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Property market returns over next 15 years

Discussion in 'Property Market Economics' started by twistedstats, 2nd Nov, 2015.

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What is your estimate of the annual return on proper as an investment on average over next 15 years?

  1. <0%

    6 vote(s)
    7.7%
  2. 0% to 3%

    12 vote(s)
    15.4%
  3. 3% to 6%

    47 vote(s)
    60.3%
  4. 7% to 10%

    11 vote(s)
    14.1%
  5. 10% to 15%

    1 vote(s)
    1.3%
  6. >15%

    1 vote(s)
    1.3%
  1. twistedstats

    twistedstats Well-Known Member

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    I have read posts from others using historical property market returns as a guide to potential long terms returns to property investing. I've been thinking about this myself as a buy and hold investor and I am more convinced that a number of headwinds (and few tailwinds) will make the next 15yrs rather disappointing vs the previous 15 years. Would like to hear others thoughts.

    Headwinds:
    1. Secular downtrend in interest rates in last 15 years has benefited housing incredibly. With cash rates at generation lows, there may be a couple more cuts coming but otherwise less further upside than previous 15 years.
    2. Negative gearing rules, PPOR exemption and CGT discount have all made investing in housing more attractive. The call to remove these seem to be getting stronger. With fiscal situation getting worse, seems only a matter of time before these are tweaked. Could have quite strong ramifications.
    3. Housing is very expensive in Australia relative to income based on all standard metrics
    4. Ageing population means more and more people will sell investment properties to fund retirement with less working population to buy them.
    5. Australia's resource boom is over with no strong income growth to support continually paying for large mortgages.

    Tailwinds:
    1. Currency falls further (but that is because economy is bad) and foreigners go nuts on property for years.
    2. Population growth continues to grow (although slowing now).
     
  2. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Hey @twistedstats
    Thanks for sharing your thoughts. I reckon 1,3,5 are valid headwinds concerns and I thankyou for raising them. Esp. 1. That the interest rates are very low already and there is not much further scope downwards to go so it has to stop causing price growth at some point in time.

    Point 2, I think the tax laws if tweaked will be tweaked in a very slow, gradual manner, otherwise the government will lose support of many voters and become unpopular.

    4. Not sure.... maybe? But generally I think there will always be a buyer. Not sure how big a scale IP selloffs before retirement will be. I guess if you are thinking next 15 years then I guess the question is how many over 40's are planning to deleverage in property? (Because these are the people who are basically at the age where they will probably retire in the next 15 years). How many of them have much of a portfolio to begin with and want to sell down? Its the rare person who has the foresight like Skater/Sash/Seachange to have a big portfolio. I guess no more than 1 in 5 people of the age group have an IP? And I don't think that there will be a huge flood of properties coming onto the market, these people more or less can choose if and when to sell. They can decide to hold/keep many of them rentals (paid off or nearly paid off) till very old age then pass them onto their kids. But I could be wrong and it could have a bigger impact than I thought.

    Would love other people's thoughts on this.

    For tailwinds i'd say definitely agree with 2. Growing population. Additionally lack of land for Sydney houses so Sydney houses will continue to perform. Houses in any locations where land is scarce and tightly held will continue to outperform.

    1. Foreign money still coming into Australia... Australia is a relatively safe and secure place to invest. I think this is the driver of overseas money into our property market maybe even more than currency plays.
     
  3. wategos

    wategos Well-Known Member

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    A hell of a lot of people are waking up to the fact that negative gearing, and to some extent the capital gains discount, are grossly unfair, I don't think it would be a vote loser at all, a policy to remove these could easily be spun to be quite a vote winner. Property investors dependent on negative gearing are actually in the minority, and many of them would vote coalition regardless.
     
  4. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Yeah... perhaps we can take negative gearing away right now.... The interest rates are so low that anybody negatively geared with these interest rates really might not have made the best investment. Or they bought something only for the land component. It will force them to do something. ie. to either make it of higher use or sell it to somebody who will make more effective use with it.
    With removal of CGT, the personal effect to me would be to make me to sell only in a year I make little income and not in any other year, assuming I dont urgently need the money. So that mightn't help me, nor Australia if there are many people like me.

    On the other hand, anybody forced to sell will be penalised, forced to pay up. But no worse than the marginal rate of income tax anyway. So not sure if that helps Australia tax wise short term, but I suppose in the long run when its the new normal, yes, it will.
     
  5. Biz

    Biz Well-Known Member

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    Sounds like nearly everyone is making bad investment decisions then because unless you're hitting minimum 7.5% yield for a house and 9% for an apartment/townhouse you're probably negatively geared.
     
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  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I suppose negative gearing helps the higher income earner much more than the lower earner, which isn't so equitable? I suppose the question isnt about equality and fairness though...
     
  7. Beelzebub

    Beelzebub Well-Known Member

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    I only agree with number 5.
     
  8. Beelzebub

    Beelzebub Well-Known Member

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    It helps higher and lower income earners at the expense of the minority of middle income earners who are trying to enter the market. In many ways it acts as a rent subsidy and encourages more rental stock for those that must rent.
     
  9. twistedstats

    twistedstats Well-Known Member

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    I think an additional point could be added to tailwinds from infrastructure investment.

    I actually feel point 2 is a very strong influence. If it is tweaked slowly, then it reduces the chance of a "shock" to house prices but I would have thought over the long term the permanent effect would be equivalent. Hoping someone has some more detailed analysis but the question is: how many investors would have a reduced holding in IP's if under the extreme case they could no longer claim interest expenses and/or depreciation? Or under the more mild case, CGT discount reduced to 25%. How many would hold a PPOR if it was in the asset test?
     
  10. Waterboy

    Waterboy Well-Known Member

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    If we continue to be flooded with excess supply and our population growth is lower than we expect, yields will be lower than historical levels -- especially for those who bought at 12:00.
     
  11. Natedog

    Natedog Well-Known Member

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    I think we as a herd of people underestimate the volume of change that can occur in a 15 year period.

    Headwinds/Tailwinds aside, I honestly think that Australia is the lucky country in that we have way too many positives that will tend to outweigh the negatives over the long run.

    Short term distraction from negative information overload will make alot of people doubt the long term prospects for property investment......

    Switch off, unplug, believe in the simplicity of investing in bricks and mortar for the long term as a slow and sure way to wealth creation.
     
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  12. Bran

    Bran Well-Known Member

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    15 years?

    Think Asia like we've never seen it before.
     
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  13. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    @Bran, yes, good point, our northern Neighbours are most likely just going to become more wealthy over time with the means to travel and a greater percentage able to invest than they can now. If the Australian Government would allow them visas you'd see a lot more Asians in Australia.
     
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  14. MTR

    MTR Well-Known Member Premium Member

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    Some investors buy in Trust, NG is not relevant.

    returns on property will be dependent on strategy and the ability to identify which markets provide value or have short term gains/growth

    MTR
     
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  15. wombat777

    wombat777 Well-Known Member Premium Member

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    The vibe I got at a seminar on the weekend is less 'The Lucky Quarry' and more 'The Lucky Farm' (i.e. foodbowl for growing international populations). That said, Australia still has plenty of resources that increasingly prosperous populations to our north will demand in increasing quantities.
     
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  16. Angel

    Angel Well-Known Member

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    Currency? It's not that the Au economy is going all bad but that the US economy is improving and their $ is going up.
     
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  17. 2FAST4U

    2FAST4U Well-Known Member

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    I voted 0-3%. I personally can't see Australia returning towards having high inflation/high wage increases for a long time due to the global economy. For Australia to remain somewhat globally competitive we need a low Aussie dollar and moderate inflation.

    Edit- Pretty much agree with whoever wrote this on SMH-
    "Many people just think life will repeat the way it always has.Stagnation and another boom in 12 years from now,or a huge loan now will be nothing in 15 years .The thing that will really throw the cat among the pigeons this time around will be wages and wages growth and lack therof.Our wages have always boomed to catch overvalued homes but i can't see this continuing.We are now among the highest paid workers in the World.The powers that be have already decided we get paid too much now,and so penalty rates discussion are constant.Outsourcing overseas continues to expand.Our wages growth last quarter was at the lowest point ever recorded. Good luck thinking that $1.8 million house and huge mortgage will right itself in a few Years time.".
     
    Last edited: 26th Nov, 2015
  18. OC1

    OC1 Well-Known Member

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    There is going to be substantial wealth created over the next 10-15 years, so much so that it's hard to imagine it right now. This is going to lead to the biggest boom (and bust) cycle we have ever possibly seen. Technology and cheap energy are the main drivers with land capturing most of these gain.
     
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  19. 2FAST4U

    2FAST4U Well-Known Member

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    http://www.abs.gov.au/ausstats/abs@...mmary&prodno=5625.0&issue=Sep 2015&num=&view=

    Capital expenditure has fallen by 20 per cent in the 12 months to September 2015, investment in Building and structures falling by 23.6 per cent over the same period, and investment in Equipment, plant and machinery falling by 12.7 per cent. In the September-quarter alone, Total new capital expenditure fell by 9.2 per cent. Expected investment for 2015-16 is now 20.9 per cent lower than the equivalent figure 12 months ago. Unemployment is already at elevated levels and will rise further under the current trends.
     
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  20. MTR

    MTR Well-Known Member Premium Member

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    Its not a pretty picture by any stretch. Interest rate on the rise is going to be the killer