Property Watch

[FIGJAM]

Melbourne has been earmarked as the exception to the rule for some time now. I have seen a number of pessimistic article on the Melbourne housing market- this is nothing new. Far too many inner city partments coupled with the most expensive stamp duty in the country and its no wonder that BOTH first home buyers and property infestors are reluctant to get involved down here. Won't see a huge drop in prices, but probable stagnation coupled with a slight deflation in the value of rents once inflation is taken into account. Either way, prices are not going to crash here anytime soon.

I anticipate houses to show some modest growth over the year, which it is already doing.

The high rise apartment market may see a bigger crash than 2004, due again to very obvious oversupply concerns. Agents are reporting extreme difficulty in leasing apartments at the minute, with the knock on effects already being seen, although I'm expecting a snap quite soon as the holding costs become unbearable and the sellers need to cut their losses. Pent up FHO demand of people who are happy to live inner city might save it from complete catastrophe, but I expect some fireworks all the same.

 

[sabre_ac]

Quickly now race out and purchase land with poor public transport access and in a location your likely to spend an hour getting to work each day!

I was going to have a go at this article because they have taken the opinion of a salesmen on his own product and presented it as reliable information. However, at least they have pointed out later in the article that buying on the fringes will come with problems. Surely the public would have been better served with a headline along the lines of "Buying that big house you dreamed of 1 hour out of the city, may not be living the dream"

Land shortage looms as demand rockets

http://au.news.yahoo.com/thewest/a/-/newshome/16875439/land-shortage-looms-as-demand-rockets/

"Perth faces a land shortage within 12 months as developers struggle to release enough blocks to meet surging demand on the city's sprawling urban fringe"

 

[Scotland]

Has there ever been a newspaper article about real estate that wasn't agenda driven, ever?

 

[kickazz]

Will be interesting to see the effects of the Vic govt scrapping the $7000 FHOG for established dwellings. It has been retained (indeed increased to 10K) for newly built dwellings.

Coupled with the reduction in stamp duty, in the end I don't see it really having any impact. It may reduce demand for existing places a little, but not much. If anything, I think it will give off the plan apartments a bit of an artificial kick for a while.

 

[Scotland]

Stamp duty is an absurd cost imposition. Handing over tens of thousands of dollars to the government for a private purchase of a house built decades ago is just stupid. It should be capped at $5,000 - maximum.

Baby boomers like to complain that young people 'want it all' with their first house.

If you buy a $500k house you pay $18k in stamp duty & government charges (in WA - it's comparable in other states). As a young couple buying a second home to have a family etc. $500k doesn't go a hell of a long way. If it's your first home, that stamp duty is waived.

If it's your second home and you are selling a $350k unit for example to move up (ie you started off small and cheap), you'll pay around $10k in sales commission, plus any fees and charges associated with that, plus settlement fees etc. on the new property, moving costs, additional interest if you buy the second before you sell the first, etc. Basically you'll be lucky to get out of the exercise without losing at least $30k and a fair chunk of sanity from dicking around with banks and real estate agents.

It's food for thought, as the money lost in changing over would be enough to cover the difference in interest between the two loans for a good 3 years...

 

[Smell The Glove]

Will be interesting to see the effects of the Vic govt scrapping the $7000 FHOG for established dwellings. It has been retained (indeed increased to 10K) for newly built dwellings.

Coupled with the reduction in stamp duty, in the end I don't see it really having any impact. It may reduce demand for existing places a little, but not much. If anything, I think it will give off the plan apartments a bit of an artificial kick for a while.

Will:
a) Boost the State coffers for the EOFY as the first home buyers rush to receive the grant.
b) Will raise prices a little in the short term as a result.
c) Will fill Matthew Guy's developer mates' pockets with plenty o' cash.

Does not address the issue of affordability of homes for FHB/young Australians considering nine out of ten FHB buy established. Notably, and crucially, unlike the O'Farrell moves in NSW, it has not been followed up with any infrastructure funding. Better would have been to increase stamp duty cuts for all FHB or to have lobbied the Federal Government to scrap negative gearing for established dwellings. Even providing further incentives for investors to buy new dwellings through stamp duty would have been better.

FHB will now compete with investors who have the dual advantage of historically low interest rates and significant equity. Any FHB who honestly thinks that piddly stamp duty cuts brought forward by six months is a bonus is a complete idiot who deserves to be underwater. Even if domestic investors don't pick up the slack, Victoria will just import more from China or India to bump them up.

 

[kickazz]

Stamp duty is an absurd cost imposition. Handing over tens of thousands of dollars to the government for a private purchase of a house built decades ago is just stupid. It should be capped at $5,000 - maximum.

Couldn't agree more. Well, I could, reduce it even further.

Be done with FHOG.
Be done with stamp duty (or keep it small)
Be done with negative gearing for existing, unimproved dwellings.

 

[Scotland]

Good old Australia, where the solution to housing affordabililty is to stimulate demand.

 

[sabre_ac]

Is there an affordability problem or an expectation problem? I'd argue it's the latter, at some stage people have accept that you need to live within your means and that includes purchasing a house within your budget. Your ability to afford this house is related to choices you or your parents have made in the past, much like everything else in life.

 

[sabre_ac]

One a side note...

Tour Australia's most expensive homes


http://www.news.com.au/realestate/news/most-expensive-homes-in-australia-via-google-maps/story-fncq3gat-1226634750299

"$57.5m property beside Swan River, WA nation's priciest"

 

[Scotland]

Is there an affordability problem or an expectation problem? I'd argue it's the latter, at some stage people have accept that you need to live within your means and that includes purchasing a house within your budget. Your ability to afford this house is related to choices you or your parents have made in the past, much like everything else in life.

The 'problem' is people not being able to afford what they want to buy. Those in favour of measures such as the FHOG etc. don't give two shits whether people buy 40 run down 2x1s or brand new 4x2s - they just want people buying.

 

[sabre_ac]

The 'problem' is people not being able to afford what they want to buy. Those in favour of measures such as the FHOG etc. don't give two shits whether people buy 40 run down 2x1s or brand new 4x2s - they just want people buying.

I believe the financial markets are manipulated and controlled by the minority (Not in cohesion though), I don't think this is the case for the property markets. There is definitely a link between the two, but I think property is more controlled by the "masses" and hence why more trusted.

Its more a case of the majority growing up seeing one thing and expecting the same. The fundamentals of home ownership have changed in less than a generation as has how we live day to day, allot of people have not grasped this.

 

[Smell The Glove]

I believe the financial markets are manipulated and controlled by the minority (Not in cohesion though), I don't think this is the case for the property markets. There is definitely a link between the two, but I think property is more controlled by the "masses" and hence why more trusted.

Its more a case of the majority growing up seeing one thing and expecting the same. The fundamentals of home ownership have changed in less than a generation as has how we live day to day, allot of people have not grasped this.

Sorry, but two completely rubbish statements.

Firstly, the property market is manipulated by governments like no other asset market (except perhaps superannuation). The sheer, demonstrable effect of the FHOG on house prices short term circa 2000 and the effect of negative gearing on rent, and therefore house prices in the Hawke/Keating years demonstrate the extent to which prevailing government has a massive impact on house prices. RBA policy is a broader, blunt monetary tool which uses house prices as an indication rather than as a factor.

Property is trusted only because house prices have shot ahead of incomes markedly, at least from an investment POV. That and shelter is one of the basic human requirements. Nothing else.

The first statement leads into the second. FHB are not as notoriously picky as you seem to make us out to be. The simple fact is that while FHB back in the 60's-80's may have had to buy out in the outer suburbs, the commute was far less onerous then as it is now (infrastructure being spread thin, congestion, simple distance). You are right in saying that the fundamentals have changed, but yet you fail to grasp how government policy like ridiculous high levels of immigration, poor land controls, inefficient and expensive state taxes like stamp duty, federal middle class welfare like negative gearing and silly and expensive grant schemes like the FHOG have basically entrenched property ownership in the hands of one generation and kept it out of the hands of another.

 

[sabre_ac]

Sorry, but two completely rubbish statements.

Firstly, the property market is manipulated by governments like no other asset market (except perhaps superannuation). The sheer, demonstrable effect of the FHOG on house prices short term circa 2000 and the effect of negative gearing on rent, and therefore house prices in the Hawke/Keating years demonstrate the extent to which prevailing government has a massive impact on house prices. RBA policy is a broader, blunt monetary tool which uses house prices as an indication rather than as a factor.

I'd argue the impact of government legislated superannuation on the sharemarket rivals that of the FHOG, this will only increase as the minimum percentage of super continues to rise. Both however for minimal outlay I'd agrue have a overall positive effect to the individual.

Property is trusted only because house prices have shot ahead of incomes markedly, at least from an investment POV. That and shelter is one of the basic human requirements. Nothing else.

Property has an emotional factor attached to it that your completely disregarding, not to mention a cultural one. It's trusted because Australians been grow up thinking the most important thing they will ever own is a house and land "package". This "trust" was instilled long before house prices shot ahead of incomes, home owning if anything has dropped as a result of the price rise.

The simple fact is that while FHB back in the 60's-80's may have had to buy out in the outer suburbs, the commute was far less onerous then as it is now (infrastructure being spread thin, congestion, simple distance).

This is correct. It's not a government conspiracy nor is it one part of the community making it harder for the other.

yet you fail to grasp how government policy like ridiculous high levels of immigration, poor land controls, inefficient and expensive state taxes like stamp duty, federal middle class welfare like negative gearing and silly and expensive grant schemes like the FHOG have basically entrenched property ownership in the hands of one generation and kept it out of the hands of another.

Your steering my point in another direction but this highlights what your really getting at.

Immigration has caused the price of houses to outpace income? Your joking right? What proportion of immigrants do you honestly think own houses or have absolutely any impact on rising prices in general? I think as a society we have moved past blaming the most vulnerable for our day to day problems.

What do you picture as the average immigrant?

Highly paid professional or "unskilled" worker? The answer is pretty obvious when you take into private sector bias against international training.

What exactly do you mean by "Middle class welfare", baby bonus? Health? Education tax incentives? I think you need to elaborate further and draw some connection between the price of houses.

I'll agree that property ownership is entrenched in the hands of one generation, the generation who have been working for 40 years and rode out a number of economic dips. It's not government policy that has cause this, its a booming a economy and a mindset struggling to catch up. The market will correct itself as it always does and those who are willing to take a chance, work hard and adapt will benefit, regardless of the year they were born.

 

[Ghostwriter]

Prices of houses can and do go down, for example someone who purchased a house in 2008 at the peak of the market, for 400k and then had trouble meeting payments and tried to sell in 2010 for 400k, but couldn't find a buyer, but smart ppl were watching the market and the seller decided to drop his price to 380k, the prospective buyer then offers 360k and they settle on 370 for a sale. House prices do go down, simplistic but not an unimagineable scenario. Thats almost a 10 percent drop.

 

[Smell The Glove]

Just got pre-approved through Westpac for a home loan, but am a little reluctant to enter the market. Even looking around at some of the entry level properties in Melbourne, it is clear that agents have anticipated a large turnout of FHB to prop up their stock before EOFY. All of this while house prices have fallen across the board during May.

Will be interesting to see where house prices ago, particularly entry level prices - once the FHOG disappears. Infestors can only prop up the market for so long.

 

[sabre_ac]

Another interesting article and a point that many have tried to make.

http://www.freakonomics.com/2013/06/03/does-high-home-ownership-lead-to-higher-unemployment/

Does High Home Ownership Lead to Higher Unemployment?

"We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed"

 

[Smell The Glove]

Another interesting article and a point that many have tried to make.

http://www.freakonomics.com/2013/06/03/does-high-home-ownership-lead-to-higher-unemployment/

Does High Home Ownership Lead to Higher Unemployment?

"We show that rises in home-ownership lead to three problems: (i) lower levels of labor mobility, (ii) greater commuting times, and (iii) fewer new businesses. Our argument is not that owners themselves are disproportionately unemployed"

Interesting article.

Probably not quite as relevant to the Australian market on one hand given that most of our population is centred around coastal capital cities, meaning that mobility is constrined in any event, but quite relevant insofar as urban infrastructure and the decline of Australian manufacturing are concerned.

 

[LouisCK]

I'd argue the impact of government legislated superannuation on the sharemarket rivals that of the FHOG, this will only increase as the minimum percentage of super continues to rise. Both however for minimal outlay I'd agrue have a overall positive effect to the individual.



Property has an emotional factor attached to it that your completely disregarding, not to mention a cultural one. It's trusted because Australians been grow up thinking the most important thing they will ever own is a house and land "package". This "trust" was instilled long before house prices shot ahead of incomes, home owning if anything has dropped as a result of the price rise.



This is correct. It's not a government conspiracy nor is it one part of the community making it harder for the other.



Your steering my point in another direction but this highlights what your really getting at.

Immigration has caused the price of houses to outpace income? Your joking right? What proportion of immigrants do you honestly think own houses or have absolutely any impact on rising prices in general? I think as a society we have moved past blaming the most vulnerable for our day to day problems.

What do you picture as the average immigrant?

Highly paid professional or "unskilled" worker? The answer is pretty obvious when you take into private sector bias against international training.

What exactly do you mean by "Middle class welfare", baby bonus? Health? Education tax incentives? I think you need to elaborate further and draw some connection between the price of houses.

I'll agree that property ownership is entrenched in the hands of one generation, the generation who have been working for 40 years and rode out a number of economic dips. It's not government policy that has cause this, its a booming a economy and a mindset struggling to catch up. The market will correct itself as it always does and those who are willing to take a chance, work hard and adapt will benefit, regardless of the year they were born.

Overseas investment is huge, the Chinese middle class own more assets in Australia than the USA. 60 odd billion and most of it in property.

Government wasn't even monitoring it through the boom years either, there's no telling what the real figure is (60 billion is from WSJ)

 

[LouisCK]

Easiest solution is invest your money elsewhere, limiting exposure to any one market, rent cheaply. If rent gets too high or unemployment strikes, either move to a different country or have a wicked riot.

 

[sabre_ac]

Interesting article.

Probably not quite as relevant to the Australian market on one hand given that most of our population is centred around coastal capital cities, meaning that mobility is constrined in any event, but quite relevant insofar as urban infrastructure and the decline of Australian manufacturing are concerned.

I agree, however I viewed the mobility comment as the ability to change jobs easily and take greater risks with your career.

 

[sabre_ac]

Overseas investment is huge, the Chinese middle class own more assets in Australia than the USA. 60 odd billion and most of it in property.

Government wasn't even monitoring it through the boom years either, there's no telling what the real figure is (60 billion is from WSJ)

It would be an interesting stat to have on hand, I honestly don't know who is closer to the mark on this one.

Is the average immigrant wealthier or poorer than the average Australian? That would go a long way to answer the question.

 

[LouisCK]

It would be an interesting stat to have on hand, I honestly don't know who is closer to the mark on this one.

Is the average immigrant wealthier or poorer than the average Australian? That would go a long way to answer the question.

This isn't even immigrants I'm talking about, just foriegners (who still live in China, for example) who buy property and hold it. A lot of the Chinese don't even rent it out, but they might use it for their kids when they come to Melbourne for Uni.

Its staggering the amount of international students living in Docklands Penthouses that mummy and daddy paid for. The Chinese have a huge affinity for property investment, and preferably direct ownership rather than trusts.

I know that the Treasury Department now look into foreign ownership, but that's mostly concerned with farmlands etc. (again, heaps of farmlands were bought by Chinese companies during the Howard years, nobody is certain quite how much though).

Truth be told a huge portion of Australia is owned by foreigners. At residential, commercial, mining and farming level.

 

[Smell The Glove]

Will be interesting to see what happens in the Vic residential market now the FHOG for existing dwellings has now ceaseed. The story from QLD and NSW tends to suggest FHB will disappear from the market, but Melbourne was already struggling badly with projected oversupply over the coming years anyway. Evidence also suggests that Victoria lacks the pent up demand which characterizes the other states, not to mention we have a Planning Minister here (Matthew Guy) as shonky and dodgy as any politician out there.

Tough times ahead for vendors of Vic real estate methinks.

 

[LouisCK]

Good, it needs to come way back. Or at least stagnate for a very extended period of time.

If the mum and dad Chinese investors pull out, the whole thing will collapse hard.