Recall that rather than just looking at dwelling values, I prefer to look to the fineprint of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

February 2020

January 2020

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

It’s nearly a sea of green, which can only mean one thing… property prices are up and investors are happy.

Indeed, following on from my comments about debt bubbles, lending across the board is up, including to investors where the decline seems to have well and truly reversed.

The price recovery party should continue for the foreseeable future, notwithstanding extra volatility from the corona virus, because easy finance and low interest rates have the effect of inflating values.

However the time will come when the debt binge of today will need to be repaid. I suspect this will be when unemployment and interest rates start to rise, or if there is panic selling because of other events and people want to dump assets at any price. When that day comes, property prices will fall – hard and fast.

The post Market Update – March 2020 appeared first on PropertyInvesting.com.

Except of course, what we are currently facing is nothing like a plague nor a flu epidemic.

But don’t let the truth get in the way of hype. May the Lord protect anyone who needs toilet paper or bottled water in a hurry right now – the stores are sold out because of sudden panic buying.

Okay, I can sort of understand stocking up for essentials in case of an enforced 14-day self-quarantine period… but bottled water? This isn’t a cyclone where we need to be concerned that our water (renowned as being amongst the cleanest in the world) might get contaminated.

Sure, it’s wise to be informed and to take precautions. And if this virus mutates into something nastier, then it will truly be something to get worried about. But do we all need to rush out and buy a year’s supply of toilet paper? Surely not.

Now, while I’m concerned about the coronavirus, I am actually afraid of bubbles.

No, not the bath variety, but rather the asset and debt varieties.

Have you noticed the recent huge fluctuations on financial markets? The astounding rises, and falls, on world stockmarkets as people lurch from fear to greed and back again? This volatility scares me because if people act irrationally and stockpile toilet paper, how might they react when it comes to their financial nest eggs?

Recall the wisdom shared in the movie Men In Black (seriously!):

A person is smart. People are dumb, panicky dangerous animals and you know it.

Without wanting to be a false financial Cassandra, my ‘spider sense’ is tingling.

Did you know that US consumers are in more debt now than they were in the GFC? It’s true. They currently owe about US$14 trillion. That’s US$14,000,000,000,000 (see: https://www.debt.org/faqs/americans-in-debt/)

And corporates owe nearly as much again. Quoting from Forbes (emphasis added):

U.S. non-financial corporate debt of large companies now stands at about $10 trillion dollars, 48% of GDP. This represents a rise of 52% from its last peak the third quarter of 2008, when corporate debt was at $6.6 trillion, about 44% of 2008 GDP.

And the US government? The highest it has ever been. US$22trillion increasing day by day.

Perhaps you think things will be different here Australia. No. Here in the land of Oz we’re price takers, and so what happens on world markets will most certainly happen here.

So when you read that the solution to firing up the economy is to reduce interest rates to encourage people to borrow more and spend, you should be afraid. Very afraid. Not so much about the coronavirus, but about the crippling debt bubble that is inflating before our eyes that must certainly, eventually, pop. And when it does, the economic pain and associated social upheaval will be much, much worse than anything in living memory – even the GFC.

What should be our response? Well, so long as interest rates remain low it’s likely that asset values will continue to rise as cheap and easy money looks for opportunities to multiply (see my commentary on the latest property data here). As it does, the value proposition of assets will begin to look absurd, but people will invent excuses as reasons to justify why things are they way they are, and why prices must continue to rise.

Think tulips, or Internet stocks, or commercial real estate where right now average grade commercial property in Australia is selling at 6% returns. High grade on long leases is 4% to 5%.  Junk is 8%. This is just way too low (truly, historic lows not ever seen before) for the risk involved, but cheap interest rates make the returns enticing nonetheless, especially when you compare to residential where the leverage returns are mostly negative.

Honestly, it’s not fun being the only sober one at a party… until the following morning when everyone except you has a horrible hangover and a humongous headache. Think about it… how much lower can interest rates and unemployment go? Sooner or later the benefit from both must be fully realised, so without increases in income (not likely as wage growth is low), what will drive prices higher? Possibly innovation in debt products (think Afterpay for property), but aside from that, I’m not sure.

That’s tomorrow though. Viva La Vida! Let’s tap open another debt keg – or two, turn the music up louder and start dancing on the tables. Bottoms up!

To wrap up then… Friends, sober won’t necessarily make you popular when everyone else is acting irrationally. But it will keep you safe, and it will help you make smart and sound financial decisions (and especially help you not to make stupid choices that drunk people make so willingly but regret so readily later). Sober right now means having a realistic strategy, and following it, without getting caught up in the hype.

If you want to hoard anything right now, cash is surely a better option than toilet paper. One can buy the other, and can also be used to purchase assets that may become available if values slip irrationally lower should panic selling set in. The other can only be used one way, and then flushed forever.

What do you think? Share your thoughts below.

The post Why I’m Afraid Of Bubbles appeared first on PropertyInvesting.com.

Recall that rather than just looking at dwelling values, I prefer to look to the fine print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

December 2019

November 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

Once again Sydney and Melbourne led the pack, although the rate of growth declined in December. That is not surprising though, as real estate usually takes a back seat to Christmas parties and family festivities as December rolls on.

Annually, Sydney was the best performing market, and Darwin the worst. Perth was the worst performing of the major capital cities, although the rate of decline slowed and we might be at, near, or just past the bottom… I’ll be watching the January and February data for Perth with interest.

The economic effect of the bushfires is that there is generally an initial shock, followed by a grieving and planning period, and then a few years later, a substantial boost as roads, houses, schools etc. are rebuilt.

So looking to 2020, the main thrust should again come from Sydney and Melbourne, with moderate gains in Canberra, Brisbane and Adelaide, here or there in Hobart, and declines in Darwin. I hope to offer a more comprehensive market update in March once some 2020 economic data has been released.

The post Market Update – January 2020 appeared first on PropertyInvesting.com.

At the time of writing there is a large bush fire about 300m from my northern fence line, but thankfully it is heading away from my property. That said, a small wind change and everything is on the line. It is a scary, anxious time.

Normally a catastrophe such as humongous deadly bush fires would bring the whole country together. In some respects it has… generous donations of clothing, food and water, and money. Yet reading social media posts, there is also a worrying amount of division about the cause of these fires, and what we should do once they’ve been extinguished.

Here’s what I know….

What Caused The Fires?

These fires were started as a result of nature (e.g. lightning strikes), and/or human intervention (e.g. cigarettes tossed out of windows, arsonists, back burning gone wrong, power line failures, etc.).

Why Are These Fires Particularly Bad?

Bush fires are a part of life in Australia. Our forests even depend on fire for survival. So why are these fires even worse than normal? Despite what some people claim, the answer is not singularly a lack of back burning (i.e. fuel reduction). The land around my property has been substantially cleared for grazing, yet there is a threat to my property without trees, or built up fuel.

The answer is a combination of the following: extremely dry conditions (we had 2mm of rain in Omeo in Dec 19, compared with 40mm in Dec 2018), extremely low air humidity, and under-resourcing of key staff and boots on the ground workers by successive state and federal governments over many years.

It’s a simple fact that starting with Jeff Kennett in the 1990s, in Victoria there has been a dramatic reduction in the number of staff overseeing and managing the state forests. In 2019 Daniel Andrews made a budget conscious decision to delay the arrival of fire fighting aircraft. The federal government under funded fire fighting equipment, blaming it as a state issue. And on it goes… Governments were too worried about surpluses, and not worried enough about safety.

Are We To Blame?

What’s caused the climate to change? A shift in the earth’s tilt? Solar flares? ScoMo? Trump?

Why is it so hard for us to wholeheartedly agree that cutting down a few trees will cause soil erosion, raise problems with salinity and destroy habitat and environment for wildlife, yet believe we can cut down a billion trees and it won’t impact our planet, or our homes?

Or how can we know that burning plastic in backyard incinerators (as was customary in the 1970’s, but now outlawed!) and releasing clouds of toxic black smoke was a bad outcome, but we look away at the trillions of tonnes of black smoke we happily emit by burning fossil fuels under the name of progress?

Hello! It’s cause and effect. Not effect and cause.

The chemistry is undisputed and pretty straightforward. The carbon that is stored in trees, coal (i.e. fossil fuels), etc. changes from a solid to a gas when it is burned. This chemical reaction will result in change. Enough change, and the consequences become bigger and more evident.

Think CFCs… back in the 1980s, when the ozone layer was wasting away, we identified CFCs as the problem and eventually banned them worldwide. In the beginning though, there were deniers, sceptics, industry with vested interest because it was cheaper to use CFCs than alternatives, etc. etc. In the end though, we finally got moving on a global scale and a few decades later the ozone layer is regenerating.

History repeats, this time its carbon dioxide…

Now I don’t know for certain if the way we use and manage our natural resources has been the entire cause, but surely 200 years of systemic human induced chemical reactions will impact our environment.

Yes, yes, yes… it has been hotter, colder, wetter, drier, etc. in ages past. But the rate of change was previously over eons, not decades, years or months. In NSW, there was snow in early December, and devastating fires too.  Think of it this way… we’ve hit the ‘environmental’ beehive with a stick, and are now wondering why the buzzing has increased.

What about the argument that what we do in Australia doesn’t matter? True! It probably doesn’t on a world scale, but just because all your friends are high on emitting carbon doesn’t mean you shouldn’t try to get clean and sober. Maybe our actions can encourage them to lift their game too.

So, What Should We Do?

It won’t be easy. Or simple. And it will take time because we’re used to our convenient standard of living in Australia, but can we afford to do nothing?  Is this a risk we’re willing to take? Have your say by leaving a comment below.

The post Drought, fires and ScoMo… appeared first on PropertyInvesting.com.

Here’s the latest summary of price trends around the country based on Core Logic’s latest housing price index data. I’ve also included August as I had missed last month.

Recall that rather than just looking at dwelling values, I prefer to look to the fine print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

Results Summary

Best market for the month: Melbourne
Best market for the quarter: Melbourne
Best market for the year to date: Canberra
Best market for the year to September: Hobart & Canberra

Worst market for the month: Perth
Worst market for the quarter: Perth
Worst market for the year to date: Darwin
Worst market for the year to September: Darwin

Interpretation

A Steveism to remember is “you’ll see it on the street, before you see it in the stats.”

This is because it takes time to collate statistics, whereas the market momentum is dynamic and can be felt a lot quicker.

Looking at the results for October, the ‘stats’ and starting to vindicate the feeling on the ‘street’ – that a significant recovery is now underway in Sydney and Melbourne, rippling out across the country, except for Perth which continues to decline albeit at a slower pace.

We’re on track for the annual result for Sydney, Melbourne, Brisbane and Adelaide to be more or less break even by the end of the year, which is a big improvement on how things looked in August. Only Perth and Darwin look to remain in the doldrums.

With low interest rates set to continue for the foreseeable future, and with lending gradually (and I mean gradually) becoming more fluid and easier to access, there is some enough momentum to carry a positive property sentiment into 2020 meaning that the property market outlook is definitely now ‘a glass half full’.

Stats

October 2019

September 2019

August 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

The post Market Update – November 2019 appeared first on PropertyInvesting.com.

The idea of people ‘following’ her must, logically, make Kim a leader. I wonder… does she, or anyone else, know where they’re being led? Does anyone care?

Right from an early school age we want to be popular, or at least ‘in’ with the popular group. It’s part of our desire to belong; part of peer group pressure to conform and not be different.

Yet popularity is fickle. It’s here today, gone tomorrow. It’s desirable, but it lacks substance.

Investments can be popular too. Flavour of the month. A trend or fad. One such fad that comes to mind is Student Accommodation. A decade ago it was the ‘investment du jour’. It’s now looking shaky as more and more campuses invest in ‘on site accommodation’ to unlock new streams of income as margins are squeezed on tuition. Another example is retail shops, once the darling of commercial real estate back when people went out to shop, but these are now very much ‘out of favour’ – struggling to keep tenancies in the face of the online revolution.

Investors who lack skill or knowledge often target ‘popular’ investments, or areas, believing what’s popular will be a backstop to their investment’s success. However, popularity usually comes with a purchase price premium, and the risk is that if (indeed, when?) the trend changes (such as a tenant moving out, the fad ends, etc.) then the investor will have to offer a discount to exit.

Instead of popularity, investors would be much smarter to focus on purpose – a compelling reason for acting to achieve a desired outcome. For instance, I prefer to target investments currently ‘out of favour’, with a view of letting time and/or strategy ‘fix’ them.

For example, I have just bought an investment property located near a major private hospital where the current tenant – a gym – will do for now, but where my vision for the property is to re-purpose it to become attractive for ancillary medical purposes that will attract a higher rent and sell on a lower yield (thus increasing the capital value). Can you see how I am buying what’s ‘unpopular’ but executing a purposeful strategy to make a profit?

Indeed, buying unpopular properties (or problems, as I call them), and knowing how to cost effectively ‘fix’ them is a literal licence to print money: so long as you can find problems and fix them, you’ll make money.

In summary, beware ‘Kim’ properties – deals that might look good and attract attention, but that lack substance. Instead, invest with purpose, targeting properties where you can add value by applying strategy, or are out of favour today, but will be in fashion tomorrow.

The post Purpose vs. Popularity appeared first on PropertyInvesting.com.

Recall that rather than just looking at dwelling values, I prefer to look to the fine-print of the data to see what’s happening to house prices, given they’re the biggest component of what’s driving property prices.

August 2019

July 2019

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, and ↓ represents a deterioration from the last month’s results.

Interpretation

There is a little more green, and a little less red this month, revealing that a weak to moderate real estate revival seems to be underway in Sydney, Melbourne, Hobart and Canberra.

A narrative that supports this view is that buyers have been enticed to enter the market buoyed by cheaper interest rates, while sellers are still holding back and waiting for better prices. Hence the lack of stock available for sale is causing buyers to become more aggressive and pushing prices up… for some properties in some suburbs.

Darwin is still in the grips of a severe real estate downturn, while there are still no clear green signs of a market bottom in Perth. Brisbane and Adelaide seem to be losing a little bit of momentum.

The post Property Market Update – 6 September 2019 appeared first on PropertyInvesting.com.

It’s working on the cash register at the local greengrocer. It’s a pretty good gig, and she’s enjoying earning money that she is saving to pay for an overseas trip she wants to go on.

The other night over dinner, I asked Cassie “Do you think people tend to do the minimum because they get paid the minimum, or do you think people who get paid the minimum tend to do the minimum?”

Looking at me as though I was making no sense, she replied “No idea, Dad.”

“Well”, I said “What should people do if they want to get paid more?”

“Do more?” Cassie mused.

“Well said! One final question… what comes first, the effort or the pay?”

“Probably the effort.”

“Interesting. So thinking about you here, if you want to earn more so you can have more money for your trip, I wonder… what extra work, or respectful ideas for improvement could contribute to show your boss that you want to do more than the minimum?”

The same teaching point can be applied to real estate investing. That is, people who do the minimum, tend to get the minimum.

Said differently, an investing law I’ve found to be proven right true and time again is that investing output (i.e. profit made), is commensurate with investing input (i.e. time, effort and skill contributed).

If you want more than the minimum, you first
have to contribute more time, effort and/or skill.

The only other option is to rely on luck and reap where you haven’t sown (i.e. garner a full time reward for a part-time effort), and while you might get lucky from time to time, no one I’ve ever met is able to claim they are consistently and reliably lucky.

The better saying is that ‘you make your own luck’, and as professional golfer Gary Player once remarked “the harder I practice, the luckier I get.”

As a reliable precursor to improving your profitability, what can you do to improve the quality or quantity of your investing inputs? That is, how can you:

1. Increase the amount of time you allocate to your investing
2. Improve the focus and veracity of your effort, and/or
3. Seek further training to improve your investing skills

Asking and answering these questions will help you achieve sustained investing success.

The post Theory: A Valuable Life Lesson appeared first on PropertyInvesting.com.

In any event, the Aussie real estate market continues to show signs of improvement in the sense that the decline is slowing in most capital cities. Auction clearance rates in Sydney and Melbourne have firmed, and housing lending is marginally better than it has been (although still underwhelming). Spring is only a few weeks away and everyone is holding their breath to see whether lower interest rates will stimulate some action, or whether global economic uncertainty will cause listing numbers and dwelling prices to remain in a monetary malaise.

I’ve now updated the capital city table based on Core Logics latest housing price index data.

Recall that rather than just looking at dwelling values, I prefer to look to the fineprint of the data to see what’s happening to house prices given they’re the biggest component to what’s driving property prices.

July 2019

June 2019 (base month)

Source: CoreLogic Home Price Value Index Tables (www.CoreLogic.com.au)

Note:
Red indicates a negative value, green indicates a positive value and white is neutral.

↑ represents an improvement, ↓ represents a deterioration from the last month.

Interpretation

You can definitely see a little more green in July than was the case in June. Indeed, every capital city recorded an improved result over the previous month, indicating either price growth or a slower price decline.

Sydney, Melbourne and Brisbane (and surprisingly Darwin) recorded an improvement in every period providing some tangible evidence that there has been a market bottom, and a subsequent attempt at a bounce. Only time will tell if it is a temporary or cyclical bottom, or indeed the start of a new rise in values.

Elsewhere looks patchy, with a decline still happening in Perth, but at a slower rate. Meanwhile Hobart looks to be approaching, or at, the top of its price cycle.

Spring, just a few weeks away, is typically peak season for real estate transactions in Australia and will be a major test to see how the real estate market holds up.

The post Property Market Update – 8 August 2019 appeared first on PropertyInvesting.com.

It probably goes without saying, but every property investment you plan to purchase should be profitable. Yet a recent press release noted that 12% of all Australian properties were sold at a loss (and as many as 40% in Darwin!). How can this be?

Well, I believe many investors make a loss simply because they don’t have a plan to make a profit. That is, they buy something and hope it will be profitable, rather than having a profit goal and then buying a property that will be best placed to provide it.

I’ve done up a little flow diagram for you that reveals the different kinds of profit that an investment can make.

Starting at the ‘Profit’ rectangle at the top, there are only two types of profit that an investment can produce: realised and unrealised.

For a profit to become real (i.e. ‘real’ised) it has to hit your bank account. Otherwise any gain remains ‘unreal’ised and only exits in theory and on paper.

Consider capital appreciation. While the property is owned, what it might be worth is anyone’s guess at best, so the profit is an opinion and only exists ‘on paper’ (hence the arrow pointing down to the ‘Paper’ rectangle).

Consider Anne. Using simple numbers, she bought an investment property for $520,000 and she thinks it is now worth $600,000. She therefore thinks she is sitting on $80,000 of capital gain. She won’t know for sure though until the property is sold, so for the moment it exists only in her mind, or on paper, and hence is not real nor taxable. Even if Anne had a sworn valuation for $600,000, the profit will still only be an unrealised best guess.

For Anne’s gain to become real the property would need to be sold. For instance, if she sold it for $600,000 then she would now have ‘real’ised her gain, and on closing the amount would be able to be banked.

(Of course, in real life Anne’s actual gain would need to be adjusted for purchase and sale costs, taxes, etc.)

Why is all of this theory important? Well, because different properties will return different types and amounts of profit, and the right property for you is the one that is likely to give you the highest likelihood of delivering the type of profit you desire, in a quantity that is sufficient for your needs, that will be realised in a manner that is in harmony with your broader tax planning goals.

That is, you don’t just want any type of profit, you want a specific profit – and hence you need to make a plan to accomplish it, otherwise you’ll get what you get and you might get upset!

For example, you might say that you want to purchase a property that will provide an unrealised profit (from capital appreciation) of $200,000. Great! The next question is ‘how’ will that happen. That is, what property will do this, and on what basis? Answering those questions will begin to help you scope out what kind of property and location you should focus on.

The alternative is to buy a property and hope it delivers an acceptable profit. This isn’t what I call investing though – it’s speculating, or gambling, which is unnecessarily risky.

Now, let’s talk about losses for a moment. The same flow diagram as provided above for profits also holds true for losses. That is, a loss can be unrealised or realised, and a realised loss can be a lump sum amount (i.e. cash), or it can be periodic (i.e. cash flow).

Consider Colin. He has an investment property that has monthly expenses of $500, and monthly rent of $400. He therefore makes a monthly cashflow loss of $100. Colin doesn’t mind though, because he is hoping to make an unrealised capital gain via capital appreciation of $250 a month, thereby leaving him better off overall by $150 per month, plus he can use the realised loss to reduce his income tax burden. This is the classic ‘negative gearing’ situation.

Colin’s strategy will be effective if he achieves the expected capital appreciation. If he doesn’t then he might suffer the double whammy of owning a property that loses money both ways – cash and cashflow.

Take a moment and answer these questions:

1. Do you want your investment to make a profit or a loss?
   
   
2. Do you want that profit to be realised or unrealised (if unrealised, when do you want it to become realised)?
   
   
3. If realised, are you aiming for a cash or cashflow profit (or both)?
   
   
4. How much profit do you want, and how do you wish to receive it (in cash i.e. a lump sum, or cashflow, i.e. in periodic amounts)?

As I’ve said, once you have answers to these four questions then you have the beginnings of a plan for what sort of property would be suitable (and indeed not suitable) for you to purchase.

The post Theory: Taking A Closer Look At Profit appeared first on PropertyInvesting.com.