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sabretoothed - avj :)

  1. 34,500 Posts.
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    The director has 89 million still to go :P

    AVJ is like a mining stock, you buy it when its p:e is really high and its doing badly, is highly cyclical depending on the housing market.....

    Anyway, good luck with it but take some time to read some property articles...

    The first time is the hardest
    August 17, 2003

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    A hot housing market is leaving novice buyers behind, reports Richard Webb

    Well over 500 houses will be sold in Melbourne this weekend but the chances are that not many will be bought by a first-home buyer.

    Real estate agents report that first-time buyers are still attending Melbourne property auctions but are not often successful bidders - or at least not as often as in the past.

    Why? Because they can't afford the prices, which have surged 135 per cent during the past seven years - even when armed with the Federal Government's $7000 first home owners' grant and with interest rates at a 10-year low.

    The latest data from the Australian Bureau of Statistics shows that first-time buyer participation in the Australian property market fell to a record low in May. The word from real-estate agents is that first-home buyers have been even less successful since. A survey released last month by the Housing Industry Association illustrates the problem. It shows that house affordability in Victoria has dropped sharply in the past 18 months to a 13-year low, approaching levels not seen since just before the last property crash in 1989-90. Back then, interest rates hit 17.9 per cent - a far cry from today's 4.75 per cent.

    Investment company AMP Henderson chief economist Shane Oliver attributes the drop in affordability to growth in household income falling well short of the growth in house prices, which have become relatively much more expensive.

    He calculated that Australian house prices were now high by world standards - twice as expensive in terms of household income as in the US and about 50 per cent more expensive than in Britain, Europe and Japan.

    Property watchers consider the market cyclical, and say Melbourne has just experienced a remarkable boom which reached its zenith in 2001, when property prices soared by 33 per cent in the 12 months to September. As a result, they argue, price growth must now settle.

    But after such a rapid and huge rise, can affordability return for the first-home buyer? After all, 135 per cent wage growth in the next decade, never mind in the next few years, is unlikely. And the State Government's talk of restricting the expansion of Melbourne could mean the end of cheap land.

    In the next few months Treasurer Peter Costello's Productivity Commission inquiry into home ownership will investigate such questions, and whether the drop in home affordability is temporary or part of a long-term trend that will result in more rentals. The inquiry will also consider the social consequences that would follow, and what could be done about the situation.

    Federal shadow treasurer Mark Latham believes little will come of the review: "As the Howard Government embarks on yet another useless housing inquiry, the next generation of young Australians is witnessing the end of the great Australian dream of home ownership."

    Certainly, the focus in the past few weeks has been on the massive stamp duty imposed on property sales by the state governments in Victoria and NSW, both of which have benefited from the housing boom, as the duty is levied on a percentage basis.

    Yet, most property experts say, tinkering with stamp duty will do little to help the first-home buyer, as it will simply transfer money from the State Government to house vendors.

    When the Federal Government's first-home owner grant was introduced to offset the impact of the GST - and particularly when it was doubled between March and December 2001 to $14,000 - it brought forward many purchases.

    But JP Morgan chief economist Andrew Pease has calculated that the fall in first-home buyers since the grant was scaled back to $7000 in December 2001 is now greater than the surge of buying that followed the grant's introduction. In the period since the grant was introduced the number of first-home buyers was 5050 below the long-term average before the grant.

    Blair Warman, senior economist at property consultant Charter Keck Cramer, says this shows the Federal Government's first-home buyer grant has failed to help, and changing the stamp duty would be of little benefit to the first-home buyer.

    "The first-home buyer grant resulted in a pull forward in demand and a pick-up in house prices, but it did nothing for first-home buyers in the long run," Mr Cramer said. "The fact is that people spend as much as they can afford - they get a bigger loan when interest rates drop, and it will be the same if they drop the stamp duty, it will just give them an extra $10,000 or so to spend which will go to the vendor rather than the state government. It will just throw more fuel on the fire."

    Macquarie Bank property analyst Rod Cornish says two other factors have hit Melbourne house affordability: the long-term growth in property investment in Australia as people buy second and third properties, and the surge in Victoria's population due to migration from overseas and interstate.

    In terms of property investment, the picture is clear. The latest ABS figures show property investors have grown from 14 per cent of the housing market in 1991 to 34 per cent. Monique Wakelin, of Wakelin Property Advisory, believes more people will continue to invest in property as a way to fund their retirement.

    "There has been a substantial increase in investor activity due to the low interest rates and a growing understanding and expectation by baby boomers that they will need to fund their own retirement," Ms Wakelin said. "It's a financial necessity."

    Population growth is another factor. While many people left the state in the early 1990s for the Queensland sunshine, the outflow reversed in 1998 and is now running at an annual increase of 3800 people. Combined with the arrival of 36,000 overseas migrants a year, the population growth equates to demand for 15,300 new dwellings in Victoria every year.

    The long-term social trends are towards a lower level of home ownership and an older first-home buyer, Mr Cornish said. "In 1990, the average age of a first-home buyer was 32.7 years, while in 2000 it was 35.7 years. Amongst the 25-to-34-year age group, in the late 1980s, 42 per cent owned their own home or were paying it off, but by 1997, this was down to 32 per cent."

    Charter Keck Cramer's Blair Warman said the Melbourne housing market would have to flatten if affordability were to return and that more land would have to be released around Melbourne for cheaper housing.

    "The first-home buyer is the future of the market - if we can't let them in, we are going to end up with a lot of ageing home owners," he said. "Low-income groups have got to get into the market, so there has got to be areas where that can occur."

    Warman also warned of a potential shakeout among property investors when they realised the heat had gone from capital growth in property and that rental incomes were about 3.8 per cent, well below mortgage rates. "A lot of property investors have hocked themselves up to the eyeballs - they are not long-term investors. When they see that they can't get capital growth, they won't be able to afford to hold them."

    Ms Wakelin believed many first-home buyers had unrealistic expectations, fuelled in part by "the absolute plethora of property-related television shows".

    "When can we really say it was affordable for first-home buyers? It's always been a struggle," she said. "You can't expect to get your dream home straight away. If your ideal is a three-bedroom house with a back yard, then maybe you have got to look at a two-bedroom unit with a courtyard. And if you are looking in Camberwell, then look in Burwood."

    Ms Wakelin said first-time buyers struggling to buy a house should consider renting for a couple of years to wait for affordability to return to the market and to save money by taking advantage of the 3.8 per cent yield on rentals and the 6 per cent or so they would have paid had they secured a mortgage.

    Experts deny housing glut


    HOUSING demand was outrunning supply and pushing up prices, but whether a bust would follow the boom is debatable, a group of industry specialists said yesterday.

    In a forum hosted by the Australia/Israel Chamber of Commerce, economist Frank Gelber, developer Harry Triguboff and property group managing director Matthew Quinn, all said there was no oversupply of housing.
    In fact it was undersupply and increasing demand, especially in Sydney, that were raising prices.

    BIS Shrapnel chief economist Mr Gelber said the housing boom would continue longer than many expect but end in a sharp recessionary spiral around 2007 after interest rates rose.

    He said the domestic economy was strong and would continue to lift demand, without waiting for a US-led recovery.

    Mr Gelber's most controversial forecast was that mortgage rates would be 10 per cent by 2006.

    "Demand will produce strong prices and strong rises in construction costs, but when rates hit 10 per cent it will kill (the housing boom) off stone motherless dead," he said. And the biggest effect would be on high-value housing near the city.

    But Mr Quinn, Stockland Property Group managing director, dismissed the notion of a property collapse. He said people were convinced interest rates would be low in the long term, and households were more sensitive to rate rises, which meant that Mr Gelber's 10 per cent call was a slim chance.

    He said land scarcity in urban regions was now the big problem. And while substantial gains for investors remain to be made in real estate, they may not be as short term as has been the case recently.

    "Substantial gains remain to be had in real estate but the important thing is these are long-term gains as, fundamentally, that is the type of market it is," he said.

    Meriton managing director Harry Triguboff said demand was outstripping supply, even in the apartments sector.

    "There's no glut," he said.

    And that was was making affordability a problem.

    "Prices are going up, costs are going and there is a lack of land."

    He said, while it was "frightening" to contemplate interest rates rising to 10 per cent money had still been made from property in the days when they were that high.

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