Is property inflated

[Doug B]

To wynn

So what you are saying is that this is not really a win win situation Yea, but remember the banks knew the National Credit Act was on the way and were literally throwing money at people at reasonable interest rates. The property market was going so crazy with prices rising so quickly that banks found additional equity in properties just two years previously they would not have dreamed of. Many people call them silly, gullible whatever, took out second bonds, banking on what the market seemed to indicate their property was worth. The bank valuators don't even work for the banks so everybody was having a great ride until...CRASH! Lehman Brothers started the slide and we know the rest. Point is, the property may have got itself over valued by the granting of the second bond...however wynn or lose, lol your point is certainly valid.

[Doug B]

And another point to ponder is the effect an overvalued property has on the ammounts of rates you pay.In Durban for instance your rates are based on the MUNICIPAL valuation which often is a crock! The formula as I mentioned in another thread is the municipal value x 0.009 divided by 12 to give your monthly rates-an over valued property will result in higher rates;see my other topic where this is explained more clearly,fortunately there is still relief for buyers (and sellers-a home with a hefty rates bill makes it harder to sell) so as long as buyer and seller agree the municipal valuatuion is nonsense application for relief can be made by accompanying the sale agreement with the other required documents.

[Phil Cooper]

I have 4 investment properties - all are getting rentals in excess of bond repayments plus rates and levies, etc.

Had to carry most for 4 -5 years, but now they are ahead.

[Doug B]

Congratulations,that is no mean feet and must have required some solid financial discipline. Our list of 'Distressed' properties given out by the major banks continues to grow. Quite frankly quite a lot of people showed no restraint when credit was flowing like a river and hopped from bank to bank in order to buy up as many investment properties as they could,when we hit the wall catastrophe followed so you are in a good,solid position. You can bet there are many,many people who envy your position.The present market remains one extremely difficult to read so caution remains the order of the day.

[wynn]

I think the acid test of property prices is comparing them to what the build cost would be. They may have increased in value by a factor of 5 in the last so many years but if the build cost has increased by the same margin then they wouldn't be overpriced.
Provided there are vacant plots to build on in the area, most areas close to schools, shops, beach, view etc. are already saturated and prices are a lot higher than building the exact same property on the outskirts of town.
Many houses in the present market are priced at less than the cost of the plot + build cost so they would actually be underpriced.
This is a result of a glut of the particular type of property on the market at the time, prime real estate close to schools, shops etc, will not vary much during a bust but will definitely increase during a boom.

I still believe property is like rungs on a ladder, you may swap ladders but the rungs are proportionately at the same height.

If the ladder you are on happens to be going down instead of up, when you swap to a ladder that is stationary or going up, the rung on the new ladder will be lower and vice versa.

[Doug B]

That's an interesting parallel with the ladders wynn but one thing the last few years has taught me in no uncertain terms is watch where you buy;the old adage of 'position,position,position' is extremely important.People here in Durban are extremely aware of 'position' which personally I consider to be a little narrow minded. You may be on the wrong side of the street,have amenities such as schools and shopping centres on your doorstep and be in a nice quiet position but the social element of stating you are from so and so area and not 500meters away can be a huge determining factor in how people determine the value of that home...so where does that leave us? Firstly it's plain snob value that separates and secondly,that being true and believe me it is,if you are in a so so area be really careful not to over capitalize your home because if you do when times are tough,your home will be overpriced. Fortunately there are positive signs that things are stabelizing a bit although to sell your home in a reasonable time after placing it on the market ask your realtor for a complete,comprehensive CMA(COMPARATIVE MARKET ANALYSIS) and use someone who really knows what they are talking about-overpriced properties simply are not selling.