Category Archives: Land

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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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 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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DEATH TRAPS

I’ve written about the dangers of living in a property that’s been used (abused) as a drug lab but there are more subtle dangers out there, just as deadly.  I’ve watched a lot of dodgy builders and renovators over the years create modern day death traps for the buyers and renters of their properties.  These people just don’t care.  Well-meaning renovators care (I guess) but in their ignorance, also create death traps.

And, blokes with their sheds are the worst offenders, especially old blokes who’ve come off farms and retired to the ‘burbs.

Here then, in no particular order, are my things to watch out for.

If there’s been a renovation of a pre-1987 property, asbestos may well have been disturbed.  This nasty substance, if contained and solid, coated in heavy paint is sort of okay to have around (sorry, for me and my child – no asbestos please) but if it’s on the loose, it will kill you.  Not right away, but you, your children and visitors, may just get a dose big enough to ensure you endure a long and painful death sometime down the track. This shitty substance was used in fence panels, roofing, insulation, behind tiles, in old stoves, as lagging around pipes.  I’ve seen in buried in gardens, and also just under the lawn where every time you mow the lawn that cloud of dust is not dirt but ultra-fine asbestos fibres – charming!  If the ceiling space is filled with asbestos insulation that is spalling particles, every time the wind whistles through the roof space, the fibres are pouring into your home and out through the eaves and onto every outdoor surface.  That rippled asbestos fencing that Councils tell you is safe as long as it’s painted, isn’t!  Is the neighbour’s side painted and in excellent, fully sealed condition?  Is your fence absolutely free of chips and scrapes so that no asbestos is getting loose?  How about this then? If you have grass growing up against the fence, what happens every time a whipper snipper cord smashes into it at 300 miles an hour?  No kidding there aren’t asbestos fibres flying everywhere!

Lead.  There is old lead everywhere. New lead is not better for you than old lead – it’s all bad! Again, authorities tell you that old lead based paint is okay as long as it’s sealed and in good condition.  RUBBISH.  Young kids always have their hands on and into everything, followed by those same little hands being thrust into their mouths. (If you suspect you have a lead problem in and around your home, please go and have blood lead level checks done – it’s an easy test, as long as you don’t mind the needle!).  Think about old wood framed windows, painted with lead paint – every time you open and close the window, or it rattles in the wind and rain, where paint rubs on paint, or painted surface against wood or metal runner, lead dust is being liberated.  Lead paint, in fact any paint, can crack and craze and if that’s happening 10 feet above you head, you’re not going to notice it.  Lead dust will fall from those cracks and all over your skin, carpet, furniture, food and glass of water.

The Man Cave, otherwise known as a SHED.  More than likely a toxic waste dump, chock full of carcinogens. Moving on to free range chickens, egg laying and growing your own vegetables. Nothing more satisfying is there?  Or is it?  Could it be incredibly dangerous to your health? The old guy, Farmer Joe, who moved into the house years ago and filled his shed out the back with all sorts of leftovers from the farm.  He also had a range of nasty, polluting hobbies that involved acids, welding, chemicals, weed sprays long since banned and goodness knows what.  He threw waste into the weed strewn fence-lines, poured who-knows-what on the grass and hung up chemical laden clothing in the laundry to “air”, filling the house with fumes from who-knows-what – traces are still clinging to paintwork and window furnishings, not to forget the carpet, all through the house.

If you want to have your Farm declared “organic” and “pesticide free” it is a very long and arduous process.  there are no rules really for putting up a Chook Pen, or digging up your back yard and throwing some seedlings in the ground and yet, people do, often encouraged by the dozens of Home Maker Shows on TV.

Well, here’s Gordon’s Caveat!  STOP.  Do NOT do any of this unless and until you’ve had the soil tested.  There are laboratories that do this kind of thing and you’d be mad to eat lettuce grown in a garden bed full of toxic waste – Imagine feeding your innocently home-grown produce to your children and have them develop some nasty, life threatening illness?  You’d never forgive yourself.

Be careful.  Be aware. Do your homework.  Seek professional advice and DO NOT PROCEED until the road ahead is clear.

 

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KARMA

Should I gloat? I’m going to anyway.  A real clever fellow screwed me out of a fair sum of money many years ago and gloated over the fact.  I gave up, settled out of Court for a lot less than he owed me but….I knew he would get his.

At the time he boasted about the purchase of a very expensive piece of land (that I’m sure had MY money in it too!) and further crowed about the equally expensive house he built upon that land.

Well, Karma came in the shape of the GFC and I’ve just learned that he flushed about a million bucks.

Time for a gin and tonic!

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MARKET INTELLIGENCE – SURVEY

Oh dear.  People DO get excited about buying land to build on, or an existing house to renovate or move straight into.  They engage a law firm or conveyancer to assist them with the settlement process.  Searches are done to make sure its not flood prone, going to have a free-way or railway line built next door, is set for full or partial resumption or major power-lines nearby now or in the future.

When I was actively selling I’d always advise buyers to obtain a boundary survey even if the property was brand new. Not one of the hundreds of buyers I’ve advised over the years has ever spent the $700.00 – $1,200.00 to obtain a brand new, sparkling boundary survey. Continue reading

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FOR SALE $5,000,000.00 (Land Optional)

Severe erosion along the world famous Mermaid Beach Millionaires Row here on the Gold Coast has exposed the last bastion, a 5 metre rock wall.  We’re just entering cyclone (read Hurricane) season Down Under so things aren’t looking good.

Adds a whole new meaning to the descriptor “absolute beachfront”. Walk out your back door and fall 15 feet ONTO the beach!

 

 

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ACE #4

Aspect, Contour and elevation continues.  I also used to an ACE in the Air Force!  Seriously.  Airspace Coordinating Element. A part of my role as a military air traffic controller was to ensure that Navy, Army, Air Force, “other” forces and units didn’t bomb, strafe or shoot each other, or civilians, out of the sky.  That’s about all I can say about that… Now, back to real estate, and again, in no particular order…

When considering a purchase there are hundreds of things to keep in mind, and I’ve mentioned quite a few already.  The list continues…

Poo.  Or more particularly, things to do with poo.  On your walk, cycle and/or drive around the area you’re thinking about buying in, look for sewerage pumping plant, breather pipes and other sewer infrastructure.  The local Council will also tell you where these things are.  Some of this plant can emit terrible smells either very occasionally, on a regular basis or 24/7.

Continue reading

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ACE #3

Welcome to ACE #3, an ongoing ramble of my experiences.

Easements.  Most people don’t understand them and ignore them at their peril. Again ASK your legal representative to explain what easements burden the land or property you’re considering or, in some cases, ADD an area to your land that you don’t own but are free to use.

I’ve inspected a house where the owner, oblivious to the presence of an easement burdening the land, had constructed an enormous and very thick, steel reinforced concrete slab topped with a substantial 25m2 metal shed. Trouble was that the shed was right on top of a 3 metre easement that ran along the entire back fence of the property. He was very lucky that the authorities hadn’t required access to the storm water drain that ran beneath the easement as they would’ve pulled down the shed, ripped up the concrete and sent the owner a bill for their trouble.

Continue reading

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