I have discovered during my life time that the most powerful way to learn anything is to experience it for myself. I found that a textbook or explanation was never as good as a practical demonstration, preferably with me involved in the activity.
As a teenager, I had decided to become a mining engineer – this was the highest paying job I could find in the newspaper when I was a kid at school. Since I wanted to be rich I knew I would need the most money I could earn, so that I could begin to invest in property. That meant moving from Perth to Kalgoorlie and studying at the School of Mines. I don’t remember a lot about those days, I was young and a bit foolish, away from home and discovering life.
All over Australia, we are talking about property. If the conversation is in Sydney or Melbourne, it’s all about how much prices have gone up and can they keep going, in Brisbane, Hobart or Adelaide, it’s about how much they think it will go up, and in Perth & Darwin it’s about will prices ever go up again?
Over the last few weeks I have been doing a lot of research in to what is happening in our real estate markets. You know what? It can be pretty much summed up in the first paragraph.
We are a nation in love with property. A huge part of the Great Australian Dream lies inside owning your own home. Yet this dream is becoming something that may never be realized for an increasing percentage of Australians. Statistically over the last 30 years the rate of home ownership has dropped by about 10% – now more than 30% of us must rent or choose to rent. I expect that the home ownership rate to continue to drop.
In my last blog I wrote about some of the issues facing Australians around the growing issue of housing affordability – if you missed it you might like to have a look – here. The article is one of the longer ones I have written, however the challenge we face in Australia is one of the greatest in the world of property ownership. It will offer you some real thinking around the issue.
The big news this week is the Victorian Government announced that First Home Buyers (FHB’s) would get two massive free kicks to help them get a leg up in to the great Australian Dream. The first kick was that the first home buyer’s grant would be increased from $10,000 to $20,000 for those who chose to live in a regional centre and built a new home. However the winning goal was the revelation that first home buyers would be totally exempt from stamp duty on purchases of new or existing homes up to the value of $600,000.
The start of 2017 has been amazing, with so much good news happening. Yet, we have questions coming up again about the challenge that Australians are having in owning a home.
I personally believe that home ownership is the foundation to wealth for most people. People who own their homes statistically have more wealth at retirement age than those who don’t. Governments know this and if the citizens have a certain level of wealth they are less likely to need government support for the remainder of their lives – this is one of the reasons why incentives have been offered to people to invest in property. Another reason is that investors can provide housing for the rental market, meaning the government does not need to spend so much on public housing. Yet these incentives, including negative gearing, are once again under attack.
Well it’s almost Christmas again – another year passed. Sometimes I wonder where the time goes.
For many people, at this time of year, they start thinking about life, the universe and everything. I know I spend time reflecting and reviewing on the year past, trying to determine what was fabulous about the year, and what I could have done better. I also turn my mind to the coming 12 months, looking forward, planning and setting goals as to what I want to achieve. I really do want the best life I can have for myself, my family and those around me. To do this I need to take heed of a couple of “secrets” to having a great life. You know as well as I that there are no real “secrets” to life, but for some, these simple “secrets” are not known to them or readily understood. These two simple points hold the key to your great life.
To become wealthy over time, you need to own assets, preferably plenty of real assets like property. The process to buy a house or apartment is relatively simple on the face of it. Show up at a home open and make an offer or wave your arm around at an auction until the auctioneer smiles and bangs down the hammer at you.
Overpaying for your property is a sure way to dramatically slow the growth of your wealth creation. If you pay $600,000 for something that will value up at $550,000, then you are already $50,000 plus transaction costs behind. That could take several years just to catch up to the price you paid.
How would you spend a billion dollars? It’s a mind blowing question that few of us would even consider since it seems so far out of the realm of possibility, that we give it no thought.
Yet for nearly 2,000 people on the planet, it is a question that they need to answer as they do indeed have a billion dollars or more. A few of them many billions.
Unless you have been living in a cave over the last 18 months, you will know all about the incredible U.S. political campaign and Presidential victory of Donald J. Trump. He proved to be one of the most divisive and controversial characters ever to run, let alone win the Presidency of the most powerful country on our planet.
His campaign, which seemed perpetually on a massive rollercoaster ride, ultimately proved incredibly insightful – he appealed to the people who have felt left out of the economic prosperity and to those who felt marginalised by globalisation. And he tapped in to the dissent of the voters with the political hierarchy – the system and the people pulling the strings – the lingering dissatisfaction with the lying, corruption and lack of leadership demonstrated by some career politicians.
Despite all the ups and downs of the real estate market, the excitement and apprehension and the greed and fear, I believe that owning property, over the long term will bring most people the best possible investment returns.
And in particular, owning land.
Mark Twain shares this idea with us in a famous quote – “buy land, they’re not making it anymore.”
In his time, this quote would have been entirely accurate. These days, through herculean and very expensive feats of engineering, new land can be created to extend boundaries by reclamation, as has occurred in places like the tiny island nation of Singapore and very ambitious real estate developers in Dubai.
I invest a significant proportion of my time on property market research. I really want to be informed and to understand what is happening and form a rational opinion on what could happen. But honestly, no one really knows what is going to happen in the months and years ahead. There are indicators (I named eight of them in last week’s article) certainly, and past real estate cycles can also give us clues. I always take note when I see a warning and I seek to dig deeper in to the thinking and research behind any warning before I give it any credence.
The Reserve Bank of Australia (RBA) recently issued a “storm warning” to inner city apartment buyers, owners, developers and their lenders. The RBA also cites growing concerns with debt levels in China as a big threat to the global financial system, saying smaller & mid-sized Chinese banks could be at risk. They went on to pose the question as to what would happen – if prices dropped 50% – to the lenders who have loaned as much as $85BN to apartment purchasers? The RBA followed on to say that while they don’t believe that the booming Sydney, Melbourne & Brisbane markets could suffer the same type of catastrophe that afflicted Ireland and Spain after the GFC, officials believe the surge in new supply could lead to a price slide, leaving investors & banks exposed. The RBA noted that there are increasing signs of off-the-plan purchases taking longer to settle and valuations coming in below the contracted prices.