What does it "Indicate" when Established Houses are well below Replacement?

Discussion in 'Property Market Economics' started by Big Aussie, 27th Jan, 2020.

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  1. Big Aussie

    Big Aussie Active Member

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    I keep an eye on a couple of regions. Busselton is one, with a view to future retirement.

    Unless I want to go further out, a decent block will cost $200~250k, depending on location.
    To put a 4x2 on that would easily run past $200k just for the basic house. (And that's being conservative.)
    Yet I can buy a newish modern 4x2 (built in the early 00's) in good nick, nice gardens, on a desirable block, for $350~400k. (Old homes are closer to the $300k mark)

    Does this indicates that the existing home is great buying? Or does the folly of people lining up to build overpriced new homes, portend future oversupply problems?
     
  2. Trainee

    Trainee Well-Known Member

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    Someone builds a house in the middle of the ocean for a billion dollars. But no one wants to live there.

    What does replacement cost mean then?
     
  3. Scott No Mates

    Scott No Mates Well-Known Member

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    REA spin, it will always cost more if you bought a new house in that location (but it could still be cheaper to refurb etc and add value).
     
  4. thatbum

    thatbum Well-Known Member

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    Probably nothing by itself.
     
  5. Shogun

    Shogun Well-Known Member

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    If you mean to live out end of days. I think location is a big factor. Close to shops, doctors, public transport etc, easy to catch Taxi/uber etc. Big enough garden to amuse you but not too big. Too much lawn needs water mowing etc
     
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  6. See Change

    See Change Well-Known Member

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    It’s part of the cycle .

    I’ve seen times in Sydney when the cost to build is above the cost to by an established house and below the cost .

    cliff
     
  7. Kangabanga

    Kangabanga Well-Known Member

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    No lawn is best, replaced most of my lawn with fruit trees and sweet potatoes for ground cover and chook pen sideyard. Most of my time in garden is now spent picking fruit,digging up potatoes and collecting eggs. Lawns getting a bit passe nowadays...

    Below replacement is a broad thing, u gotta really calculate how much to build or reno similar. Some old places are money pits.
     
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  8. DAZ79

    DAZ79 Well-Known Member

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    When prices fall below replacement cost construction numbers collapse. Simple.

    That is exactly what has been happening in Perth.

    The oversupply occurred in 2014 onwards and has been absorbed ever since ( nearly there)

    Right now, completions are at 2001/02 levels because the case for new development doesn't stack up. Building completions rates wont start rising again until housing prices do.
     
  9. Hamish Blair

    Hamish Blair Well-Known Member

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    It means land is overpriced!
     
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    sorta like a val we got back today maybe

    insurance value required 3200 k

    land value 4000 k

    Improvements 1850 k

    MV at 5850 k

    ta

    rolf
     
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  11. Archaon

    Archaon Well-Known Member

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    That you wont make any money buying H&L