Punting on Australian houses is bonkers, attracting dumb money, speculation, not investment; Ordinary people priced out of Great Australian Dream by cashed-up older generations
Tweet Topic Started: 20 Sep 2013, 10:18 AM (4,929 Views)
Spot on! Suppose most zombie infestors don't know any alternatives!
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.
At one moment he is saying that investing in houses is bonkers but the next moment he is saying thee return in houses is better than anything else.
On this last point he is absolutely correct.
He talks about “yield”. The yield should be calculated on a DCF basis to include the final value of the property and reflecting the effects of leverage, taxes etc.
Years ago I ran such an analysis, with my son, looking at Sydney property. We came to the conclusion that given the leverage, the tax rules etc we would need a return of 26% in any other investment to match the return in Sydney property appreciating at 3% per year. The numbers may have altered a bit and we may not have been exactly right (we weren’t too worried about minor variations) but the result would still be something of that order.
The key is the leverage available on property.
Regarding the risk of interest rates rising we can be guaranteed that IR’s will be held RAT negative. That’s RBA policy. We can be also guaranteed that if inflation rises that interest rates will not rise. CB’s as per the BOE will ‘look through’ inflation. The disconnect between RAT rates and nominal increases in house prices is set to continue and, indeed, to become extreme. There is no will or opinion anywhere for this to change.
So contrary to Adam Creighton’s assertion that “Punting on houses simply bonkers” given current attitudes, policy settings and, indeed, economic theory, it looks like bonkers not to be ‘investing’ in housing.
Even of greater issue there is nothing else to invest in in this nation.
Everyone one from the RBA and the world bank to a host of major economic analysts have warned that Australian property is in a big bubble, but the get rich quick crowd just ignore all the warnings. Let them pile in I say, at least their debt is flowing into the economy and giving the rest of us a nice uptick in lifestyle.
Shadow was hopelessly wrong about the Gold Bull Market. What else is he wrong about?
Noted. I can not really get my head around the switch.
Perhaps as the denial and delusion, required to pump up the bubble, are questioned, many change their mind?
So, Would you think people like myself & other family members who have reached a nirvana of not having a mortgage no more, in the progress of over forty odd yrs are deluded when they get INCREASING rental returns to increase a healthy income, & enjoy seeing the value of their portfolios increase in the long term.
Just sit back maintaining the good stuff, letting time do its magic.
it's called, well reality me thinks.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$ It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do. Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
Regarding the risk of interest rates rising we can be guaranteed that IR’s will be held RAT negative. That’s RBA policy. We can be also guaranteed that if inflation rises that interest rates will not rise. CB’s as per the BOE will ‘look through’ inflation. The disconnect between RAT rates and nominal increases in house prices is set to continue and, indeed, to become extreme. There is no will or opinion anywhere for this to change.
Sounds nice. But it's just the kind of assumption that gets you melted almost instantly if it proves incorrect.
The economy and policy can change quicker than you can rebalance your portfolio.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Just over one year ago I was told that the capital investment promises which I was relying upon for my business plans would no longer be honored.
Basically the Sydney real estate bug had struck and sucked the well dry.
I naturally argued that my venture would generate better returns, what else could I do?
Well guess what a couple of weeks back I meet with the investor group and they took pleasure in pointing out their 30% plus paper profits, in just over 1 year, all backed by solid risk free Sydney property.
Don't know how often I was told (endured):
“What you technical types don't understand is Risk adjusted Returns, 30% return, zero Risk, compare that with even your Best Case manufacturing returns, and you wonder why we pulled the capital?"
I felt like saying fuck you and all your speculator friends too, but that would serve little purpose so I suggested they break out their best Champagne and we could all celebrate.
It appears that in Australia a good drowning of one’s sorrows is all us technical types deserve.
Not surprising, and pretty much what has been going on since Howard got in. I expect this next leg of the boom will hollow out all but the very last holdouts in manufacturing (niche electronics that is not cost-of-labour sensitive and has high enough margins to self fund the business).
What your potential investors were really saying was 'What you technical types don't understand is that manufacturing requires thinking, organisation and actual work, and only creates something of value for everyone and ensures our children's future, but property returns 30% to me, Me, ME!'.
To quote the forum philosophy, it is what it is. I've resigned myself to encouraging it. The longer it goes on, the more catastrophic it will be for the economy in the future. At which point, the speculators who are not citizens will pack up and leave, the speculators who ARE citizens will have no other way to generate an income and will go broke, and the rest will start on the task of repairing the damage.
I think I hear the bell ringing - recess is over Timo.
You'll be off to your "special education class" then dummy? Like the article says, property infestment attracting dumb money!
Blondie girl
20 Sep 2013, 04:36 PM
So, Would you think people like myself & other family members who have reached a nirvana of not having a mortgage no more, in the progress of over forty odd yrs are deluded when they get INCREASING rental returns to increase a healthy income, & enjoy seeing the value of their portfolios increase in the long term.
Just sit back maintaining the good stuff, letting time do its magic.
it's called, well reality me thinks.
Nirvana = Delusional? My bet is your actually broke.
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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