Property cycles and the merits

Based on the current situation, would you be investing with the expectation of seeing the same growth that was experienced over the past 30 years? Yes or no.

 

No mate, you were implying that euro73's argument was that there will be no growth, when in fact he was saying that growth will not be the same. Hence the misinterpretation.

 

Hi folks, under 'Tools and Resources' I just posted a shedload of HTW Property Clock data.

Enjoy

 

I said no such thing Cliff. That's a deliberately erroneous comment . You can do better than that .

 

Whilst there is a lot of negativity around in the market..I am positive for the overall real estate market. Sure things will change...but like business you need to move with the changes. A lot of people will not agree with me but this is what I see into the future:

1. The Baby Boomers (BB) will start retiring on droves over the next 5-7 years this will influence where the real estate market will go. I see that new low maintenance properties on 250-350 sqm will be very much in demand. The preference will be located near shops and transports and don't necessarily need to be in the inner city. Convenience is the key.

2. The demand in the middle class outer and middle suburbs without as many investors will continue to be in demand. Particularly if they cater to BBs

3. T/H in middle/inner/out suburbs and Units in the Inner city/Middle will be very popular also with younger set as these will be more affordable.

4. I can't see the McMansions being as popular in the future as people finally realise the sheer cost maintenance, heating/cooling, and functionality of these wane. Suburbs like Castle Hill, Cherrybrook, West Pennant hills with large blocks will probably become more medium density as a result. I can see these suburbs become cheaper per sqm in the future...as housing needs particularly in Sydney change.

5. Oh in Sydney and Mellbourne being close to the city will not matter as much as work is becoming more decentralized in those cities.

These changes are very subtle now...but are rapidly emerging...just look at what happened to Double Bay..during the hey day it was the most sought after suburbs but after the 80s...suburbs like Bondi and Coogee have out performed it.

 

I never said people wont buy for years. You must have read that somewhere else. What I said is that future cycles will occur more slowly than past cycles because the credit that drives them is becoming harder to get, and that deleveraging is a smart play to get you ahead of the curve. Further - I actually went out of my way to say that I expect short term cyclical boosts to cheaper cities would occur as investors sought to chase deals where they can qualify for loans, but eventually they will hit the wall there as well... Thats very different to what you are suggesting I am arguing

 

Again - equity is useless without borrowing capacity.

 

I wouldn't. But my strategy has never depended on the ridiculous growth we have seen in the past. I am doing the same as @euro73, paying down debt, deleveraging, consolidating. I think this is smart moving into the next phase. What I am trying to do is set my strategy so I will profit if there is no growth like in the past but also be ready so that if there is, I can take advantage of it.

 

The number of lenders who will fund SMSF purchases is diminishing. The number who will take new securities is almost fully diminished. SMSF LVR's are diminishing, and in spite of all the hype, the real truth is that the percentage of SMSF assets invested into resi property has barely grown since 2008. It's a tiny, tiny, tiny market. All the lender and ATO data confirms this. It's going to need to expand 10 -20 fold to even start to be a blip on the total market.

I think many readers here operate under the assumption that SMSF is actually a meaningful percentage of the market. It's not. There is barely $9 Billion in Limited Recourse Borrowing Arrangements as of today , across all SMSF's in the land - in total.

Tiny market - and constantly thrown up by those trying to defend ?big growth" as the next drivers. Well, LRBA's have been available to SMSF's since 07/08 - and while hundreds of thousands of new funds have been established - the amount of resi property held has barely moved. Why? ahhh, you're going to laugh...... borrowing capacity. Most new funds being set up could not get a 200K loan, so they cant buy much. Sorry, SMSF's driving the market is pure fantasy. The very definition of fools gold. if investors here are expecting SMSF's to be the next frontier - think again

 

MTR - mum and dad average are NOT going to think this way. You're a developer and will understand and use private financiers. I hardly think the meat and potatoes businesses that Connective, AFG, Aussie and Mortgage Choice guys and gals run every night of the week and kitchen tables will be able to embrace and write this kind of stuff... Most of them can barely tear themselves away from the big 4 to a well known 2nd tier or non bank - so private alternatives are no chance. They wont be able to sell these solutions to mum and dads. Have you met most aggregator brokers??? lol

 

Sure - check what I wrote. I already said exactly this. But they'll run out of capacity there too... and then what???

 

recourse. You can walk away in the majority of US states. here you cant

 

At the end of the day, investing well is about being wise. The point of this forum is about sharing wisdom.

Businesses survive because they can adapt to changing circumstances. Investing is the same.

What is Buffet's constant war cry - be wise when others are being foolish. Become more profitable from the mistakes of others. Seek out investment opportunities further afield if none are to be had at your doorstep.

 

The 10% month on month/year on year loan book caps from APRA arent the same as the servicing calc changes.

There isnt 10% more borrowing capacity available per year - there's 10% more credit available per year, for everyone to compete for. But for @ 50% of those who will compete for it ( investors) there's up to 40% less capacity available per million dollars borrowed , between the new assessment rates and HEM's.

 

of course you can walk away. if you started with little equity to begin with and are over leveraged in a declining market, the risks of walking away are few.

would someone with substantial investments do it - probably not......but that isn't your average "joe".

 

You're the only person who has understood what I wrote. I think some of the forum members will forever believe that credit doesnt have any influence whatsoever on property prices, and will attempt to misrepresent what I write to support their own views. Thats their prerogative, but I think its foolish

 

You can't just walk away here is what Im saying.... you have to pay the bank back or they will come after you - and hard. In the US you can literally just walk away in many states. Good luck to them getting their money back... they may try and come after you but by then the asset is ruined and the value of the RMBS the asset sits in is ruined, and voila - GFC

 

I understood exactly what you wrote. Just because I don't agree with you doesn't mean I didn't understand what you were saying.

 

Excuse my ignorance and misunderstanding of the English language , but the post I quoted did appear to contain words that imply there is not going be any growth in lending .

Cliff

 

Euro

Putting aside the above discussion ... Which in reality is a irrelevant diversion .

At the end you say a more constrained credit environment , but as I pointed out a 10 % growth rate is higher that the growth rate in the latest Sydney cycle from the last peak to the current one .

The banks make money by lending . Previously there would have been periods of lending growth above and below 10 % .

If the banks are aware they are limited to 10 % , my belief is that the banks will ensure they get that 10 % on an ongoing basis . They will compete to get market share and if the Rate of growth drops below 10 % they will drop their margins to get their rate up to the 10 % .

We may find the peak rates of growth are flattened , or we may find if there has been a period of below average growth for some years APRA will be more accepting of a period of growth higher than 10 %

Cliff