Why I believe there will be a price ceiling..

Although I wasn't a member of Somersoft but at times I missed that dialup connect tone... 9600 bauds was considered high speed compared to 2400 bauds.

 

Correct me if I am wrong. I go to the Bank they look at my income and decide to lend me $400k

With $100k deposit I can buy a $500k property

If I have $500k deposit bank still only gives me $400k so I can buy a $900k properly.

 

Property investment is a game of finance too.

 

If your wage is the ceiling yes.

If you have a higher repayment capacity the additional deposit will give you higher borrowing.



Deposit and income can both be hurdles to borrowing capacity.

 

the current boom is being fueled by first home buyers who are less likely to hit income hurdles (I think? I have not checked serviceability calcs in ages). If that’s the case then every 10k in savings does conceivably boost their upper bound by 100k.

 

I think it is good to take a contrarian view to challenge conventional wisdom. I also think it it would need to be a pretty compelling argument to convince me that the next decade will be the one in which a 200 year trend for Australian real estate changes direction.

 

Past patterns can be completely thrown out imho about the property market. 2020 was a year that no one would expect property to be increasing. Heck I know 3 families that sold out peak of the panic in March/April and now they are burning with what they are seeing happening with property.

Ive said it in another thread, property will continue to grow and maybe even at a faster rate as it cements itself as the most stable and resilient investment asset class there is available.

If the biggest global economic collapse of world economies and the biggest health crisis in generations cant dent the property market well nothing is going to do it.

I even know some guys that totally was against property and post 2020 and what eventuated are fully into property now due to its "safe" haven.

 

Assuming that's behind us and still not yet to really happen

 

Sorry I don't agree

Comments above have NOTHING to do with property.(rather investment classes the benefit from stimulus and near zero rates)

It has to do with Monitory and Fiscal stimulus,

near 0 rates , government incentives and injection of money into the economy using central banks around the world instruments at disposal.


WHEN THE RISK FREE RATE IS REDUCED THE MONEY CHASES OTHER ASSETS CLASSES. because putting money into bonds and term deposits no longer generates any significant yield.
STOCKS
REAL ESTATE
.............

 

Well, no asset class can be picked in isolation from their larger ecosystem to compare against the other! They are all interlinked - you cannot determine the viability of a $7t (resi prop) asset class and detach it with a $3t (equities) market - both of them rely heavily on gov support, taxation, liquidity, stimulus etc.

The point that @thunderstrike888 made is valid. Resilience (risk mitigation) is more fundamental to investors than the return - especially in fragile times - like we are in now.

Given that with every large shock (Dot.bust of 2000, GFC, Covid, etc) of the past 2 decades, the Aus resi market has shown incredible resilience; it is a testament of its underlying strength.

The resi market is not operating in a vacuum- neither are forex, bonds, equities and everything else. All things being equal, he is correct, that this will cement that notion of strength in bricks and mortar even more so after this pandemic is over.

The other point is around the fact that money does not venture into resi real estate in Aus (unlike USA) to chase a return. This boom is largely being driven by FHOB, so it will run its course and is def linked to gov stimuli and policies which are benefitting every asset class!

 

^ Very well put. This is the view not only myself but I am surrounded by investors day in day out. I ask them their views all the time and see what even new and upcoming investors are thinking in terms of real estate and I would say a vast majority would say the strength and resilience of real estate is one of their top 3 deciding factors on where to park their money. First usually is CG and second is yield.

@Illusivedreams - you dont have to agree with me a single, its fine and its a public forum diverse views are welcome.

 

Cognitive Dissonance.
Doesn't always mean it's the correct view but YMMV

Best to prove the Null Hypothesis imho

 

I believe there is only a ceiling if one put one there .

Our latest PPOR is 106 x the price of our first PPOR, bought 36 years ago.

Since buying our latest 5 years ago, there is a comparable on the market that is listed for (the price of ours + 44 x the price of our first PPOR).

I believe successful people either ignore ceilings or they learn how to push them higher .

 

There will be no ceiling because that is not how capitalism works.
Your point will be smash again and again.

 

I don't believe it's about the price of property hitting a ceiling or not increasing but slowing down. It should long term go up with inflation.

The growth of property value used to be more a linear increase it seems to have become a more exponential increase.

Wages growth seems to be fairly low and a stable increase. Everytime property doubles that is a lot of difference especially the larger the number. If wages don't increase then I don't see how property value can keep increasing at a fast rate. At current conditions tax, interest wages etc there must be a ceiling that the average worker can currently pay.
If the price of an average property doubled in Perth overnight people could probably pay it. If the average price doubled in Sydney overnight how many could afford it?

Rich people are different a Multi Billionaire doesn't care if he pays 30 million or 45 million if they really want a particular harbour side property. Most property is brought by average people.

 

We haven’t even seen the effects of another (stronger) round of property tax incentives , to both owners and investor.

Immigration will resume, they will be rich, very rich immigrants.

Forget the zero bound, it’s just a number , it means nothing- spread is everything.

Wage increases are coming. The government will mandate super increases and then refund it weekly through PAYG channels. This won’t work forever as the base salary will stagnate but that will be taken care of about 2030.

Then there’s UBI, that’s enough to break any property model in half.

Gold can be repriced, debt jubilees can be declared.

40, 50 ,100 year mortgages.... mortgages that start of IO and then reset, or, transfer and restructure. Mortgages co owned Between parties, super backed mortgages, dream up whatever.

First home buyer schemes co owned with the Federal government.

We haven’t seen anything yet. Debt is the system, it will stay that way.

Never forget this, shelter is a public good. Houses are our version of shelter. The government has a moral obligation to provide access to shelter, and they will.

 

Great post. Thinking outside the box!

 

Appreciate the sentiment but no chance we are at a ceiling. Time changes everything. I bought a terrace in Annandale many years from an older gentlemen for $900k many years ago and he bought it for 500 pounds 50 years earlier. It is since worth more than double my purchase price with a new owner. And in 50 years, it'll be worth even more.....