Category Archives: Existing Homes

The Multiples are still Sky High

Post war and right up until the early 2000’s, the old fashioned Dad at work and Mum at home raising the children worked a treat.  I am not commenting on the social status of women or starting any such argument.  I am talking AFFORDABILITY!

The “Average House” which used to be say, a cottage of about 1400 square feet, 3 bedrooms, one bathroom, kitchen/dining and lounge room, with a carport or garage on just under a quarter acre, could be had for 3 times the gross annual income of the primary (and often, ONLY) wage earner.

This “multiple” persisted for more than 60 years until the whole thing went nuts.

The first house my father bought cost $10,000 when his annual salary was a smidgen over $3,000.  The first house and land that I bought and built cost me $75,000 when my annual salary was about $25,000.  The next house I built was a lot bigger, at 5 bedrooms and 3 bathrooms with a double garage on a fairly pricey piece of land.  The “multiple” went to 3.6 for that one, but that was to be expected.

Today, for a modest house of about 1,500 sq ft, typically with a single garage and a carport, 2 bathrooms but on a postage stamp piece of land (no value there folks!) the multiple in the majority of markets lies between 7 and 10.  In other words from seriously unaffordable to economic suicide.

Record low interest rates and “Honeymoon” deals have placed hundreds of thousands of people at risk of bankruptcy and homelessness.  The overall economic fallout from such a disaster, and it will happen, will be incalculable.  The media is full of people with “other interests at heart” who comment.  Why ask a major developer who has 5,000 apartments coming on to the market if he thinks the market is overheated, and due for a cliff like correction?  Is he going to answer YES and put people off buying?  Hell No.

Or other commentators who have hundreds of thousands of Bank shares in their superannuation portfolios…  are they going to tell the truth and watch their Bank shares tank?  Hell No.

Go out into the market and SEE for yourself what is happening.  I sold a number of 50 square metre studio units in 2004 and 2005 for $209,000 and $219,000.  12 and 13 years later they just changed hands for $159,000.

A large 2 story house I helped friends sell in 2007 for $650,000, had a minimum of $150,000 spent by the new owners on pool, gazebo, extensive landscaping and upgrades to 3 bathrooms and the kitchen.  Sold for  $795,000 this year.  That is a LOSS over 10 years of at least $60,000 in stamp duty, legal and agents fees, not to forget interest on loans, rates and insurance.

I do not care what you read elsewhere.  If you are in real estate now, get out while you can…

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His only crime? Getting Caught

Thank you Australian Financial Review for this article – 07 July 2016 – A former Aussie Home Loan broker would go to jail for up to a year after admitting he submitted fake home loan applications to Westpac, National Australia Bank and ANZ Banking Group at least 18 times.

Aussie Home Loan mortgage broker Madhvan Nair admitted on Thursday making 18 loan applications totalling $5.6 million between 2012 and 2014 which had false borrower employment documents.

Of the 18 loan applications, 12 were approved by the banks, which resulted in home loans worth $3.7 million.

Mr Nair pocketed $10,000 in commission and cash payments for making the false loan applications.

I have said for a long time that this is an epidemic. A dark undercurrent of lies and deception that is NOT being thoroughly investigated by the lenders despite the fact that they KNOW its an epidemic!

These practices are silently contributing to the severity of the ultimate correction that is now long overdue.

SYDNEY MORNING HERALD COMMENT – 13 FEB 2015

http://www.smh.com.au/business/rba-waves-red-flag-over-very-concerning-sydney-property-market-20150213-13eakh.html All you have to do is read what the Reserve Bank of Australia is now worried about.  Thanks to the Sydney Morning Herald for providing this story. I keep saying to all who will listen that this market is completely MAD, rising with no fundamental except for some perverse notion of “affordability” espoused by Lenders of all shades. Youngsters with massive mortgages, underpinned by guarantees and liens taken over their parent’s family home will pay the ultimate price when this House of Cards comes crashing down.  They do not realise that a 2 percent rise will mean their repayments will rise 50%, never mind the tens of thousands who currently enjoy interest-only honeymoon rate loans that will, over the next 12 to 18 months, revert to Principal and Interest at a rate significantly over market. I’m so glad I’m leasing right now, on the side lines and watching this unfold.

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PERFECT STORM BREWING – 03 APRIL 2014

It’s all adding up….well, for me anyway, so let’s see how this pans out.

Retail stores are closing at an alarming rate in the USA and Europe, and yes, here in Australia.  My local large shopping centre has just had 5% of tenancies “walk” at the end of their leases, with strong suggestions from people I know who are “in business” but only just, in the same centre, that up to 10% of the tenancies could walk in coming months.  Unlike 2005 for instance, there aren’t 40 people waiting in the wings to get into this centre.  There is no-one.  No registers of interest, no active list, reserve list or any kind of list.

Large shopping centres are dinosaurs and some people just won’t admit it.  Ridiculous rents forcing retailers to charge equally ridiculous prices and therefore having no chance against online retailers with cheap-as-chips warehouse rent in the middle-of-nowhere.

There are otherwise intelligent people (I think) spending nearly AUD$700 million on rebuilding and revitalising another massive local shopping/destination centre.  The reasons they cite to try and justify their decision are plain ridiculous – the place will be an albino pachydermata.

If shopping centre owners drop their rents to a level where traditional retailers can once again run a half decent business, capital values will plummet.  Flow on to smaller commercial and industrial properties is sure. Lack of return, loss of jobs and its not hard to see residential housing taking a dive as well.  Don’t think so?

Massive interest rate cuts have failed to stem the drop in residential values.  The butchering of statistics continues.  I was recently challenged as to why my view differed from the those reported in the news and delivered startling “real results” to back up my view.  Yet again a number of properties in a suburb were quoted as delivering massive price rises that contributed to the percentage rises being quoted in the news.  Shallow analysis of each of these properties showed that there were, in each and every case, factors that impinged on the price rise and therefore those properties should have been excluded from the ‘results’ for that suburb.  Trouble is, you take those properties out, and the price FALL is dramatic.

Factors that made for selling prices being reported as UP from previous acquisition prices were as I’ve reported before in my blog.  Reconfiguring a home to cater for two families. Significant and costly renovations not taken into account. Rezoning of land adding to it’s base value.  And so on.  And… no IN and OUT costs taken into account to arrive at a nett gain (if any).

Make no mistake that fiscal policy makers are all out of ideas for getting our economy going.  The USA think-tank  has screwed up and nothing is working over there.  I know many people in the USA in business and they tell me it’s rubbish that side of the Pacific, more than a little scary and they’ve little to no confidence.

The USA 30 year mortgage rate when I was there in 2013, was about 3.4%.  A year later and its nudging 4.5%.  If the same rate of rise occurs here (and it will) our rates will jump 30%!  Imagine mortgage repayments for all those silly sods who dived in with their 90% plus loans on minimal deposit using their Mum n Dads place as extra collateral…  Most are paying over $500 a week – that could easily jump to $650 a week – and wipe out their ability to EAT!

An interest rate jump of that magnitude will cause a REAL and long overdue drop in house prices.

CHINA – for a start you can’t believe most of the numbers that come out of ‘Official’ China however the word from people I know who travel regularly to that mysterious land is that things are crap. I’ve heard it said that China is at about 2004/2005 on the Western GFC Clock.  When their house-of-cards comes down it will not be pretty and the flow on will be nasty.

Its all coming to  ahead.  If you have property, sell it NOW and take advantage of the pseudo reports and spin to get some sucker to cough up.  RENT, or take a long holiday.  And buy back in when the dust settles.  Go back in this blog to see just HOW CHEAP housing is in so many desirable areas of the USA – not the ghettos of Detroit but NICE PLACES TO LIVE.

We are waaay to expensive and need a correction… It’s coming…

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MARKET UPDATE – 25 MARCH 2014

I receive a fair bit of ‘junk mail’ from local real estate agents squawking about their ‘successes’ in the market. Today I once again did the exercise of digging into their claims about speedy sales, plenty of buyers and wanting more listings.

One would think that if, as an agent, you’d sold and settled a property sale in December 2013, you wouldn’t still be proclaiming it as a “Recent Sale” in late March the following year…or would you you?  Well, YES!  That is really sad, and by any measure, false and misleading.

The newspapers are full of “leading agents” saying they can’t get enough listings, the market is white hot right now, you’re surely gonna miss out…and so on.

So now to the “analysis” of the listings, sales and other nonsense contained within one piece of junk mail today. Just Listed for Sale at $480,000.00.  This place was sold to the current owners in mid 201 for $485,000.00.  Gonna be a great outcome for them by the looks.  Snap this up at offers over $550,000.00 – it was bought by the current owners for $570,000.00 in January 2009 – another success!  And lastly, Offers over $825,000.00 please, so you know its going to sell for mid to high 700’s. It fetched $1,040,000.00 in early 2007 (at the near height of the madness), changed hands at $875,000.00 18 months ago and now the new owners want out.  That’s just nasty.

I cannot find anywhere, a real story of anyone making a real, tangible profit.  Sure there are buys 4 years ago at $500,000.00 with a recent sale at $535,000.00 but that doesn’t take into account buying and selling costs, nor, in most cases, the tens of thousands of dollars spent on repairs or additions.

I’m still looking for this “golden era” but alas, unless a Chinese buyer has their hooks in the deal, it’s all smoke and mirrors.

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I LIKE CHINESE

I like Chinese food, almost as much as I like the many Chinese people I’ve met and had stay in my house as a part of the “couch surfing” movement. Chinese people are no different to anyone else.  They have the same basic needs and wants as any of us on the planet, so individually they are not to be thought of any differently.

The only thing is that there are so many of them.  Lots.  Billions in fact.

When you gets “billions” of anything and that “anything” decides to shift its weight around, well, things can happen.  Its kinda like trying to turn a huge aircraft carrier around in a small harbour.  If it misses by even a little, a lot of damage can happen – and you just cannot stop it, because its so big and has so much force behind it.

Billions of anything can distort the environment in which it moves.  Billions of tonnes of ice dumped into Sydney harbour would probably make it too cold to swim in the summer…maybe.  I don’t really know – just saying…

So, you have to be careful where you put billions of anything and you have to mindful of the short term gains vs the long term pain, which is why I’m reproducing an article in full today from the pages of NEWS.COM.AU ….

CHINESE investors are driving up property prices in hot spot Sydney suburbs by as much as three times the city average.

Carl and Marie Mascarello sold their four-bedroom house in Strathfield for $230,000 more than they expected to an investor who had just stepped off a plane from Hong Kong.

“The house sold for $2.28 million. Far out, I was cheering when I heard. It was really unexpected,” said Mr Mascarello, who is downsizing because his two children have left home. “He was a Chinese investor who got off the plane from Hong Kong the day before. He had missed out at two earlier auctions and clearly did not want to miss out on this one.”

Strathfield is one of at least 10 hot spot Sydney suburbs that have been targeted by Chinese investors who are estimated to have spent $5 billion on Australian residential property last year. The average house price here has risen by up to 27.1 per cent — almost three times the Sydney average of 9.2 per cent.

Brian White, chairman of Ray White Real Estate, said that the Chinese property investment boom “is an absolute fact”.

Together with a number of leading estate agents, including McGrath’s, he has opened a China desk to improve liaison with buyers from the booming new market.

China had the second-highest number of immigrants settling in Australia last year with 27,334 people moving here.

Mr White said he is also opening offices in Beijing and Singapore, which funnels large sums of Chinese investment to Australia.

“A lot of Chinese are very keen to balance their investment portfolios with overseas investments because the Chinese government is restricting people buying in China to try and cool the market,” he said. “In many cases they are buying off the plan to provide homes for their children, who they are sending to Australia to be educated.”

Non-resident foreigners are only allowed to invest in brand new properties under Australian law. The rules have led to a boom in investment in units bought off the plan.

Peter Gray, manager of the 750-apartment Billbergia development at Rhodes, said more than 85 per cent of the development had been sold to Chinese investors. “The first block sold off the plan within a couple of months,” he said.

But it is not all good news. Marketing executive Lara Germane, 28, has been trying to buy her first unit with partner Olaf Wright but has been beaten out of the market.

“We have been looking seriously between Randwick and Maroubra for the last six months but the prices are up $100,000 on where they were last year. It seems to me that it is Chinese buyers who are moving into the area because that is the vast majority of people we see at inspections.”

TROPHY HOMES ARE MUST-HAVES Matthew Benns

CHINESE investors are also looking for trophy properties with Harbour views on the lower north shore and in the eastern suburbs.

Richard Simeon from Simeon Manners real estate agents sold a five-bedroom waterfront home in Pearl Bay Ave, Mosman, last week to a Chinese buyer for more than
$7 million.

“It is bigger than Ben Hur. In recent years I have sold more than $100 million worth of property to Chinese buyers,” he said.

“They are looking for trophy properties with the classic Opera House, Harbour Bridge view.”

“The highest price for a property in Mosman last year, 34 Julian St, Middle Harbour, was $13.88 million and that also went to a Chinese buyer,” said Mr Simeon.

He is now working with cashed up investors from the recent luxury property expo in Shanghai and also developing new, off-the-plan, apartment buildings in Burwood and Terrey Hills specifically for the Chinese market.

“The money from China is just extraordinary,” he said.

“It is a brave new world.”

Stupid, short sighted fools these agents.  The residential real estate market here in Australia needs to cool off and correct to where it’s historically been.  Some sectors of the market are cooling off and some are crashing back to pre 2001 prices (I’m not just saying this, I know and can quote hundreds of real life, real time examples) but to actively encourage this stupidity will do nothing but make the inevitable correction much more fierce, damaging and will embarrass us internationally.  Capital will flow out of here like a broken dam and the correction will bankrupt tens of thousands of Australians…

Just sayin’

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MARKET UPDATE 15 NOVEMBER 2013

I’m seeing nothing that convinces me that anything has changed or turned around.  Whenever you see an article telling you differently, please read it all, to the end, where oft lies the truth or a disclaimer!

In my City the Council has foregone $35 million in developer fees to ‘kickstart’ new projects.  If a project can’t stand on its own with those ‘normal’ fees in place and has to rely on the local authority taking a haircut, then the project’s chances of failure are high. I’ll keep an eye on the list of projects that have miraculously ‘come on’ during this amnesty period to see how they fare.  A couple of phone calls and I discovered that many of the projects were going to go ahead anyway, and that the ‘discount’ on local government fees was just a bonus.  Government interference in free enterprise – it never works.

So everything is going UP is it?  Almost every real estate article you read says so so it must BE SO!  No.

Big sale of a site in Southport for 3 million dollars!  Wow!  Whoop-de-doo!  How about the poor schmuck who got his timing wrong when he paid 5 and a half million dollars for it at the very peak of the craziness in early 2007. Add to the obvious loss of 2.5 million dollars the holding costs over nearly 7 years and I wouldn’t be surprised if he watched double that go down the toilet.

Of course there’s always going to be the “odd” sale that surprises everyone. I know that.  But they are rare and there’s always some quirky reason why someone has apparently paid too much. I know of one in a capital city where everyone said the buyer was “nuts”.  But was he?  No-one at the time (not even local guru agents) knew that the blocks of land either side were already held by interests associated with him and that securing the third parcel made the whole piece of land so much more valuable as a height restriction went from 4 to 8 or 10 stories as a result.  Smart I’d say.

I lived at a fairly famous Resort on the northern end of the Gold Coast many years ago because I wanted to try the lifestyle.  6 months was enough. I was ‘out of there’… In the early 1990’s vacant blocks of land (non-waterfront) were changing hands for $500,000.00 and all the “wannabes” lapped it up.  It was fine marketing spin at its very best.  So exclusive and so magnificent was the Resort that today, more than 20 years later, dry blocks are selling for….wait for it…..$500,000.00… Oh dear.

Last but not least – commercial. Tenants renegotiating rents down 50% or more and basically holding landlords to ransom is the business of the day.  My local newspaper is full of “Mortgagee In Possession”, “Liquidator”, “Owner wants out”, “Overseas investor quits holdings” and other negative headlined commercial property for sale. These local agents are so duplicitous it makes me sick.  One one page they talk up the market like its the 2004 rocket sled, and yet at the back of the paper they try and suck you into a BARGAIN as a bunch of poor sods are forced to offload their property as drastically discounted prices.

I rest my case and step off my soapbox for this week.

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POOL FENCES

I know I’m going to receive howls of protest but I really don’t care.  I’m a parent and take the supervision of children under my care (mine and others) very seriously.

I’ve inspected literally thousands of houses with backyard pools over the years and have seen it all.  Properly installed (at ridiculous expense) pool fences where teens have propped open the gate, or there’s been boxes or chairs near parts of the fence allowing most children to climb up and over the fence, and vegetation so thick that any enterprising child could climb through the hedge for instance, and gain access to the pool area.

I’ve watched kids running and chasing each other around pools completely unsupervised by a responsible older child or adult.

I disagree with pool fencing as it places a huge cost on those of us who are responsible and supervise our kids and those under our temporary care.

Where I live we have thousands of kilometres of lake front, canal frontage, creeks, rivers and ocean beaches, none of which have fences!

In my early days I taught hundreds of adults and kids to swim, have been an active Surf Life Saver, Patrol Captain and Rubber Duckie (Inflatable Powered Rescue Boat) captain and have rescued hundreds of people from the surf.

In closing this post (read, RANT) in 2012, ONE-THIRD of drownings of kids under 5 occurred in BATH TUBS or SPAS!*

*Royal Life Saving Society Drowning Report 2012

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CHINA CONTINUES TO BUY UP BIG

Chinese buyers are really exerting their influence in my home town.  It’s different to the heady days of the Japanese though.  Many Japanese ‘investors’ were thoroughly lied to and screwed over by Gold Coast ‘sharks’ and paid the price years later when their investments sold for pennies on the dollar.  The Chinese are buying up distressed assets at the higher end of the market at bargain basement, ‘less than replacement’ cost.  Whilst there is still some downside risk, in most cases they are buying well.  That said, and as I’ve opined previously, some just don’t seem to care they are paying well over the asking price or reserve at auction, hence my questioning of their true motives.  There appears now to be two distinct types of Chinese buyers.

Anyway, back to the article below. I wonder if this Chinese buyer has even set eyes onf this penthouse.  Who in their right mind would live in the middle of Surfers Paradise is beyond me.  I am sure that living in the Penthouse would be lovely (I wonder if it and the Sky Homes have a dedicated elevator?) but having the share the foyer with the drunken ferals about to descend on the Gold Coast for the Motor Racing Festival followed by hoardes of out-of-control “Schoolies” would put me off.  Imagine living in that gorgeous penthouse and waking very early Sunday morning for a walk on the beach.  You’d step out to drunks, half-clothed foul-mouthed women, vomit and rubbish all the way to the beach.  No thanks.

And whilst this may not happen any time soon, the old real estate cry of ‘Location, Location,Location’ must always be applied to any purchase.  Most of the gorgeous views to the ocean could vanish over the years as massive high rises are built on the beachfront north and south of the already massive ‘SOUL’ building (another pricing disaster subject to many, many law suits as I write).  If you venture into a beach area with high rises, the ONLY position is absolute beachfront or across the road from a beachfront park that would/should never be sold off for development by local authorities.

Good luck to whoever bought this. Their first early Sunday morning walk may well see it back on the market!

Hilton Penthouse Article

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CAN’T FIND A STATISTIC EVEN IF YOU WANTED TO!

I thought I’d take a peek at where I rent to see how the rumoured ‘re-sales’ have been going.  You know I couldn’t find the place for love nor money. I searched in every way possible.  Gone. Vanished. Never existed.  Ka-Boom!

Turns out the Valuer General (VG) has our Apartment Complex listed as being in an adjacent street!  No wonder I couldn’t find it!  The very nice lady at VG contacted the local Council and Australia Post, who both confirmed the address I have, and she promised to immediately (if not sooner) amend their records to reflect the change!  Imagine the confusion this has caused lawyers, conveyancers and real estate agents?

Anyway, I managed my good deed for the month and now the records are slowly being updated.  And now I could see exactly what’s been going on and whether buying one of these (rather nice) apartments would have been a good idea…

Good News first.  Apt 7 was bought for $580,000 in Dec 2010 and re-sold for $610,000 in Oct 2012.  A profit?  NOPE.  By the time you add stamp duty and legals to the purchase (lets see, maybe $20,000 (not including Bank Fees if there was a mortgage) and take out Agents fees, legals and perhaps some advertising at the sale end, ( lets say around $16,000) the net result was probably a $6,000.00 to $10,000.00 loss (if lucky).

The other 6 purchases and re-sales within a 3.5 year period yielded losses ranging from a minimum $80,000.00 to a staggering $155,000.00.

I don’t know where this BOOM is happening?  Do you?

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