Category: Property Market

A financial crash is coming to a house near you.

While we’re not there yet, the property market is fast approaching bubble territory.

On this topic, I know that some of my colleagues (Phil Anderson, Terence Duffy as well as Callum Newman) over at Cycles, Trends and Forecasts will disagree with me! The team associated with property bulls do make some solid arguments, pointing towards an additional 15-year rally in property costs. If you ask them, we’re nowhere near the top in real estate.

Admittedly, they could be right. This is why I don’t ignore what they have to say. Nor should you. I suggest checking out what they are saying here.

That said, getting done my research on the property sector, I’m not going to run out and buy an investment property.

Here’s why…

Australia’s property market now worth $6 trillion!

A good place to begin is questioning whether home has already peaked. In some Australian states, it appears so.

Looking from Perth, in a clear sign that the mining boom is over, the actual June REIWA figures show that the actual medium house price rests around $530,000. Prices have crashed by $20,000 typically in the last six months.

While you don’t want to hold Perth property, it’s another story over in Sydney and Victoria. The average house price has now reached the $1 million mark in both states. And, based on the Australian, the good times may be more than:

‘Amid booming prices in Sydney and Melbourne, regulators possess in the past year grown increasingly concerned that lending standards are slipping, as banking institutions battle to lend and purchasers take advantage of record low interest rates.

‘In December, the Australian Prudential Regulation Expert stepped in and told banks to limit financing growth to property investors in order to 10 per cent a year…

‘Despite the banks constant shrill of super-safe housing, APRA have comprehensively dismissed this given the main banks all failed the APRA November 2014 mortgage stress assessments. And in May APRA highlighted severe deficiencies in bank housing financing credit underwriting standards.’

Indeed, the brakes take presctiption with bank lending. Which is a cause for concern.

The whole property market is built on the premise that the lending and leverage will continue forever.

Unfortunately, it’s unrealistic to expect debt to develop forever.

Eventually, the system requires a major restructuring to grow again. This isn’t rocket science. The editors from Port Phillip Publishing have contended for years that the increasing worldwide debt load is totally not sustainable.

With limited economic growth and deflationary conditions, it’s likely that the debt cycle will blow up soon. So when the overleveraged system goes down the actual drain, this won’t be good news for property prices.

The Reserve Bank of Australia’s Governor, Glenn Stevens, is also concerned. He said?that he was ‘concerned regarding Sydney‘ house prices,?which he described as ‘crazy‘ in June.?This week he backed up his view through saying that ‘dwelling prices continue to increase strongly in Sydney‘. And that the actual RBA is working to?’assess and include risks that may arise in the housing market‘.

Given the extraordinary financial debt levels, authorities are even starting to look at regulating negative gearing. Doctor Luci?Ellis, the?RBA’s?head of monetary stability,?told a United states senate economics committee inquiry in to home ownership on Tuesday,

‘The combination of negative gearing and concessional taxation of funds gains creates an incentive that makes people more comfortable about dealing with leverage… It’s worthy of a holistic review.’

At the end of the day, it’s really easy…

Increasing regulation and slowing financing growth are ominous indicators for the housing sector. And if these measures go ahead, the actual knife will be put to the property bubble.

And if you didn’t know, 60% associated with Aussie wealth is associated with the property sector. This comes even close to the global average of 45%. Then when, and not if, property costs crash, household wealth will require a huge hit.

The property peak is approaching

We’re also facing the biggest financial crash of our life time — the sovereign debt crisis. This is the real trigger for the collapse in property prices. Don’t merely take my word for this…

Doug Casey, from Casey Research, has been saying this for years now. Martin Armstrong, Chairman of Princeton Economics International, started warning about the coming ‘Big Bang’ back in 1985! And our founder, Bill Bonner, has been warning about financial systems defects and faults since, well, before I was born!

The unfortunate fact is that no one listens.

Unfortunately they will hear it when the relationship bubble pops…and the majority associated with overleveraged products collapse. And this includes home prices.

Don’t be the last one standing

Already, the actual smart money is getting out…

Billionaire Wayne Packer just sold his mansion for $70 million, breaking the all-time record. This kind of activity typically occurs at the top of the market.

And my close friend’s dad, a multi-millionaire in the Melbourne property development space, is going to sell all his properties. When the smart money is escaping . like this, you don’t want to be the last one standing.

You need to look after yourself.

The best way to do this is by moving your money into quality resource stocks. Compared to property, they are dirt cheap. And when resources come back, as I’m sure they will, a person stand to make a tidy revenue. But you have to play your cards right, buying in to the right sectors…at the right time.

If you want more information on how to best play these markets, you can start here.

Regards,

Jason Stevenson,

Resources Expert, Resource Speculator

From the Port Phillip Publishing Library

Special Report: Nitro Stocks Completely unknown to most Aussie investors, there is a special type of ASX expense that can generate more cash per week than most people earn in a year! They’re called ‘Nitro stocks’ and they can cram 20 or 3 decades of market profits into just a few months. Sam Volkering states, ‘It’s like taking a slow-moving bluechip and pumping it full of steroids!‘ Sam’s noticed three stocks on the verge of striking their ‘Nitro-phase’. And if you want within, you’d better hurry!

You’ve probably heard plenty concerning the usual economic trends, such as the trend in business confidence or the trend in interest rates. I love to think of these as micro-trends.

What a person likely haven’t heard much — if anything — about are the macro-trends functioning above these micro-trends. Over in the US there are several macro-trends all converging into 1 sector. Making this particular field, one to watch.

Macro-trend number one is the ageing US population. According to data from the US Census Bureau, there are around Seventy six million baby boomers living in the united states today. That’s almost one fourth of the US population. It’s an extraordinary number to be coming into their own retirement years.

The second macro-trend is that many of the baby boomer generation don’t have enough in their retirement savings. This really is from a recent article within the New York Times:

‘On average, a typical working family in the anteroom of pension — headed by somebody 55 to 64 years old — only has about $104,000 in retirement funds, according to the Federal Reserve’s Survey associated with Consumer Finances.

That’s not nearly enough. And the situation is only going to grow worse.

‘The Center for Retirement Research at Boston College estimates that more than 1 / 2 of all American households?will not have enough retirement income?to maintain the living standards they were familiar with before retirement, even if the people in the household work until 65, two years longer than the average retirement today.’

The third macro-trend is rising property prices. While they may not have enough savings, many of these baby boomer retirees possess considerable equity locked in their houses.

Rising property prices, insufficient retirement funds and an ageing populace all converge to make manufactured home estates an appealing option to boomers who wish to downsize.

This sector offers a low cost real estate option in comparison to traditional homes. It allows residents to free up the locked equity within their home to spend on their retirement years.

I’ve mentioned manufactured real estate estates before. Called MHEs for brief, these are places where citizens, generally over the age of 55, personal their factory-made homes but spend a weekly site rent towards the owner-operator.

It is useful to look at the US market because in the US, manufactured home estates are a far more mature sector than in?Australia. Seeking to the US can give you a good indication of what lies ahead for this sector here in Australia.

In the US, the 2 major listed companies within this sector are Equity Lifestyle Qualities Inc. [NYSE:ELS] and Sun Communities Corporation. [NYSE:SUI].

Equity Lifestyle Properties is the largest operator. Here is the monthly chart for Equity Lifestyle Qualities.

Equity lifestyle properties monthly club chart

Source: Market Analyst

The chart tells you that the weight of money in the US suggests there’s a strong demand for this kind of housing. If you bring up the chart for Sun Communities, you’ll see a similar story.

You can see this stock bottomed out in The fall of 2008, months before the common market did in 03 2009, signaling this company was in a powerful position. Why?

The residents of those manufactured housing estates possessed their housing units outright. There were no unaffordable home loans purchasing an unaffordable property price. In this instance, there is no property to buy; it is leased in the operator. Can you see that these residents experienced none of the credit score exposure associated with the broader economy, such as sub-prime?

Profits for this company is determined by how cheaply they can buy land. As the GFC ran it’s course and land costs in the US continued to decline, the organization could make further acquisitions cheaply. This increased profitability, not to mention the share price quickly factors this in. From the GFC levels this company has been in a strong upward trend ever since.

Over at Cycles, Trends & Forecasts, this really is precisely what we show as well as teach you. How to identify this kind of megatrends and take advantage of them before these people happen. The biggest trends ALWAYS involve the economic rent — the largest which is land value. If you don’t understand this, you can find out more right here:

The US economy generally leads Australia, so this is one field you may want to follow closely right here. It’s why, at Cycles, Trends & Forecasts, we study the US first. And of course, Australia faces all the same problems as the US; an ageing population, baby boomers with insufficient funds to retire, and rising property costs.

But can you see why these properties are so appealing and reasonable for retirees? Sure the structures, built prefabricated in a manufacturing plant, are cheaper than a normal website built house. But that’utes only half the story.

When brand new residents buy into one of these properties they are buying the house only, not the land underneath. They pay that like a weekly site rent. Take away the huge hurdle of upfront land costs, replace it having a site rent and all of a sudden housing becomes much more inexpensive.

On the Australian stock exchange, we have several companies that are involved in this sector, including Ingenia Communities Group [ASX:INA], Lifestyle Communities Ltd [ASX:LIC], and Aspen Group[ASX:APZ]. Last month they were joined by a new player, Gateway Lifestyle Group [ASX:GTY], which is seeking to profit from this emerging trend and it is now the largest?player within the Aussie market. This is a company you can follow now to monitor the Aussie real estate cycle. We suggest you watch as this newly listed company continues an aggressive acquisition drive in order to capture and collect the rent.

According to chief executive 4 Ottawa, the business has been profitable through day one, with most residents receiving the age pension and rent assistance from the federal government. Guaranteed earnings for the company, in other words.

Another advantage for the operator is that the citizens own their homes, so the owner is not liable for any servicing.

The weight of money in the US is actually indicating this is a hot field. It looks like it also will become an appealing option to the first waves from the boomer generation here in Australia, a lot of whom have insufficient super funds to fall back on.

The just unknown factor for many is actually land price. Should land prices go higher, this real estate option will become ever more popular as retiring boomers unlock the actual land value in their home.

Land price is key to the cycle. Nobody ever teaches you to follow this. Except over at Cycles, Trends and Forecasts. It is so important for your own investing success to understand this particular. History clearly shows that the period unfolds in a predictable series and timing.

You can use which sequence and timing from the real estate cycle to your expense advantage. To learn more go here.

Regards,

Terence Duffy,

Contributing Editor, Money Morning

Editor’s Note: The above article had been originally published in The Daily Reckoning.

From the Port Phillip Publishing Library

Special Report: The Golden Age of Infrastructure China just unveiled a $100 billion international investment bank for a solitary mission: Rebuilding the 2000-year old Silk Road trading path. Why? Because the Middle Empire is determined to redraw the global financial map…and establish a new world order of trade. Therefore it is kick-starting what could be the biggest infrastructure boom in history…and handing you a once-in-a-lifetime value investing opportunity in two companies that could double within price once this new ‘Golden Age of Infrastructure’ dawns…

Central bankers seem to hate this.

Politicians don’t like it.

Social welfare do-gooders despise it.

A weird combo of mainstream and contrarian commentators train against it too.

And provided your editor’s stance on the Aussie property market, you may think all of us hate negative gearing too.

But we don’t. We’re not saying we love unfavorable gearing. Just that there’s no benefit to abolishing this…

Those who argue against negative gearing tend to do so for two reasons.

First, they say it’s causing a house price bubble.

Second, they say it isn’t right that one group of people is deserving of an ‘unfair’ tax break. They are saying that it means others are ‘paying’ for the negative gearing tax break.

Most think that both arguments are true. But they’re not.

Banning negative gearing will just be the start

As far because we’re aware, there is no proof that negative gearing pushes up house prices.

In fact, it is crazy to suggest it does. Investors only own one-third of Foreign housing. And not all of those qualities have mortgages.

Plus, to suggest which negative gearing pushes up house prices, suggests that investors have been in the game to buy every house in Australia.

That’s not true. Sure, there may be times where someone is actually bidding against an investor, but that doesn’t mean the investor has more money to spend than the owner-occupier.

Not that, but to be consistent, quarrelling against negative gearing for investment properties also means that folks ought to argue against tax breaks for borrowing against all investing and business purposes.

Want to get a loan to buy shares as well as offset the interest costs against your income? If they abolish unfavorable gearing, they’ll need to abolish margin lending for shares.

Want to gain access to money to buy some new equipment that will help grow your business? If they abolish negative gearing, they’ll need to abolish tax breaks on loans too.

The case against negative gearing is really an argument for taxes increases. And as we’ll clarify, anyone who thinks negative gearing is actually costing them money is a fool.

Negative gearing is simply a scapegoat

Folks say that it’s not fair they are funding the tax breaks associated with property investors.

They say the same thing about franking credits on shares.

These views must be music to the government’s ears. The social well being do-gooders spouted off the same case against super earlier this year.

It’s the idea that rich people are rorting the system and priced at everyone else more in income taxes.

The reality is that it’s not priced at others more in taxes at all. They assume that if the government abolished negative gearing, the government would get more in income taxes from property investors, and then might cut taxes elsewhere.

In fact, it’s more likely that the government would just keep any rise in tax revenues and improve spending. History tells us they would increase spending even more than they increased their tax consider. That would send the federal spending budget further into the red.

But whether or not the government did abolish unfavorable gearing, what would it mean with regard to government revenue?

Take this in the Sydney Morning Herald:

‘Australians would no longer be able to claim losses on their expense properties against their income, saving over $1 billion within federal revenue a year, within plan put to the federal government by the Australian Council of Sociable Service.‘

Wow! A one billion dollar saving each year. It sounds a lot, correct? However, we’ll just remind you that, as of final Friday, the federal debt was at $375.5 billion.

One million dollars would just about cover one month of the federal curiosity bill on its debt.

So, folks may not like unfavorable gearing, but you won’t hear your own editor railing against this. We’re all for it. We’re towards any method any buyer can use to reduce their tax bill.

And apart from, if you want to blame anyone for high house prices, blame the actual central banks. Low interest rates, money printing, and easy credit would be the real cause. Those in power are just using negative gearing as a scapegoat.

As all of us always say, your money is definitely better off in your hands than it is in the government’s hands.

Cheers,

Kris

PS: Whenever you see the government or social welfare groups arguing about a tax break, don’t take it at face value. More often than not, the real problem isn’t individuals allegedly ‘rorting’ the system. It’s usually the government and the central bank creating disturbances in the economy. Of course, this isn’t just happening in Australia. It’s occurring on a global scale. Visit here for details.

Great technological change is coming and also you need to know where those gains will manifest. That’s the only way you can position yourself to make the most of it all.

One prime example: Tag Pivac and his company Fastbrick Robotics is positioned to redefine the global construction business by developing the first fully automated bricklaying robot. Until now bots have required an on-site contractor to assist with the operation.

Named Hadrian, this robot can work around the clock, day and night, laying 1,000 bricks per hour. That’s a new house each and every two days — something that takes its individual equivalent 4-6 weeks of back breaking work.

It’s all 3D computer aided and created. Hadrian calculates where each brick should go and scans and cuts the bricks when they need to be re-shaped. Mortar under pressure is applied towards the brick and no human contact is required. It can even leave areas for wiring and plumbing.

But here’s the main point, numerous articles commenting on this groundbreaking technology are suggesting the significant cost reductions in construction will assist in promoting real estate affordability. But as revolutionary as this technology is, this it cannot achieve.

Because it is not the cost of construction which could spiral out of control above the ability of wages to pay for it, but rather it is the land it rests on. And a better creating technology simply will not solve that problem.

Land, which is fixed within supply, will always sell at the red line — at what the economy can afford for that specific location. It doesn’t really matter if the building costs come down. Land will take increases eventually.

You must understand this. It will make you a better investor. You’lmost all start to see the huge potential increases that are coming for land prices, and you can then work on a way of taking advantage of it all.

In an associated story, last year a company in China called Winsun showed that it may build 10 3D imprinted houses?in just one day. The actual reported cost for each is simply US$5,000. This is an absolute sport changer for the cycle forward. The company has even demonstrated the ability to construct a five story apartment building.

More news from China; an entrepreneur by the name of Zhang Yue and his organization Broad Group are creating a revolution in building city office towers. What is surprising about it is the speed where his buildings are built.?Work towers shoot up at an uncommon three stories per day. Assembled from thousands of factory made steel modules, the whole thing is actually slotted together like a Meccano established. His 57 story office tower dubbed ‘Mini Sky City’ with 19 atriums, office space with regard to 4,000 people as well as 800 apartments, took only 19 days to build.

Once it becomes cheaper to build, people will pay a little more for the land element…and so they will. We are beginning to get an inkling of the great technical gains that are coming this particular cycle. Once you understand what pushes the cycle, you’ll stop listening to those talking of the property collapse, as many do, and start to focus on taking advantage of exactly what may be the biggest real estate growth of all time.

The advances in building technology promised during this period look be stupendous. You can be absolutely certain land price will begin to start to factor in those future gains and owners sets their expectations accordingly.

Companies such as Fastbrick, Winsun and Broad Group have been in various stages of development. But it is a sign of things to arrive, and this trend can only send land prices higher.

The property cycle is turning right in front individuals. This may be the biggest real estate period of all, dwarfing all others. Make sure you’lso are in a position to profit from it as well as time it all to your advantage.

Regards,

Terence Duffy,
Adding Editor, Money Morning

Ed Note: The above article was originally published within The Daily Reckoning.

From the Port Phillip Publishing Library

Special Report: The Golden Age of Infrastructure The far east just unveiled a $100 billion multinational investment bank for any single mission: Rebuilding the actual 2000-year old Silk Road trading route. Why? Because the Middle Kingdom is determined to redraw the global economic map…and establish a new world order of trade. So it’s kick-starting what could be the biggest infrastructure boom in history…and giving you a once-in-a-lifetime value investing opportunity in two companies that could dual in price once this new ‘Golden Age of Infrastructure’ dawns…

We hear a lot about how difficult it is to save for a deposit and get onto the property ladder. Well, according to an article through The Courier Mail last month, a 17-year-old woman from the Gold Coast might have come up with an ingenious solution. She’utes crowdfunding her house deposit to break into the Gold Coast home market.

She’s buying the home as an investment, not to live in. She wants to give herself the best start in life and set up her future.?She understands what she wants to buy and just how much she can borrow, and she or he is left with a $48,000 shortfall.

To make up the difference, she’s providing 70 weeks of holiday accommodation in her new home for anyone looking to have a holiday in the vacation funds of Australia, the Precious metal Coast. If enough people rent a week’s accommodation ahead of time, she will use the money to pay a deposit on her house.

The qualities she is looking at are 3 bedroom homes within Fifteen minutes of the beach and 10 to 20 minutes from the Gold Coastline amusement parks. Once the holiday accommodations have been completed, the house will be rented out

If she fails to enhance the money, the contributions she has received will be returned. However, if she does overcome the line, she may well be on the winner. According to a recent article from the Australian Financial Review, the coming property boom on the Gold Coast will see some properties triple in value, driven usually by Chinese investment and growing rapidly tourism numbers.

It’s an ingenious thought, crowd funding a deposit to purchase an investment property. That’s how 17 year olds think nowadays. But can you see the implications? There is potentially a whole new demographic to bid up Australian real estate that simply wasn’t presently there before.

Many don’t believe Australian property can go higher, however innovative ideas like this one ought to keep property prices humming together for now…and into the subsequent real estate peak.

Of course, there are many other ways that property will go higher.

Subdivision is something which continues to gain traction. It’s happening all around where I live. There are four subdivisions in my tiny little courtroom alone, and it alters the way property is viewed and valued. Blocks able to be subdivided come with an increased potential use worth, keeping asking prices high of these lots. It also allows elevated housing affordability by reducing the land costs.

A free standing home on a large block will most likely become a hurdle too high for many families. Like it or not, the days of kicking the footy in the backyard may be on borrowed period, as Australians settle for smaller sized lot sizes, like the English and Europeans already do.

Enormous infrastructure plans are going upon all around the world. Australia is no exclusion. Money spent on roads as well as rail lines can only perform one thing — bring higher home values.

Possibly the biggest factor in home prices is technology. The huge gains promised should provide great improvements in efficiency. For example, in the future we may observe 3D printing used to develop really cheap houses. A Chinese company is already carrying this out. They’re building 10 houses a day. Each small home takes minimal labour and costs as little as US$4,800. Now they are only basic structures. And also the technology has some way to go. However should this technology really take off, this will drive land costs higher.

Now you may have read some of the mainstream articles telling you which Australian housing is at in the past unaffordable levels and that an accident is imminent. This viewpoint is reached by evaluating the average adult wage to accommodate prices from generations ago. But this is a flawed assessment. The days of dad going off to work while mum is likely the children are long gone. It is now usually two incomes putting in a bid on Australian real estate. The data, in terms of combined household income, shows housing affordability has done nothing but keep up with wages for the last decade and more. This indicates the potential for property to go higher.

Another factor to keep property prices on the boil is just offshore wealth, particularly from cashed-up Chinese seeking a secure property legal rights system. Don’t expect this trend to slow in the near future. The lower Australian dollar can make Aussie property more appealing in order to overseas interests.

Then there is populace growth. The big swing improving our recent population growth estimates is net overseas migration. This from a recent post in the Australian Financial Review, under the title ‘Who will profit from Australia’s population boom?’

‘The ABS reviews that the share of Aussies born overseas recently arrived at a 120-year high. “Australia traditionally had a significant proportion of migrants, but we’ve now hit a peak not seen since the gold rushes of the late 1800s,” says the ABS’ Denise Carlton. This year China surpassed the United Kingdom because the primary source of permanent migrants and also, since that time China and India have continued to provide the largest number of brand new residents.’

Using the figures of the 2015 Intergenerational Report, and assuming overseas migration remains constant, then Australia’s human population is estimated to double to 47 million by 2055. That’s hugely beneficial for property costs.

And the final factor is helping to loosen credit. For now, mortgage credit is still quite tight and reasonably difficult to get. However, ought to credit standards loosen that will allow even more people to borrow in order to bid on property. This would be hugely beneficial for property prices.

Where in order to now for Aussie property?

At Cycles, Developments and Forecasts we get plenty of suggestions suggesting Australian property is on the verge of collapse. Some readers resist the idea of Australian property heading higher because wages are not increasing and the post-mining boom economic climate is stagnating. However, history indicates otherwise.

A 17 year old girl from the Gold Coast, regardless of whether she is successful or not, has given us a glimpse of exactly what might be achievable.

Innovations like this recommend this real estate cycle may have some way to go yet. In fact, if history is any guide we are only just starting out. Early indications suggest this particular cycle may well dwarf all others. The secret is to time it all to your benefit. Go here to find out how.

Regards,

Terence Duffy,

Contributing Publisher, Money Morning

From the Port Phillip Publishing Library

Special Report: The actual Golden Age of Infrastructure China simply unveiled a $100 billion multinational investment bank for a solitary mission: Rebuilding the 2000-year old Silk Road trading route. Why? Because the Middle Kingdom is determined to redraw the global financial map…and establish a ” new world ” order of trade. So it’s kick-starting what could be the biggest infrastructure growth in history…and handing a once-in-a-lifetime value investing opportunity in 2 companies that could double in price once this brand new ‘Golden Age of Infrastructure’ dawns…

Yesterday, Westpac [ASX:WBC] announced that it would make it tougher for investors to get financial loans for property.

From today let’s start, Westpac will need investors to have a down payment of at least 20%. They’re decreasing their own LVR (loan to value ratio) cap to 80%.

Other banks have already made it tougher for investors to borrow. For example, NAB [ASX:NAB] capped their LVR at 90% last month. As well as ANZ‘s [ASX:ANZ] 90% cap comes into effect these days. The Commonwealth Bank [ASX:CBA] is the only big bank that has not really done much. CBA has just made their investor mortgage loan affordability test a bit tougher. But none have gone as far as Westpac.

In yesteryear, investors could get loans from Westpac with as little as a 5% down payment. Many commentators insist that this is what has helped drive up property prices. It makes a lot of feeling; a $50,000 deposit goes a lot further when it only has to be 5% of the total cost.

It will be very interesting, for investors and potential owner-occupiers alike, to see how (or if) Westpac’s new rules change the housing market.

Westpac’s massive buyer loan portfolio

Reducing the LVR is a daring move for Westpac, which receives a lot of business from real estate investors. In fact, according to APRA, it’s Australia’s greatest property investment lender.

It just takes a quick look at APRA’s latest monthly banking stats to see what’s going on.

Source: apra.gov.au
[Click to enlarge]

Westpac has $150.9 billion worth of housing investment loans on its books. Commonwealth Bank has $127.Nine billion, NAB has $65.8 billion, and ANZ has $60.4 billion.

In May 2014, the same time last year, Westpac had $137.2 million worth of investor loans. Without the rounding, Westpac’s investor lending development is sitting at Ten.01%. APRA wants banks to slow investor lending growth to under 10% per year.

Who is it truly going to affect?

On the face of it, Westpac’s new rules sounds like a great tough measure against insane, speculative investing. The thing is, it is going to affect first-time investors more than others.

Investors can still get a low-deposit property investment mortgage if they have their own owner-occupied home that has a certain amount paid off. Or even they can use mortgage insurance, which can potentially cost thousands of dollars in premiums anyhow.

In other words, rich people with plenty of assets to secure their loans will still be able to be lent with high LVRs.

It’s just people who are purchasing their first investment home who will have trouble. Or even those who are buying an investment property before their first house, and renting where they want to live in the meantime.

It affects the people who can least afford to spend years and years saving the 20% deposit, while property prices escalate.

By the way, if you’re thinking about investing in property but are not quite ready to take on a hefty (possibly second?) mortgage, there are alternatives. In his report ‘The Three Best Investments in Australia for 2015 and Beyond’, Kris Sayce explains how you can invest in Aussie property through the stock market. He even indicates a few stocks that he believes will perform well. Click here to find out how to download your totally free copy.

Eva Mellors,
Contributor, Money Morning

Victoria played host to a record number of real estate auctions within the six months up to the end of 06.

Just over 13,000 houses were sold at public sale from January to June. In the same period this past year, 12,400 homes went to auction. That’s nearly 5% much more.

Most of that growth came from the actual outer suburbs of Melbourne. That’s those large, still-kinda-affordable and surrounding suburbs on the edge of the greater Melbourne area. Those suburbs noticed a 20% increase in the number of auctions.

More buyers are heading additional out of the city to look for affordable homes. That’s boosted the amount of people inspecting each property. When the number of people showing interest exceeds a certain number, it can make more sense for the owner to auction the property instead of selling it privately. By doing this, they can maximise the sale price.

Enzo Raimondo is the CEO of the Real Estate Institute of Victoria (REIV). He explained why auction numbers are dealing with the roof. And to the shock of some, it’s not just due to interest from investors. Mister. Raimondo says there’s growing curiosity from owner occupiers who want to get into the property market before it’s too late. He says they’re looking in areas which are still affordable, and within commuting distance of the CBD.

Property investor Carol Williams says that, from an investment strategy perspective, she prefers not to battle it out at auctions. ‘We don’t normally purchase at auctions as we prefer to offer our own price, and if it’s not recognized, we walk away.‘ She’s additionally not bothered with where the ‘hot’ suburbs are, preferring to invest in the areas she knows nicely. ‘We have usually bought close to where we live in order to keep an eye on them… We know the [local] market and prices well.A Williams also mentioned that taxes factors are one of the reasons she chooses certain properties over others.

It seems possible that owner-occupiers are being pickier about where they’ll reside, driving up prices at auctions. And investors are searching for certain strategic priorities, traveling up prices in private sales.

It’s interesting to see which suburbs have the largest number of online auctions. Auction interest seems to be focused in the eastern suburbs. The actual REIV says that Mount Waverley, Wantirna South, Glen Waverley as well as Bayswater are amongst the top 10 suburbs with the fastest growing auction figures. In fact, Wantirna South doubled its number of auctions compared to the same time last year. Richmond had the highest number of auctions of any internal city suburb.

According to the REIV, ‘the 2015 auction capital is Reservoir – for that second successive year.A High auction numbers and attendance levels have helped drive up average prices in Reservoir. The current median is $600,000 for a house. Prices grew 3.5% in the quarter as much as March. Interestingly, the average price for all six suburbs surrounding Reservoir is just $569,900.

Source: REIV
[Click to enlarge]

What’s so special about Tank? Well, if you believe the hype on suburb review site Homely, Reservoir is set to be the hottest new suburb among young families looking for space as well as affordability. One user stated ‘We moved here 18 months ago after being priced from the inner North. Not surprisingly most of our neighbours are young families same as us.’ Another called it a ‘great up and coming family suburb‘, saying ‘I have recently purchased in Reservoir with my wife and 2 young kids… I believe this is a great area for families and we are very happy with our purchase.’

Pro-Reservoir local people love the parks, the actual proximity to Preston Market, the local public schools, and most of all the relative affordability compared to inner northern suburbs. But not everyone is a fan. IT professional Billy Bob Friday* disagrees. ‘I’m looking to buy, but Tank is a [expletive redacted]’ said Friday. ‘Had to call the police on my bogan neighbours when they started a bare-shirted fist-fight in the middle of the street at 3am… a week after I moved out of Lawley Street, there were deaths in a gang-style shooting at the strip shops one street away.A Crime remains a concern, even though 2013/14 stats from Victoria Police reveal that the rates of most main crimes are going down in the council area to which Tank belongs. Still, perhaps this particular reputation is why Reservoir has not reached the lofty heights of neighbouring Preston ($744,000 median) or Coburg North ($682,000 average).

By the way, if you’re interested in trading but don’t want to spend a lot of money to actually buy a property, there is an alternative. You can get a foothold within the property market via the ASX. Forget having to get up at the crack of dawn on a Saturday to drive to the suburbs. You don’t even have to put on pants — just invest on the internet in the comfort of your own home. In his report ‘Three Best Investments around australia for 2015 and Beyond’, Kris Sayce shows you how it is done. He even indicates a few stocks that he thinks are worth your attention, if you want to get skin in the property game. Click here to find out how to download your free copy of this report.

Eva Mellors,
Contributor, Money Morning

*Real title withheld

Retirement living is a key investment priority for many listed home funds right now.

Today, Stockland [ASX:SGP] closed an offer to purchase eight retirement communities from Masonic Homes for a wholesome $75.8 million.

Last week, Eureka Group Holdings [ASX:EGH] acquired its Eleventh retirement village.

In May, Estia Health [ASX:EHE] acquired four new nursing facilities across two states.

Several providers are also building new facilities. And they’re not your common old folks’ homes either. They’re modern, stylish buildings along with blends of independent residing and nursing home rooms, with regard to continuous care.

Analysts are positive about the future of the retirement as well as aged care living industry.

For example, Tom Duncan, associate director of research at Colliers Worldwide, reports that:

‘The Healthcare and Retirement Living (HRL) sector, which includes aged care [and] retirement living … is poised for growth. This is fuelled by strong investment fundamentals and Australia’s growing and ageing population who will seek more economic living choices. HRL is subject to significant marketplace interest [because of] a greater than ever need for a good offering in this key sector.’

According in order to Department of Health predictions, Australia will need an extra 7,667 aged care places per year up to 2022. That’s in addition to the thousands of independent living dwellings that will be built to meet demand from older Australians selectively downsizing.

But what does ‘economic’ mean? Surely it doesn’t simply mean cheaper to buy into, or cheaper to be a member of? And importantly, what does ‘solid offering‘ mean? Does that mean specialist care for different conditions, a variety of home styles, different price points, or anything else altogether?

One thing is clear. As the retirement and aged care market becomes more crowded, large listed funds will have to diversify to stay competitive. In Duncan’s statement for Colliers, he also mentioned which ‘The ideal balance of a profile [of retirement properties] will include … an appropriate mix of new and innovative product‘.

For inspiration on what’s ‘innovative‘ in retirement living, Aussie property companies look overseas.

De Hogeweyk

De Hogeweyk is a gated village that’s part of the Hogewey nursing home company in Weesp, in the Netherlands. It is owned by Vivium, a government company.

The reason this Dutch village is so unique is that it has been specially designed for residents along with dementia. It’s a self-contained community with its personal park, town square, grocery store, theatre, salon, eateries, and so on. There are 23 houses among the 152 residents.

Over 250 staff act as shopkeepers, waiters etc. whilst caring for the residents. They help to maintain the Truman Show-style ‘reality’ that the citizens live in. This is labour-intensive and expensive. So to help pay for all this, the public are allowed in to spend money in the shops and entertainment venues.

Left to right: the square, some of the shops, the supermarket, and the pub.
Source: Allianz, realestate.com.au
[Click to enlarge]

Residents are reportedly happier, healthier, and require less medicine. Each resident pays about euro 5,000 per month for a place in the village. That’s around $7,216, or $236.Sixty per day. In Australia, the maximum basic daily fee that the government will pay for new residents is actually $47.49 per day. So the ‘dementia village’ in Australia would be a high treatment option, or a premium option that wealthier families of dementia victims could elect to pay for.

The expertise to design a village like this is readily available. Dementia Village Architects is a Dutch firm that’s worked on De Hogeweyk, as well as the future Mahal Cielo Village in San Luis Obispo, California.

Lasell Village

Several research indicates that lifelong learning has real health benefits. Seniors that continue to learn are often crisper, more engaged, and happier. A 2004 study in the Oxford Review of Education said that ‘Participation in lifelong learning had effects upon a range of health outcomes; well\being, protection and recovery through mental health difficulties, and the capacity to cope with potentially stress\inducing circumstances including the onset and progression of chronic illness and disability. These effects were mediated through relatively immediate impacts of learning upon psychosocial qualities; self\esteem, self\efficacy, a feeling of purpose and hope, competences, as well as social integration.’

In other words, it’s got emotional and mental benefits, as well as physical types.

At Lasell Village in Newton, Massachusetts, they’re serious about senior education. So much in fact that it’s compulsory. Residents in the village must complete a the least 450 hours of academic classes and fitness classes every year.

Source: Lasell Village
[Click to enlarge]

Courses are run in the Village, and residents will also be encouraged and helped to attend nearby colleges. For example, they can take undergraduate and move on programs at the nearby Lasell College. Some residents also teach or tutor. Residents can also take courses at other institutions. Harvard University is under 20 minutes away, so they’re in good academic organization.

High rise retirement in China

In The far east, it’s traditional for seniors to move in with their children whenever they can no longer maintain their own home and look after themselves. In many cases, they’ll start living with their children well before they even retire. It’s seen as the children’s duty to maintain their parents and grandma and grandpa. Elderly people are accorded the highest possible level of respect and treatment.

But Chinese society is changing. There are many worldly couples and lovers who don’t want m and b to relocate with them when they’re old. They have careers to chase, abroad holidays to take, and they’re accustomed to the idea of personal space. That doesn’t mean they don’t love and respect their mother and father, though. They want the best of amenities and care for their parents — they just want to outsource it. Which is why there’s burgeoning international interest in luxury retirement living within China.

Still, land prices are absurd in major cities like China and Shanghai. So it doesn’t really make sense for Chinese companies — or even foreign companies operating within China — to build spread-out Western design villages. The smart option would be to design high rise apartment buildings that also meet the mobility needs associated with older residents.

Enter the Xiangshu Bay project, currently being developed in Shanghai through American firm Merrill Gardens.

Xiangshu These types of will offer meals, housekeeping as well as medical supervision. But it will also have purpose built recreation spaces, manicured gardens, transport for shopping and appointments, along with a swimming pool. A restaurant, caf, fitness center, library, spa and hair salon will round out the luxury onsite offerings. Merrill Gardens is also attempting to cater to the locals with mah-jong rooms, arts studios, along with a tea house.

In addition to the actual nursing home area, and a safe area for residents with dementia, the work will also have 150 independent living units.

Source: merrillgardens.com.cn
[Click to enlarge]

They’ve also got another stunning tower planned for the northern city of Harbin.

Source: merrillgardens.com.cn
[Click to enlarge]

Of course, places in these developments won’t come cheap. The company is planning to charge up to $3,375 a month for a place at the Shanghai improvement.

In some ways, it will be a proof-of-concept with regard to Chinese interest in luxury supported retirement living.

It could go head to head with the developments underway by Australia’s Aveo Team [ASX:AOG] in partnership with Tide Holdings The far east. They’re planning two developments, in forested areas outside Shanghai (left) and Beijing (right):

Source: Aveo China
[Click to enlarge]

It seems developments like these could be a smart option for high-priced Foreign cities including Sydney as well as Melbourne.

By the way, if you’re thinking about the idea of a luxury retirement neighborhood, but you’re not sure if you’ll have sufficient to pay for one, don’t miss Kris Sayce’s report ‘5 Things You Can Do In The Next Thirty days To Boost Your Retirement Pot’. Within this report, you’ll find invaluable tools, tips and tricks for maximising your retirement wealth. Kris’s simple 5-point plan’s something you can put into action today…to help boost your retirement pot in the next 30 days. Click here to discover how to download your free copy.

Eva Mellors,
Contributor, Money Morning

For nearly a year now, APRA has actively been trying to get banking institutions to lower the growth rate of the lending to investors.

Towards no more last year, they set a strong target of under 10% growth.

Over the past couple of months, banks make moves to reduce investor credit growth. Or so they said. A few banks changed the ‘stress test’ installed applicants through, raising the hypothetical interest rate they evaluate their incomes to. Others removed the special deals these people offered to investors. Deals for example interest rate discounts, fee-free applications, and so forth.

But on first glance, it doesn’t seem to have worked.

Yesterday, APRA put out its latest month-to-month banking statistics.

They showed that the total value of investor mortgage debt has grown by nearly $4.Sixty five billion in the last month. It’s gone from $474,076,000,000 to $478,725,000,000.

This period last year, it was $430,584,000,000.

That means it’s grown by 11.2% over the year.

But that doesn’t necessarily mean that APRA’s pressure is not working. Or that banking institutions aren’t trying to slow buyer credit growth.

The other things that may be happening

The numbers need to catch up with the actual banks’ changes

It might take a while for investor lending numbers to catch up with the changes that banks have made. Most of the big banks have only made changes, like getting rid of investor discounts, for a couple of months. If they’d been attempting to slow investor lending since May last year, then the 11.2% figure would be a fair measure of how poorly they’re doing. But it’s not. It could take several much more months to see if the buyer mortgage stats change.

?There’s a different number of banks making up APRA’s stats

In May 2014, there were 71 banking institutions on APRA’s list.

In May 2015, there were 73 banks on the list.

In the actual chart below, the green featuring shows banks that had buyer mortgages in May 2015, but not in May 2014. Either because they didn’t exist, because they weren’t officially banks before, or even because they only recently started offering investor mortgages. For instance, Auswide Bank was just launched at the beginning of April this year, but it’s made up of building societies that have been around for several decades.
Note: figure Equals millions of dollars. So 1 Equals $1 million.

Data source: APRA
[Click to enlarge]

Only 1 bank that did have buyer mortgages on its books in May 2014, didn’t have all of them in 2015. That’s Investec Bank, which got bought by Bank of Queensland and renamed BOQ Specialist. The other bank which made up the numbers was Bank of Scotland, which did not have investor mortgages either period.

So if you take away the $6 million from Investec that became BOQ specialist, there’s still $863 million of new bank investor mortgages that’s new between the two sets of statistics.

If you take that out of the formula, investor lending only increased by 10.9%. That’s a little closer to APRA’s target.

Some banks are worse than others

If you look in the chart above, some banks have grown their year-on-year investor lending a lot more than others. For example, NAB’s increased by 14.05%. And Macquarie’s increased by 86.7%. And ANZ’s increased by 10.6%. In some cases, smaller banks were worse culprits. For example, ME Bank’s investor lending grew by 29.4%.

Fewer people are investing, but those that do are buying more expensive properties

It’s important to remember that APRA’s stats are for the total value of investor home loans. Not the individual number of properties.

So it’s possible that fewer individuals are investing. But maybe the ones that do are buying more expensive investment properties.

There’s two reasons behind this. First, average house prices have gone up a lot over the past year. The same properties cost more this May than they did within May last year. So anyone wanting to break into the market, or add to their portfolio, will be paying more. Banks could be making the same number of buyer deals — or even fewer — and still ending up with a higher amount of money on their books.

Second, investors may be looking to a different type of property. One that is more expensive now, but they believe has more capital growth potential. Some experts say that there are too many flats coming on the market, and it’s slowing down the price growth. Others point out that supply of houses in desirable suburbs is strictly limited, although apartments could theoretically maintain getting built higher and denser.

For example, look at the inner Melbourne suburb of Carlton. According to the REIV, home prices have gone up 15.7% over the last quarter. But unit prices have gone down 13.6% in the same time. Carlton is close to the University of Victoria, so it’s home to a lot of small apartments built for students. Or even look one suburb to the eastern of Carlton, to Fitzroy. House costs grew 4.7% last 1 / 4, but unit prices shrunk 10.1%.

Of course, apartment prices aren’t shrinking everywhere. They’re still growing in the hottest Sydney suburbs. But in the majority of the growth areas popular with traders, house prices grow significantly faster than apartment costs.

Some investors also prefer homes because they feel there’s much more freedom to make changes and enhancements, without a body corporate letting them know what to do.

Investors are ramping upward their portfolio growth

Some investors just want one investment property. They may plan to pay it off slowly, and employ the rental income to fund their retirement.

But lots of investors want to grow their property portfolios as quickly as possible. Their aim is to be asset rich, and also for their leasing income to eventually substitute their salary.

To grow their profile as quick as possible, an investor can do a couple of different things. 1, they can save up another down payment to buy another property. For the way expensive that other rentals are, it could take them a few years.

Two, they are able to use the equity from their very first investment property to take out a mortgage on a second investment home. This is a popular tool with regard to fast portfolio growth. No doubt you’ve seen the ads and headlines; things like ‘23 year old builds 6-property $2.3 million property portfolio in one year!‘ What most of them fail to mention is that they obtained their first deposit from their parents. Or their parents went guarantor so they didn’t have to pay a deposit. But I digress.

Many property investment spruikers point out that as long as there is a job that covers the space between the total rent and also the total mortgage repayments, you’ll be good. But if you lose your income and default, it sets off a chain reaction, and you could lose multiple properties at once.

The problem is, it’s difficult to tell whether rabid portfolio growth is skewing APRA’s monthly figures. There isn’t much data on new, first-time-investor mortgages. There’s data from the ABS around the total value of new expense housing commitments. There’s data from APRA on the total dollar value of investor mortgages.

But it’s difficult to tell how much of that buck value is individual investors adding new properties for their portfolio.

So the dollar value of investor mortgages might be going up, but the banks might not be bringing in any new individual traders.

How you can stay above the fray

If you need to invest in property, but not always in housing, there is an option. You can invest in commercial property instead. And you don’t need the multi-million dollar loan to do it. In the report ‘Three Best Investments In Australia For 2015 And Beyond’, Kris Sayce shows you exactly how it’s done. He actually suggests a few stocks you can look at to get you started. Read this report and you’ll also discover two other kinds of investments which Kris believes could dramatically grow your wealth all through this year. Click here to find out how you can download your free duplicate of this report.

Eva Mellors,
Contributor, Money Morning

Analysis firm LF Economics thinks there’s a serious property price bubble. And it might pop in 2017.

According to a recent statement they’ve released, the current percolate is much worse than the types we’ve had in the past. They said:

‘Housing prices across all capitals remain grossly inflated relative to rents, income, inflation as well as GDP. What event or even set of events triggers the beginning of the end of the housing percolate is not yet known.’

‘…A bloodbath in the housing market, however, appears a close to certainty due to the magnitude associated with falls required for housing costs to again reflect economic fundamentals.’

So how bad would the actual ‘bloodbath’ really be?

Where would prices go?

The authors think house prices should ‘reflect economic fundamentals‘. To do that, they might have to fall back in line with income, rent, inflation and GDP growth rates.

For the actual sake of simplicity, we’ll just look at one of them: income.

Dwelling price to income ratio is a popular way of measuring whether real estate is overvalued. It’s simply the percentage of household income towards the price of the dwelling. Exactly how overinflated housing is depends on that set of data you look at. There’s public data and private market intelligence, as well as info gathered by industry peak bodies. But for the sake of simplicity, let’s use these charts produced by the RBA using earnings of data from a variety of sources.

Source: rba.gov.au
[Click to enlarge]

In the chart on the left, you can see that the national average price to income ratio stayed within a range of 2 to 4 up until the late 1990’s. And in capital cities, that range gets larger — around 3-6. To put that in perspective, all over the world, it’s about four.

So what’s the average household income at the moment? Nicely again, that depends on whom you ask. But just say you decide to use the ABS’s latest stats on weekly earnings, released in February. Then say there’s an average of two grown ups in the household, and they each make the equivalent of ‘all employees average every week total earnings‘. And that they’re not obtaining income from other sources. Their annual household income would be about $117,300.

So if home prices went back to, state, three times average household earnings, the average house price around australia would be $351,900. Currently, it’s about $571,500 according to stats launched by the ABS in February.

That’s a 32% drop.

Then again, that changes with different variables like employment levels and higher typical salaries in capital cities.

For example, the report authors believe that Melbourne will be amongst the most detrimental hit when the bubble pops. If you look again at the charts above, Melbourne has the third highest dwelling price to income ratio. If the ratio dropped to 1 / 2 of what it is now — back in the 3 to 4 range — house prices could go the same way.

But the national average is still a good indicator.

Of course, thinking of investing in property but don’t like the sound of a potential housing bubble, there are other methods to add property to your profile whilst keeping your exposure minimum. In his report ‘5 Things You Can Do In The Next 30 Days To Boost Your Pension Pot’, Kris Sayce shows you exactly how it’s done. He even suggests a stock that may fit your property exposure needs. Read this report and you’ll also discover the single biggest factor that determines the size of your pension pot. Click here to find out how to get your free copy.

Eva Mellors
Factor, Money Morning

As we expected, Greece and Europe look set in order to strike a deal.

The troubles are more than.

You can go about your business with no care in the world.

But wait. Not too fast.

Greece and Europe may have stitched up a deal for the time being, but it won’t last.

And besides, the goings on within Greece should be the last associated with any Aussie investor’s worries. Because at home, things look established to get a whole lot worse…

For years, we’ve written about the actual precarious nature of the Australian economy.

Most within the mainstream insisted that Sydney had a miracle economy.

In reality, it was nothing of the sort. The actual Aussie economy thrived on one thing — resources.

Now that the resources boom is over, the fortunes from the Aussie economy are over too.

No brains required for this boom

Let’s get one thing straight: there is nothing wise about having a resources-led economy.

It doesn’t take even one jot of innovation or brains to have an abundance of sources.

It’s pure luck. It’utes the result of millions and vast amounts of years of geological change.

The fact that you will find recoverable resources in Western Sydney, Queensland, South Australia, and elsewhere is purely a matter of geology rather than anything any Australian has been able to achieve.

Granted, the ability to dig these resources from the ground does take skill…a lot of skill. So the Aussie economy may thank the likes of Caterpillar [NYSE:CAT] and Komatsu [TYO:6301] for making it possible.

OK, we’re being a little flippant. We’re not saying that Aussie businesses and individuals haven’t been involved in the success of the resources sector.

What we are stating is that it doesn’t look as if the skills developed for the mining boom are easily transferrable to other sectors of the economy.

And that’s the issue.

‘The biggest housing bubble in the nation’s history’

But don’t just take the word for it. Two tales jumped out at us last night. First, this one from the Brisbane Times:

‘The Australian real estate market is in the grip of the biggest housing bubble in the nation’s history and Melbourne will be at the epicentre of the historic "bloodbath" when it bursts, according to two housing economists.

‘Lindsay David as well as Philip Soos, who have authored books around the overheated housing market, have berated the housing industry and politicians who refuse to acknowledge the existence of a bubble as a result of perceived shortage of housing within the major capitals.’

In their statement, Messrs David and Soos write:

‘This calamitous result’s especially likely in Melbourne where rents have not elevated in real terms since 2010. Melbourne is primed to become the epicentre of a legendary housing market crash due to the combination of the staggering boom in real housing prices (178 per cent). Perth is also inside a serious predicament.’

Zoiks! If you’ve study Money Morning for some years, you’ll know that we’ve long warned about the Aussie housing bubble. We warned about it for so long, that we gave up warning about it when the bubble didn’t burst.

We thought there wasn’t any stage repeating the same message. Those who didn’t believe us would never believe us, so what had been the point?

For everyone else, be warned. If David and Soos are right (and we have no doubt they’re right), an epic house cost crash is coming.

But that wasn’capital t the only story to stick out. Take this from the Australian Monetary Review:

‘More than one-third of Australia is in recession, with a shrinking handful of locations generating most of its wealth, according to research that highlights the need for businesses and governments to make tough investment as well as spending decisions.

‘The groundbreaking work by accounting giant PwC implies that close to one in every $ 5 of national income is produced by just 10 locations out of 2214 nationally, led by the central business districts of Melbourne and Sydney as well as the iron-ore-rich Pilbara in the north-west.’

But even there, the definition of ‘locations generating the majority of its wealth’ needs to be qualified.

Are they really generating wealth, or are they generating more debt? Most in the mainstream consider rising house prices to be a manifestation of increased wealth.

But that increased wealth is only possible with increased financial debt. If the increase in debt halts (as it surely will), you may expect the increase in wealth to prevent too.

For many, it’s too late

There’s no doubt that it’utes a worrying time for the actual Aussie economy.

But for most people it’utes too late to do anything about it.

They’ve already mortgaged themselves up to the eyeballs, believing that home prices only ever go up.

Now they’lso are in too deep. Even if they realise it can’t last, pride will stop them through getting out. After all, even if they just bought a reasonably priced house four years ago, they’ll have forked out around $100,000 in stamp duty and interest charges.

If they offered today, their total costs would far exceed any kind of capital gains. And as we all know from investing in the stock market, no-one actually likes taking a loss…they always would rather hang in there, believing their investment will come good in the end.

But don’t be so sure of that. The Aussie economy has gone 24 years without a recession. So the first is long overdue. And when it comes down, it will be painful.

Don’t say we didn’t warn a person.

Cheers,
Kris

PS. It’s not just Australia that’s at risk of trouble. The whole world is dealing with a deep economic and monetary turmoil. If you haven’t prepared for this, you’re putting your prosperity in grave danger. To find out how you can prepare for this crisis, go here.

This morning, Dexus Property Group [ASX:DXS] announced that they are buying Waterfront Place as well as Eagle Street Pier. Presently, the properties are 50% of Stockland [ASX:SGP].

The two properties are located upon prime land in the Brisbane CBD. Waterfront Place is definitely an office tower with 59,448 square metres of room. Eagle Street Pier is really a riverfront retail precinct, best known for its stunning views over the Queensland River.

Dexus will pay $635 million for the two properties.

The money is from the equity raising that Dexus were only available in April. Dexus raised about $450 zillion through a security purchase plan and an institutional placement. At the time, Dexus said that ‘this equity raising is intended to give Dexus the flexibility to pursue these [value-enhancing investment opportunities] while at the same time making certain gearing remains at the lower end of its target range of 30-40%. The opportunities include interests in perfect grade CBD office properties…‘ So now the market knows what those properties were.

Why is Dexus buying now?

Darren Steinberg is the Chief executive officer of Dexus. ‘This acquisition is an excellent long-term core investment for both Dexus as well as DWPF [Dexus Wholesale Property Fund], and Eagle Road Pier offers one of the best long term development sites in the Brisbane CBD.‘ Said Steinberg of the deal.

Penny Ransom is the fund manager of DWPS, and the winner of most awesome name for a fund exec. She said that ‘We are excited by the opportunity to acquire this particular strategic, long term asset.’

In other words, Dexus is confident about the future of the CBD office market. And here’s why: their stats show the premium workplace market in Brisbane is actually on the up. According to Dexus, Brisbane CBD office vacancy went down 1% last quarter. They forecast the supply cycle to peak in the 2016 financial year. As well as importantly, they see a ‘flight in order to quality‘ trend in Brisbane town offices. The vacancy rate for premium office space is around half that of other space.

Why is Stockland selling?

Stockland managing director as well as CEO Mark Steinert said that ‘The sale of our interest in Waterfront Location and Eagle Street Boat dock reflects our strategy to selectively down-weight our exposure to office at this point in the cycle and reuse capital into other accretive opportunities.A Stockland also described the office renting market in Brisbane because ‘challenging‘. So they aren’t as upbeat about the Brisbane office marketplace as Dexus is.

Stockland co-owned the two properties with the Future Fund. When the deal is done, Stockland will get $317.5 million.

Today, Stockland also announced they would pay an estimated dividend of $0.12 per reveal. That will take their full year results payments to $0.24 per share. The dividends will be paid at the end of August, not long after Stockland is due to release their end of year results.

Who the market agrees with

There was a difference in viewpoint between Dexus and Stockland. But the marketplace came down firmly on the side of Dexus. At the time of writing, Dexus’s share price had lifted 1.18%, while Stockland was lower 0.23%.

Source: Google Finance
[Click to enlarge]

Investors will be watching the Brisbane office rental stats keenly to determine who was right after all.

Of program, there are other ways to gain contact with the commercial property market. In his report ‘5 Things You Can Do Within the next 30 Days To Boost Your Retirement Pot’, Kris Sayce introduces a listed property fund that he says is ‘certainly a cheaper way to add property to your portfolio than buying an investment property‘. This A-REIT (Australian investment trust) holds stakes in both Stockland and Dexus, as well as several other top property companies. Click here to discover how to get your free copy of this report.

Eva Mellors,
Contributor, Money Morning