Iron ore slide hits small property investors

Posted to my FB page Sin Fong Chan Real Estate on 11/2/2015 at 2:23 PM (The Age does not accept comment)
Commenting on "Iron ore slide hits small property investors"
http://www.theage.com.au/money/iron-ore-slide-hits-small-property-investors-20150212-13cieq.html

If one holds property indefinitely, it is only value of the property is only the book value. Profit is made if the property is sold. The current property market is completely out of whack, and many people buying properties during low interest rate are prone to default when the rate increases.

One must not forget that there are ongoing rates and charges, opportunity loss on better class of investment, maintenance costs, etc. Past recessions did send many property owners on tail spin.

Aussie landlords swallow losses to bet on price gains

Posted to my FB page Sin Fong Chan Real Estate on 13/1/2015 at 1:48 AM (The Age does not accept comment)
Commenting on "Aussie landlords swallow losses to bet on price gains"
http://www.theage.com.au/business/property/aussie-landlords-swallow-losses-to-bet-on-price-gains-20150112-12medj.html

It is a myth that property prices will bounce back in a ridiculous rate like before; not at least for another 10 years or longer. In some areas, the prices in real term actual go backward.

Buying property as a form of investment when interest rate is low can be a great risk. When the interest rate goes up, the return may not cover the loan interest payment. Indeed, many investors do not know how to calculate the risk-return over the long term. Most gain may be swallowed up interest repayment, management expenses, rates and charges, loss opportunities, etc. One must not forget the government taxes such as stamp duty, land tax, capital gains tax, etc.

There is no justification for apartments to be sold at such high prices, but it is all due to the ignorant and arrogant buyers who are so willing to line the pockets of developers and real estate agents with their hard earn money.

Many apartments are left vacant due to lack of tenants. Unfortunately, some are rented to a lead tenant who in turn sublets the property without the owner's permission to multiple tenants, treating the property as an illegal share accommodation.

Remember, scarcity of land results in rise of property value, which means landed property will always worth more by comparison.

House prices on bumpy road of recovery

Posted to The Age (3/12/12) on 3/12/2012 at 12:59 PM
Commenting on "House prices on bumpy road of recovery"
http://www.theage.com.au/business/property/house-prices-on-bumpy-road-of-recovery-20121203-2apzv.html

Unfortunately Leith van Onselen was correct by predicting the fall would be between 30% and 50%. There are several areas suffered from such disaster, and the local papers' property section is full of house foreclosure sale. In fact, many new suburbs may become ghost towns if economy and employment do not take a different turn.

A lot of real estate gurus have been teaching and preaching that prices of real estate double every 7 years. The choice of word "every" is not the best, but without which the statement does has some merit. This is not impossible for a property to double in price if it is purchased at the bottom of the cycle.

Rents rise by 13% in sought-after suburb

Posted to The Age (15/2/2012) on 15/2/2012 at 1:48 PM
Commenting on "Rents rise by 13% in sought-after suburbs"
http://theage.domain.com.au/real-estate-news/rents-rise-by-13-in-soughtafter-suburbs-20120213-1t0e7.html

Most people, whether they are renters, owners and investors have not much or no idea at all about the costs of owning and keeping a property. With rising utility charges, rates, land tax, on top of bank interest charges, property owners are in no way laughing to the bank. In fact, the contrary is true.

When one wants to start a business, he/she has to prepare a business plan and many potential wise operators will even attend courses on how to manage business and basic accounting.

A few hundred thousand dollars investment in property is worth more than some small businesses, and yet I have not come across anyone to take the effort to learn about income, expenses, breakeven, small business operation/management, negotiation skill, demography, real estate market trend, etc. Some of the course items mentioned are not rocket science, but only very few real dummies will find these difficult to understand.

If the initial rent charged was low, there is a lot to catch up in rent increase. Investors are not saints, and they need to make a profit to justify their investment. Many properties purchased during the last few years were at highly inflated prices, and the rental return for property investors has been in the red. Unless they are other form of income to cover their shortfall, many will have to sell their investment properties to cut their losses. The cumulative loss is far more than the capital gain in the past few years.

Unfortunately, many investors cannot curb their losses even in the next seven years, unless annual rental increase over this period is at least double that of the inflation rate. By my calculation, some may even have to increase rent by 40% to achieve breakeven.

Counting eggs before they hatch (Part 2 of 4)

Posted to The Age (13/1/2011) on 13/1/2011 at 2:55 PM
Commenting on “Counting eggs before they hatch”
http://theage.domain.com.au/real-estate-news/blogs/domain-investor-centre-blog/counting-eggs-before-they-hatch-20120110-1pt5n.html

If there is a bush fire in a country town does not imply the whole of Melbourne is on fire. The crash in some regions is more evident and severe than others. Indeed, some suburbs do experience fall of 40%.

Many properties in certain suburbs are highly inflated, due to overseas investors’ coming to snap up properties in a rather uncontrolled manner – without requiring FIRB’s prior approval. This was an ill-thought out policy from Kevin Rudd who tried to avoid the GCF. This policy has now been reversed, and the overseas investors’ retreat stops further speculation, and the prices fall substantially and hurt many locals who follow the Joneses. Easy finance also attracted many who could not afford to fall into the mortgage trap and these people will be victims suffering from financial suffocation.

Life is more than just possessions and owning a property. During difficult times, people need to make sacrifices. My wife and I went without chairs for two years when I bought my first home. We used to sit on cardboard health drink cylindrical boxes.

End Part 2 of 4

Home owners' $300m blow 2

Posted to Herald Sun (9/10/2011) on 9/10/2011 at 12:56 PM
Commenting on “Home owners' $300m blow”
http://www.heraldsun.com.au/news/more-news/home-owners-300-blow/story-fn7x8me2-1226162101573

Where have all the overseas students, mainly Chinese and Indians, gone to? Melbourne CBD is no longer the same on weekdays and weekends.

Most apartment investors are not owner occupiers. In fact, many of the high rise apartments are refurbished or built for special purpose – student accommodation! The change of Federal Government policies on visas and international education kill off at least 50% of the lucrative $18.8b international education industry, and even Ted Baillieu is feeling the pinch for the state revenue!

End Part 1 of 2

The demand of accommodation was not generated from local students, but those from overseas coming to study in private colleges, TAFEs and universities. Many of the apartments were sold off-the–plan to buyers overseas through exhibitions or seminars conducted in their country of origin. Investors, local and overseas, were attracted to rental guarantee, which unfortunately translates to inflated purchase price. However, due to lower interest rates couple of years ago, the rental return was far too attractive to walk away from.

Local investors can also offset their loan repayment by negative gearing. However, if rental demand decline due to shortage of student tenants, negative gearing becomes a big financial loss. Compounding the problem is that parents of overseas students are allowed to purchase properties when their children are studying here, on condition that the properties have to be sold after their completion of study. With hardly any new students coming, the demand of second-hand properties has dwindled, and therefore sold at a loss.

End Part 2 of 2

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Home owners' $300m blow

Posted to Herald Sun (9/10/2011) on 9/10/2011 at 11:59 AM, 12:15 PM
Commenting on “Home owners' $300m blow”
http://www.heraldsun.com.au/news/more-news/home-owners-300-blow/story-fn7x8me2-1226162101573

Real estate cycle is about 10 years, but the recent one has been distorted to about 12 years, by government policies enticing buyers to commit excessive loans, RBA's far-from-accurate interest rate modelling and banks' / financial institutions' greed to skin off extra from heavily debt burden borrowers.

Investing in high rise apartments even in the CBD always carry a lot more risks because Australia is not ready for it. For those with employment, they have enough being "imprisoned" at their workplaces few hours a day, and would rather spend the rest of non-working hours in more spacious dwellings.

Our population is still far too small to call for high rise apartments which look like one-finger salute. Despite all the bad publicity, properties near water will have their days of glory returned sooner than the other similar investments, say around 30 to 40 years away. Beware of owners' corporation fees, they are like daylight robbery – why spend money on pool or gym for other people’s enjoyment!

Prices are not just due to supply and demand, but the ultimate reason is scarcity of land. It may be cold comfort for some, but the upswing of the cycle is likely to be in March / April 2013.

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Beware of the false profit trap

Posted to The Age (12/9/2011) on 12/9/2011 at 4:55 AM
Commenting on "Beware of the false profit trap"
http://theage.domain.com.au/home-investor-centre/beware-of-the-false-profit-trap-20110909-1k0ek.html

Many property investment seminars and books provide great bottom line figures after certain number of years. These figures are inaccurate, because these have to be converted to present value mathematically. A million dollars may sound a lot, but that amount in 30 years, if earning at 7% per annum compounding the interest monthly is equivalent to $123,205.85 at present. Many of these investment advisers have no idea about mathematics, and many assumptions made are over-simplistic.