Sorry to have to disappoint you, but it looks like I may be one of those who will again be buying soon.
I spent yesterday travelling around the Eastern suburbs researching another property prospect, having earlier spent Sunday going through Essendon. And today, I spent some time in the West, and down Geelong way, doing much the same thing.
Currently, my thinking is leaning towards Blackburn or Mitcham, and towards Essendon (here, I already have the prospect in sight).
Whilst I am in no particular hurry to buy, people will know through my previous postings on HC that I go through extensive due diligence before settling on a new property purchase. This extends equally to capital and demographic growth potential, as well as local infrastructure development, support and access. Rental trends are also important to me because, unless I can achieve parity, I will simply pass the property over.
As for the Four Corners programme, I did not see this (for obvious reasons), but since returning home, I have read the transcript. On my reading, there was nothing new in the programme which was not self evident 4 -5 years ago. Indeed, ~3 years ago, I talked my P.A. out of attending one such seminar (focusing on the Gold Coast).
As for the state of the property market, I will continue with my previous thesis that property investment is not meant to be for the fainthearted.
The speculative behaviour of many has (quite obviously) been driven by such get rich quick schemes as buying off the plan, taking deferred settlements (of 18 months or more) on new multi-storey complexes, buying on the strength of one's home equity (whilst lacking a matching income profile), buying on the speculative spur (ie: in haste), and buying without either understanding what you are doing, or without first researching the prospect.
Stories now abound of those people who, in recent years, have bought quickly in anticipation of never having to settle on the property before on-selling to someone else, for a quick gain.
For those who know me, and have read my postings concerning property over time, I remain a supportive advocate of property. I am, however, also a strong advocate of the argument that home ownership rates in Australia have now peaked, and that further demographic changes into the future will hasten in the European style of urban rentals.
In September last year, UBS Warburg published a major thesis on the over-valued property sector. Back then, UBS was arguing that the property market was poised to fall by anything up to 40%, going forward, and that the next property boom would not happen before 2010.
In a very recent update to that thesis, however, UBS Warburg has changed its tune and is now arguing that "fair value" for property will be achieved with only a 2% fall in median property values.
Part of UBS's change of argument has had much to do with the continuing resilience of the Australian economy in the 6 months since last September. It has also had something to do with the moderation in property price increases that was particularly evident in Melbourne during Q4, 2002, and which has continued into Q1, 2003 and now, into Q2, 2003.
Far from there being a universal property slump, the collective institutional thinking is now turning to property values consolidating around current levels, before resuming an ongoing increase, albeit at a slower rate of growth than what was previously evident.
However, with the RBA's policy being to return official rates to neutral to positive (ie: 5.75% neutral, to 6.5% upward bias) over the next 12 -18 months), there are clear marginal risks out there for those in property.
When official rates again start rising (and quite soon, they will be, with both headline inflation tomorrow expected to exceed 3%, and with core inflation exceeding 2.5%), the risk will be first felt by those who are already over-committed, are operating on extended lines of credit, or who have already fully mortgaged their homes in order to support or promote their lifestyle choices.
Many of these people are recent arrivals in such suburbs as Canterbury, Camberwell, Balwyn, Toorak, Hawthorn, etc.
In many respects, they have already paid for their location, and lifestyle choice, as well as for the continuation of that lifestyle choice. Going forward, they risk seeing their property values fall in the event of a slump occurring.
A similar situation to this is also likely to occur in all of those new suburb developments which have been promoted by the developers in recent years (ie: Caroline Springs, Roxburgh Park, etc). In the face of an upward shift in official rates, these people will see their property values hurt.
More significantly, however, inner CBD unit prices will be cyclically affected, regardless of whether official rates rise. This is because of the sheer volume of new developments which are currently nearing fruition, or are coming on stream. Rentals, in these circumstances, will not be the answer, as inner city development still lacks one considerable focus - namely, the suburban shopping interface (ie: supermarkets, the corner shop, the local chemist, school facilities, ease and maintenance of transportation access, the local petrol station, etc).
Inner city development has generally outstripped the ability of supporting facilities to either catch up, or match, to the emerging demand for those facilities. But, rather than those facilities being built, the cost of commercial rentals in the inner CBD remains such that these facilities will generally not be put in place. In other words, far from supply following demand, supply will largely remain transfixed, meaning that demand will have to travel to the supply in order to shop.
The likelihood, therefore, is quite high that inner CBD owner /renters will end up travelling back out to the suburbs in order to do their regular shopping (ie: supermarkets, etc).
Whilst the CBD will support entertainment, dining, and amusement choices, it will not replicate the regular shopping routine (unless, of course, you are will to pay 7-11 prices for basic shopping needs).
This suggests either that the CBD property market is poised for eventual collapse, or at least a period of lasting stagnation. The only limiting factor here will be the extent to which R-commuters will come into vogue (ie: those with a large outer suburban property in places such as Park Orchards, Wonga Park, etc, and with an inner city smallish unit, to transit through whilst working in the CBD).
Beyond the CBD, multi-rise apartment complexes are also at risk, particularly where large scale supply is involved. Areas of partiuclar focus here include Chapel Street in South Yarra, St Kilda Road, and (more broadly) St Kilda.
In due course, prices in these areas will be influenced by pure supply and demand factors, but again the demographic focus here remains on the sub-30, single demographic unit who is meant to be upwardly mobile, professionally chic, and well endowed in earnings potential. However, many of these same people will increasingly find it difficult to balance location, lifestyle choice and financial commitment (whether based on rental, or ownership). And, yet, many of the apartment complexes in these areas are so small that they cannot comfortably accommodate 2 singles, or a couple, in the same unit (and that's before you consider the single car space, assuming that there is one).
Many of these apartment complexes are, therefore, poorly designed as they have catered to a transient demographic (ie: single, and alone), as opposed to a flexible demographic (ie: single, couple, sharing, etc). Sure enough, fewer women may be having children, but more people are coupling together in relationships (even if they are not long lasting). The failure of complex developers to truly cater for this has created a future risk of stagnant property change in many of the newer apartment complexes. Simply put, prices here could well fall 10 -20% over their Q4, 2002 values during the next 3 -5 years.
The next risk is with coastal properties where there has been nothing less than a mega-boom over the last 3+ years. Properties that, in 1999, were selling for $150K in places like Angelsea, or Torquay, are now selling for above $450K.
The affordable coastal holiday home is now almost a thing of the past, as the cost now generally exceeds by a factor of 20 -50%, the median Melbourne housing price. And this is generally for a property which will be occupie for 3 -4 weeks a year, and probably for a weekend per month.
Of course, the panacea here is for these holiday homes to be rented out, but even there the demand for such properties is not all that great, and the taxman is not generally supportive of accommodating fullyear deductions on partially let properties.
All things considered, the coastal property boom has peaked, and evidence of this is just starting to emerge (including in several property auctions over the Easter weekend).
Whilst I am still to post a detailed analysis of the current property situation, I thought that the above would serve equally as a current narration of what I am seeing happening out there.
Good prospects will continue to emerge (in boom times, or in slump). But like with all choices, they require extensive, continuing, and detailed due diligence.
As I said at the outset, it looks like that I may well be buying again soon (whether in 3, 6 or 9 months time). But, then again, if the market does happen to crash at any time, I will (instead of buying 1 property) be buying 3 -4 properties. As previously stated on this forum, my investment horizon spans 20+ years, and will continue to do so.
