Property - Get in ASAP

[bunsen burner]

because of the crap that is spouted by financial planners.

So true. Can't believe how many people fall for their propaganda. As if they're going to say any different.

 

[medusala]

Sounds like bullshit to me. Last correction was 5 or so years ago to my knowledge and to my knowledge Toorak got good growth in the last year. Whether my version is right or wrong (I haven't followed in closely), I find that hard to believe. Do you have any stats?

This was at the start of the 90s not recently . Dont think the REIV etc put out stats by suburb, think it was The Age that reported. Toorak wasnt indicative of the whole market because all the newly rich pushed up prices more and suffered more accordingly.

 

[medusala]

Toorak got 24% last year. Plus about 4 years ago it also got good growth. Yu're completely full of shit. Made it up, didn't you?

Cant find Toorak but see link for Stonnington

http://www.stonnington.vic.gov.au/resources/documents/Part_C_Pages_21-30.pdf

you may care to look at 1989 onwards. It took until 1997 to be higher.

Not quite the expert you make out to be?

 

[Guido]

And if you think this stat is valid (obviously you do because you wouldn't have said it otherwise) then you don't really understand investing properly.

What, is borrowing with a 60%+ LVR the only path towards successful investing or something?

How does leverage influence the actual performance of the underlying asset on a global scale?

Of course it will have an effect on each individual case in terms of gaining entry to the market, changes in net worth, and/or magnifying gains/losses relative to the initial capital invested, but historical comparisons aren’t there to provide a million different scenarios for the million ways an investor can go about/structure their entry into each individual market.

For property, some borrow the full amount, some half, some put it down as cash they had sitting in a term deposit or received from an inheritance/sale of business/another property (e.g. downsizing) or received as a super payout, or purchased as part of SMSF.

Some live in it, some rent it out. Sometimes people are paying 5%p.a. in interest, other times they can be paying 13%, which alters how profitable it is on a case by case basis.

You can’t expect any macro analysis to take all individual factors into account. All comparisons are meant to do is this: These are the asset classes. On average, this is how they have increased over time in percentage terms. It's not a case by case analysis of how each of a millions individual cases have gone about acquiring them or how they’ve worked for some special group in particular.

The fact that you can borrow more against the asset's worth with property as opposed to shares is just one of many key differences between investment classes, each with its key advantages and disadvantages – but it’s not a performance indicator of the investment itself at a macro/global level.

And who is "it"? Who is this authorative figure?

"It" being investment literature.

I've seen the data pointing out long term returns a hundred times from a hundred different sources – from uni, to books on investment (with as many chapters on property as shares) to media reports, to independent websites that are proponents of/cover both forms of investment.

If it's inherently wrong, I couldn't care less. As I said, I prefer real estate anyway. But all of this argument over 1%p.a.? Fair dinkum.

Complete nonsense. There's as many real estate experts who claim the exact opposite. Nothing but one-eyed propaganda.

I genuinely don't understand why people on both sides seem to take this topic so personally. "Propoganda"? It's almost like a religion/nationalism to some people.

I've got no agenda here - all I've said is that typically the long term results will be show shares with the slightest of edges - roughly: Shares 14% - property 13% - it's not meant to be indicative of individual results, but everytime the replies are "no, it's bullshit! Figures are false! You should see my returns! Stock market sucks, my investment is bigger than yours!"

It's bordering on childish. Both investments do very well in the long term, with little seperating them. If you save well enough and invest in both often enough across the long term, it's almost impossible to go wrong.

Don't bother replying. Not anywhere near passionate enough about it to spend another second debating it.

 

[Guido]

It's a pretty important point that is not taken into account.

It is, but so are a dozen other key differences between the asset classes. They can't all be factored in. The figures are meant to be indicative - it goes without saying that each individual has different means of getting into the market.

If I buy a townhouse in South Yarra cash up front, and another guy next door buys an identical house with a million dollar loan, and both properties have identical rises, the comparative performance of the assets remains the same. His expenses may be different, and he will have more of a return relative to his smaller capital outlay, we may have different taxation considerations, but the underlying performance of the actual asset remains the same.

Ditto the other way: two people buy identical houses – one borrows 90%, the other has the funds available upfront – price of the property falls 10% across 5 years – if they were purchased with capital gain primarily in mind, they’ve performed poorly as an investment over that time frame irrespective of which person had a loan and which person didn’t.

It’s the same for shares – if one bloke got into BHP in 2003 with a margin loan at 75% and the other bought shares with cash, one guy would have multiplied his initial investment by 12 and the other only by 4. But on a global scale, BHP shares have performed as they’ve performed regardless of how its millions of investors chose to source the money to invest.

There is a pretty large dollar value difference between what can be acheived through renovating or developing compared to the cost associated with holding properties.

Yeah, and EVERYONE who invests in property renovates or develops and enjoys massive capital gains, don't they?

You've got such an insular view of this, thinking that your way is the only way that people go about investment, hence everyone's returns are as good as yours. Markets don't work that way.

The verifiable hard figures you speak of are basically just crap because median prices are a poor indicator of the performannce of property given that its all but impossible to have a property portfolio that mirrors the whole market.

It's not meant to indicate an individual's portfolio. It's a snapshot of the entire market.

It's like saying "hey those median wage stats are bullshit, I earn way more/way less than that". It's absurd reasoning.

For every person who's performed well above the median, there's others who've underperformed it. You think everyone in Melbourne has enjoyed 300% growth in the last 10 years in real estate? No-one's lost money? No-one's overpaid? "yeah, but I'm an astute investor" - well, not everyone is. Just as there's poor companies that people buy stocks in, there's people who buy bad properties at misguided prices, that don't perform anywhere near as well as the overall market, and that's factored in to the overall picture that guides like median prices try to establish.

This is simply incorrect. Have a look at long term median price growth for individual suburbs, it is strongly skewed towards bayside and inner suburbs.

As are stock market returns skewed towards well performing blue chips. But there are investments in poor stocks, just as there are investments in poor performing suburbs. Someone's buying in those suburbs as an investment.

Also as previously stated one of the major advantages of direct property is that it is possible to add value actively, this can multiply returns.

If sold, the benefit of capital gains via renovation is factored into the median price, but the cost isn't. If a house is bought for $300K, has $50K spent on it and sells for $500K, it's seen as a $200K gain. Again, there's no possible way that you can factor that in at a macro level. Ditto goes for stocks - mergers, share splits or dividend reinvestment plans typically aren't factored in when looking at returns of various actively managed funds or passive index funds.

Does that mean that everyone should abandon analysis and dismiss all comparitive data of the asset classes? "Well, it's not going to be 100% accurate for everyone, and cannot possibly factor in each and every variable of all investments, so let's not look at how they've performed at all."

I'm not going to jump up and down, I just know you are wrong.

Know I'm wrong?

If you can show me independent data that has property doing better than shares across the last 10, 20 and 50 years, I'll concede everything I've said. I've got no agenda, and genuinely couldn't care less.

Believe what you wanna believe. There's no possible way stocks, under any form of analysis, have or will outperform property. People will always do better in real estate than stocks. Whatever.

This cost me a lot of money considering my returns have been in the order of 20 times greater from investing in property over a shorter period.

“It didn’t work for me, so it’s no good”

Stupid reasoning. If you didn't know what the f*** you were doing with stocks or were drawn into a poor performing managed fund by a poor financial planner, don't blame it on the market. If you've got a gift for property investment and are enjoying unbelievable returns, don't assume that it goes for everybody.

Some people’s investments have outperformed and underperformed the market in both asset classes. It’s a fact of investment.

Anyway, as I said in the previous post. Can't be stuffed arguing this anymore, all we'll do is go around in circles for posts and posts.

You believe what you wanna believe, dismiss what you wanna dismiss, and I'll do the same.

 

[Traces of Nuts]

Don't bother replying. Not anywhere near passionate enough about it to spend another second debating it.

Whew...... I only skimeed through what you wrote, but for somebody who has little passion for the subject, you sure write a lot of words!

And then even more in the next post.... after not wanting to spend another second debating it!

Bunsen burner, your turn........

 

[bunsen burner]

This was at the start of the 90s not recently .

But you said:

IIRC after the last correction it took the median price 10 yrs to recover in Toorak

Not aware there has been a cycle or two since then or just plain old bullshitting?

 

[bunsen burner]

Cant find Toorak but see link for Stonnington

http://www.stonnington.vic.gov.au/resources/documents/Part_C_Pages_21-30.pdf

you may care to look at 1989 onwards. It took until 1997 to be higher.

Not quite the expert you make out to be?

We've already established you are full of it. Nothing but a Michael Bolt wannabe.

 

[bunsen burner]

"It" being investment literature.

I find it hard to believe you prefer property as an investment class. If you did then you would have read just as much literature saying the exact opposite. I've read tonnes of real estate books and nearly every single one of them claims property gets better growth than shares.

I genuinely don't understand why people on both sides seem to take this topic so personally. "Propoganda"? It's almost like a religion/nationalism to some people.

You need to look up the definition of propaganda. Especially since you are peddling it.

If I buy a townhouse in South Yarra cash up front, and another guy next door buys an identical house with a million dollar loan, and both properties have identical rises, the comparative performance of the assets remains the same.

But the returns will be vastly different. And that is what investment is about. Even though it's not true, peddling the "shares get better growth than property" is still propaganda. It's a statement designed to influence people that shares are a better investment property.

You just seem like another dude with FA investment experience talking it up.

 

[Clay Davis]

But you said:


Not aware there has been a cycle or two since then or just plain old bullshitting?

Please point out on the graph this "cycle or two?"

 

[HighettBomber]

“It didn’t work for me, so it’s no good”

Stupid reasoning. If you didn't know what the **** you were doing with stocks or were drawn into a poor performing managed fund by a poor financial planner, don't blame it on the market. If you've got a gift for property investment and are enjoying unbelievable returns, don't assume that it goes for everybody.

Some people’s investments have outperformed and underperformed the market in both asset classes. It’s a fact of investment.

I actually did pretty well out of shares, just not nearly as well as I would have done or have done since.

This debate with you is not because I want you to say you are wrong and I am right. Like you, I could give a flying **** what decisions anyone else makes as to what they should invest in. When you put out the same stats that financial planners always seem to use ie shares rise X% vs esi property y% most people take this as meaning that one is better to invest in than the the other on the simple basis of these figures. I do not beleive these figures to have any basis in reality. Its not disimiler to using the growth rate of Elvis impersonaters over the last 20 years and coming to the conclusion that in x years everyone in the US will be an Elvis impersonator, statistics can be made to say anything depending on how you present them.

Personally I know a large number of people who have become millionaires through property investment, some on fairly low wages. I know one person who has done the same thing using shares. Have a look in the BRW rich list, there are plenty of people who have made their fortune through property, find one that has done it through passive share investing.

 

[Scratcher Gillespie]

For what it's worth, though I agree that property has performed approximately the same as shares (Better, especially risk adjusted ROR over the last 20 years), I still have (personal) concerns about it as a class. Simply because I have a better understanding of share markets I suppose.

Firstly, Robert Shiller has demonstrated that over the long term, net real return on property is zero. This is confirmed with Shillers graph shown on the opposite page, showing a rough net return of around 1% (I would argue that prices have grown at AWOTE rather than inflation) over 120 years. However, this doesn't take into account rental income as far as I am aware.

Secondly, I've never been able to accept that we all wealthier as a society simply because we have taken an existing stock of houses and doubled the price. Few houses were built during the Sydney boom, leading to an (arguable) shortage of homes across the city. This, like the other property booms around the country looks to have been driven simply by an ever expanding credit cycle, which needs to grow at an ever increasing pace simply to support current prices. This now looks to be unwinding.

Finally, after reading John Bogles 'Common Sense on Mutual Funds', I found he makes the (very good) point that the expected return on shares will be much lower in the next 20 years than the last 20. The reason for this is that much of the return generated in the past 20 didn't come from real increases in earnings, rather a 'speculative' return shown by the expansion of PE ratios to higher levels than the historical average.

See here for further explanation.

When the same analysis is done on property, assuming a P/E contraction to historical norms, expected returns drop to 1.8%pa (Including rental income). I suppose if you want to assume that P/E's will continue to expand, that is ok, but yields can only drop so far.

Having said all that, we have all seen that investor psychology, particuarly the Australian fascination with home ownership can cause people to make very irrational decisions, which could drive house prices up at the 7 - 10%pa assumed by bunsen in perpetuity. I just can't see a rational reason to agree over the long term.

 

[Aquamarinejewel]

Ppl's numerous posts have been deleted from this thread due to it having become a slanging match.

 

[bunsen burner]

Simply because I have a better understanding of share markets I suppose.

Finally someone with some brains who makes decisions based on other factors than misinformed propaganda.

Firstly, Robert Shiller has demonstrated that over the long term, net real return on property is zero.

Be hard to push this to an investor (shares or property) who has made millions, lives in a nice house, drives a nice car, and has a constant income stream from such investments.

Right or wrong, it has no relevance.

Secondly, I've never been able to accept that we all wealthier as a society simply because we have taken an existing stock of houses and doubled the price.

Also irrelevant. Completely irrelevant. We are humans and we are self interested. When it comes to growth od investment classes, no one cares about society. People don't invest to make society better, they invest to make themselves (or their lives) better.

Few houses were built during the Sydney boom,

Not true. Sydney ran out of bricks. There was development everywhere.

leading to an (arguable) shortage of homes across the city. This, like the other property booms around the country looks to have been driven simply by an ever expanding credit cycle, which needs to grow at an ever increasing pace simply to support current prices. This now looks to be unwinding.

The booms were a combination of housing shortage/population growth, and investor demand. As for unwinding, you, like many, seem to lump the whole property market as 1 market. It's not and anyone who looks at it this way doesn't really understand real estate. Following the prices nationally is pointless. There are a whole heap of markets doing different things at any given time. No one market for any amount of time follows the national average.

Having said all that, we have all seen that investor psychology, particuarly the Australian fascination with home ownership can cause people to make very irrational decisions, which could drive house prices up at the 7 - 10%pa assumed by bunsen in perpetuity.

No need to make stuff up. Care to post where I said that? That's right, you can't, because I didn't. Didn't say it. Don't think it.

I just can't see a rational reason to agree over the long term.

Rational reason to agree on what?

 

[Clay Davis]

Be hard to push this to an investor (shares or property) who has made millions, lives in a nice house, drives a nice car, and has a constant income stream from such investments.

Right or wrong, it has no relevance.

It has relevance when the increase of price of the investment is purely speculative, not based on earnings growth at all. The last evidence I saw was steadily diminishing yields for property. No matter how you spin it, that is unsustainable.

 

[GoOsH]

It has relevance when the increase of price of the investment is purely speculative, not based on earnings growth at all. The last evidence I saw was steadily diminishing yields for property. No matter how you spin it, that is unsustainable.

wouldn't rent just increase (like it is now) until the yields become good again?

 

[medusala]

wouldn't rent just increase (like it is now) until the yields become good again?

Lets say net yield is 4%. Increase by 20% and you are still way under water re cashflow.

You cant justify it unless you believe there is substantial capital growth ahead

 

[bunsen burner]

It has relevance when the increase of price of the investment is purely speculative, not based on earnings growth at all. The last evidence I saw was steadily diminishing yields for property. No matter how you spin it, that is unsustainable.

You don't get it. He's not just talking furutre, he's talking past too.

Now please tell me how this is relevant to the hundreds of thousands of Australians who have made good money out of property?

Person A has used property and wns a 1m house, plus 5 investment properties that yield 50k per year profit. Person B has no property and rents.

Now please explain how this has any relevance to Person A?

 

[bunsen burner]

Medusala and Gravy:

I just wonder how you guys are financially? Because you both seem to talk it up a lot.

 

[Clay Davis]

You don't get it. He's not just talking furutre, he's talking past too.

He's talking about past and future as a whole. As stated in the article, long-term speculative growth is negligible. That's over the terms of 50-100 years.

Of course, there's been massive speculative growth in the real estate market over the past 20 years. But if speculative growth isn't eventually matched by earnings growth, the whole thing resets and growth as a whole diminishes, or even goes backwards - a market correction.

That doesn't mean I think property is a bad investment - not at all. It's a very good investment. But at the moment, the signs are that a correction is more likely than any time since the last one. Credit markets are tightening, inflation is rising, and there's prospects of recession and even stagflation. Property markets in similar economies are unwinding their recent growth.

If a correction happens, those who got in 10 years ago will still be ahead, no question. Those who get in right now may be in trouble. And as medusala pointed out, after the last correction, even prime real estate took years to return to pre-corrrection prices.

If I could have gotten in 10 years ago, before the boom, I would have. I'm not a property naysayer. But I was 14. In the three years since completing university, I've spent 2.5 years living and working overseas. I've been saving heavily since returning with the intent of investing, but I am heeding the warning signs from overseas. Otherwise, I'm fairly well-off financially.

 

[Aquamarinejewel]

Ppl's,

Everyone has different points of view and is free to express them, surely as adults these can be discussed and debated without resorting to having little pot shots away from the topic, if this continues - I will have no choice but to close this thread.

 

[medusala]

Medusala and Gravy:

I just wonder how you guys are financially? Because you both seem to talk it up a lot.

Go ok. Thanks for asking.

Talk up what? Merely made a point and provided evidence to back it up.

 

[bunsen burner]

Go ok. Thanks for asking.

Talk up what? Merely made a point and provided evidence to back it up.

Actually, you said

"last property cycle"

and then backed it up with figues from 1980something.

Who are you trying to fool?

 

[GoOsH]

Lets say net yield is 4%. Increase by 20% and you are still way under water re cashflow.

You cant justify it unless you believe there is substantial capital growth ahead

yes but looking at rent yields they wont be attractive again until yields reach say 6%, hence the limited supply of them (due to their unattractiveness) will force the rents up until yields do reach that level, at which point investors will find it attractive again, supply will increase, yields will slowly fall again etc etc. it's simple demand-supply economics to me.

 

[medusala]

Actually, you said

"last property cycle"

and then backed it up with figues from 1980something.

Who are you trying to fool?

That is correct. See graph that someone else reproduced.