noel buys this old place around 200K. Decides to do it up & pumped by real estate buddies is out for a kill. Starts renovations - budgets $30,000. Is a bit of a perfectionist and spends $65,000- does a neat job too + pro help. Sells the place for best offer of $220,000!
Case 2 Mick - buys a place for $245,000. Does considerable improvements (over 100,000) sells eventually after 4 month jigging around for $280,000. Note these are both in low cost bracket. Have heard of others making a real kill in higher cost brackets-but no firm proof to hand! I kinda feel the new Get rich quick guys are pushing real eastate Domestic very hard of lateas they see higher Interest Rates being bad times coming!!
Regards.........Raptor

Judd, I am not disagreeing. People putting 5 year fixes on their money just means that they are locked in and probably won't/ can't get out for that period. Hence, answering the question; a slump in 2004? - reduced, but prolonged over a greater time. Does the market smooth it out?. Answer; generally yes, up to now when overall trend of interest rates has been down, BUT but if the slump is prolonged, their misery is as well.

Hi all,

I posted this yesterday but it got lost in the cyberspace.

The following is based on the "Investment U" newsletter (free of charge) that I read a while ago. It is a billion-dollar secret discovered by George Soros in the late 1960s. Enjoy.

How to Time the Real Estate Cycle

In the late 1960s George Soros was working as a security analyst for a Wall Street investment bank. He was analysing the new U.S. government regulations on real estate development companies, especially, the new regulations designed to promote "real estate investment trusts," or REITs in short (equivalent to the listed property trusts in Australia).

In 1960, the US government wanted to promote investment in the housing sector and it introduced a new set of tax breaks for REITs. The rules allowed investors to avoid double taxation by investing in REITs. The government agreed not to tax the income of the real estate holding company as long as the company distributed over 95% of its profits to shareholders each year.

After studying the rules carefully, Soros predicted that the REIT's legal structure would have the unfortunate tendency to build powerful credit cycles (booms and busts) in the commercial property market. Soros reasoned that since REITs have to distribute 95% of their earnings to qualify for the tax break, they can't retain enough of their earnings to acquire new properties without additional capital from an external source. To acquire new properties, REITs must either raise new equity by issuing shares or they must take on debts.

The result is that REITs are among the most cyclical of all investments. They boom when firms add capacity and debt and then crash when rents fall (because of too much capacity). When the cycle turns down, the weaker companies (those that have become too indebted) were taken over by the stronger companies on the cheap.

Thus, one of the secrets to making a fortune in real estate is to buy the strong REITs near the bottom of the cycle. And Soros has made millions by using this secret.

With this basic understanding of the property cycle, investors can make enormous returns. You don’t have to pay thousands of dollars to attend investment seminars given by people who are not even half as smart or half as successful as Soros.

The REIT cycle usually lasts about 6 years. Therefore, there is plenty of time to get on board. Once you get on board you have to watch the interest rates and the vacancy rates carefully. If these rates start to increase it may be time to sell.

Happy investing,

Beng

A London based bizman visited Australia about 2 years ago . It was his first foray in Downunder and naturally was captivated by its beauty along the seaboard coastline . He flew to Cairnes , rented a car to travel north and by the time we arrived in Port douglas He made his mind that he was going to buy a few coastline real estates . He did indeed . When I asked him what the rush was ? He said " It is heavenly blessed beauty at redicolous cost , and won't last " . The hurdles of being expatriat have been apparantely bridged with his powerful multinational biz ( he also has an Aussie franchise ) . I happened to have a word or two lately with him over the phone , and his first word was " I told you " ...cheers eG

eG,

That is one reason why I sold my rental properties except for the coast. The other reason was that the rental yields were so low I could have got a better real return just plonking it in term deposits - and when that scenario happens property in general really seems overpriced to me.

Now Comsec suggests there was scatterred bubbles but not in Sydney / Melbourne . Bubble is there when you cannot achieve your speculative game plan , and bubble doesn't exist if you were smart n lucky to positively get the result you had aimed for ...cheers eG

http://www.theaustralian.news.com.au/co ... 62,00.html

Gone

Satay , Yass up 42% ? I thought the drive was waterviews not woolenviews ... btw , where did you get that 125% figure ? cheers eG