It’s a seller’s market

In the context of the Australian residential real estate market and specifically, the Perth market I was asked by an esteemed national accounting firm today for my buy, sell or hold opinion.

Following the discussion, I followed up with this email,

“In today’s meeting I gave you that current valuation case for residential property being expensive or at least fully valued, in citing a net earnings yield of 2% equating to a Price/Earnings Ratio of 50.

My other negative points included fixed or perhaps growing expenses (including rising interest rates).

Poignantly, should interest rates double, your client may still be able to service the debt, but others around him (especially those buyers of property in the past 2 years) may feel debt payment strain. This leads to a rise in listings and lower prices due to increase stock. Water does find its natural level.

On the other side of the financial statement, residential properties don’t have same ability to increase revenue in the manner or potentially the velocity in which a corporation can.

Invariably, higher residential prices have heralded new dwelling development which also increases stock.

But most subjectively, when you find clamouring buyers driven by scarcity and fuelled with low interest rates, it is identifiably a “Seller’s market” and not the other way around.

It may not be a time to ‘dump’ all holdings as it depends of your cost basis, the utility the property provides or the associated debt and holding costs but there are times to trim and sell assets when they are fully priced.

When it comes to residential real estate, a seller should greet moments when liquidity and buying interest is abound and forgo perfect timing, as the real estate market doesn’t afford you ’natural’ price discovery and quick settlement periods, unlike the stock market.

Catching the ‘fat’ part of the trade is perfect.
Preserving capital is paramount.”

August 24, 2021
by Rob Zdravevski
rob@karriasset.com.au

#property#realestate#Perth#Australia

Your house is on a P/E of 44 (continued)

Here is an article to save and check back on next year.

https://www.afr.com/property/residential/sydney-house-prices-to-soar-21pc-nab-20210726-p58cuu


I just don’t know how they can value and predict the whole of residential housing prices in Sydney with any analytical integrity and honesty.


Is it just based on estimates from biased parties?


Do they realise that a 20% rise is an astronomical spread above the cash rate for an asset which is already trading on a Price/Earnings Ratio of ~ 44?


Maybe it’s because residential property is government (tax) subsidised ?
Don’t tell me that equities are in a bubble or even overvalued.
Pfft !

#sydney#property#realestate

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