The future of Australian property prices

[Bill M]

Has anyone got any arguments against owning investment properties in the CBD?

Cheers,


CanOz

Hi CanOz, there are a few things that put me off of them. The first is that for some reason levies are much higher for CBD apartments. I hate forking out for excessive levies. The next is parking, a lot don't have it and if they do you will pay for it. Then there is the price, it just seems a bit too expensive compared to say a nice sea side Sydney suburb. Lump those 3 reasons together just makes me think that I would rather choose a sea side suburb that is cheaper. But that's just me, find out how much the levies are as they are something to watch out for and something that puts potential buyers off, cheers.

[finnsk]

Hi CanOz, there are a few things that put me off of them. The first is that for some reason levies are much higher for CBD apartments. I hate forking out for excessive levies. The next is parking, a lot don't have it and if they do you will pay for it. Then there is the price, it just seems a bit too expensive compared to say a nice sea side Sydney suburb. Lump those 3 reasons together just makes me think that I would rather choose a sea side suburb that is cheaper. But that's just me, find out how much the levies are as they are something to watch out for and something that puts potential buyers off, cheers.

I think one of the reasons the CBD prices is more expensive is a few years ago 10 overseas student shared a 2 bedroom unit and that way prices has been pushed up

[CanOz]

Thanks Bill, I agree i would rather live sea side too. My thinking is from the rental market though, or trying to think like the market...

I'm thinking that young people in the office space in Sydney need someplace close by, not wanting to commute.

CanOz

[prawn_86]

I'm thinking that young people in the office space in Sydney need someplace close by, not wanting to commute.

CanOz

Having lived in Syd and worked in the CBD, it is very rare for people to live what i would call close by, by Adelaide or Melbourne standards. This is partly due to high prices, and partly due to lack of development on the CBD fringe. Most people are a 15 - 20 min bus or train ride away at a minimum, ie Easter Suburbs or Inner West

[CanOz]

Having lived in Syd and worked in the CBD, it is very rare for people to live what i would call close by, by Adelaide or Melbourne standards. This is partly due to high prices, and partly due to lack of development on the CBD fringe. Most people are a 15 - 20 min bus or train ride away at a minimum, ie Easter Suburbs or Inner West

I guess it's like this.... We want to find out what pays the best rent for the money invested that's the easiest to rent out that will generate the best capital gain over 10 to 15 years....

Not too much to ask?

CanOz

[Mrmagoo]

.

Don't you have savings, if not, Why not?




It is always hard in the beginning, Saving the deposit and paying off the first couple of years always takes a bit of sacrifice, But it gets easier, Way way esaier.



.

So rent for life then, But trust me, that will be more expensive

.

not with that attitude

What you can't get through your head :

A high percentage of your income on a mortgage earning 45k is fine, as your income is likely to see big up swings.

At 80k this is unlikely to happen.

Obviously owning is better than renting at the same price, the issue here is not to own or to rent, it is at what price to own. The current prices don't make sense.

If a mortgage were more like 450-550 it would definitely be worth it as long as the quality and location of the dwelling were reasonable.

300k for something 50kms out of the CBD is not CHEAP it is EXPENSIVE for something 50 kms for the CBD.

[FxTrader]

A lot of discussion out there about renting or buying so I thought I'd share a true story. 23 years ago a good mate of mine said "Bill it's so expensive here in Manly, I will never be able to afford a house here." I said, take it easy start cheap, right now you can buy a bedsitter for 130k, buy it, pay it off and then move on to something bigger. He ignored me as they usually do, guess what? 23 years later he is still renting and is now paying $700 per week for a crappy house in a bad location. Had he have bought back then he would own that property by now. Buying will always pay off eventually. Paying rent when you are an old man is a mugs game.

Classic example Bill. I might also add paying off a mortgage when you're an old man is also a mugs game. Given the governments age pension assets test exempts your primary residence, a popular method to collect the full pension is to ensure you own outright the most expensive home you need to in order to keep your assessable assets below the level required to collect the full pension. I've seen so many examples now of retired couples living in million dollar plus homes collecting the age pension that it's clearly a strong growing trend that will only be arrested by a change of policy by a very brave government. Such a policy change is unlikely to happen for the boomer generation so people in this category who envision collecting the age pension should pay off their homes or buy one and pay it off before retirement.

[McLovin]

Classic example Bill. I might also add paying off a mortgage when you're an old man is also a mugs game. Given the governments age pension assets test exempts your primary residence, a popular method to collect the full pension is to ensure you own outright the most expensive home you need to in order to keep your assessable assets below the level required to collect the full pension. I've seen so many examples now of retired couples living in million dollar plus homes collecting the age pension that it's clearly a strong growing trend that will only be arrested by a change of policy by a very brave government. Such a policy change is unlikely to happen for the boomer generation so people in this category who envision collecting the age pension should pay off their homes or buy one and pay it off before retirement.

I will wager a good bit of money that that perk will be gone within 10 years. I reckon we aren't far off a land tax system similar to the US.

[Julia]

Classic example Bill. I might also add paying off a mortgage when you're an old man is also a mugs game. Given the governments age pension assets test exempts your primary residence, a popular method to collect the full pension is to ensure you own outright the most expensive home you need to in order to keep your assessable assets below the level required to collect the full pension. I've seen so many examples now of retired couples living in million dollar plus homes collecting the age pension that it's clearly a strong growing trend that will only be arrested by a change of policy by a very brave government. Such a policy change is unlikely to happen for the boomer generation so people in this category who envision collecting the age pension should pay off their homes or buy one and pay it off before retirement.

That's a bit of a narrow focus, FxTrader, in that to get the full government pension you're going to be generating not much income outside of that government pension, whether assessed on the assets or income tests, and thus probably have a less than financially comfortable retirement. The asset limit for full pension (single person) is less than $200,000. At current at call rate of 5% that's only about $10,000 over the age pension.
I think the age pension is only around $18,000, so that's an annual income of less than $30,000.

To own and have to look after (physically and financially) a home that is much larger than you need, just to get the age pension, seems hard to justify to me.

I have seen people in this position actually take out a reverse mortgage to give themselves enough cash to live on!

[FxTrader]

That's a bit of a narrow focus, FxTrader, in that to get the full government pension you're going to be generating not much income outside of that government pension, whether assessed on the assets or income tests, and thus probably have a less than financially comfortable retirement. The asset limit for full pension (single person) is less than $200,000. At current at call rate of 5% that's only about $10,000 over the age pension.
I think the age pension is only around $18,000, so that's an annual income of less than $30,000.

To own and have to look after (physically and financially) a home that is much larger than you need, just to get the age pension, seems hard to justify to me.

I have seen people in this position actually take out a reverse mortgage to give themselves enough cash to live on!

This is a financial planning conversation and I am not a financial planner nor is that the subject of this thread. However, your income assumptions only apply to collection of the full aged pension. You can still make up to a maximum of $2,545 a fortnight (from a super income stream for instance) and still collect some aged pension income. An annual tax free income of $30k for a retired couple with no mortgage is quite adequate for many.

I made no mention of the size of the home, my comment was about its VALUE. If I own a two million dollar apartment overlooking the Yarra river in Melbourne, I can still collect the aged pension by structuring my finances accordingly.

I have simply noted that there is a growing trend in structuring finances to draw the age pension. This strategy involves keeping a large proportion of one's total asset base invested in the family home, however large it may be.

The main point remains, outright home ownership makes financial sense for the elderly if they want to draw a pension.

[young-gun]

Is anyone in here familiar, or invested in commericial/industrial real estate at all? Would love to hear of anyone who is, or has a history of being involved in it, and what price movements have been like in that section of property.

I spoke to a real estate agent that said at the height of the RE boom, he was getting 40 calls a day re. commercial property, now he gets maybe 3-4 a day.

[Vesupria]

I have simply noted that there is a growing trend in structuring finances to draw the age pension. This strategy involves keeping a large proportion of one's total asset base invested in the family home, however large it may be.

The main point remains, outright home ownership makes financial sense for the elderly if they want to draw a pension.

I see this all the time as well in the industry.

I thought the goal of retirement was to avoid getting the age pension (I know it is for me!), but it seems that most people just want a free hand out.

[Julia]

I see this all the time as well in the industry.

I thought the goal of retirement was to avoid getting the age pension (I know it is for me!), but it seems that most people just want a free hand out.

Exactly. Hence the number of people who take their super as a lump sum, blow it all on travel, cars, etc., in the naive assumption that they can live comfortably on the government pension.
There is almost a national obsession with 'getting what we have paid our taxes for' or something.

I'd support a change in the rules to disallow the entire amount of saved super to be taken as a lump sum.
Legislation to mandate some being used as an annuity seems pretty reasonable to me.

[Julia]

Given the governments age pension assets test exempts your primary residence, a popular method to collect the full pension is to ensure you own outright the most expensive home you need to in order to keep your assessable assets below the level required to collect the full pension.

This is a financial planning conversation and I am not a financial planner nor is that the subject of this thread. However, your income assumptions only apply to collection of the full aged pension.

Correct. I was addressing your original point above.

I made no mention of the size of the home, my comment was about its VALUE. If I own a two million dollar apartment overlooking the Yarra river in Melbourne, I can still collect the aged pension by structuring my finances accordingly.

OK, not necessarily a large home. But in retirement it seems a bit silly to sit on a highly valued asset just because it's exempt from Centrelink assessment, and as a consequence have insufficient income for an enjoyable life.

Just my view and I agree that many people are prepared to do pretty much anything to ensure they receive what they perceive as what they deserve in terms of receiving the full age pension, even if they are actually disadvantaged in the process.

[DB008]

Nor is it factoring in any capital maintenance, tax, strata levies, agent's commission, insurance, land tax etc. Those are real costs.

And here is a real world example.

Fin year just gone.

Brisbane, 1 bedroom, fully furnished. Rented out @ $500 p.w.

[Bill M]

But in retirement it seems a bit silly to sit on a highly valued asset just because it's exempt from Centrelink assessment, and as a consequence have insufficient to have an enjoyable life.

It is unfortunate but this is the current system. I have met many old ladies in my time who live in $2 million houses than are falling apart around them. They can't afford renovations and can not do any work themselves. Their husbands have passed on and they are alone collecting the Government pension. Suggest to them to sell and move into a nice new townhouse and they all say no. Why? "because I'll loose my pension" they say. The pension is God to them. Hoarding Multi Million Dollar Homes in order to collect the Government pension will one day be a thing of the past.

[Vixs]

Exactly. Hence the number of people who take their super as a lump sum, blow it all on travel, cars, etc., in the naive assumption that they can live comfortably on the government pension.
There is almost a national obsession with 'getting what we have paid our taxes for' or something.

I'd support a change in the rules to disallow the entire amount of saved super to be taken as a lump sum.
Legislation to mandate some being used as an annuity seems pretty reasonable to me.

I'm not happy to encourage, and won't be voting for anyone who champions, any policy that dictates how people can access their own money in superannuation once they've reached preservation age. You can encourage as much control over your own funds as you like, but as someone who can manage their own money I don't see why you would want that either.

Let them live on the pension if they're stupid enough to blow all their savings on 'stuff'. I don't even expect there'll be a pension by the time I retire.

[Julia]

I'm not happy to encourage, and won't be voting for anyone who champions, any policy that dictates how people can access their own money in superannuation once they've reached preservation age. You can encourage as much control over your own funds as you like, but as someone who can manage their own money I don't see why you would want that either.

Let them live on the pension if they're stupid enough to blow all their savings on 'stuff'. I don't even expect there'll be a pension by the time I retire.

You're rather missing the point. We have an aging population and the demand on the remaining taxpayers in paying for the age pension will become unmanageable.
The whole idea of compulsory saving in Super is to provide an income to retirees in order to avoid this sort of massive drain on the taxpayer.

If you're going to continue to allow entire Super balances to be spent, why would you offer the current tax advantaged status of Super? If people can just save X amount and then spend it all before accessing a full age pension, you might as well wipe compulsory super and let them pay tax on those savings at their ordinary marginal rate.

[Tink]

It is unfortunate but this is the current system. I have met many old ladies in my time who live in $2 million houses than are falling apart around them. They can't afford renovations and can not do any work themselves. Their husbands have passed on and they are alone collecting the Government pension. Suggest to them to sell and move into a nice new townhouse and they all say no. Why? "because I'll loose my pension" they say. The pension is God to them. Hoarding Multi Million Dollar Homes in order to collect the Government pension will one day be a thing of the past.

At least they have that option to downsize, especially if they have no savings.
If they rented they would have nothing, if they hadnt planned accordingly.

No savings, rent to be paid.
My opinion.

[FxTrader]

It is unfortunate but this is the current system. I have met many old ladies in my time who live in $2 million houses than are falling apart around them. They can't afford renovations and can not do any work themselves. Their husbands have passed on and they are alone collecting the Government pension. Suggest to them to sell and move into a nice new townhouse and they all say no. Why? "because I'll loose my pension" they say. The pension is God to them. Hoarding Multi Million Dollar Homes in order to collect the Government pension will one day be a thing of the past.

There is another dimension to this issue not often discussed. Their kids/heirs don't want them to sell, they see that 2 million dollar house as their inheritance and don't trust that the old ladies would be able to wisely manage the cash should they sell (with some justification I might add). Adding the family home to the assets test makes sense to me but it would be a huge political risk for any government to propose it.