Property and Investing, is it anyone’s Guess?

Buying and investing in real estate.

It was once the conversation of choice for latte sipping Sydneysiders a decade ago, comparing notes on which suburbs were the next to “take off,” and in Queensland the same thing. Which next waterfront tower to buy an investment apartment? Likewise in Melbourne’s Southbank, and especially in the mining boom times of WA where house prices were escalating in value threefold per annum.

All this has changed in the space of the last ten years.

Two or three years ago, those that we may consider to be reasonably well-off, such as home-owners with an investment property, were being encouraged to use the equity in their primary dwelling, as well as any equity in their investment property, to use as funds for further investments.

In 2005 to 2007, when the stock market was growing at a staggering rate, it seemed like a no-brainer. Who would want to miss out on such incredible returns?

Investors that used their equity to invest in shares were then encouraged to borrow against the value of those shares, to wait for it, buy more shares.

Of course, the rest is history and it all turned to custard.

Now we are seeing properties in once affluent suburbs being significantly discounted as the once “well-off” are now having to sell-up to meet repayments on loans for share portfolios that are now worth a fraction of their original market value.

Prior to 30 June 2007, the Howard government also relaxed Superannuation contribution limits – effectively allowing people to contribute up to one million dollars to superannuation before this date.

This strategy was actively promoted by the Howard Govt and financial advisers as a way to pay less tax and save for future retirement. I wouldn’t like to be one of those people now.

Funny how Peter Costello, the World’s Greatest Treasurer hasn’t been asked to comment since about this “brilliant strategy”.

Depending on who you listen to, house prices are about to collapse by some 20 – 30% as predicted by Professor Steve Keens, or now is actually a really great time to buy with interest rates at record lows at house prices pretty much stable or declining slightly.

Of course the real estate industry will always say “now is a great time to buy (or sell)” and their latest survey touts this once again.

“House Prices to Drop to 2002 Levels!”

It’s the best time in seven years for first home buyers to get into the property market, the survey says.

A combination of static house prices and low interest rates have improved housing prices, according to the Housing Industry Association-Commonwealth Bank housing affordability index.

The index for first home buyers rose 22.3 index points in the March quarter to 175.8 points.

“This took housing affordability to levels not seen since 2002,” said the report, published today.
The index was 69.9 points higher than in the March quarter of 2008, an improvement of 66 per cent.

‘Never a better time to own’

HIA chief executive Chris Lamont said despite the current economic conditions, “there has never been a better time to enter home ownership”.

Mr Lamont said the boost to the first home owner grant, when combined with significant builder discounts on house and land packages, had increased the number of people entering the new home market.

“The grant has been highly successful in creating and securing jobs in the residential construction sector,” Mr Lamont said.

“It is also assisting in boosting the supply of housing which we know to be grossly short of the nation’s
requirements.”

But is now really a good time to buy property? Sure low interest rates are attractive, but they will inevitably rise again. Have we seen the bottom of the housing market in terms of prices, or once the FHOG lapses will prices fall further…?

Is it just anyone’s guess??

Was Steve Keens a nutter to sell his Sydney apartment..?? (hint: yes.)

Property. The bubble is about to burst.

Much has been written at blogocrats about the property market and in particular, the doubling and tripling of the first home buyers grant.

Some commentators have suggested that this will only serve to artificially maintain the property price bubble, while others argue that the fiscal stimulus is necessary to buoy the fledgling economy and ultimately boost development and employment.

However Louis Christopher, the head of property research at Adviser Edge, is not convinced. He has recently published the following analysis which is a bit of a bombshell for those that believe Australia’s property market will escape a dramatic downturn:

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How’s your equity going?

The Reserve Bank Board meets tomorrow to discuss interest rates. The expectation amongs analysts is that they are likely to cut the official rate by as much as .5%, however there is a great deal of speculation that the major banks are only likely to reduce the home loan rate by .25% if at all.

The rationale being that the “costs of borrowing” for the major banks has increased due to the US credit crisis.  This is despite Prime Minister Kevin Rudd reassuring Australia (and the Banks themselves for that matter) that they had only minimal exposure to the US meltdown and were – in what’s becoming an almost comical catchcry – “fundamentally strong”. 

Meanwhile the housing market continues to falter with home prices floundering in most, if not all, Australian States. The situtation is particularly grim in Western and South Western Sydney where many mortgage-holders find themselves in a situation of negative equity; one where the value of the house has fallen below the original purchase price and original mortgage.

Add to this, the scarcity of available rental properties and increasing rents, and we have a pretty dire outlook for homeowners and those renting or seeking to rent.

So what do you think? Should the Banks be doing more to help home owners? Should the Government be doing more to help first-home buyers, or will this only exacerbate the problem?