If you believe that your only chance of getting a leg up in the property market is by buying a dog box in Dubbo, I’ve got great news for you.
If you’re tired of being beaten at auctions by cashed up baby boomers, who constantly outbid you with their abundant equity, their negative gearing, and their Self Managed Super Funds — I’m going to show you how to get one up on them.
Lean in close, because today I’m going to walk you through my plan.
It could result in you buying a brand new inner-city apartment within the next three years — at fire sale prices. Much, much cheaper than they are selling for right now.
Let me explain.
2018: The Year First Home Buyers Finally Get Their Revenge
Your ‘Kerry Packer moment’ will happen in 2018.
(Packer sold Channel Nine to a borrowed-up Alan Bond for $1 billion, and then purchased it back a few years later at a fraction of the price when Bond hit the wall. Packer framed Bond’s billion dollar cheque and hung it on the back of his dunny door. He famously remarked “you only get one Alan Bond in your lifetime”).
Your Alan Bond, dear reader, has just bought a yet-to-be-built inner-city apartment.
He was attracted by bright shiny (yet-to-be built — or paid for) things. And he doesn’t mind sticking his neck out and having a punt: besides, interest rates are at historic lows, and the market is booming — what could go wrong?
Let’s run the numbers.
Your ‘Bondy’ signs a contract with the developer to purchase a two-bedroom apartment for $600,000.
He puts down a 10 per cent deposit — $60,000 today — and will organise a $540,000 bank loan in three years time when the apartment is built, (a bank’s pre-approval only lasts for 60-days, so you can’t get finance until you’re ready to settle).
He does his calculations: in Melbourne prices have soared nearly 35 percent in the last three years. Sydney is up close to 50 per cent. So if history repeats, his apartment will have increased by as much as $300,000 by the time it’s finished – he’ll have made six times his money.
That’s what caused buyers in Western Sydney to purchase 191 apartments in five hours last weekend. Some real estate professionals warned that they were purchasing them on a 2 per cent rental return. That’s utterly insane.
In three years’ time there will be an oversupply of inner-city apartments in many parts across the country. It’s actually not hard to forecast today, because we can see what’s coming down the property pipeline in a few years time: apartment towers take years of planning and regulations to get approved. When the market is hot, like it is now, lots of developments spring up to feed the demand — but there’s a lag.
Let’s fast forward three years to settlement.
Bondy’s bank conservatively values the apartment at $550,000 — a full fifty grand less than what he has agreed to pay. (And I’ve seen worse valuations than this, even in today’s boom times).
Because of the oversupply in apartments, his bank is now only willing to lend 80 per cent of their $550,000 valuation, which is $440,000.
Bondy however is still contractually bound to pay $600,000 to the developer.
He’s $100,000 short.
What are his options?
Well, if he’s got it, he can begrudgingly tip in another $100,000.
If he doesn’t, he can walk away from the deal. Or more likely limp away: he’ll not only lose his $60,000 deposit, but he’ll also be sued by the developer.
His other option is that he can sell the apartment. Yet history shows that when lots of buyers are painted into this corner, their desperation tends to feeds on itself, causing fire sale prices.
Playing it Like Packer
Here’s you: ‘Okay, but how likely is this to happen, really?’
Here’s me: ‘Very likely. There are 90,000 apartments under construction in Australia that have been sold off-the-plan, but have yet to settle. About one fifth of these, or 18,000 apartments, were like Bondy, kicked off with a 10 per cent deposit, according to research from CoreLogic RP data’.
Over the years I’ve seen plenty of people screwed by buying apartments off the plan. I’ve also watched savvy investors scoop up apartments in places like Noosa at 50 to 60 per cent off. Investors in this case were caught between desperate developers, and bully-boy banks. And when that happens, money is transferred from the panicker to the planner.
A Man is Not a Financial Plan
Buying an apartment is a decent first step on the property ladder for young people — especially for the tinder-ites who work (and play) in the city. Case in point, when I first met my wife, she explained that she lived in an inner city one-bedder.
I assumed she rented.
I was wrong.
Then I hinted that she must have bought it with her ex-boyfriend.
Nope.
Then I thought well she must have had wealthy parents.
Bump-bow.
In fact, as I’ll proudly explain to our kids in years to come — Daddy was a chauvinist pig, and Mummy was a smart young woman who didn’t need a man for her financial plan.
Yes, if you follow my plan you’ll be buying at a time of maximum pessimism. However, you’ll also be buying at a discount. An entry-level apartment will allow you to live there for five or six years, pay down some equity, and then either rent it out, or sell it and put the Capital Gains Tax free profit towards a family home, when you meet Mister Right, or Mrs Maybe. It’s how your parents did it: they started out small, and then traded up over the next twenty years.
So here’s my advice: save like a freaking demon over the next few years. With a 20 per cent deposit you’ll be able to kick it like Kerry, when Bondy goes broke. In the meantime, keep an eye out for glitzy apartment ads. When you find one you like, frame it. Who knows, in a few years you could be hanging it on the dunny door of your brand new inner city apartment.
2018: The Year First Home Buyers Finally Get Their Revenge Haha, so it's 2018 now. The bears just keep pushing the timeline for a property crash out further and further. 2018 will be 10yrs after Keen predicted the 2008 crash in Sydney property. Haha, at least the loser has now moved to London, and it annoying the UK people with his doom and gloom predictions.
I hope he has factored in that in 30 years time, property ownership by the baby boomers will have dropped dramatically. Mainly because they cant take it with them.
2018: The Year First Home Buyers Finally Get Their Revenge Haha, so it's 2018 now. The bears just keep pushing the timeline for a property crash out further and further. 2018 will be 10yrs after Keen predicted the 2008 crash in Sydney property. Haha, at least the loser has now moved to London, and it annoying the UK people with his doom and gloom predictions.
That's 10 years worth of rent these suckers have paid, and prices have doubled on them.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy