property prices slide by david and libby koch

http://www.adelaidenow.com.au/money/david-libby-koch-property-slide-is-on/story-fn7kiwa4-1226052283453



David & Libby Koch: Property slide is on
David Koch and Libby Koch From: The Daily Telegraph May 09, 2011 7:49AM 1 commentIncrease Text Size Decrease Text Size Print Email Share Add to Digg Add to del.icio.us Add to Facebook Add to Kwoff Add to Myspace Add to Newsvine What are these? SUCCESSFUL wealth management isn't just about taking advantage of immediate opportunities. It's also about understanding developing investment trends, which could take years, and working out a strategy to deal with them.

It may be building a position to ride the trend or it could be positioning yourself to avoid any related damage.

Identifying those longer-term trends requires an understanding of the investment cycle and its current stage.

We regularly assess these long-term trends because it's vital to get a big-picture view.

Property is a classic example. Recent independent data shows property values are dropping across the country, ranging from a slight easing in some areas to a major crash in places such as the Gold Coast.

We've been cautioning people about residential property for nearly three years and were regularly castigated for scaremongering because, back then, property was booming.

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The Daily Telegraph, 27 Feb 2011End of sidebar. Return to start of sidebar.
Here's a summary of snippets from past columns that highlights our views.

October 2008: It is very unlikely the Australian residential property market will plunge anywhere near the level of the US but bank finance tightening will have an impact on residential property values. It is simple investment fundamentals.

May 2009: The facts of life are that property does rise and fall in value. Like every other investment, residential property moves in a cycle.

August 2009: You don't want to be a forced seller. Any downturn won't be immediate but it is time to prepare for tough times ahead by increasing your home equity.

June 2010: We've been a little concerned about our property market, and how it seems to have skipped a much-needed correction which the rest of the world has gone through the bubble deflating. By how much depends on which of the markets you are talking about.

November 2010: Sales success in the property market has reverted back to classic investment fundamentals. Price the product to meet the market and it will sell.

The property downturn is just beginning. Over the past three years we've been suggesting readers direct spare cash towards paying down their mortgage and thereby increasing their home equity. The fear has always been that when times are tough in property, banks tighten their lending criteria and target borrowers who are highly geared.

There's nothing more frightening than being a forced seller in a falling property market.

Those of you who have heeded that advice should be well-positioned to ride the slide.

Every boom is followed by a bust and every bust is followed by a recovery.

The property downturn will end eventually. It's just a matter of timing. But given present conditions, any pick-up will be a long way off.

There are several factors working against a recovery in residential property values:

* Banks continue tight lending policies which is demanding higher deposits and lower repayment to income ratios.

* Clearance rates remain low which means there is a continuing build-up in stock. The time it takes to sell a property has lengthened considerably which means, for example, property which didn't sell last spring is more than likely hanging around this autumn.

* Sellers of old stock get desperate and slash their prices, which then puts downward pressure on the value of new stock coming on the market.

* The dramatic fall in skilled migration numbers means there are fewer potential new buyers in the market.

* Expat Australians who were buying up big when the Australian dollar was weak are now selling up big time to cash in on the higher dollar. They take the money back to where they live now as it goes a lot further.

* The two-speed economy means there are significant parts of the economy doing it tough and putting people and business under financial stress.

This last point is probably the most significant.

Last week the Reserve Bank commented that the Australian economy could have contracted in the March quarter while ANZ boss Mike Smith said the level of financial hardship in parts of the economy was not being recognised enough.

Property is being caught in a pincer movement from many factors. Three years ago we were cautious and we still are.