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Guest TheLege

Aussie Housing Market - To Buy or Not to Buy

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I can see Australia having to correct the house prices. Hopefully (I'm in the buying market) the drop in prices will not be too severe. A crash is not good for anyone. Look at the ghost estates in Ireland. Would you want to live in a cheap house on an empty estate?

 

 

Yeah not that easy buying your heavily discounted dream house with no job.

 

Also if the price of property falls will that mean rent will also fall?

 

and if rent falls will the average earnings fall or stay the same? (if wages stays the same in theory renters should have more cash in their pockets:biglaugh:)

 

on the other hand

 

if there is a property crash then will developers decide not to risk building any more houses and not need any of the building trades or professions? will immigration be stopped for such trades as Plumber, Tiler, Brickies, Carperters, Electricians, Architects? just stroked off the occupation list for example?:shocked:

 

Will the building trade just come to a complete stop in Oz for the next 15 years like it has in Ireland? If so what happens to such trades people who emigrated in the last 6 or 7 years will their employers be able to afford to keep them employed or if self employed will their business take a dip.

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Australia will not be like Ireland. The building industry is completely different to Ireland, the US, China and the UK. New builds are contracted by the owner, not by developers in most cases. There has been no 'building more houses than demand could possibly use' as has been in US and Ireland, China, and to a lesser extend the UK.

 

For this reason - there will be no Ireland like collapses in the market. The Oz market is probably closer to the UK than any other that I am aware of. If anything, there will be stagnation for many years, with small annual drops. Give it seven years and a corrected exchange rate and it may take off again.

 

The building industry will be quiet until then, unless the govt decides to try and 'help' it. Bearing in mind whenever the govt tries to help, it usually goes pear shaped.

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Australia will not be like Ireland. The building industry is completely different to Ireland, the US, China and the UK. New builds are contracted by the owner, not by developers in most cases. There has been no 'building more houses than demand could possibly use' as has been in US and Ireland, China, and to a lesser extend the UK.

 

For this reason - there will be no Ireland like collapses in the market. The Oz market is probably closer to the UK than any other that I am aware of. If anything, there will be stagnation for many years, with small annual drops. Give it seven years and a corrected exchange rate and it may take off again.

 

The building industry will be quiet until then, unless the govt decides to try and 'help' it. Bearing in mind whenever the govt tries to help, it usually goes pear shaped.

 

I agree. I was just trying to point out that hoping for a price crash is not the best thing. A correction may be required, but as a first time buyer, I would not want things too cheap. My job is quite secure (not many are these days), but I do not want to live cheaply whilst others suffer.

 

Hopefully things can have an orderly correction. Ireland is very different. In Ireland you hire foreign workers and then hire locals if stuck. In Australia it is the opposite. Imagine if all foreign workers built houses when they are on a 457 visa. Who would live in the houses?

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Yeah not that easy buying your heavily discounted dream house with no job.

 

Also if the price of property falls will that mean rent will also fall?

 

and if rent falls will the average earnings fall or stay the same? (if wages stays the same in theory renters should have more cash in their pockets:biglaugh:)

 

on the other hand

 

if there is a property crash then will developers decide not to risk building any more houses and not need any of the building trades or professions? will immigration be stopped for such trades as Plumber, Tiler, Brickies, Carperters, Electricians, Architects? just stroked off the occupation list for example?:shocked:

 

Will the building trade just come to a complete stop in Oz for the next 15 years like it has in Ireland? If so what happens to such trades people who emigrated in the last 6 or 7 years will their employers be able to afford to keep them employed or if self employed will their business take a dip.

 

 

Many people in Australia are feeling the pinch due to the recession (Hospitality). Australia's natural resources will have a good knock on effect for eveyone. The offshore industry is about to take-off. Maybe the greens will do their handy work there?

 

Ireland built houses and expected the foreign tradesmen to buy them. The ease of movement in the EU meant that many people earned enough in Ireland to build in their home countries.

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If Australian housing prices are as far out of line with incomes as some research suggests, then prices will have to fall along the lines of the 40% cited above.

 

The options are:

 

  • Prices remain at a "permanently high plateau". In which case first time buyers suffer because they'll either be priced out, forced to rent for longer (at the expense of their long term wealth), or only be able to buy smaller / worse located properties than was possible ten or fifteen years ago.
  • Prices drop sharply, as they have done in Ireland. This will wipe out recent buyers and property investors.
  • Prices remain static until wages "catch up". In a low inflation environment, this would mean a flat market for 10 to 15 years. No one gets hurt, home owners benefit, but it'll be difficult for first time buyers to get onto the ladder for quite some time.
  • Prices remain static, but inflation is allowed to rise to erode their value in real terms. Effectively the same as the above, but on a shorter timescale. In this case savers also get hurt.

 

So the short answer is that there will be a group of people who get hurt no matter what happens.

 

In Ireland's case, the sovereign debt crisis is happening because the government (rather stupidly) guaranteed that bank debts would be honoured. So national debt quickly rose from a similar level to Australia's to more Grecian proportions.

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Many people in Australia are feeling the pinch due to the recession (Hospitality). Australia's natural resources will have a good knock on effect for eveyone. The offshore industry is about to take-off. Maybe the greens will do their handy work there?

 

Ireland built houses and expected the foreign tradesmen to buy them. The ease of movement in the EU meant that many people earned enough in Ireland to build in their home countries.

 

Couldn't agree more, 316,000 empty houses no one wants to rent or buy.

 

Vacancy rate of 17% and unemployment rate of 15%

 

Brickies

Joiners

Plumbers

Civil Engineers

Architects

Tilers

Electricians

Plasterers

Roofers

Cabinet makers

Landscapers

 

with no work.

 

If there is a property crash in the near future expect similar.....there will be a huge number of people in the immigration thread will never set foot in Australia that is a fact, you just have to look at 17th December 2008 to see how the Australian Government just turned off the immigration tap and that was the result of a small ripple in the local market.

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Couldn't agree more, 316,000 empty houses no one wants to rent or buy.

 

Vacancy rate of 17% and unemployment rate of 15%

 

Brickies

Joiners

Plumbers

Civil Engineers

Architects

Tilers

Electricians

Plasterers

Roofers

Cabinet makers

Landscapers

 

with no work.

 

If there is a property crash in the near future expect similar.....there will be a huge number of people in the immigration thread will never set foot in Australia that is a fact, you just have to look at 17th December 2008 to see how the Australian Government just turned off the immigration tap and that was the result of a small ripple in the local market.

 

While it seems harsh that would be the right thing to do. No one wants to get to a new country and find themselves out of work after going to an expo in the UK and being told how they are needed and everything is rosy.

 

I've seen a few posts where this exact thing seems to have happened (one from a lady whose husband is a plasterer but can't get work). No wonder a few feel pretty negative about the move.

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While it seems harsh that would be the right thing to do. No one wants to get to a new country and find themselves out of work after going to an expo in the UK and being told how they are needed and everything is rosy.

 

I've seen a few posts where this exact thing seems to have happened (one from a lady whose husband is a plasterer but can't get work). No wonder a few feel pretty negative about the move.

 

I agree with this, immigration is a major factor in keeping the housing market at the level it is at now. Trades people make up a large portion of the work force and this is why the government want to keep them working. If there is a property crash and building slows the immigration tap is the obvious choice to turn off.

 

One other thing to remember is that there is a difference between buying a house and buying a family home. We bought a family home so our children could be settled in the one place for their entire school life. I know prices will go up and down over that time its all part of it. I also know people who have been waiting 10 years in rentals waiting for a crash and now cant afford to buy where there kids go do school, dont want to move and will continue to rent for the next few years at least, wishing they had of bought 10 years ago. No one has all the answers or really knows whats going to happen.

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when I speak to Aussies, many are of the opinion that there's no way Australia could suffer like the rest of the world, because it's different here. It's a nice way to think, but I don't know if it's right.

 

However, with people thinking that way, with the love of good property news, the negative gearing people love here (where rental income doesn't cover the mortgage interest cost, so the government give you tax back), property being desperately bought as an urgent investment to make money rather than to live in (and the willingness of youngsters to live with parents so they can invest in property instead) and the constant news of property shortages, then I can't imagine it dropping any time soon. Maybe 1-2% sometimes, but no big drops.

 

My mate is 28, earns $50k, but is buying a property for $370k to negatively gear and rent out whilst living with his mum.


READ FIRST: please note that my posts are my own personal opinions based on my experiences. These are MY OPINIONS pure and simple, NOT a statement of fact.

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when I speak to Aussies, many are of the opinion that there's no way Australia could suffer like the rest of the world, because it's different here. It's a nice way to think, but I don't know if it's right.

 

However, with people thinking that way, with the love of good property news, the negative gearing people love here (where rental income doesn't cover the mortgage interest cost, so the government give you tax back), property being desperately bought as an urgent investment to make money rather than to live in (and the willingness of youngsters to live with parents indefinitely so they can invest in property instead) and the constant news of property shortages, then I can't imagine it dropping any time soon. Maybe 1-2% sometimes, but no big drops.

 

My mate earns $50k, but is buying a property for $370k to negatively gear and rent out whilst living with his mum.

 

All very good points and as good as any so called expert would make. The negative gearing is a big help to investors doing as your mate is going. I know someone in the same situation, they live at home part time and with their boyfriend the rest of the time, they have an investment property and will all the tax savings only paid $170 tax last year! But what if the government changed this for some reason, would the level of investment properties remain so high?

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However, with people thinking that way, with the love of good property news, the negative gearing people love here (where rental income doesn't cover the mortgage interest cost, so the government give you tax back), property being desperately bought as an urgent investment to make money rather than to live in (and the willingness of youngsters to live with parents so they can invest in property instead) and the constant news of property shortages, then I can't imagine it dropping any time soon. Maybe 1-2% sometimes, but no big drops.

 

 

 

I think you're right here. People love investing in property and the negative gearing tax breaks only exacerbate this. The only thing that will break the Aussie love affair with property is a restriction in credit so that people can't get on the market even though they want to.

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Guest RichB

Australia is definately not immune from what is going on in the rest of the world and there is going to be alot of pain in Australia when the government does eventually pull the plug on negative gearing as they tighten the screws on the middle class and interest rates soar in the future...These people with huge mortgages are crazy.....and will regret investing in property as I dont believe property prices will recover to what they ever were in the past...

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I dont' think any government would pull the plug on negative gearing here. It would be political suicide.

 

Interest rates going up is a different story though. The RBA is mandated to keep inflation in check so they'll have to up the interest rates soon and that will plunge the majority of the economy (non-mining) into recession. Add to that a few distressed property sales and it could snowball into a housing crash. I think it's unlikely though. I'm hoping houses become more affordable through steady easing of prices and/or not keeping up with inflation. A crash would kill the whole economy and if that happened I'd be more worried about staying in work than buying a roof over my head!

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The cost of negative gearing has risen dramatically over the last decade. The Unconventional Economist blog cited figures that the net income from rental properties fell from $219 million in the 1999 - 2000 tax year to a loss of $8,628 million in 2007 to 2008.

 

Figures for the actual cost to the Treasury of negative gearing and other investor incentives range from $2.5 billion to $8.2 billion. (Though some figures seem to be the size of the losses, whereas others are the loss in tax.)

 

That said, I think that anyone buying a negatively geared rental property yielding 3% is colossally stupid. Given interest rates of 7% (and possibly rising), property would need to rise ahead of wages to return a positive yield.

 

Given that Australian property is regarded as being incredibly expensive, and long term studies of price movements (the Herengracht Index, Robert Schiller's work in the States) show that over the long term they track incomes closely, this strikes me as taking a losing bet. But then again people really don't grasp the implications of compound growth.

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