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Harrow said..
So, how about those Sydney house prices, huh! Tell me, is the rest of the world as obsessed with real estate as we are here?

Yep... especially since private ownership was created and governments formed to essentially protect those property rights ...

but it's the land underneath, it's location and what's in it that's the biggest economic rent game in town. We aren't making any more land but a new building can be built in it at anytime given the right conditions.

But in more recent years (early 1900's) wasn't private home ownership and fair pay an integral mix in stabilising the workforce in heavily industrialised areas all over the world? ie big manufacturing businesses like Ford actively encouraged home ownership in conjunction with relatively high pay packets because it reduced the frictional costs to the business associated with workers changing employment. It gave the worker something to work for. Yes Harrow, the entire world is obsessed with the ownership/control of land and the resources/benefits that come with the land, arguably nearly every war in history has come down to "real estate".

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Harrow said..
So, how about those Sydney house prices, huh! Tell me, is the rest of the world as obsessed with real estate as we are here?

No, it's our religion... and we're supposed to be a secular country.

Vendors are still in denial about what it takes to sell in the current market.....

www.abc.net.au/news/2019-02-25/most-properties-on-market-since-2012-but-where-are-the-buyers/10838172

Does that mean the market is in denial about the state of the market? Is it that vendors won't sell their house for what they're worth, or buyers aren't prepared to pay what the houses are worth?

If you are not in a position where you have to sell, why reduce your price lower than you want for it?

Clearly those that need to sell will be forced to lower price, but also clearly, there are not many who need to sell.... yet.....

You're right vosadrian, but you must be able to cover the costs associated with retaining ownership of the asset. This can either be by income generated by the asset, or by realising the price difference upon sale of the asset (the difference between the originally offered price and the eventual sale price)

^^ Oh. You thought I was making a serious point and you've taken it upon yourself to debate it. That is very funny.

The "knowledge" of when the market has hit the top (or bottom) doesn't exist - it is not knowable. The best you can hope for is to guess correctly, which obviously some will.

Many like to pillory the economics profession for failing to predict the GFC, but of course if it was predictable, it wouldn't have happened! Its very unpredictability is central to its nature. Nobody can predict the timing or severity of the next one either - though someone will no doubt guess correctly.

AUS1111, would it be fair to say that if knowing the unknowable was possible then there would be no profit to be made?

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Paddles B'mere said..
You're right vosadrian, but you must be able to cover the costs associated with retaining ownership of the asset. This can either be by income generated by the asset, or by realising the price difference upon sale of the asset (the difference between the originally offered price and the eventual sale price)

That is true for investors, but I would clarify that by saying that it is over the life of the investment, and in the case of property investment this is often long term.... longer than the property cycle in many cases. Many property owners are owner occupy. They may be looking to move to a different house and if the price is too low on sale of the current property, they would be inclined to just sit on it until it is more favourable. Many investors brought their properties before the last boom, so it is going to take a lot more loss than we currently have before they are not profitable.

We are certainly in a downturn at the moment, but many will be expecting this to turn around back to growth in a few years and probably have no urgent need to sell, so they will wait it out. Whether or not a return the growth happens, remains to be seen, but using history as a guide, it is a relatively safe bet to make!

I am a Sydney investor and I am in no rush to sell. I may regret that decision. Time will tell. I am currently well in profit even with recent value losses. Investors can either sell at a reduced price, or hold. Holding may mean attempting to sell at a high price. We are not really seeing an avalanche of panic selling at this stage, so I think most are holding.

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Paddles B'mere said..
AUS1111, would it be fair to say that if knowing the unknowable was possible then there would be no profit to be made?

Well not really.... Profit is simply charging more for something than it's "worth" and getting away with it.

It's the cornerstone of capitalism....like paying for water in a bottle. The water costs almost zero. What you're paying for is convenience and plastic.

Don't you just love the irony?

Or it could be ..................... the market being prepared to pay more for it now than you originally paid for it ...................... it's all about the "angle" Adriano

It's never about the material value of the water or the plastic ....................... it's about the value of the "net benefit" of being able to conveniently obtain some water when you want it

There are costs and risk (price change) associated with holding any asset vosadrian, but especially an asset that's not providing a benefit (financial or otherwise) whilst you're trying to dispose of it. That being said, the Freakonomics guy reckons real estate agents get the best price for their homes simply because they are motivated to wait longer for a sale on their own property and are motivated to close a deal faster when it's not their own property (remember they only get paid on a sale so they don't really care if the sale price is 5% less because they only lose 5% of the commission they were going to get)

Thanks for restating my points on profit. We're in complete agreement.

Where real estate differs, is that it's not about a vendor setting a price that they already know the buyer will cop, it's about a series of individuals being desperate enough to pay way over what someone else paid a few months ago.

I call that stupidity.

The days of stupidity seem to have ended for the time being.

Oh that was just a warm up !! Stupidity will be back again and with vengeance before it all really goes tits up.

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AUS1111 said..

Many like to pillory the economics profession for failing to predict the GFC, but of course if it was predictable, it wouldn't have happened! Its very unpredictability is central to its nature. Nobody can predict the timing or severity of the next one either - though someone will no doubt guess correctly.

Yes, its interesting for those that claim that they predicted the GFC that they did not short sell stocks and make a fortune.

Having a general idea that 'something is going to happen' is not a useful prediction as everything happens in cycles. Witness Eppo's comments. Surely something will happen again in the future. Not sure what, not sure how much, not sure when, but it will happen. If it doesn't happen 'then', it will happen in the future.

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Adriano said..

Where real estate differs, is that it's not about a vendor setting a price that they already know the buyer will cop, it's about a series of individuals being desperate enough to pay way over what someone else paid a few months ago.

I call that stupidity.

The days of stupidity seem to have ended for the time being.

You call that stupidity, but it may be better as a risk.

I bought a house in 2007 and it has risen in value, at least for the short while. If it does your 50% drop it may not, but for the moment its okay.

If I had instead sold the house after a year, and then bought another, and then bought a few more, and then flipped them when the CGT discount was in effect, I would have made substantially more.

From what I have read there are quite a few people that have done just that, and come out ahead. If they multiplied their gains this way, they have probably made the best financial moves and I have done the stupid thing. I have renovated the house, made it better for tennants, and now have a house that is dropping in value and then has to compete with thousands of new apartments on the rental market.

Would I have preferred to make good profit instead of a potential much lower one? Of course. No one is going to come and pat me on the back for being a good boy and helping out the rental market.

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Paddles B'mere said..

There are costs and risk (price change) associated with holding any asset vosadrian, but especially an asset that's not providing a benefit (financial or otherwise) whilst you're trying to dispose of it. That being said, the Freakonomics guy reckons real estate agents get the best price for their homes simply because they are motivated to wait longer for a sale on their own property and are motivated to close a deal faster when it's not their own property (remember they only get paid on a sale so they don't really care if the sale price is 5% less because they only lose 5% of the commission they were going to get)

I agree with all you have said. I initially took exception to claims that vendors are in denial and other comments about vendors asking for prices that are "silly". I personally don't think any of these vendors are stupid. They are simply not that motivated to sell quickly. They will take the money if someone is willing to pay it, but otherwise they will just let it sit. There is only a small percentage of vendors who need to sell quickly. This of course may change if market conditions remain poor for selling for a long time. But the vast majority of investors are willing to sit on their loss making investment until things turn around on the assumption they will turn around over the next few years. I believe many recent buyers who are the most exposed at the moment are probably owner occupier, and although they are making a loss currently, they still need somewhere to live and probably have the same capacity to pay their mortgage as they did when they purchased 1-2 years ago, so they probably don't even know they are making a loss as they get on with their lives.

Personally, I had two properties in Sydney (purchased around 15 years ago). I sold one in early 2017 as I felt a market downturn was likely. I held the other as I considered it a 50:50 bet. It was a good time to sell that one. I wish I sold the other now. But I have no pressure to sell it. Rent is the same (actually a little better) as it was in early 2017 and my mortgage payments are roughly the same. It costs me no more to hold onto it now than 2 years ago. So I am in the same holding pattern now as before. I have lost some valuation, but I expect it will come back so I can wait for that. If it takes 1, 2, 5 or 10 years to do so, it makes little difference to me. The rent covers the costs so it is no bother to me. I suspect I am not the only one in this position.

That's it vosadrian, you will only ever realise your gain/loss when you dispose so if you have worked out that it's making enough revenue to cover all the expenses then obviously you're not in a rush to sell and are willing to gamble on a gain in the future value. There must be many who are not willing to take that gamble and want to dispose now so they'll just have to take what the current market is willing to pay.

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actiomax said..
Sydney will never go down in price .

This quote from Sept 2017 still gives me a laugh!

I also noticed that early on in the thread Vosadrian had 2 investment properties and wasn't overly happy about the naysayers talking the market down. Soon after he sold one and now wishes he had flicked the other one.
He should really be saying thank you, I should have listened more.

Adriano, real estate doesn't differ from any other resource/asset. It doesn't matter whether you are buying 250,000 tonnes of wheat or an apartment in Sydney, the buyer is paying the price that he/she is willing to pay for the perceived future benefits of owning the resource/asset.

Ok I was wrong not the first time won't be The last
but it's not all doom & gloom
my brother just sold his unit for 2mill made a nice 750 profit after 5 years
my house is still worth the same .
I think the only suburbs dropping in value are the ones that were hyper inflated by overseas investors

Is that profit after all expenses, discount rates and taxes are applied actiomax, or just the difference between purchase price and sale price?

Just the difference
between sale prices
He was disappointed it didn't get more but I did say to dad I would rather 2million than a poke in the eye he agreed

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Paddles B'mere said..
Adriano, real estate doesn't differ from any other resource/asset. It doesn't matter whether you are buying 250,000 tonnes of wheat or an apartment in Sydney, the buyer is paying the price that he/she is willing to pay for the perceived future benefits of owning the resource/asset.

You don't really believe this do you? It sounds like a line the government would spruik.

It was only a couple of years ago that the government would say "we don't set house prices" . The answer to every problem seemed to be interest rates which are set by the RBA so the government couldn't get the blame for anything. Then people started asking questions...

How about you police the foreign investment laws you have?
How about you put a cap on investment loans to reduce speculation?
How about you tighten your banking regulations so that people on $50k can't borrow a mil?
How about you put pressure on councils and developers to increase land releases?
How about you reduce immigration?
How about you build more public housing to take the pressure off private rentals?

Real estate isn't just another asset, the government can control it quite easily if they really want to.

I absolutely believe it stoff, because it is fact without emotion, real estate is just another commodity. The price paid for any asset is the net present value of the future benefits that the buyer thinks they might get out of the asset. The perceived benefits could be anything from the buyer placing a value on having a nice place to sit and quietly enjoy the sunshine, through to the buyer placing a value on the gamble that they can flog it off for a net profit sometime down the track. It's not about bricks and mortar it's about future benefits whether they be physical or economic.

Government control over the market is a completely different argument, the government can control the purchase and sale of any resources it sees fit to. For example, try to purchase 3 tonnes of yellowcake, I bet it won't be easy Tightening/changing of government controls over real estate purchasing and taxation benefits (such as negative gearing) is needed in my opinion, and any change in policy will no doubt influence the market demand and price.

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stoff said..

actiomax said..
Sydney will never go down in price .

This quote from Sept 2017 still gives me a laugh!

I also noticed that early on in the thread Vosadrian had 2 investment properties and wasn't overly happy about the naysayers talking the market down. Soon after he sold one and now wishes he had flicked the other one.
He should really be saying thank you, I should have listened more.

Actually I just checked and my first post in this thread was after I sold the property.... and I don't care about the naysayers nay-saying. I posted because I find it amusing and wanted to point it out. In the last 20 years I have read a lot of forums around property investment in Sydney and there are always a majority of naysayers... they seem more vocal. The amusing part for me is that although there have been a few downward blips, the naysayers have never been right.... yet they post on forums with such confidence. I find it funny.

So no naysayers here or on any other forum have influenced my investment decision... so I will not thank them for that. I do thank them for the amusement though.

My decisions are made by looking at standard metrics.... graphs of median prices etc. I am not a permabull or a permabear. I just treat it like an investment and make decisions accordingly. I wish I sold the second property because the first was a good decision, but I did not know that until after the fact, so I took an each way bet. Sometimes I actually regret selling the first. It was not cost me anything to keep, and I do think it will be worth more than I sold it for in the not too distant future... and I am in this for the long term. So ultimately it probably made no difference it I sold or not in the long term. Both would have been a good decision.... that is unless the naysayers one day get it right and it drops significantly for a long period.... but I am not holding my breath. I would have to sell it for less than 50% of current value to make a capital loss and the rent covers my ongoing costs at the moment.

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FormulaNova said..

AUS1111 said..

Many like to pillory the economics profession for failing to predict the GFC, but of course if it was predictable, it wouldn't have happened! Its very unpredictability is central to its nature. Nobody can predict the timing or severity of the next one either - though someone will no doubt guess correctly.

Yes, its interesting for those that claim that they predicted the GFC that they did not short sell stocks and make a fortune.

Having a general idea that 'something is going to happen' is not a useful prediction as everything happens in cycles. Witness Eppo's comments. Surely something will happen again in the future. Not sure what, not sure how much, not sure when, but it will happen. If it doesn't happen 'then', it will happen in the future.

Indeed it works in cycles. Go back 2-300 hundred years and there is an obvious cycle. We are in a normal mid cycle recession... gloves are off after 2021 ish ... and from readings look for a top in land price around the mid 2020s. Notice I said land price not property sale price ... ??

hows that for some useful predictions

There aren't many people going around talking about how thankful they are to the economics profession for helping avert that crisis we didn't have...

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Paddles B'mere said..
... it is fact without emotion, real estate is just another commodity.

I have to take exception to that statement PB; land is specifically not a commodity. Whilst it can be bought and sold, the quantity is finite and it can be neither produced nor consumed. Land is just...land.

Unlike virtually any other form of asset, land is a zero-sum game; if I own it, everyone else is excluded from it. That is not the case with other forms of wealth.

So different rules apply.

Everyone needs a place to live. So if you're born today into a world where all of the spots are taken, what then? How is that fair? You work hard and compete with others in circumstances similar to yours, and you bid up the price of a spot that may have cost its current owners very little, or even nothing. Perhaps an unreasonably large proportion of your wages go to paying for unfunded pension liabilities of past generations.

It's a form of inter-generational theft. The burden of higher prices ultimately falls on future generations doesn't it?

The answer is higher land taxes reflecting the fact that if you want to own (use) a piece of land, you should be making a greater contribution to the other members of society who are denied that right. You should give something up; either a proportion of your labour or of your capital. It's a neat way to address inequality of opportunity.

What do you think?

I'm not p!sspulling here AUS, what is it classified as if it is not a commodity? It's just a resource like anything else isn't it? ie you purchase it to derive a benefit. But yes, it is finite, but so is oil and iron ore and they are called commodities aren't they?