17 February 2011

Confident property investors rush the exits

In his weekly property spruik summary, Enzo Raimondo from the REIV said:

“The next three weekends will see significantly more auctions with 695 next weekend followed by 980 and 910 in the following two weekends. The high number of listings shows that sellers have a reasonable degree of confidence in their prospects, reflecting the overall health of the national and state economy.”

You’ve got to admire Enzo’s glass-half-full attitude. I probably would have written the second sentence to read:

“The high number of listings shows that greed it slowly turning to fear, reflecting property investors’ realisation that the biggest asset bubble in Australia’s history has started to burst”.

Comments welcome.



  1. Very similar verbage to one he put out early/mid November coming into pre Christmas trading - just the numbers are different. they were still high though - in the 900's. (If I can locate it I will post).

    Only back then he added what a great opportunity it was for buyers as they had a bigger choice of houses to choose from.

    Enzo has blinkers on - he's hardly going to paint a bleak picture (or speak the truth).

    How much do people really trust and respect real estate personnel? Well this guy is head honcho and spokesman for all of them - in other words the chief bs artist!

    If the REIV and banks are predicting house prices to remain flat over the next 12 months; then thats good enough for me to say there will be a fall.

    The number of properties up for auction is worth keeping an eye on.

    I vaguely recall during the last engineered recession "the one we had to have" auction numbers were 1200 - 1500 per week as property prices fell.

    Get into this range and it is slowly but surely getting there (6 months ago the peak was less than 700 auctions per week) and you will hear the air escaping.

  2. rational investor17/2/11 5:02 PM

    The residex index show for Melbourne that since October the index has dropped 1.2%. While nothing to get excited about, you could extrapolate that out to approx a 5-6% drop over 12 months (from October to October) in real terms. Inflation adjusted it is even more.

    Remember for property to make investment sense it needs to appreciate faster than inflation, and if there is a loan against it, it needs to appreciate at a higher rate than the interest repayments, so in real terms it needs to appreciate approximately 10% per year in real terms if mortgaged. Is this sustainable, i think not...

  3. Enzo seems to be counting his free range chickens before they hatch.

    At any rate, I can predict he will be making up chickensh!t. A week later, that chickensh!t will revised into bullsh!t (in order to make way for more chickensh!t).

  4. Interesting perspective SP.

  5. Rational Investor - you need to take into account rental costs, rental yields are low but still about 4-5% of the value of the property per year. For example if your a homeowner and say owned the property outright this imputed rent that you would have to pay is effectively tax free. So you would have to beat 4-5% after tax, if your on the highest tax bracket you would need a guaranteed 8-9% return on alternative investments, and that is without taking into account any capital growth, though unlikely at the moment! The tax system does distort the market, but i reckon as a 100% leveraged investor paying a 8% mortgage rate, with 5% rental yield needs the property to increase in value about 5% a year in order to break even with opportunity cost of saving cash at 6%. But given the large transaction costs and ongoing expenses and lack of any sort of liquidity in property makes it a very poor investment at the moment, and i also think the market is likely to decrease 5% than increase.

  6. Hi Peter Fraser (anonymous).
    Good to hear bits of realism inbetween ...


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