I am waiting for a 1991 correction in Residential Prop and have...

I am waiting for a 1991 correction in Residential Prop and have my Deposit tooling along at 7.5%. Many people i speak to are agast at this stratergy and I must admit over the past 6 - 12 its been expensive, yet,
1. I am not paying 2500 - 3000 per month on the ave mortgage and I am carrying minimal debt.

2. People have a collective myopia when you discuss housing prices in Sydney. Its either low to medium growth this year and higher growth of 15% next year.
The equate to the ave Syd Prop Value $450,000 groing by $45,000 this year and a combined $119,250 over the next two years.This values the ave house in 2005 at $569,250 now market forces ( Supply v Demand ) would see that their are a finite number of buyers at the 570 - 600 level and that as wages are not accelerating at the same rate a crunch will hit. That is the market for props at this level will be full and over committers whom have to sell will take a hit on values to sell. ( We started to see this at Xmas. )

The other alternative view is the famous plateau theory in that as we have entered the market the price stays flat for a number of years - isnt capital growth however, the key reason for investing in residential property ?

I am predicting a flat year this year and a down turn next year. Particularly as their are thousands of crappy investment units ( Meriton NSW and Docklands in Melb ) that will be despirate to fill the units with any tennents. ( Bike gangs included.)
This will have the effect of a call on the pricipla residence to fund the lack of income from the homeowners property using the valuation equity and not cash from the investor. - Welcome to the UK model.

( Dont get me started on these morons who are using their equity incease to buy Boats and 4X4's these people are setting themselves up for bankruptcy very nicely.)

So, the current investor rental return based on income vs asset is around 3% - I made 7.5% last year in Property fund and you would have made around the same in fixed interest. Hell, even ING is paying 4.75% at call.

People had the same Myopia in the TECH boom remember ?

I may just wait and see.

Singas

Always seek advice from a Financial Adviser and Tax specialist prior to any investment decision - Read the red.