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Do Not Buy Australian Real Estate; 5 undeniable reasons to be wary!
Topic Started: 8 Oct 2012, 11:57 AM (19,353 Views)
miw
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frankrider
8 Oct 2012, 08:26 PM
Amend Above Post
There have not been as many investors in the market as OO but 40% is a fair figure. Here is some recent data, and now I'm out of here for the night.

http://www.macrobusiness.com.au/2011/10/credit-growth-unchanged/

http://www.macrobusiness.com.au/2012/02/mortgage-aggregates-hold-up/
The number I have seen is about 15% for FHBs, anywhere from 25% to 33% for investors and the rest upgraders.

But there have been spikes as well, for example in 1988 when NG was de-banned and 3 years worth of investors came into the market.

On the ABS I found July finance figures (13.5B O-O and 6.7B investment housing) but I haven't been able to find a transaction count. Must be there somewhere. Seems to agree with Macrobusiness in terms of investors being about 1/2 of O-O in terms of finance totals. (but not transaction count. I haven't found that figure yet.)

I agree with you that investors seem to be under-represented in the market compared to historically right at the moment.
Edited by miw, 8 Oct 2012, 09:36 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Phil the engineer
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Why all the bitching and whingeing about property investors? Did average Frank investor write the planning rules that prevent Farmer Bob from selling you a corner of his paddock for $5k?

Go whinge to your State politician (I think its the state that sets boundaries.. correct me if I'm wrong!)
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kennyjaiz
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frankrider
8 Oct 2012, 08:05 PM
That's it in a nutshell kenny. Supply and demand, that governs price. If hunderds of thousands of home owners re-enter the market for an ip they are competing with the people who are there for their first house. They cannot help but push the prices up. Sure a savey one may walk from a sale in 2005 because they percieve the price is too high for that house in 2005, but someone bought it at the higher price, the market went up accordingly and in 2006 all the houses there in that suburb have risen. If the investor returns in 2006 to get a bargin he may well do so, but a 2006 bargin, which will be up 15% or whatever it is on the 2005 bargin house.

As I stated in another thread, most property investors are not represented here, most are working couples, mums and dads, single or married that have a home paid off or nearly so and buy the house across the street. I asked a couple why? "So we can keep an eye on our investment" Crazy but true. They don't care what it costs because in 10 years it will be worth twice that anyway. Its a fear based purchase, get in now or.miss out.

Actually there have.been as many investors buying properties as owner occupiers in the last ten years, what does that say? The investors are willing to pay more, bid the price up.
For simplicity, lets ignore the behavioural economics aspects and the well documented irrational economic behaviour - happy to introduce it back into discussion later if required.

In any market, participants are assumed to make rational decisions and by and large, that is what people do. Property buyers generally buy properties because they expect the return (e.g. utility value, yield, capital appreciation, tax benefits, etc) will be over and above the costs they incur or likely to incur. If the cost is perceived to be higher than the intrinsic and/or utility value, then they won't buy - it's simple. Whether the perceive value is ultimately realised, is irrelevant for this decision. Consider your scenario, where hundreds of thousands of home owners acquire IP - presumably the property prices will be pushed up, and a flood of rental supply on the market, ceteris paribus, will drive down the rent. This is a complicated dynamic process, where people continually and systematically assess whether the higher price level is worth getting into, taking into consideration of the declining rental prices - and ultimately the market reaches an equilibrium.

I don't think it's particularly crazy that people invest in properties close to them - would you rather invest something that has proven to be successful for you, or would you rather take the risk of other completely unfamiliar investment assets? You will find most people prefer to stick to what they know / have experience in - crazy but true. In this particular case, it doesn't sound fear driven at all.

As stinkbug alluded to before, you may find that nesting home buyers are more likely to bid the price up.
miw
8 Oct 2012, 08:10 PM
This is true. If a property investor gets a bargain, then someone else is going to have to go buy something that is not a bargain. This will have some impact on the market.
However, in support of Stinkbug's thesis:
a) Investors often tend to be interested in stuff that is not that hot on the buying market.
b) An investor is far less likely to decide s/he just has to have a property. It is much more enter the numbers in a spreadsheet, work out how much it is actually worth to you and then offer x% below that. If the offer is not accepted then there are plenty of other properties on the market. If there are not plenty of other properties on the market, that's the cue for the smart investor to get out of the market. Obviously when things get into a bubble this may break down, (property flipping may become attractive for some) but in general it is true.
c) PIs just don't represent a big enough percentage of transactions to have the impact that gets blamed on them. By far the biggest percentage of transactions (well over half) is existing owners upgrading. These people have the financial werewithal and the emotional attachment to get into bidding wars, and they do.
d) When prices go up fast, yields almost always go down. This prices PIs out of the market in general.
Yes, all valid points. As you are aware, there are exceptions, but I agree with you there.


Edited by kennyjaiz, 8 Oct 2012, 10:53 PM.
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mango66
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Frank Castle
8 Oct 2012, 04:31 PM
It's got nothing to do with overbuilding. It's public perception and economic conditions that drive increases or decreases in costs of anything. Once perception changes the games up. I have no problem with people providing rental accomodation if it provides a tax break for them but when it has a negative effect by prices going up that's when it becomes unfair.you can't have your cake and eat it. When the loan is paid you get the rental house to move into and avoid CGT as well as the tax break along the way while your paying it off. I think that's a fair enough gain without making shiploads of equity. Buying a house should be a right when your sick of renting. Houses need to drop by at lest 40%.
By the way your the biggest tosser in this forum and I hope your financial situation goes to shit. With an attitude like yours ....it's bound to happen.
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Frank Castle
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mango66
8 Oct 2012, 11:39 PM
It's got nothing to do with overbuilding. It's public perception and economic conditions that drive increases or decreases in costs of anything. Once perception changes the games up.
And yet there they are, ghost estates sitting empty, massive speculative overbuilding forcing property prices in those areas down

Quote:
 
I have no problem with people providing rental accomodation if it provides a tax break for them but when it has a negative effect by prices going up that's when it becomes unfair.

Unfair?
Sniff :lol
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you can't have your cake and eat it.
Of course I can..............and am
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When the loan is paid you get the rental house to move into and avoid CGT as well as the tax break along the way while your paying it off.

Avoid CGT?
Might want to check your tax laws again chump
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I think that's a fair enough gain without making shiploads of equity.
what you think matters little to reality
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Buying a house should be a right when your sick of renting.
You can buy a house anytime you like if you have the money
and ownership is not "a right" and never has been.
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Houses need to drop by at lest 40%.
maybe you should stop looking at houses clearly out of your league and look to something you can actually afford
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By the way your the biggest tosser in this forum

oh dear, typical bear
can't have a conversation without throwing in insults as well :(
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and I hope your financial situation goes to shit.

and wishing financial ruin on people as well to complete the picture.
What a sad sad little thing you are :(
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With an attitude like yours ....it's bound to happen.

Hard to imagine how with unencumbered property :re:
Will it have something to do with dinosaurs.....................or maybe monkeys? :lol
Edited by Frank Castle, 9 Oct 2012, 07:53 AM.
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frankrider
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kennyjaiz
8 Oct 2012, 10:32 PM
For simplicity, lets ignore the behavioural economics aspects and the well documented irrational economic behaviour - happy to introduce it back into discussion later if required.

In any market, participants are assumed to make rational decisions and by and large, that is what people do. Property buyers generally buy properties because they expect the return (e.g. utility value, yield, capital appreciation, tax benefits, etc) will be over and above the costs they incur or likely to incur. If the cost is perceived to be higher than the intrinsic and/or utility value, then they won't buy - it's simple. Whether the perceive value is ultimately realised, is irrelevant for this decision. Consider your scenario, where hundreds of thousands of home owners acquire IP - presumably the property prices will be pushed up, and a flood of rental supply on the market, ceteris paribus, will drive down the rent. This is a complicated dynamic process, where people continually and systematically assess whether the higher price level is worth getting into, taking into consideration of the declining rental prices - and ultimately the market reaches an equilibrium.

I don't think it's particularly crazy that people invest in properties close to them - would you rather invest something that has proven to be successful for you, or would you rather take the risk of other completely unfamiliar investment assets? You will find most people prefer to stick to what they know / have experience in - crazy but true. In this particular case, it doesn't sound fear driven at all.

As stinkbug alluded to before, you may find that nesting home buyers are more likely to bid the price up.

Yes, all valid points. As you are aware, there are exceptions, but I agree with you there.

Your not serious are you? "In any market participants are assumed to make rational decisions, and by and large that is what people do? That is a 200 year old economic idea that has been so discredited it's not funny. The efficient market hypothesis, as taught in economics classes worldwide, is mearly that, a hypothesis, never did it reach the status of law and for good reason. People are driven by fear and greed, pure and simple. You see this evidenced in all human affairs but never so much as in investment. A quick review of recent history proves this. The 70's gold bubble, the tech bubble, the US housing bubble...

The major problem with our economies stems from ideas just like this and the fact that every economist in a position of influence has been taught to believe the efficient market hypothesis. It's why they were so gobsmacked when the gfc hit and had no ration response to it. They didn't see it coming because it doesn't fit their belief in how markets should operate.

Negative gearing is a form of leveraged speculation in which a speculator borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan

A negative gearing strategy can only make a profit if the asset rises so much in price that the capital gain is more than the sum of the ongoing losses over the life of the speculation. http://en.wikipedia.org/wiki/Negative_gearing
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kennyjaiz
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frankrider
9 Oct 2012, 08:29 AM
Your not serious are you? "In any market participants are assumed to make rational decisions, and by and large that is what people do? That is a 200 year old economic idea that has been so discredited it's not funny. The efficient market hypothesis, as taught in economics classes worldwide, is mearly that, a hypothesis, never did it reach the status of law and for good reason. People are driven by fear and greed, pure and simple. You see this evidenced in all human affairs but never so much as in investment. A quick review of recent history proves this. The 70's gold bubble, the tech bubble, the US housing bubble...

The major problem with our economies stems from ideas just like this and the fact that every economist in a position of influence has been taught to believe the efficient market hypothesis. It's why they were so gobsmacked when the gfc hit and had no ration response to it. They didn't see it coming because it doesn't fit their belief in how markets should operate.
Well, I did mention at the beginning that behavioural aspects were ignored - it appears that you do not accept this premise. Again, as I said, happy to reintroduce it in the topic.
While I did spend a bit of time studying economics back in my undergraduate, I also do psych research at one of the universities in Australia. Positive psych, social psych and behavioural economics are some of my personal interests. I am not completely ignorant to human emotions and motivation theories.

Before we start, can I understand what is the point you are trying to make?
People are driven by fear and greed? Yes, no argument there.
But are you suggesting that just because people are driven by fear and greed, particularly in the property market, then therefore our property market is in a bubble?
Are you also suggesting that problematic economies are predominately results of decision makers' belief in invalid economic theories?
Without you clearly operationalising your hypothesis, I can't help but detect a slight contradiction there.

As a side note, while economic theories did not reach the status of law (nor should it ever be), they are not merely hypothesis - they guide our economic policies, and therefore our economy.
As much as an individual can be atheist or agnostic, he/she would still be influenced by religion one way or another.
There are also economic theories to explain the GFC - they are just not very good predictive models.
Edited by kennyjaiz, 9 Oct 2012, 10:11 AM.
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Timo
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NotFooled
8 Oct 2012, 04:45 PM
An incredibly whiney little bitch that thinks the world owes him a living. He's in for a very rude awakening over the next few years.
The rude awakening will be yours, shortly followed by your involuntary soiling of yourself. did i mention record stock levels hahahahahhaha
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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Timo
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stinkbug
8 Oct 2012, 07:02 PM
This I disagree with. If there's one thing property investors don't do it's bid the market up. As an investor, I will always pay bottom dollar for a property, or simply walk away from the deal. Every propeerty I've ever bought has bought for bottom dollar. How do I do this? By moving very quickly on properties that fit the numbers when they come onto the market. Where other buyers wait for open days, look several times, um and ah, talk to their banks, etc, I don't. I get the agent to open the property early, have a look then make the offer while still at the property and ask the agent to calll the owner on the spot. You'd be amazed how well it works.

The last thing any investor wants to do is pay over tthe odds. Whhy? Because they don't have to.
Your utterly deluded, investors are the MAIN reason property has reached unsustainable levels. Speculation my property infestors equals increase in prices. Prices that are going to kill off productivity and competitiveness of the Australian economy. The practise is hugely parasitic.
After a bubble has burst, no one denies that it existed. But before it does, the popular refrain is that though bubbles existed elsewhere in the world, “there’s no bubble here”. So housing bubbles are admitted to have existed in Japan, the USA, Spain and Ireland – because they’ve already burst.
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Frank Castle
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stinkbug
8 Oct 2012, 07:02 PM
If there's one thing property investors don't do it's bid the market up. As an investor, I will always pay bottom dollar for a property, or simply walk away from the deal. Every property I've ever bought has bought for bottom dollar.

The last thing any investor wants to do is pay over the odds. Why? Because they don't have to.
Exactly right
Its a simple fact that delusional tard timo cant seem to get into his pea sized brain.

many is the time I have been outbid by several "starry eyed" FHB's with a "Must Have it Now" at any price attitude
Edited by Frank Castle, 11 Oct 2012, 09:48 AM.
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