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Australia's property crash: Are we all doomed?

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Your Investment Property | 25 Feb 2014, 10:01 AM Agree 0
We’ve been told for years that our property market is in a bubble and about to burst. It hasn’t happened. Yet. But could it finally come true this time around?
  • Mike Wilby | 25 Feb 2014, 06:03 PM Agree 0
    All the above does make some sense and as a half way point between bear and bull a fairly flat market looking forward seems realistic , something not covered is the link between property freehold/rental prices and the level of income required to service loans or rents -- the same income levels which are making Australian exports/manufacturing enviable economically - surely something has to give or we have to try and trade flat fo 10 years whilst the rest of the world picks up..?
  • Mike Wilby | 25 Feb 2014, 06:06 PM Agree 0
    yes that should have said un-viable not enviable -big difference!!!
  • Don't Prop Up the Ponzi | 26 Feb 2014, 04:15 PM Agree 0
    Another article reassuring us there's no bubble. For many years the average house cost 3 times the average wage. Now it is more like 9 or 10 times the average wage in our cities, yet writers like this one claim there's no bubble. By all measures, Australian housing is deemed unaffordable. Demographia rates our price as "severely unaffordable" and "seriously unaffordable." Nowhere in Australia is ranked "affordable" or "moderately affordable".

    So, if we are in a massive housing bubble, why hasn't it popped yet? Because government policies have been put in place specifically to keep it propped up. Our housing bubble is a government-sponsored Ponzi scheme relying on a supply of "greater fools" to keep paying ever-increasing prices for dwellings.

    Nila talks about a chronic undersupply. Well of course we have an undersupply - land is dripfed and supply is choked to create this undersupply. Then, we have the highest rate of immigration in the western world, a deliberate measure to increase demand on housing.

    And we have unrestricted foreign investment. Contrary to Sweeney's statement about the strict rules on foreign ownership, these laws are not only easy to get around, and are flouted constantly, many purchases are not reported to the FIRB in the first place, and the FIRB has stated as much. The FIRB is in place to simply rubber-stamp almost every application and turn a blind eye to any shonky business. There are many, many anecdotal reports of foreign, especially Chinese purchases of established dwellings, and there is no doubt that the Chinese are having a massive impact on price rises in certain areas. There are no true official figures, and if there are, the government and FIRB refuse to disclose them, presumably because there is plenty to hide.

    There is plenty to fear in this bubble. The Chinese are restricted to one property each in China, but can buy as many properties as they want here. They were also buying up big in Canada, but now that Canada has clamped down due to the impact of Chinese investment in Canada, that means even more money is headed our way. And as the amount of wealthy Chinese grows, there are more Chinese who can afford to buy Australian real estate (and intend to do so) than there are Australians. Please don't misunderstand me. I am not China-bashing. They are acting within the law (and what they can get away with) in a desperate bid to get their money out of China and out of the reaches of the corrupt Chinese government. But many of these Chinese investors have made their money by corrupt means and can easily outbid Australians in an uneven playing field. Our government is well aware of this, and is allowing Australia to be sold out to the highest bidder in order to keep property prices high.

    I know I have rambled on here but I am quite passionate about informing people of this housing bubble that we have had for so long that many people think our exorbitant prices are normal. They are not, and have nothing to do with affordability, nor with fundamentals. They are propped up artificially, and both sides of government are to blame. Of course, those with property have vested interests in seeing their values rise, so the government are pandering to the majority. But there is no question that we have a housing bubble. How long it lasts depends on how much the government is prepared to throw at it to keep it going, unless it eventually bursts under its own weight.
  • Rethinkr | 27 Feb 2014, 02:14 PM Agree 0
    All the same old arguments... Tell 'em again, people might believe them this time.
    There's a grain of truth in all of the 'reasons' why we're not in a bubble, and we've all got used to houses costing 5 to 10 years' income.
    The main reason why prices probably still won't crash is close to what DontPropUpthePonzi says: The State-Banking de-facto alliance will see to it that bank shareholders and executives don't lose out
  • Lanz Counder | 14 Apr 2014, 02:23 PM Agree 0
    I am always watching the news and updated on current events. I don't want to be the last person in Australia to know that property and estate value are falling.
  • DM Homes | 15 Apr 2014, 07:31 PM Agree 0
    Let the current market pass. The real estate market will boom soon after the year 2014 ends as reported by a journalist.
  • John | 27 Jun 2014, 08:38 AM Agree 0
    On average the million plus dollar house returns between 2.5% & 4% P/A in rent, would you say that's a good investment? If my Super Fund return was that figure I would hit the roof. Wake up everyone the real estate prices are a joke in Australia, stop getting sucked in and brain washed.
    • Graham | 19 Oct 2014, 11:37 PM Agree 0
      Consider that in the last 12 months house prices in Hawthorn, Melbourne, rose 30% from a median of $900,000 to $1.2m. The only question would be why bother renting the property out at all given those returns. The following is from dated April 5, 2014. The link is here
      HOUSE prices soared more than 10 per cent in 130 Melbourne suburbs in the year to the end of March, latest figures show.

      The boom has seen values skyrocket hundreds of thousands of dollars in some well-heeled areas, according to RP Data’s research.

      But a host of cheaper suburbs were among more than 80 to outpace the wider Melbourne growth of 12 per cent over the year.

      While rents may well return your quoted 2.5 to 4% per annum, in tandem with actual property price rises the average return is actually well in excess of 15% and in certain suburbs in Melbourne twice that. At least triple that of most Super Fund returns.
  • Darren | 09 Aug 2014, 12:15 AM Agree 0
    The writer of this spruik is naive and totally clueless about the economy. Lower commodity prices affects our terms of trade which affects incomes, employment, and government budgets. Australian economy is dependent on exports and our exports are raw materials, and if their value drops so does our national income. Also there are circumstances where the RBA can't magically fix rates. So rates can and will rise sometime in the future.

    We all know FIRB turn a blind eye to foreign investment, and if you have ever been to a mall in beijing or singapore you would have seen stands selling melbourne and sydney apartments.

    The recent up surge in demand is mostly driven by speculators, with new home buyers falling to record lows. This is a fact backed up by stats. Rental yields are also at record lows. Our private debt levels are also high compared to other oecd nations. These are all symptoms kf a bubble and all it takes is a single financial shock for prices to correct.

    Government debt is worsening. Consumer confidence is at all time low. Unemployment is rising and about to rise higher with mining capex coming offline and car industry folding. This means tens of thousands of job losses are still yet to come. China has seen dwelling prices decline for 22 months straight. Most of China's economic growth is driven by investment and debt that they themselves admit is unsustainable as they try and engineer a soft landing. Europe is sliding back into recession, and talk of taper in the US is causing market jitters on wall street. With all these external and domestic factors, yeah now has never been a better time to leverage up on property.
  • Arty | 28 Aug 2014, 06:42 PM Agree 0
    John, that's income not including capital growth. My share portfolio only provide 3% dividend income and lost 57% from the GFC crash, its been 5 years and its still 30% down pre GFC, my property portfolio has increased by 47% since the GFC. In the future who knows.
  • Aney | 28 Aug 2014, 09:54 PM Agree 0
    This response is the biggest crock I've read I a long time. Lending standards haven't relaxed eh? Then why does the average house now cost over 9x your salary? It's because the banks will now lend you so much more. Their models for lending are based on seeing how much house prices will fall in the next 25 years based on how much they've fallen in the past 25. Well guess what? In the past 25 years they haven't fallen so they lend to you now like they will never fall again, which is a fallacy. You quote the FIRB stopping overseas buyers from distorting the market. Yeah right! The senate inquiry into housing affordability quoted FIRB directly saying FIRB has not prosecuted ANYONE under these rules and at most foreigns get an $85k fine. It's seen as the 'cost of doing business' by foreign investors. You say its jot a bubble because prices only rose in Melbourne and Sydney. There have been massive bubbles in Perth around the mining towns which are now collapsing as mining drops. And why is it ok to have the biggest bubbles in Australia's largest 2 cities. And you talk about our 'trusted economists' saying there is no bubble! Is this the same economist who said the US UK Ireland Spain. Etc etc had no bubble? These are the same economist who work for banks (including the often quoted Shane Oliver who works for AMP BANK) and banks stand to lose the most from a housing bubble. This who article is rubbish spruik. Go read the book this article is quoting and make up your own mind.
  • David | 31 Aug 2014, 09:38 PM Agree 0
    People can be negative but the truth is you don't know what your talking about property is unstable but there's no crash coming like some if the comments I read it's usually tve people with poor mindsets and people who don't have drive that usually talk property down what do people want that it always goes up there needs to be pullbacks in prices it's quite normal and banks have tightened up their lending sure people borrow more but
  • Marty | 02 Sep 2014, 09:00 PM Agree 0
    The Chinese Investors are mostly responsible for the Housing being 10 times over-valued(as Harry Dent has pointed out). The Chinese use Australian (& Canadian) property for 'land-banking' & also to get their permanent Australian or Canadian residential visas. The Greedy Baby Boomer generation couldn't give a stuff about the younger generation coming after them (including their own children & grandchildren), the Boomers just want to piss off to South East Asia or Southern Europe & live off their pensions or super, like Kings. The Boomers know Australia is now way too expensive & the over-priced Real Estate is a reflection of this! A house in say the Inner Slum(& still is) Ghetto of Richmond or Collingwood (in Melbourne) around 1971 was around $5000 & a Sun newspaper was 5 cents. Going by the inflation of newspapers(which are actually more expensive than 1970's papers, due to better color printing & the Net etc), still a $5000 House shouldn't be really more than say $300-400 Gs in today's money. So why are the greedy Baby Boomer owners & Yuppie Real Estate Agents are trying to get $800-1 Million for the same dumps(renovation doesn't add that much value, it's the location), that you couldn't even give away back in 1970? I agree with Harry Dent. Real Estate in urban Australia is a total rip-off!
  • Marty | 02 Sep 2014, 09:17 PM Agree 0
    And also dear(mostly Baby Boomer readers, as I hate to generalize, but the Boomer generation started the property speculation Boom back in the 1980's) readers, don't forget,"Negative Gearing". It only takes an Interest Rate rise or a sudden downturn in China, that'll send all of the property bubble 'house of cards' tumbling down. Also there's also a potential war between China & the US, & have a guess where property will go then? So you Boomers better sell up to the cashed up Chinese & piss off to Vietnam or Bali ASAP, before your Real Estate Portfolio will be worth nothing! Also Australia is alot like pre-war Poland , a sitting duck waiting to be invaded & fought over by China & America/Japan(we hope). Remember Poland 1939! Nazis invaded from the West & the Russians from the East. The current crisis in the Ukraine & the Middle East has yet to escalate into a full-scale war, so you still have some time left to offload your over-priced property portfolios to Chinese(citizen seeking) colonists!
  • Meg In Mandurah | 16 Sep 2014, 01:24 PM Agree 0
    Clearly the writer hasn't done their homework for Western Australia, we have over 1000 people a month moving here, unemployment is rising we will be seeing mass mining job losses if visa changes come into effect and overtime/loading in wages getting cut these factors will cause a ripple through real estate with bankruptcies and mortgage arrears causing a buyers market flooded by investment properties that people can't afford ..The rule of thumb in real estate is that property values double in seven years...this growth can not sustain itself...developers are getting greedy with the supply and demand drip feeding of land and hiking up the prices accordingly... (Just check out Port Hedlands market) these changes will Leave new property owners with a 20 year wait for equity growth and existing properties with higher mortgages than actual property value. Bubble? You Betcha!
  • Unconcerned | 18 Sep 2014, 02:29 AM Agree 0
    I don't think something as serious as the US subprime crisis will ever be repeated in Australia. The downfall of US properties has already given Australia a reason to do frequent checks on the economy and issue warnings of any upcoming cliffhangers. Australians are too smart to repeat the sad stories that have come out from Europe and America. I have never seen a central bank or a government any where else that is as defensive as Australia which have instigate policies that would protect the country against internal or external shocks. That is why the long term cost curve over a 40 year period has been in general going only one way and that is UP. We are still very tightly shielded at this stage.
  • Don Nicolussi | 18 Sep 2014, 11:33 AM Agree 0
    There is still a fundamental under supply of residential housing in Australia. We are all aware of the areas that are potentially the most volatile. History shows us which sectors are the most at risk. I read another negative article just today from Steve McKnight. He is using the bubble in mining towns to illustrate ( well not really sure why ) the risk of niche property investment. As investors are we trying to build portfolios of quality median priced stock in solid areas or are we rushing out and chasing fads. Most investors stop at one property and not many own more than three so it seems that fear does work. That is, the fear that we should not invest in real estate because it is risky. The fees that we all hate so much like stamp duty and the taxes like capital gains tax actually protect our market. Property is less liquid in Australian that other countries due to these costs acting as barriers to entry. In addition our finance is not non recourse. Ask a banker about "jingle mail". This is when American borrowers simply hand back these keys to property in the post rather than make good on their debts. This is not possible here are the bank will recover from you and pursue you vigorously. Risk is risk and we invest with open eyes but failing to invest because of fear is the biggest failure (whoops cliche alert). Truely, if we use leverage cautiously and carefully manage cashflows just like a business we have gone a long way to mitigate the risks. Have a great day all!
  • Graham | 19 Oct 2014, 11:17 PM Agree 0
    Interesting story with interesting facts and figures and percentages and large doses of sincerity to boot. I have nothing to add except this headline from the Financial Review dated August 15, 2014. It reads : ‘Phenomenal’ Chinese investment drives housing boom.

    I'll leave it to readers to decide who exactly it is that knows what they're actually talking about in regard to the issue of foreign investment in the Australian housing market.
  • Sam khoury | 24 Nov 2014, 01:59 PM Agree 0
    Good morning Australia... The crash is coming, what goes up must come down.To know what is happening in the property market ,you have to be on the ground monitoring the property auctions and prices.For a suburb like Merrylands in N.S.W house prices went up 250 thousand dollars in about three months,now that tells me something is not right. we are talking about 650 sqm block in Merrylands that is nock down and build duplex .The crash that is coming will devalue house prices by 30-50 %.Every auction I go to is packed with overseas investors,they are not first home buyers .The property bubble we are in at the current time is the biggest in Australian history,and the Premier of N.S.W says what bubble ,why because the government is hard up for revenue that they are collecting all that stamp duty from every sale.The government is so desperate that they have mobile speed camera vans working on 43 degrees hot days to catch speeding drivers. Well we missed out on recession during the GFC but our turn is coming soon, rising unemployment,rising house prices,mining boom is over ,and our interest rates can not stay low for much longer , and inflation getting above 3 %, all adds up to a remedy fro disaster....
  • jeremy | 25 Nov 2014, 03:42 PM Agree 0
    lets be honest, none of you know what you are talking about. introduce me to someone who has sold a property anywhere and not regretted it 10 or 20 years later.

    in a stable, growing, young country like australia - populations increase, wages increase, inflation increases, property prices increase. is sydney really that expensive compared with LA, NY, or London - no. are our regional areas really that expensive based on stock levels, average annual salaries (75K) and future population growth projections - no.

    Australia's population is set to be 75M in 2100 more than triple today. most of the land in oz is uninhabitable due to desert making about 80% of the country. do the maths. sit on the sideline your whole life talking rubbish and you will retire broke and homeless.

    any market's natural direction is up and ALWAYS has been over the long term.
  • poodle | 25 Nov 2014, 06:11 PM Agree 0
    I'm new and naive in all this. Let's say the bubble bursts and the high house prices of the major cities crash. What effect does this have on the rural areas that are already struggling eg NW Tas where prices have been going backwards for years? Will they drop even further or will prices even our a little more across the country?
  • mark | 08 Jun 2015, 12:03 AM Agree 0
    There is a key element here to repay all debt be it government or personal Jobs!!! And lack off!! And they are declining more which means less tax for government also big business failing less tax and job losses there is a big big problem happening in Australia and it involves repaying debt and having jobs to be able to do so our government is unsustainable to big sucks to much money but hey thats another issue!
  • Martin in China | 21 Aug 2015, 02:48 AM Agree 0
    There's a fundamental flaw in your appraisal of foreign investment in Australian property from China and Asia in general. That problem is that your and most of Australia believe that the investors are playing by the rules and that the Australian Government is actually equipped to monitor and enforce the rules. I live in China, I work here and I can tell you there many many organisations here that advocate for local Chinese investors on how to get "around" the foreign investment rules. These usually come in the form of trusts setup on behalf of the investor as far as I understand it. What is even more amusing is that these same companies advocate for the Tax benefits, these investors can leverage trough deferred tax schemes if they were to immigrate to Australia as a later time.

    I'm an Australian, a Queenslander and proud of it. But sadly it continuously strikes me at how naive we are as a people in the world. Culturally, countries like China have an almost innate for our sense of western values. You can see this reflected in their contempt for foreign copywrite and patents as well as their manipulation of terms of trade and exchange rates. Why we continue to think that the Chinese/Asian middle class would "do the write thing" given the extremely poor options for domestic investment return in China, just amazes me.

    The sad fact is that the ATO and the Australian government has no idea and neither do most of the financial industry in Australia.
    I can't say what the true level of foreign investment in Australia is, but a good start would be to look at the total number of residential properties that are owned by non persons, and to take say 30% as the base line.
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