REIWA’s desperate plea to boomers

By Leith van Onselen

Last week, the Real Estate Institute of Western Australia (REIWA) made the following plea to Perth’s baby boomers:

THE head of the Real Estate Institute of WA has warned “scared” baby-boomers being lured to the safety of cash against selling their investment properties, particularly in Perth’s western suburbs.

REIWA president David Airey, speaking at the Australian Property Institute and Financial Services Institute’s annual residential property breakfast this morning, said well-heeled baby boomers were offloading their investment property portfolios and converting them into cash despite some of the strongest rental returns in years.

“The trend we see in real estate, and I’m in the western suburbs where there are a lot of investment properties, is that there is an increasing amount of stock,” he said.

“Properties are coming off the rent rolls and owners are selling. I think that will continue for a while.”

Regular readers will remember my repeated warnings that the potential mass sell-off of investment properties by baby boomers is a key risk facing the Australian housing market. After all, the most recent tax office statistics showed that there are around 1.7 million property investors, two-thirds (1.1 million) of whom are negatively geared – effectively paying their investment properties a dividend in the hope that it repays them with some capital growth.

To add insult to injury, recent ABS data showed that over one-half of Australia’s investment properties are owned by Australia’s 5.5 million baby boomers – a cohort that represents only around one-quarter of Australia’s population. However, with the baby boomers set to gradually enter retirement, whereby they will lose the ability to negatively gear (since they will no longer earn salary income to offset rental losses against), and with the boomers requiring steady cash flow to fund their lifestyles in retirement, their willingness to hold investment properties will likely fade into the future.

Unfortunately for the REIWA, Perth’s market seems particularly exposed to the widespread sale of investment properties. According to the tax office, Perth has an above average share of property investors (15% of taxpayers versus 14% nationally), as well as above average rental losses (-$6,200 per annum versus -$3,900 nationally).

As for the claim by the REIWA that Perth is experiencing “some of the strongest rental returns in years”, I disagree. The below chart shows Perth’s median house and unit rents in both nominal and real (inflation-adjusted) terms:

According to Australian Property Monitors (APM), Perth’s median asking rents have flatlined since mid-2009, after strong growth between 2006 and 2009.

Perhaps Mr Airey was referring to Perth’s gross rental yields, which have certainly improved recently on the back of falling prices. Even so, Perth’s gross rental yields remain well below the discount variable mortgage rate:

Perth’s gross rental yields are now more or less on par with one-year term deposit rates (see below chart). However, once agent’s management fees, land taxes, rates, insurance, maintenance, and other associated landlord costs are deducted from rental income, net rental yields are likely to be well below the yields offered on term deposits.

With the baby boomer’s gradually shifting into retirement, and expectations of capital growth muted, is there any wonder why Perth’s baby boomers are selling up?

Expect to see more of this type of behaviour in the future.

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Comments

  1. There are a lot of reasons why as a retired person you wouldn’t want to take any further risks with investment properties. There’s the problem of possible over-supply going into the future – Perth faces the same problem as a lot of other capitals in that respect. Even if your rental property sits idle for four or five months waiting for a tenant (with no income in that time) then its less attractive than having cash in the bank with a steady return. As you rightly pointed out returns aren’t that fabulous to begin with and are probably on a par with the cash rate.

    Finally, if you have tiny tax liabilities once you retire then there isn’t much point in having a negatively geared property (unless you have lots of retirement income?).

    • Diogenes the CynicMEMBER

      My BB parents have just retired and 2 months later just sold their negatively geared investment property. Including all taxes, gearing costs etc they made just under 10% (which is a poor nominal return for 6 years). It makes no sense in retirement to keep such beasts they earn at best 3-4% after expenses are taken into account, higher return and more liquidity after the sale (cash in super fund earning term deposit rates is also better tax and Centrelink wise). Downsizing is on the calendar for later this year…there are millions of baby boomers who will be doing similar things in the next ten years. Crest of the wave…

  2. There is only one reason for a retiree to sell their investment property – fear. Until that time of fear of price collapse becomes real, those with IP will just sit on it. What else are they going to do? Who wants to be the bunny in their friends’/family’s eyes that sold at the bottom of the market! We’ve had nigh on 30 years of property-always-goes-up, and a few statistics going the other way isn’t about to change that entrenched view. Retail investors, in anything, always hang on too long……

    • No Janet, it’s not fear at all, it’s just commonsense. Anyone approaching retirement who expects an aged pension should rearrange their affairs to maximise their entitlements. That will usually mean exiting geared assets such as investment properties.

      I’ve not investigated this fully, but I have heard that they can hold quite a bit in cash and still receive a part pension, and they can own their own home, so selling an IP to repay any debts against theirv own home, and holding cash may be their most logical option.

      I can’t see what choosing a logical option with the greatest benefit has to do with fear.

      Their will be two categories of IP holding retirees. There will be those who as above will sell as it is the most logical option, and there will be those who have a very good rental income which they would rather continue and forsake any claim on an aged pension. Ultimately they will need to sell due to management issues as their health deteriorates, but that will probably be 10 to 20 years after retirement.

      But if they have held the IP for a long time, they will have a lot of equity, and fear won’t be the primary consideration.

      • Fear, is always a factor, Peter. It isn’t there at the moment. The second it is, there will be a mass sell-off. Until retirees see their nest-eggs actually losing value in earnest, they’ll hold, whatever equity-level they have in them. How otherwise is negative-gearing explained? It makes no financial sense, but it makes emotional sense.Property ‘investment’is an emotional game at the retail level. Very few retail investors have the capacity to admit they are wrong. By the time they do, it’s too late.

        • Janet – so now fear isn’t in the market place, but it could be?

          Janet – show me where mass house sell off’s are occuring in any of the resource rich economies.

      • I thought Janet made a good point Peter. It drew you into contradicting your previous views about sentiment!

        At the moment the market seems to be clinging to hope. Hope that interest rates will fall, hope that the Japanese banks will enter the lending game and obviously, in some sectors, hope that a fear driven mass sell off doesn’t cause an avalanche.

        You said it yourself, sentiment is everything. Falling interest rates and the suggestion of such may drive more buyer activity. Therefore, how could you discount Janet’s argument that sentiment works in both directions?

        Sure there are many BB who have held IPs for some time, but there are plenty who are recent purchasers and are now at the margins. I have a number of BB colleagues, who, in their mid to late 50s have recently purchased IPs and still are. It has nothing to do with a cake recipe style, fundamentals driven business strategy, but more a case of ‘that’s what everyone’s doing’. The word of mouth forces at play are huge. AKA fear of missing out. This became very prevalent after the SMSF rules changed.

        What you’re suggesting in terms of prudence and logic in retirement planning is so yesterday. In a rising market leverage was king, getting in before you missed out mattered most and consequently Janet’s argument cannot be overlooked.

        • Hi Jimbo – I’m not sure why you say that I contradicted myself?

          I hear what you say, but I don’t see any boomers buying IP’s – they did that in the nineties or early this century. The only ones I see buying “second” dwellings are the ones preparing for retirement, and so they buy a house/apartment in their chosen retirement area and rent that out while they wind down in preparation for their retirement.

          Gearing up in the nineties or even 7 to 10 years ago was a good play, but look at the rise in the median values – they have plenty of equity now, and rents are still quite good, certainly good enough to positively gear most properties over that period.

          To suggest that they are all out there buying multiple IP’s right now and maxing themselves to the hilt is assuming that they are generally stupid people – as a rule of thumb they no less intelligent than preceeding and following generations.

          There may be fear out there at the margins, but I don’t see it in the boomers. In fact I think this recession may play into their hands, being able to buy into holiday destinations at low price now whilst holding their city home and getting the benefits of further capital gains. Yes I know – you don’t think we will see capital gains, but I expect them over the next decade even if we see minor falls over the next two years. The retirement of the boomers isn’t prescribed to occur all on one day, it will last until at least 2029. That date is 17 years away, do you think that they are worried about house prices in 2029?

          • Jumping jack flash

            You’re right Peter.

            The Boomers have absolutely nothing to fear. Taking a haircut of 40% when it comes time to sell the investments is ok because it has appreciated around 100%, or possibly more, since the 90’s when they initially bought.

            And when they sell the family home to downsize to the retirement village, they can afford to discount even more.

            When the boomers want to sell, they will sell, and they’ll take the top off the market if they need to in order to offload. The property is no use to them so they will merrily discount until someone buys it.

            It’s all profit after all. Money for nothing, essentially.

            The victims will be anyone who purchased in the past 5-10 years. Their equity will evaporate faster than you can say “retiring boomer”.

      • >No Janet, it’s not fear at all, it’s just commonsense. Anyone approaching retirement who expects an aged pension should rearrange their affairs to maximise their entitlements. That will usually mean exiting geared assets such as investment properties.

        This was certainly my experience, my parents are a prime example. 2 IPs sold within months of retirement.

        Fear, if it does exist, will only speed up the process, but it isn’t a pre-req for lower house prices, it is however a problem for financial stability.

        Both UE and myself have been warning about the ‘boomer effect’ for well over a year which on top of the slow disleveraging process that began when the GFC hit make it quite difficult to find an upside to housing over the longer term.

        Many BBs, such as my parents, need to fund their retirements through the monetisation of their existing assets.

        Warning BBs not to sell their housing assets seems to be a mis-interpretation of the reason they purchased them in the first place.

        • and without meaning to be nosy DE – would your parents not have held those properties long enough to ensure a capital gain, even if circumstances meant that the gains didn’t quite match their upper end expectations?

          On your other point that the boomers exiting the property market will cause a problem, have you not considered that the following generations are actually almost exactly the same size on a year/year basis rather than a generational basis, and that Gens X and Y are quite keen IP buyers.

          I see the void being filled quite well. The distortion that I see is the type of property and geographic position favoured by the boomers may not be a match for following generations, but the current city population/habitation spread should counter that.

          Perhaps you see it differently?

          • A significant factor must surely be WHEN your boomer investor “bought in”?

            Those who “bought in” at the bottom before the big gains happened, will be doing fine on their earnings ratios (from rents). “Fear” won’t come into it, for them.

            But those who have bought near the top, and whose earnings ratios have always been shite, and were chasing capital gains, and who will be in negative equity with any significant price drop – “FEAR” – definitely. Romper-shunting, trouser-packin’ FEAR, and trembling and sweating and tremens deliriums. And very appropriate, too.

          • I agree with Fraser here, if you speak to anyone from Gen X or Y they all aspire to be landlords who live off the income from their IP’s. But the majority except for a few late Gen X’s have only ever seen property prices go up. They have never seen a reccession or experienced a down turn in property in their adult life.

            Gen X & Y will pay top dollar for property because they perceive it as value for money even though those prices are inflated from a credit fulled boom that won’t be repeated for a long time. When prices continue to stagnate and property is not the perceived road to riches like it was for past generations then we will see Gen X & Y smarten up.

            Its unfortunate though that some Gen X & Y are going to get caught buying at peak prices.

          • >and without meaning to be nosy DE – would your parents not have held those properties long enough to ensure a capital gain, even if circumstances meant that the gains didn’t quite match their upper end expectations?

            Absolutely, but I see that as a downside not an upside in terms of the market.

            >On your other point that the boomers exiting the property market will cause a problem, have you not considered that the following generations are actually almost exactly the same size on a year/year basis rather than a generational basis, and that Gens X and Y are quite keen IP buyers.

            It isn’t just the size of the population that matters, but the composition of the assets held by those people and the timeframe required to monetise them.

            http://www.macrobusiness.com.au/2011/05/ageing-and-asset-prices/

            In other words, yes I see it a little differently

          • Thanks for the reply DE.

            Yes we do see it differently. timing is the critical issue. If the boomers have to let go of assets before the following generations pick up the baton it will hurt the boomers in the hip pocket, but if gen X and Y simply take up the slack then it won’t be an issue.

            The major generational comparisons that I see is the delay in forming households, and thus buying homes. This is partly greater (hence longer)education demands, partly greater opportunity for travel, and partly a different mindset to actually forming permanent relationships. They marry later in life.

            That has delayed the entry into housing for X in particular. Unless we extend the biological clock that really can’t be delayed much more for following generations, so we should be well beyond the point of equilibrium.

            I think that gen X are now keen to enter the market, and gen Y have been keen for some time.

            Many gen Y aspire to multiple home ownership, probably more so than boomers.

            I expect that we will see a wider gap between the haves and the have nots in the future – unfortunately.

          • PF – you seem convinced that x’ers and y’s will want to take over the debt soaked mantle. I don’t think this will be the case.

            With the exception of my Chinese friends (who are crazy brave when it comes to property) the vast majority of x’ers I meet are very circumspect. If the boomers do hit the eject button then this will be reinforced.

            Sunshine coast beachside is a late boomer investor disaster!

      • I have to agree with Peter on this one, though I believe fear does play a role; albeit a minor one. Most BBs would’ve bought their IP prior to the boom, and capital gains for selling now are already through the roof; plus recent trends seem to suggest housing prices are either stagnating or declining, with the latter being more likely. so why play the waiting game? If you own 2 or 3 IPs, there’s little sentiment value involved. Interest payments on TDs are infinitely more consistent than fluctuating rental income. Most importantly, we are talking about exiting geared assets and entering the carefree state of liquidity. Unless BBs intend on handing their property down to the next generation, selling IPs is a more sensible move to make for their own benefit.

  3. Exactly. The ‘gearers seem blissfully unaware well-advised wealthy investors would NEVER take the risks thoughtlessly embraced in this flawed strategy.

    Sure, leverage multiplies capital in a rising market. But steady prices corrode it and falling prices simply erases it. Even the most bullish of the economically literate commentators see only steady prices for several years.

    The number of ‘gearers buying NEW properties to let in Point Cook is staggering. The high depreciation from new guarantees years of solid losses.

    The rush to exit before all equity is destroyed will crush house prices in 2012 as this fresh supply is added to existing abnormal levels.

    Australia is different to the rest of the world. We don’t have NINJA loans. Negative gearing is far worse: the borrowers it takes down actually have an asset base to protect bank lending.

    As prices fall, banks are entitled to demand more security on investment loans to protect their position. Margin calls anyone?

    • David – What a load of absolute rubbish – banks simply won’t make a call on loans that are not in default. There is NO resemblance to a margin call situation.

      Those IP’s won’t be bought by any of the boomer generation unless it is for their own use, in which case it won;’t be an IP.

      The investors now are gen X and gen Y – the boomers stopped being the IP buyers some time ago.

      • I repeat what I said above – it doesn’t matter what generation they are, those who have bought near the top, and whose earnings ratios have always been shite, and were chasing capital gains, and who will be in negative equity with any significant price drop – these people are where the rush for the exit is going to come from.

        The banks won’t need to trigger anything – it will be triggered for them, as numerous investors simply won’t have the cash flow to keep up the loan repayments. Far too much investing hasn’t been about cash flow, it’s been about capital gains. This is classic PONZI stuff.

        DrHousingBubble blog has been following the phenomena associated with the Calfornian housing market for years. There are numerous similarities with Aussie.

        The trouble is, Aussie pundits are mostly looking at the differences rather than the similarities. Oh, we don’t have sub-prime or Fannie Mae or MBS bundling and CDS markets….

        Rubbish. Most of the underlying structural realities are there, just with different labels on. A lot of what went on in the USA was peripheral, as relevant to the outcomes as betting on a horse race is relevant to the outcome of the horse race. The Aussie horse race will end the same way as the Californian one even if there are fewer people betting on the outcome. And there might just be more people betting on the outcome than you realise…..

        • “The trouble is, Aussie pundits are mostly looking at the differences rather than the similarities. Oh, we don’t have sub-prime or Fannie Mae or MBS bundling and CDS markets….”

          Yep, and everyone ignores the fact that we have a massive percentage of interest-only loans (~35%) which even Alan Greenspan thought was a dangerous product.

      • Peter takes exception to my pointing out a harsh reality:

        “As prices fall, banks are entitled to demand more security on investment loans to protect their position. Margin calls anyone?”

        No, this is not identical to margin calls on share market loans, but it is analogous.

        Yes, IP loans contain this express provision.

        Anyone approaching their friendly bank manager for a quick refi or extension cos the property has been empty a while or needs repair is in for a nasty shock, particularly the semi-numerate BBB’s who think reversion to mean is an angry drunk.

        How long will these mainly middle income earners tolerate negative cash flow, shrinking equity and blocked toilets?

        The only thing impressing banks at the moment is cold hard load-bearing risk-taking equity. Cash flow is discounted; negative cash flow reviled.

        • David I only take exception to your erroneous statements. Any harsh realities that you point out that are accurate will be welcomed by me.

          Your comment re. banks not liking a negative overall cash flow is correct.

          I’m sure that in this market there will be some unprofessional investors who get caught out. That’s good for the market IMHO.

      • its not rubbish PF, i know of a number of cases where welathy people have had calls from their private banker and asked them to reduce gearing. the way they have done this is by putting property on the market.

        David’s analogy of a margin call is spot on.

        • GB – It’s possible that there are other reasons which were not relayed to you, but loans for IP’s written as home loans will be left alone as long as repayments are met as per the loan contract.

          Investment loans for Commercial Property are different, and that might be what you are referring to. Lines of Credit can also be called in or reduced, but home loans for IP’s are left alone unless an event such as a default triggers a response.

          Investors do pose a greater risk for banks, so I don’t think they would offer them the same assistance that they would offer an owner occupier, but that’s about the only major difference.

          Unless the loan was written on a short term loan such as 2 to 5 years. That was done by a few non-bank lenders, and upon maturity if the lender couldn’t fund a “rollover” then the borrower would have to find another lender or dispose of the property. There weren’t many of those loans by proportion.

          Technically investment loans, or loans predominantly for investment are not protected under the code, but still they are generally trouble free for the banks, so why cause a problem where none exists. Only a funding problem would initiate a strong response from the banks such as mimicking a margin call.

          The other point is that most IP’s for boomers were purchased with two loans – one against the owner occupied property, and the other a sub 80% LVR loan on the house being purchased. That’s done to avoid LMI costs – and maximise the deductible borrowing, so both loans should be still above water at this point of time unless the properties are on the Gold Coast or similar “prone” areas.

          Both borrower and the bank are bound by a “Loan Contract” which must be breached to initiate bank foreclosure action.

          I would be interested in obtaining the detail on any of the loans that you mentioned. I’m just not seeing it.

          • These are business people whos business arent doing too well and residential property (residence or IP) is held as the security for the business loans. Business cash flows are down and the banks want more security. these people are selling property to satisfy nervous banks. i doubt these are isolated cases.

          • GB – there is your answer – business loans are not like home loans – banks perform reviews on business loans – the regularity of those reviews will depend upon the loan performance.

            Business loans probably (but not necessarily) include an overdraft. From an overdraft it’s quite easy for any experienced lender to see how a business is travelling.

            Banks can and do put pressure on business clients to sell property to clear debts. It simply gets to a point where the bank says “sorry no more” and usually the clients can’t get finance elsewhere, so a sale is the likely outcome.

            The borrower has few options at that point. I point out though that it is not a “home loan” style loan that is the issue, unless they default.

  4. All I can think is that Boomers rental housing is a cash cow. This reeks of desperation from the REI and they must be running scared that they are going to have a big hit on their rental books as well as falling revenues from falling house prices.

  5. i don’t see why you would risk things with property when even a basic term deposit earns almost as much.

    selling is the right thing to do IMO.

    • Agree, and I think you will find that a lot of Boomers have no choice they need cash to live and Super ain’t what it used to be. This will be a demographic trend over the next 10 years (Harry Dent/Steve Keen/Leith).

      The risk has been presented and represented here. (MB)

      Tough luck to those that hold onto a deflating asset.

      They road the good times and no way in hell will I help-em out.

      Renting rules!

      • Yeah, GFrench is right.

        The only people doing OK out of property investing are those who have been in it long term, and work on rental income, not capital gains.

        The elderly economist Mason Gaffney just recently said the following about the post-1945 era in the USA:

        “…..Affordability of land ran high, e.g. for housing and farming. Ambitious young entrepreneurs and home buyers could borrow to BUY CHEAPLY. Loans were mostly for PRODUCTION and USE; price/earnings ratios ran low, payoffs were fast……”

        That is a beautiful summing up of a SENSIBLE economy, with low land prices and all the right incentives to grow PRODUCTION, incomes, and wealth. Property Ponzi is nothing more than a big fat wealth transfer, a lot of which is a transfer FROM decades of FUTURE earnings of current younger generations. Bailouts after the crash make this effect WORSE, look at Ireland, and the higher tax rates Irish will pay for 30 years to pay off the bailout debt.

        Sir Roger Douglas was right on the nail with his term “fiscal child abuse”.

  6. Properties are coming off the rent rolls and owners are selling. I think that will continue for a while.”
    .
    Thanks Mr Airey, there is your answer for why rental vacancy rates are coming down !! Until some point, as stale unsold stock of property rises, rental vacancy rates will fall. But it is only a temporary phase.
    .
    But I guess it is a better spruik to scream rents are heading to the moon and to buy before it is too late.

  7. Failed Baby BoomerMEMBER

    We have sold our house and are renting. We wanted to downsize in the next couple of years and it made sense. Speaking to other BB, I sense that there is growing unease, and lots are talking of selling, but they still think we are reckless. Gung Ho BBB (Bogan Baby Boomers) who wear kiss-of-death Billabong gear, go on those fancy European tours and hang on to show-off IP’s seem to be in denial, or maybe they think the propoerty dice will fall their way one more time. . .

    • BBB. Brilliant! You can spot them a mile away. Slightly greying, expensive, hip t-shirts and 3/4 cargos.

    • I sure hope that ‘failed’ in your nickname is sarcasm and a wink to some of your brethren boomers. Sounds to me like you actually understand the investment game and got out just in time.

      Keep renting!

    • My BB friend is definitely in the Gung Ho BB camp.

      I got nothing but positive comments about IP property buying when asking him “what did you do over Xmas?” He sees the current dip as a huge counter cyclical opportunity that will come good in 12 m time and is busy buying up IP bargains in Noosa.

      He has been at it for the past 22 years and would measure his debt and equity with 7 digits. His attitude is, “if I had cut and run when Steve Keen told me to I would have half of what I have now”

      Forget graphs, charts and M1 arguments. Only hindsight is going to change his mind.

      • You can’t alter the fact that some people have made alot of money gearing up at the start of this boom. (I would hazard a guess that their windfalls are, mostly, simply good luck.)

        There will be people who made themselves rich from this boom, sold out at the right time and pocketed their profits.

        Conversely, I suspect there are many people to spent that equity value and/or re-geared into a rising market. You can get a scenario where someone made alot of money, had a great time spending it, and now with capital values flat to down they have zero net wealth/equity in their investment properties.

        • Definitely, the only beneficiaries from this boom will ultimately be those who sold out at the right time.

          I like the comment from Jimbo about the appearance of typical property investors. The recent commission of inquiry into housing affordability in NZ, found that INSTITUTIONS were seldom involved in property investment, it is almost all mom and pop stuff. This is probably because institutions do due diligence, while mom and pop investors go by myths they heard around the neighbours barbie.

          • “This is probably because institutions do due diligence, while mom and pop investors go by myths they heard around the neighbours barbie.”

            That quietly side steps the 4 billion dollars of neg gearing tax back on offer. Institutions can dodge tax in the bahamas, mom and pop have got fewer options on offer to do the same.

  8. Cash is king for 60 to 70 year olds when the real estate boom is easing in Perth into a 5% to 10% slump a year.
    If you lose your capital at the end of your working life it is not easy to recover that lost money.
    We are selling a property each year as rents and residential tenants are a waste of time once you have paid your land tax in WA.

    • It’s always been a smart play to reduce your exposure to risky assets as you approach retirement. Peter Fraser highlights it above.

      The problem is after 15 years of growth, property is no longer seen as risky, consequently as I’m witnessing, there are plenty who are happy to leverage heavily during their 50s and 60s on the basis of the 7-10 year doubling. I’m not talking about guys facing tough times in retirement, these are people earning 3x average income with guaranteed $80K indexed pensions they fear won’t be enough!

  9. innocent bystander

    Mav raised the good point above that IPs going to market are probably contributing to the falling vacancy rate (and increasing rents). RE agents, in Perth at least, prefer the property to be empty for selling – less hassle for new owner occupier and puts downstream price pressure on seller once it has been on the market for a while.
    Another reason BBs hang onto IPs is that are waiting to retire before selling their IP in a low income year to reduce CGT. I know I went thru those sums but decided to sell IP back in 09/10

  10. The relaxing of the centrelnk assets tests by howard has resulted in IP’s being held on longer than they shouldve, the other issue that BBB are sometimes not aware of is if they have used their principle residence to provide equity for their IP it counts as an asset.
    eg BB borrows 100k from equity mate uses it as a deposit borrows the balance for the IP. The 100k is treated as an asset.

  11. Jumping jack flash

    The boomers aren’t generally in a big hurry to sell unless of course they’re negatively geared and gone crazy at the equity ATM, and they feel the pinch.

    However as a close boomer friend of mine told me recently, he can afford to take a it of a hit with regards to capital gains, he’s on good money, he hasn’t touched the equity ATM, so what’s a 150% profit instead of a 200% profit when he sells, its all profit?

    The real trigger is the retirement. They plan to sell up all their investment properties as soon as they retire in 2 years’ time. All of them at the same time.

    And then, when they put them on the market, they’re not afraid to cut the values back a bit, see above. It’s all profit. Even if they only make a 50% profit. Its still profit. They have 2xsuper, 2xredundancy (perhaps), and pensions as well as the profit from the sales of all their investment properties.

    The ones that will hurt are the fools who rushed in over the past 5 years. They’ll see all their profit evaporate, and then some.

    Its those that should be locking in their gains by selling up, if they haven’t withdrawn them from the equity ATM already.

    • Good point, and that will be the clincher. They will want to sell, and bought early enough to still make some profit. As more of this cohort are prepared to reduce the asking price to get a sale, so the new medians are set. RE agents use similar properties in the area to calculate their selling price range. So, a downward spiral.
      IP anyone?

  12. I turn 55 this and sold out of suburbia 3 years ago.Now have a no debt acreage in good country to retire to. This was always going to happen and I am so glad I have been following this and other similar web media gems. This WA lot are leaving it a bit late but if they bought many years ago they are still way in front. That’s what will drive the “get out before the rush/crash/plateau” sales because the boomers have a huge profit margin.They can take a reduction but the fear is that it sets the tone for those who cant. I can see why the agents are worried but that’s market forces for you.

  13. As you say the BBs who bought early and are currently sitting on significant equity may not be feeling the pressure to sell yet, however the BBs (and any other generation for that matter) who bought IPs later in the cycle and hence are sitting on a lot less equity will likely be feeling the pressure to sell already, allowing them walk away with at least something to show for their venture into the IP market.

    As these people start to sell its then a downward spiral as more properties become available and the selling prices decrease. This will definitely start to affect the BBs with plenty of equity as it will still hurt knowing they had, by way of example, 200% equity but if they delay selling out they may be left with 150% or 100% equity. Although they would still make a significant profit they would end up taking a big hit and like it or not this will affect the kind of lifestyle they are able to afford in retirement. Nobody in their right minds wants to lose a significant amount of money when their ability to earn money ceases/reduces dramitically and as such they will start to feel the pressure. Once a few do it and only suffer a small reduction in equity word will soon get round and the reversal of the fear of missing out will take hold – the fear of holding on too long!

    In response to Peter Fraser’s view that BBs selling their invetment properties will not result in a void in the market because there are gen x and y ers lining up to buy then, I very much doubt this is going to be the case because as we all know IPs were an entirely different proposition when the BBs wer buying – significantly cheaper in terms of price as a multiple of income and they also had the potential for significant capital gains, making negative gearing an attractive option. IP prices now are a whole different ball game – vastly inflated prices with little chance of capital gain in the short to medium term so negative gearing is not a viable option. Smart gen x and y ers will not be diving into IPs anytime soon to snap up the stock the BBs are starting to offload. We are starting to see increased supply and lower prices and this will continue with both increasing in magnitude