## property bubble ## beware..!!!!

  1. 1,816 Posts.
    Property is a bubble.

    Some disagree with my basic premise, some agree. This is what the world is made up of -- diverse opinion.

    Personally, i think one only has to look at the PE for the median property in Sydney to see that values are obscenely high -- at bubble like proprtions.

    The average net yield (akin to NPAT for shares) in the Sydney market is now below 4%. If one is to inverse this, they'd find that the PE for the average dwelling in Sydney is above 25x.

    Does that represent 'value'? I'll let you decide the answer to that very pertinent question.

    If one were to ask me that question, i'd give a resounding NO as the answer.

    People were all to willing to buy shares at 25x earnings just a couple of years ago. Most with not even the slightest apprehension.... oh how things change!!

    Now ask someone whether they want to buy a BANK yielding inexcess of 6%ff (equivalent to inexcess of 8% gross), and they'll answer NO. (ie equivalent to a PE approaching 10)

    How times change!

    Ask the same question to the average property investor today ie. Are you willing to buy an average dwelling yielding less than 4% net... and the answer will be YES.

    I wonder what the answer to this very same question will be in a few years time.......hmmmmmm

    BUT WAIT... there are two big differences between property and equities.

    1. Property is significantly more leveraged. This aids the price appreciation, but can also act as a mighty burden on the way down.

    2. Property is illuquid, in comparison to shares. THIS IS ESPECIALLY SO WHEN THE MARKET MOVES FROM A PRIMARY UPTREND TO A PRIMARY DOWN TREND. The property you advertise for today might attract 4/5 serious buyers...how many buyers will it attract in a few years time when the Sh*T hits the FAN ??


    It's all so obvious, yet many just can't see it.... the boom's over, the property bear awaits around the corner... and the property bear is much bigger and more ferocious than the equity bear... the property bear has been in hybernation for a much longer period of time... he's had more time to rest and conserve energy.

    Not a nice thought.

    In closing let me just say it's best to be prepared, not alarmed...

    What does being prepared involve?

    Well, at a minimum it involves liquidating all investment properties NOW, and paying off all outstanding debts with the proceeds.

    Most will not take the necessary actions to insulate themselves from the devestating effects of the impending property bear market.

    Make sure you're not one of these many individuals. Make sure you're one of the few prepared.
arrow-down-2 Created with Sketch. arrow-down-2 Created with Sketch.