THE MARKET

I hope you’ve read the painfully honest research report in my Post “Research – Finally – The Truth”.

I’m still reading piles of rubbish telling us the market is sound with not a chance of falling any further and that there are “sparks” of a turnaround.

It’s not rocket science folks.  In capital city and regional newspapers today, except for mining towns (more on those in a minute) there are countless advertisements for properties for sale under the order of Receivers and Mortgagees-In-Possession.  When the market is healthy you just don’t see very many of these ads.

Gold Coast City Council home building approvals are THIRTY PERCENT DOWN on last year; a year that was a shocker anyway. That in itself should set alarm bells ringing.

Hedges and Albatross Avenues in Mermaid Beach have seen crazy price rises in recent years but this is what I call a correction.  A recent sale of a piece of oceanfront sand at $3,925,000.00 is perhaps a bargain given that the seller paid $7,000,000.00 just 4 years ago. Whether nearly $4 million is a bargain 12 months from now remains to be seen.

People ARE hurting out there.  Since starting this blog I’ve been contacted by dozens agreeing with my posts and telling me their stories of mortgage stress, bankruptcy and business downturn.  People who bought just on or after the GFC have been cornered by increasing interest rates (now on the way down but it’s a case of too little, too late), massive increases in the cost of living and job loss and/or a reduction in hours worked.

This observation doesn’t include people who were trapped by dishonest marketing. Many started off with subsidised interest-only loans only to have those loans convert to un-subsidised principal and interest with a doubling of their monthly payment.  These people didn’t understand what they were getting into, didn’t receive good quality legal and financial advice and in the end, didn’t ASK, or didn’t know what questions to ask. Lack of real estate savvy will cost you dearly in this market.

I drove past a very solid office block yesterday that in good times would never have a vacancy and always had businesses lined up to take any space that became available. The rate per square metre being advertised is unbelievably low and is a 4m x 3m prime example of what’s really going on. Nothing, to less than nothing.

Except (maybe) for mining and Fly In/Fly Out towns.  BE CAREFUL.  A single industry driven town is a real risk for investors.  Don’t be dazzled by the spin.  Look carefully at the potential downside, which is huge.  We’ve already seen examples as companies cancel projects, people move out and rents and values plummet.

Whilst there may be 5,000 workers in a town right now, they may be there to BUILD a mine.  Once the Mine is open and production begins, all these people disappear to be replaced by Operators rather than Constructors.  5,000 could become 1,500 in  a month.

Often your tenants will be rough n tumble fellows.  Sorry guys but you really don’t look after the places you live in.  Everything runs at maximum 24/7 and nothing is properly looked after whether it be swimming pools, gardens, or even the carpet where the Harley is parked!  Local real estate agencies property management divisions are often overwhelmed and just not equipped or experienced enough to deal with these problems.

As with all things where there is a rush, you may find developers eventually building too many homes as they work hand-in-glove with local Councils who want to cash in.  When that happens there’s a real chance of oversupply and all that will do is depress values and reduce rents.

To finish, a couple of real examples very near to where I live.

Property 1 bought in late 2006 for around $670k sold 5 years later for $730k.  To keep up with inflation and obviate the effects of stamp duty, agent’s fees, moving costs etc, the home should have sold for a minimum $850k. In real terms, a $120,000.00 loss.

Property 2 bought in late 2007 for $850k sold 4 years later for just $680k.  Taking into account stamp duty, agent’s fees, moving costs etc, this is an alarming $225,000.00 loss.

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