Apparently that's why the real estate market has stalled.
The argument is quite simple, most people can't afford to drum up the deposit and on top of that pay the mortgage. Not a new challenge, I've heard all of that before – I'm sure you have too.
Now the way the media is carrying on, you would think that this has never before happened in history and that it's a new phenomena.
…all conspiring with a media-lead conclusion, that the real estate market is going to crash.
However, I beg to differ. Especially on the predictions of a real estate bust.
I'm going to get into that shortly, but whilst I have your attention here is something that I saw recently.
A big penthouse-style apartment of 1,600 sq. metres (that's big) sold for… are you waiting for this…?
Where the heck was that???
Ok, it was Monaco, no issues about affordability there.
Now you're probably saying to yourself, “Big deal. A one-off sale by some massively rich dude, so what?”
Well, I can't tell you who the buyer was because at that level they typically withhold that information… But what is interesting is that the fastest growth for the global luxury residential markets is coming out of Shanghai in China.
The increase in that city at that level was 17%!
The Chinese, with a stack of cash in the bank that they must spend is probably going to effect the top-end of the Australian market.
But I know what you're thinking… You're not in the luxury residential market.
Yep! And neither am I.
But the trend is certainly there and as our rich neighbours get even richer, the security and safety of our economy will be attractive to the Chinese investors.
It's not just the super-rich but it's the emerging middle-class ( which is huge) who will support any downward movement in Australian prices… I don't want to get into specifics because I know that for many of my subscribers it's a hot topic.
…But if you've been to an auction in the last three months in any capital city, you would see a high representation of Asians there. I've got no problem with that – it's just something that is obvious to me, especially at auctions.
I'm sorry – but it's the world we live in.
But I digress… Where was I?
Oh yes, affordability.
Here's why I believe the affordability issue is normal…
First of all, it seems to me that it always comes after a significant property price increase. What we've seen in the last 3 years is a big jump in prices of property. I told you 3 years ago this would happen and if you have been following me for a while, you would have made a stack load of money if you took action.
But to qualify this – our predictions of price increase was not across all area. That's not how it works.
So what happens next?
The people who get priced out of the market because of affordability issues will become renters.
Again, the normal process a typical real estate market goes through.
According to RP Data, across all capital cities, rents have increased by 2.7% in the last 12 months.
Now that's not huge. But my prediction is in the next 12 months you're going to see similar increases if not more.
Here are a few examples of what I'm talking about:
With all of my properties, when a lease comes up for renewal the minimum increase is 10%. In some cases I've increased it by 20% and have signed up the same tenant on a 12 month deal.
Now, I don't care if they don't agree to the increase – they can move out and within 4-6 weeks I'll have a new tenant… Why? Because vacancy rates at the moment in most of the areas that my properties are about 1.5%.
Also, consider this…
Unemployment is at an historical low, which means many workers are shopping around for a better job with more pay… and they're getting it.
The RBA is concerned about this scenario, because quite simply it puts pressure on wages (on the upside) and potentially leads to inflation. The likely outcome is that wages will increase in the next 12-24 months as well as the cost of living.
So, all normal stuff to a seasoned investor.
So what should you do?
Well, there is a lot of fear in the street at the moment – and that's easy to see because right now there is probably 50%-75% more stock on the market than at the same time last year… add to that the media hype about a crash and there are a lot of nervous vendors.
…which is great news for you.
Here's what the pros are doing…
They've got their cheque-books out and looking for bargains – and I can tell you that there are a lot out there.
I picked one up the other day – it was a beauty.
I'll give you a full-blown report in the next couple of days, but what I can tell you is that I probably bought it for about $70-$100k below market in a blue-chip area in Melbourne called Brunswick. Contract price: $550,000.
It's a development site and I'll probably make $200-$300k profit once we turn it around.
But like I said, I'll get some photos and give you all the maths as a bit of a case study as to what is possible.
Now, why am I telling you all this?
Because I want to let you know that right now is a great time to buy real estate at bargain prices. I'm doing it, I know several of my friends are doing it as well.
So don't be afraid, everything that is going on at the moment is normal, it's happened in the past and will happen again in the future.
Think of a time back in mid-1995 when we experienced the same scenario. It was great buying properties back then. How many properties would you have liked to have bought back then?
Also, 2003. Another great opportunity to have picked up bargains.
It also happened recently in 2009.
We did a big song and dance about the opportunity just 2 years ago, again if you followed our lead you could have potentially made hundreds of thousands of dollars.
And today it's 2011 and there's another window of opportunity.
But let me also say this…
Not every property is a good deal. In fact, only about 5% of properties on the market that are what I call great investment opportunities.
The other 95% is crap from an investor's point of view.
You need to know the difference and you need to know what NOT to buy as much as what TO buy.
…and all that is what quality education and knowledge can bring to the table and fill in the missing links.
Don't miss this opportunity… again.
Signed with Success,