澳洲Australia property The Paradox of Property Booms | Sydney


在澳大利亚 Hi everyone, After months of searching for my first IP I believe finally have the corage to put in my first offer. I would love some feedback Property: Duplex Asking price: $239,000 I believe it is worth $225,000 to $230,000 My Offer: $218,0 I am in Melbourne. Would like to buy properties interstate. How difficult is that to manage these properties. Any advise. 评论 Do you mean manage to find them or manage as in property manager? 评论 Manage to find a good property manager 评


I did some thinking today about whether property booms actually increase the net worth of most of the population or actually reduce their net worth.

Here's my thinking:

In most cases peoples' net worth is LESS after a boom than it is at the start of the boom.

Why?
  • During a boom assets go up in value.
  • People feel richer as their home increases in value.
  • They spend more on luxuries...they refinance their homes & reinvest in their personal lifestyles.
  • At the end of the boom they owe a higher % on their home and more money than when the boom began
  • With a small property price correction they have less net worth than at the start of the boom.
Equally, more people have a higher net worth at the end of a recession than at the beginning.

Why?
  • When recession starts, people tighten their belts.
  • They hoard their cash & use it to pay for the important things - including paying down debt.
  • At the end of the recession as a boom begins they have greater % equity in their home
  • Hence with the first rise in valus they have more net worth than at the start of the recession.
Hence for many people a recession is a bigger opportunity to increase net wealth than a boom.



Another thought, a boom doesn't equal widespread financial success anyway and it certainly doesn't encourage people to invest.
  • At the end of the latest housing boom a massive 12% of households owned investment properties. This is a huge increase over pre-boom %s.
  • However 88% still don't own IPs - - the vast majority of households.
  • This is despite a five year upward run, huge press coverage, big incentives for first home owners, negative gearing provisions & the level of spruiking that went on.
  • And many of that 12% bought in the last year of the boom and missed many of the capital gains that could have been made earlier....
So if a five year boom entices less than 12% of households to invest - NOTHING will convince most people to actually invest for their own future.


Think about it :)

Other views welcomed.

Cheers,

Aceyducey  

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My wife argued for many years that our tenants had a far better quality of life than we did and a better place to live. She was right on both counts.

Not many people accept delayed gratification. Yet to mature (and to invest) that is what people must do (unless dad is rich). Having it all now and 'gimmie' are adolescent traits. Emotional not rational.

Credit cards do not help - much easier to indulge in 'want it NOW'.

So, boom or no boom, a leopard doesn't change its spots so readily. :p  

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Very interesting thinking Acey. I have two good thoughts stemming from it.

One is that with higher debt, hopefully wages will increase to soften the hardship.
This would be a good thing, as then with increased wages, I can raise my rents, and maybe some day, live better than my tenants.

The second good thing, is with a high population of homeowners in debt, interest rates may be only increased slowly. Gov't doesn't want a lot of homeowners bankrupt, it's not a good reflection on society. The longer rates stay low, the faster I can reduce the principle on my debt.  

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Accidental heroes

Acey,

Good post.

I find myself thinking about similar things a lot these days. The sources/reasons for capital growth, the morals of money, the concentration/distribution of wealth and similar subjects.

I made a post recently about my neighbour and his equity induced spending spree on consumer goods. Reports from the media and anecdotal sources lead me to believe that it's a real phenonema in Australia, a lot of our increased wealth is going towards increasing our consumer debt.

Our house of cards is largely built on a strong economy I believe. If we are to witness a slow down in the economy then a lot of factors point towards pain for these consumers I think. Are there really such things as "recessions we have to have?"

A recession should also be a good time to buy quality property I think, leading on to my thoughts about the concentration and distribution of wealth.. another post another time :)

WaySolid  

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Hi Brenda,

My thinking is different to yours and would like to discuss it here:


Brenda Irwin said:
One is that with higher debt, hopefully wages will increase to soften the hardship.
This would be a good thing, as then with increased wages, I can raise my rents, and maybe some day, live better than my tenants.Click to expand...
I don't think that wages increase due to the amount of debt in society. They are just a reflection of the economy in general (inflation being just one of variables). Generally speaking, we'd have to wait for the market (offer/demand) for us to be able to increase rents. If inflation kits in, wages will "gradually" move up to and of course this will also prompt the RBA to push rates up. This leads me to your second good thing


Brenda Irwin said:
The second good thing, is with a high population of homeowners in debt, interest rates may be only increased slowly. Gov't doesn't want a lot of homeowners bankrupt, it's not a good reflection on society.Click to expand...

Market forces are much more powerful than politicians. Nonetheless, they will find the way to safe "face" if the policies implemented for them were not the right ones at the time when half of the population lost their jobs and properties. At the end of the day, politicians will adapt their speech to accomodate themselves and try to look good and blame others (opposition parties, world terror, Osama, the American economy, the martians, etc) ... In the past, politicians gave birth to temrs like: "The recession we have to have" and many other colorful terminology.

I've seen the financial structure of entire countries collapsing... something that was considered to be impossible to happen for the inhabitants of those countries just a few years before. However it did happen and it's now part of history. The good news is that life always went on... The survivor of the fittest.

That's why (IMHO), one shouldn't trust that politicians will be there for us and it is recommended to have a plan B, C and even D in case things don't go our way.

Brenda Irwin said:
The longer rates stay low, the faster I can reduce the principle on my debt.Click to expand...
For me the opposite is true.

I don't know how others do and think but, for me it'd be very difficult to even try to fully pay even 1 of my small property's loan. Based on my current wages, I won't have enough years in this world to accomplish such a task. That's why I opted for not even trying. For me, the answer is maintaining a healthy LVR. Therefore, contributing to the principal is inmaterial but, it doesn't hurt me in regard to my PPOR. Rates will go up or down base on the economy (at least they should). So, if they go up this would implay that inflation has the same trend. If inflation goes up, the price of goods and services move up too. When that happens, all of us (IP investors), get a better LVR. Inflation will assit us in getting a better LVR than contributing funds to a P/I loan in a flat inflationary period. The key here is to have a healthy inflation as oppose to having an uncontrol and crazy one. So, all will be fine providing one can make loan repayments. Don't forget that during this period rents tend to rise too. Also, there are techniques like the cash bond (in case is required).

From this, you can see that I'm eagerly expecting a mild increase of inflation and rates. These also will discourage the crowd to keep on investing in IPs and a mild property price correction can be expected. That will be the time for us to act and do it all over again.

Regards,
James.  

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Aceyducey said:
I did some thinking today about whether property booms actually increase the net worth of most of the population or actually reduce their net worth.

Here's my thinking:

In most cases peoples' net worth is LESS after a boom than it is at the start of the boom.

Why?
  • During a boom assets go up in value.
  • People feel richer as their home increases in value.
  • They spend more on luxuries...they refinance their homes & reinvest in their personal lifestyles.
  • At the end of the boom they owe a higher % on their home and more money than when the boom began
  • With a small property price correction they have less net worth than at the start of the boom.
Equally, more people have a higher net worth at the end of a recession than at the beginning.

Why?
  • When recession starts, people tighten their belts.
  • They hoard their cash & use it to pay for the important things - including paying down debt.
  • At the end of the recession as a boom begins they have greater % equity in their home
  • Hence with the first rise in valus they have more net worth than at the start of the recession.
Hence for many people a recession is a bigger opportunity to increase net wealth than a boom.



Another thought, a boom doesn't equal widespread financial success anyway and it certainly doesn't encourage people to invest.
  • At the end of the latest housing boom a massive 12% of households owned investment properties. This is a huge increase over pre-boom %s.
  • However 88% still don't own IPs - - the vast majority of households.
  • This is despite a five year upward run, huge press coverage, big incentives for first home owners, negative gearing provisions & the level of spruiking that went on.
  • And many of that 12% bought in the last year of the boom and missed many of the capital gains that could have been made earlier....
So if a five year boom entices less than 12% of households to invest - NOTHING will convince most people to actually invest for their own future.


Think about it :)

Other views welcomed.

Cheers,

AceyduceyClick to expand...

One concern with that, I dunno if its correct, but I've heard that the gap between which and poor is widest during a recession and narrowest during a boom. Thats given the long term trend towards a widening of the gap. Or is that incorrect?. It would be interesting to see some statistics.  

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Acey, doesn't really matter whether your net worth is up or down does it?
I mean if you want to go and use a LOC on a new $70k monaro, and a holiday on Hayman, then hey, a robust welfare state will smooth out the difference for you later on. Yes, things are always cosy when we have a big brother who's ready to rob the man who thinks of others and 50 years ahead, to give to the man who thinks of himself and this afternoon.


So the point I'd like to add is that the difference you illustrate in this thread is dependent not on cycles, but the personalities and values of those who respond to cycles. I know rich and poor, educated and uneducated, who inhabit both camps.  

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Hi Acey,

Waxman in, Investing in Property, writes about this concept refers to this as the 'wealth effect' where people are feeling wealthier because of the housing boom, because they feel wealthier they spend more. I imagine the equity mate ads and increased knowledge of accessin your equity have helped a lot of people to borrow a lot of money for stuff that what be worth a lot in not too long.

great post

D  

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WaySolid said:
A recession should also be a good time to buy quality property I think, leading on to my thoughts about the concentration and distribution of wealth.. another post another time :)

WaySolidClick to expand...
Its always a good time to buy quality property =)  

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Property investment is normally a profit making exercise,and also the investment
always puts the investor at some high or low risks,this is a different market from six
months ago,and i guess in six months ,the market will also be different,but the money is always out there for the investors who look outside the square..
good luck..
willair..  

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Lplate said:
My wife argued for many years that our tenants had a far better quality of life than we did and a better place to live. She was right on both counts.

Not many people accept delayed gratification. Yet to mature (and to invest) that is what people must do (unless dad is rich). Having it all now and 'gimmie' are adolescent traits. Emotional not rational.

Credit cards do not help - much easier to indulge in 'want it NOW'.

So, boom or no boom, a leopard doesn't change its spots so readily. :pClick to expand...
True words IMO.

I've have had IP's for 9 years. It was 6 years before my own standard of living started to get higher than my tenants. 3 years on now it's much better than it ever was and as long as I continue to delay large scale gratification, it'll get progressively better.

The number of people who've said "why don't you sell & go on a RTW trip" or words to that effect is amazing. People often don't realise that an investment plan is very long term & the results take years to really start showing through.

My plan sees me first selling in about 2020 & I first bought in 1995.  

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TTRTR said:
True words IMO.

I've have had IP's for 9 years. It was 6 years before my own standard of living started to get higher than my tenants. 3 years on now it's much better than it ever was and as long as I continue to delay large scale gratification, it'll get progressively better.

The number of people who've said "why don't you sell & go on a RTW trip" or words to that effect is amazing. People often don't realise that an investment plan is very long term & the results take years to really start showing through.

My plan sees me first selling in about 2020 & I first bought in 1995.Click to expand...
Tis good if you dont get hit by a bus or die before enjoying yourself!  

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superted said:
Tis good if you dont get hit by a bus or die before enjoying yourself!Click to expand...
How can we plan anything (even a vacation trip) if we're constantly thinking there is a bus coming our way? :D

For me investment is a journey and I enjoy every bit of it. Spending in consumer goods give me no pleasure whatsoever... :) Though I've to say that the secret in life in finding the balance in all we do.

Cheers,
James.  

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