Is it time for a new school of thought behind property investment?

Discussion in 'Property Market Economics' started by Tenex, 19th Apr, 2017.

Join Australia's most dynamic and respected property investment community
  1. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    Thats right and these are only some of the reasons behind the changes.

    If 10 years ago or so there were a handful of people who were renovating or looking at buy and hold strategies, thanks to the availability of information, nowadays every second person is doing it.

    Social media means the single divorced mum turned property guru can now target the average joe on facebook and get them to come to their "free seminar" to learn tips and tricks of property investment (where they will be successfully separated from their money).

    You have got foreign investors competing with locals. At what point in history of Australian property have we had this many foreign investors wanting to purchase property in such short-time span?

    Every second user on this forum has been trying to predict Sydney property based on old cycles, saying Sydney will go back since 2013. We are in 2017 and Sydney not only hasnt gone back but it is the best performing in the entire country.

    Its evident the old models have changed, partly because too many people are trying to replicate them and partly because the economy models and therefore the forces of market have changed.

    Its time for a new way of thinking from sourcing the funds and finance all the way down to how property is purchased and settled.

    For example if we have foreign investors wanting to buy here, why dont we produce attractive packages for them and make money that way rather than letting them select and buy and pocket the margin.
     
  2. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    This is good! It means I can make money supplying 4x2 detached housing in an area with demand but an undersupply. Out of interest in the same area there is an oversupply of 1 bedder and 2 bedder apartments. ;)
     
    kierank likes this.
  3. Anthony Brew

    Anthony Brew Well-Known Member

    Joined:
    18th Feb, 2017
    Posts:
    1,176
    Location:
    Australia
    Lazy to type it all up - here's a couple of posts that give you the gist.
    Is Rental Yield Really That Important?
    Is Rental Yield Really That Important?
     
    paulF and Perthguy like this.
  4. Miss Monopoly

    Miss Monopoly Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    49
    Location:
    Perth
    Why do you need new school of thought if you are investing for the long term?

    im pretty sure in 20 years time we will be telling the grandkids that back in 2017 a loaf of bread only cost $2 and they will be in awe......just like I love to tell my kids that I used to buy an ice cream for 20c

    Everything goes up over time - it's just how it works
     
    Natedog and Perthguy like this.
  5. Natedog

    Natedog Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    373
    Location:
    Brisbane
    Exactly....

    To put it simply, "everyone" who buys to try and make money by holding residential property will do so from a combination of rental growth AND capital growth....I don't think this will change "ever".

    Obviously there are different methods of increasing the speed of that growth, but the basic principle for a long term view on holding property is that with time, both will increase.

    I like simple....it may be slow....but it's simple!!
     
    Beano, Anthony Brew and Perthguy like this.
  6. Archaon

    Archaon Well-Known Member

    Joined:
    20th Mar, 2017
    Posts:
    1,896
    Location:
    Newcastle
    That wonderful infinite growth system huh? ;)
     
    Perthguy likes this.
  7. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    Except it doesnt quite work that way.

    You are comparing the cost of living to the cost of an asset over time. Asset valuation modeling doesnt work like that.

    For example 10 years ago the assets required to explore and extract oil were far more valuable to buy and own and banks lending to oil companies viewed those assets as highly valuable. Right now due to the price of oil many exploration companies have lost market share followed by the fact that their assets arnt as valuable. Because the investments in purchasing equipment and labour to explore and extract oil are no longer as profitable. Same applies to many other kinds of asset dependent industries.

    Same thing can also happen in property. For example in many places in Europe and across America property prices rarely go up. In some European countries there is so much government housing plus legislation regulating what landlords can and cannot do that property investment in the current format that is possible in Australia is not profitable at all. People rather put their money in starting a business than buying property to rent it out let alone for capital growth.

    In America, except for some areas such as NYC, due to the fact that their economy is very regional and seasonal, property prices rarely move if ever and most people own rather than rent.

    There is no guarantee that this may not happen in Australia. You have to consider the cost of the ownership and what can happen that may devalue your asset over time.
     
    2FAST4U likes this.
  8. Miss Monopoly

    Miss Monopoly Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    49
    Location:
    Perth
    Everything is cyclical

    If you have ever run a business or invested in property (long term) or bought up children for that matter you will have realised that you have good times and you also have bad times..... and you also get blindsided sometimes, it's part of life ..... AND you can't plan for it, it happens

    There's no magic formula for predicting the future

    Start a business, invest in property, invest in shares, invest in yourself....

    Do what you love

    Life is for living.....don't get bogged down in trying to predict the next boom or the next big thing

    I think if you have the nouse to be a part of this forum and all the wonderful support and wisdom that is so freely offered I think you will fare better than most so slow down and enjoy the ride, you're already on your way

    Just my two cents worth
     
    HUGH72, Perthguy, Phar Lap and 2 others like this.
  9. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    @Miss Monopoly


    The point being made here is that there is no guarantee for any cycles or history for that matter to work exactly like before (and in a predictable manner) in the property market

    If it was that simple then according to the wonderful free advise that has been available on this forum Sydney should have gone backwards years ago.

    Not everything is cyclical. What uber has done to taxi business will never ever be reversed. Its not like if you invest in taxi business and wait for 10 years it becomes lucrative again.

    The price of oil may never ever go back to where it used to be as its being replaced by other forms of energy.

    The property in many places in the world may rarely ever go up.

    The very point I was trying to get at in this topic is that the merry go round of property as we know it may well start behaving differently as the world around goes into a rapid change mode.
     
    Blueskies likes this.
  10. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    One of the many things I have learnt in 40 years of investing is never say NEVER :).

    (the bold and underline in the OP was performed by me to highlight the word)
     
    Perthguy likes this.
  11. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    please re-read the sentence and pay special attention to what comes before never. It will have a whole new meaning.
     
  12. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    I have. The first quote says "will never". Sounds pretty definite to me.

    What did I miss?
     
  13. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    The first part is right, its like saying when cars came around there was a chance to go back to riding horses again and I stand by it, the second sentence I have clearly mentioned "may".

    In any case, I would appreciate it if people decided not to play with words. We are trying to have an intelligent conversation here and the point is how can we change and stay ahead of the game.

    I understand others may not view things in the same way, all props to them. There is no obligation to post or contribute :)
     
  14. HUGH72

    HUGH72 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,022
    Location:
    QLD
    Sounds like you might be talking about legislative risk with the market changed forever by government regulator intervention.
    Possible, but I don't see the catalyst.
     
  15. kierank

    kierank Well-Known Member

    Joined:
    20th Jan, 2016
    Posts:
    8,414
    Location:
    Gold Coast
    I may NEVER post and will NEVER contribute on this thread again :).

    But, on second thoughts, did I say 'NEVER say NEVER' :) :).
     
    RetireRich101 and Perthguy like this.
  16. 2FAST4U

    2FAST4U Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    2,304
    Location:
    Democratic People's Republic of Australia
    I tend to agree that property will increase over time but it really depends on the land size and the location etc. As for inflation the cost of furniture, milk, electronics etc. is now cheaper in 2017 than it has ever been relative to wages. However, the major disadvantage in 2017 when it comes to cost of living is the price of houses, insurance, car registrations, and electricity.

    The trend in the 21st century with globalisation is that every country throughout the world is trying to do more with less. Inequality is increasing. With the rise of Asia and the current economic system it's inevitable that living standards in the developed world will stagnate if not fall as living standards in developing economies rise. Australian graduates have the 457-visa holders to compete with for work (among other visas), massive outsourcing, destruction of the low-paid manufacturing industries (so now everybody wants an office job), complete eradication of on-the-job training for new grads in favour of importing people with decades of experience. It's the same with trades.

    You take a look at rental growth throughout Australia and it looks pretty bleak. There are also lots of regional and outer suburban areas throughout Australia that have had next to no capital growth in the last 10+ years. People talk about decentralisation and transportation but realistically no private companies are willing to invest in building infrastructure, such as high speed rail as the prices wouldn't cover the costs. E.g. imagine if there was a bullet train from Dubbo to Sydney How much would you have to charge consumers to make a profit? Consumers aren't willing to pay the price. Sure the Government could step in but realistically what are the chances of that!?
     
    Tenex likes this.
  17. Archaon

    Archaon Well-Known Member

    Joined:
    20th Mar, 2017
    Posts:
    1,896
    Location:
    Newcastle
    Japan was going to mostly fund a bullet train up the east coast, with about 1bil needed from the government, surprise surprise it didn't go ahead.
     
  18. Miss Monopoly

    Miss Monopoly Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    49
    Location:
    Perth
    What are your ideas tenex to "stay ahead of the game" as you mentioned ?
     
  19. C-mac

    C-mac Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,348
    Location:
    Sydney
    I see both sides of these arguments in tbis thread. I respect Tenex's view that we are experiencing global societal, geo-political, human labor force, migrational, and other changes not yet seen by humanity.

    I also respect the concept that economics fundamentals really do not change all that much, no matter how much the world changes in different ways.

    But it is here where I get a bit concerned. I do believe economic fundamentals won't change, and as such thats why I worry! Australia's economic wellness really cannot last much longer, as alluded to by others in this thread. I am concerned that this will eventually trickle down to property investors.

    What if capital growth goes flat? And what if this happens at a time when our country is so in debt (public gov debt, i mean. Plus private mortgage and other debt), that people cannot afford to not only NOT buy houses; but when seeking rentals, not afford much rent either!

    Think about it. If there isnt enough jobs and money to go around (or the jobs and money are being sucked up by global corporations etc. aka the 'elite') it will leave little money for average Australians. They certainly wont be able to afford to buy in many places (banks will likely not even assess them favourably to access lending...), so they rent. But they cant afford $500pw so they look for say $250pw properties.

    It could happen. If it did, investors holding some stock types/areas will struggle to get both capital growth AND rental yield.
     
    Tenex likes this.
  20. Tenex

    Tenex Well-Known Member

    Joined:
    14th Aug, 2015
    Posts:
    570
    Location:
    Sydney
    Well the point of making this topic is to create a bit of think tank and see what ideas we can come up with.

    But a few examples include how we source funds and who sell to.

    For example if we currently have overseas buyers who are investing but selective about what they want and not want to buy and at the same time we have funding pressures from our local banks, why cant we bypass our local banks altogether?

    Why cant we source some or all of the funds from overseas? Why cant we put together a great product that can be marketed, in an intelligent and targeted way, to overseas investors and get them to put money upfront for us to buy, build and deliver? instead of building apartments and hoping someone will buy them, why cant we forecast that?

    I believe the solution to housing crisis in Australia is for everyone, including government and the bank, to do things differently. But no one ever wants to.

    The problem is here in Australia we are very reactive. We wait for foreigners to come and take jobs and invest in property and then we moan and bicker why. This is why.........Because we never anticipate and adapt, we always want to believe that everything will always be the same.
     
    Blueskies likes this.

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia