Australian Money Forum

[jorgon]

I'm an overseas investor (UK) keen to purchase into a listed property trust (listed on the Australian property market). It may seem a little odd to want to purchase into the Australian Stock Exchange, but there are three reasons for this. Firstly, I believe the UK and US property markets will be in the doldrums for quite a while, and the remainder of Europe except Germany may follow. Secondly, I believe that the British pound is good against the Australian dollar but will not remain so for long. And finally I am worried about a moderate "correction" in UK/US share prices.

I am having trouble, however, understanding the Australian property cycles. I need to understand this a bit better before deciding which LPT to go for.

I understand that prices boomed and peaked in Sydney in about December 2003. Since then I understand that not much has happened in Sydney. However, Melbourne, Brisbane and Perth boomed later and maybe they are now flattening out. I hear that affordability is at its lowest, and there are worries about further interest rate rises, making this worse. Also I believe that in those areas which were slower to "boom", there has been more new-build, so the extra supply of properties will also result in a flattening of prices. I also read about people selling investment property in order to invest their money in superannuation (this I do not understand).

Now there is talk of residential rents rising because people prefer to rent rather than buy (or because they have to). I also hear of commercial rents rising in Brisbane because of a shortage of commercial rentals.

The above suggests that I ought to buy an LPT which concentrates on commercial property. However, I have been told that US investors have stormed into LPTs, inflating them. If this is correct, I believe maybe this is a hedge against a downturn in the Dow Jones, which I think will happen this year (judging from the way it has been increasing - faster than the underlying trend!).

However, I have seen some of the excellent returns from LPTs over the last three years and I find it difficult to understand how such returns can be maintained. I worry that a price collapse may be on the cards. However, there is one factor which suggests this will not happen. That is that property prices in Australia are still lower than the rest of the developed world where there has been a boom over the last 4 years and everything points to a soft landing.

Does anyone have any views?

[wulfgar]

Hi Jorgon, me I'm a goldbug and won't trust anything but gold.
However what I do know is this, unless the Australian Central Bank goes very very tight on the money supply. Then I'd say Australian property is still a good bet. Although it would pay to be selective about what type of property.
At this stage I'd go for more purely rental return. The ordinary flat and unit is the go.
Melbourne is the value buy out of Australian cities at the moment. Read up and be wise before you select.
That's my 2 grams of gold's worth!

[Miller]

...

I don’t see anything that points at Australian RE market recovery.
The affordability keeps hitting new “records”. Have you seen this one:
http://www.news.com.au/business/story/0 ... 37,00.html

I am not an adviser but I would definitely stay flat and watch the market at least till the end of this year.

I have pulled off all my money from stocks. Bought some gold and silver. Keep the rest in cash, though don’t like it.

[harry_mr]

Wulfgar, I avoided ever buying a unit investment because of the lack of land value they offer. Body corporate fees, rates, upkeep etc unless its positive geared, no capital gains now and we both know this because you taught, me that prices will not rise unless the money supply is pumped some more.
I chose a 4 bedroom/ study split level house with dual occupancy capability, its has bathroom and kitchen upstairs and down stairs and in the event the common hallway can have a fire door and wall installed to separate. Better still I once rented a room in a 5 bedroom house back in the early 90's. The guy was charging $80 per room when the whole house would have rented out to a family for no more than $300. Surprising how many single people just want a single room and some occasional company.

[Miller]

Wulfgar, I avoided ever buying a unit investment because of the lack of land value they offer. Body corporate fees, rates, upkeep etc unless its positive geared, no capital gains now and we both know this because you taught, me that prices will not rise unless the money supply is pumped some more.
I chose a 4 bedroom/ study split level house with dual occupancy capability, its has bathroom and kitchen upstairs and down stairs and in the event the common hallway can have a fire door and wall installed to separate. Better still I once rented a room in a 5 bedroom house back in the early 90's. The guy was charging $80 per room when the whole house would have rented out to a family for no more than $300. Surprising how many single people just want a single room and some occasional company.

Not everyone can afford buying a 500k house. 200k study is less profitable but more affordable.

Someone could probably say that buying a 500k house is a moneywasting as well, and the right IP must cost not less then 5 million.

[Miller]

I'm an overseas investor (UK) keen to purchase into a listed property trust (listed on the Australian property market). It may seem a little odd to want to purchase into the Australian Stock Exchange, but there are three reasons for this. Firstly, I believe the UK and US property markets will be in the doldrums for quite a while, and the remainder of Europe except Germany may follow. Secondly, I believe that the British pound is good against the Australian dollar but will not remain so for long. And finally I am worried about a moderate "correction" in UK/US share prices.

I am having trouble, however, understanding the Australian property cycles. I need to understand this a bit better before deciding which LPT to go for.

I understand that prices boomed and peaked in Sydney in about December 2003. Since then I understand that not much has happened in Sydney. However, Melbourne, Brisbane and Perth boomed later and maybe they are now flattening out. I hear that affordability is at its lowest, and there are worries about further interest rate rises, making this worse. Also I believe that in those areas which were slower to "boom", there has been more new-build, so the extra supply of properties will also result in a flattening of prices. I also read about people selling investment property in order to invest their money in superannuation (this I do not understand).

Now there is talk of residential rents rising because people prefer to rent rather than buy (or because they have to). I also hear of commercial rents rising in Brisbane because of a shortage of commercial rentals.

The above suggests that I ought to buy an LPT which concentrates on commercial property. However, I have been told that US investors have stormed into LPTs, inflating them. If this is correct, I believe maybe this is a hedge against a downturn in the Dow Jones, which I think will happen this year (judging from the way it has been increasing - faster than the underlying trend!).

However, I have seen some of the excellent returns from LPTs over the last three years and I find it difficult to understand how such returns can be maintained. I worry that a price collapse may be on the cards. However, there is one factor which suggests this will not happen. That is that property prices in Australia are still lower than the rest of the developed world where there has been a boom over the last 4 years and everything points to a soft landing.

Does anyone have any views?

Jorgon, you might find this interesting:

Finding a real-estate hot spot

[wulfgar]

Someone could probably say that buying a 500k house is a moneywasting as well, and the right IP must cost not less then 5 million. Smile

This is the difference between "need" and luxury. A person may need a roof over their head. But there is no problem with luxury as long as you can afford it. The risk in the current market is not borrowing for "need". But borrowing for luxury.

we both know this because you taught, me that prices will not rise unless the money supply is pumped some more.

This is the question for me. Especially after the RBA gutted out of the latest rate hike. In actual fact there is nothing stopping the Western Consumer World, pumping money to it's hearts content. That's as long as China continues purchasing that consumer debt.
This is the risk. "The China syndrome". China reaching capacity limits and suffering a market correction. At that point, the carpet is wisked out from under western consumer credit. Then gold is the only refuge!