To all those property bulls, I was once one of you.Watching...

To all those property bulls, I was once one of you.

Watching property rise so strongly over the early 2000s one couldn't help but get wrapped up in the idea that property is a fantastic investment vehicle (which it has been in times past and in some circumstances). After seeing family do well with property from around 1999 I got excited about the money I would make with property when I was finally old enough and had an income to invest in it. I graduated from High School in 2001 and got a job at McDonald's the next year, worked my way up to store management and in 2003 started looking into what sort of property I could buy.

In 2003 I was living in Findon so looked closeby and found units around the $100-130k mark in Noble St, I spoke to a broker but with little deposit and 100% loans not easily available at that time (as I recall it) I was priced out. Looking now those units sell for around $200k, so a shame I couldn't afford one at the time.

Fast forward a few years to 2006, a couple of job upgrades later, $25k in our savings account my fiance and I started looking at properties. Still seemed to make sense around this time, repayments would be a little more than renting the equivalent property, but not much more. In late 2006 we bought a property in St Marys, SA. We bought a subdivideable block as the intention was to live in the property for a few years (as our PPOR) and then knock down and rebuild turning the property into an investment as we upgraded to something else.

In early 2007 I started looking for an investment property, at this stage it was still relatively easy to find properties that were close to neutrally geared (with IO loan repayments, even with a 100% loan). Made offers on a couple but missed out. By mid 2007 prices were making less and less sense. We saw around a 20% increase in prices in Adelaide that year and over 30% in the suburbs I'd been making offers in earlier in the year. In retrospect I should have just paid asking price at the time...

2008, started to lose interest in property as it didn't make sense to me to have to spend money for the upkeep of an investment (e.g. pay out a lot more than it brings in), prices started to dip which made sense, I was expecting some small drops...but was still pro-property and posted as such on a couple of bear house price forums. Perhaps not as an investment, but there were still properties in Adelaide that would have been ok to buy as a PPOR in select areas...

2009, FHOG boost was in full swing, the property bull was back on, everyone talking about it, everyone buying it. I didn't buy the story and in mid to late 2009 it was becoming obvious that all these property newbs (FHBs) were being fleeced. They borrowed with record LVRs, in record numbers, with a record loan size (both nominal figure and in comparison against non-FHBs), it was like lambs to the slaughter. I looked past the news.com.au figures and started looking at the real numbers, realising this sort of growth cannot be sustainable.

In November 2009 I started to become rather bearish on property and suggested to my fiance that we sell our house and rent. We had agents out within days, the property advertised within a week and sold within two weeks for an amount a little above what equivalent properties had been selling for at the time (so satisfied with the price). It settled in January 2010 and we are now happily renting for a lot less than we were paying on the mortgage.

There is no moral to this story, it is simply an anecdotal story much like many other posts in this forum.

My advice though is that if you are new to property, do lots of research, look into whether the prices are sustainable with rates rising & LVRs dropping...it's probably not going to hurt you to wait another 6 months and see what the full result of the FHOG boost removal is...to see how much rates rise...to save a bit of extra cash so you can pay a larger deposit and less LMI. At the moment as I see it there is more risk to the downside than the upside, of course anyone can be wrong. Look at the facts and make your own decision.

In my opinion the only thing that could drive prices up from here is:

- Increased levels of overseas buying - But how can you measure this? I refuse to invest in something because an outside influence *might* be having an effect. Unless it's measurable you are gambling if you rely on these buyers to move prices north.

- Re-introduction of further housing incentives - Either in the form of another FHB boost or investor tax breaks, etc. At the very least it would be prudent for investors to wait for the Henry Tax Review before buying this year