For residential property market participants, this is the question of the day.
Will Chinese investors sell up Australian Real estate fast?
Will they do nothing?
Or will they buy more?
Two very different precedents have been set.
1) The Sydney and Perth property booms of 1988 which occurred predominantly due to investors being scared off shares from the market crash of 1987.
This was a text case example of investors seeking a more stable investment after the precipitous crash the previous year.
2) The rapid Japanese sell off of Australian real estate from the early 1990s.
Which arguably was caused by a rapid decline of the Japanese economy, stocks and their own local property market.
It’s a questions we will dive deep into when we release our 2016 Housing Boom and Bust report next month.
Obviously its early days yet to know which way the winds will blow here.
However it is certainly time to keep an eagle eye on the weekly auction clearance rates, which have been weakening of late.
I think it depends how geared up were Chinese investors to begin with. Being heavily geared would ultimately mean margin calls and therefore rushed forced sales in order to reduce debt.
Top Five Worst Property Investment Ideas
Now in the spirit of what is a very bearish week on global markets, we think its time for to cover off some “investment sectors” in residential real estate where investors should tread very carefully.
To clear the air these are just based on our opinion only and, yes there will always be exceptions to the rule.
If you have had a pleasant, financially rewarding experience with the below asset classes, feel free to write in and tell us more.
1) Cruise Ship Suites
Yes this is our number one worse “property investment” one could possibly make.
Indeed, this week’s article stemmed from a domain story which you can find in this week’s real estate realities.
For starters, you are not buying on any land at all.
You are merely buying onto a small suite on a boat.
Boats tend to depreciate rather quickly.
They suffer wear and tear..and eventually, just like most cars, they go to the scrap heap.
Now yes it is possible to earn a cash-flow from holiday makers but from what I can see, that type of cash flow return needs to be in excess of 10% net just to take into account this real depreciation.
And I am not aware of any cruise ship suite offering that type of net rental return.
Now for those who sell these type of ‘ investments’ we will be glad to be set straight here..
But in turn we will be wanting to see your resales evidence.
2) Retirement Villages
In all seriousness I loathe these type of “investments”.
I have not seen a single retirement village investment make money for the retiree.
All I have seen is the financial blood sucking out of poor retirees in their last years of life.
The problem starts with the fact that most of these properties one is buying into a leasehold arrangement.
That’s right, you don’t actually “own” the underlying land.
Often the manager behind these estates has complete control over costs and worse, resales.
Often one has to resell back to the manager or at least sell via the manager for which they of course take a generous fee.
Now of course there may be exceptions out there. I’ll be glad to hear from them.
And let’s not forget there does need to be a cost for ongoing seniors care and their weekly entertainment.
This is to be expected
But taking all that into account, unless you have trucks of money to spend and just want to be around like minded seniors, do not invest in these “properties”.
You are far, far better off living it up in a hotel!
3) Mining Towns
Great if you can get the timing right.
Disastrous is the timing is wrong.
Mining town housing markets are the classic one trick pony town markets.
Such towns are completely reliant on one single economic base, that being the ore surrounding the town that’s stuck in the ground.
The issue per se is demand for that ore and the mining company(s) the town is reliant upon.
Case in point is Karratha in North Western Australia where at one point in the mining boom, a standard house there would cost over $1,000,00 and renting in the local caravan park costed over $2500 a week!
For me, I might as well take the deposit to the roulette table and put it on black.
At least the pain of the loss is swift and done with that way!
4) Lifestyle Properties
Outside the specified ones mentioned above, these maybe Golf course estates, semi-rural lifestyle estates, holiday homes.
As the name suggests, these properties are aimed towards “lifestyle,” rather than “reliable real estate investment”.
Now we are not saying that all lifestyle related properties are bad investments.
Some can be good if they are priced accordingly.
But sadly in my experience, many are overpriced with body corporate fees and other management services fees to match.
Once again, be extremely cautious if you are not buying freehold or strata title.
Of course there are a number of properties out there where leasehold is ok provided the term is for many, many years.
Often what comes with leasehold are big management rights which really restrict you in terms of renting out, and selling.
In short, when being offered a “lifestyle property”, tread with caution.
5) Overpriced Off-the-plan Apartment developments
Now lets make this clear, I am putting in the words “overpriced”.
It is quite possible to make a good investment in an off-the-plan development.
However you do need to do your research and ensure you are not overpaying.
And that in itself can be a tough call as these types of properties can be very difficult to accurately value.
The problem is with many of these investments is that being new, one is paying a premium to the existing established market.
Those shiny new fixtures and fittings may make the new apartment look fantastic but they do cost money and that is all added into the price you are paying for your new unit.
And worse, in time, they will no longer look so shiny.
There is a good reason why the ATO allows for a 2.5% depreciation benefit to these types of properties..and that’s because, they can depreciate.