Aussie property could drop 50% or more

[Sean M]

I have reading and watching what has been happening with property in NZ and in Australia for about 10 years. The main thing I see as holding the property market up.

1. It is seen as a safe bet - holds or increases in value
2. People need to live in a house
3. Banks give loans to anyone who can service it and has an ok credit
4. Governments and business want people to have more debt to keep working for as long as possible ( rat race).
5. Overseas cashed up buyers

As long as people can justify their borrowings on a PPOR or IP and believe that their investment ( own home or IP) will go up by X or at least hold its value most think well even if it falls I will just stay in the house.

The challenge is also with overseas buyers who are cashed up and SMSF investors now who are seeking alternatives to shares etc.

Housing does not really create a sustainable base of business. You need income to service your loan and for that you need jobs and businesses. True the construction industry creates new jobs but it alone cannot sustain the growth needed. Not everyone wants to be a builder.

Today your house may be worth $800k but like shares it is only worth what someone is prepared to pay for it. Therefore, tomorrow in Victoria if people who lost their jobs in Toyota now cannot get jobs, the suppliers have to close/diversify/shed jobs then the average person who was considering having to borrow the amount needed to buy the house can no longer do that.

This is where the economy suffers and when things start to stagnate. This most likely will bring about a downturn. People cannot afford to borrow or can't borrow and so the demand falls. If this sustained it can have a large impact on the housing industry.

This being said those who are smart and do not have to sell may not have an issue. They continue earning their rent and paying down their mortgage. Those who have purchased poorly and leveraged to the hilt and just making it will struggle. This is worsened if they loose their job and have to sell in a rush.

So I think the property market will keep going the way it will unless something changes in the thought process of people buying houses or the money runs out. I.e. wages are no longer there to sustain the over priced housing. All this can be overruled by overseas buyers with cash who don't care about the price and want to secure land.

 

[impala67]

The challenge is also with overseas buyers who are cashed up and SMSF investors now who are seeking alternatives to shares etc.

There are numerous examples of overseas rich and upper-middle class coming to Australia either for a better life or for the wealthy to "park" their money, and good luck to them. If it's not in Australia, and if it's not real estate, it will be art, or whatever else and somewhere else.

The SMSF comment is also significant as this has brought a new dynamic in terms of purchasing power to the market over the last several years. The money is substantial and that never gets mentioned much by doom and gloom prophets from overseas.

overseas buyers with cash who don't care about the price and want to secure land.

http://www.globalpropertyguide.com/Asia/china/Taxes-and-Costs

In addition to many long established suburbs with no mortgages, I think different areas will perform vastly differently over time, however some suburbs with external influence such ones found in the Booroondara and Manningham LGA's in Melbourne for example, will become the NEW NORMAL, and the link makes for interesting reading. I'm sure there are many other sub-market examples also.

The two best times to invest in real estate was 20 years ago, and today.

 

[perthguy]

Therefore, tomorrow in Victoria if people who lost their jobs in Toyota now cannot get jobs, the suppliers have to close/diversify/shed jobs then the average person who was considering having to borrow the amount needed to buy the house can no longer do that.

This is where the economy suffers and when things start to stagnate. This most likely will bring about a downturn. People cannot afford to borrow or can't borrow and so the demand falls. If this sustained it can have a large impact on the housing industry.

I really think it was a mistake for the govt to pour billions into car manufacturing and coal (for example). I think this has artificially stifled the economy and not allowed it to diversify. Australia has developed (or is developing) some great technology. One example of a tech we developed is solar thermal which hasn't really taken off in Australia. Another is seawater desalination combined with wave energy, a low power input desal plant. How we haven't resolved this technology and sold it to the middle east is beyond me. Too many govt subsidies into coal and cars perhaps?

http://www.carnegiewave.com/index.php?url=/ceto/what-is-ceto

 

[impala67]

I really think it was a mistake for the govt to pour billions into car manufacturing and coal (for example). I think this has artificially stifled the economy and not allowed it to diversify. Australia has developed (or is developing) some great technology. One example of a tech we developed is solar thermal which hasn't really taken off in Australia. Another is seawater desalination combined with wave energy, a low power input desal plant. How we haven't resolved this technology and sold it to the middle east is beyond me. Too many govt subsidies into coal and cars perhaps?

http://www.carnegiewave.com/index.php?url=/ceto/what-is-ceto

Just had a quick look at the link. Looks promising & totally agree with your post. Imagine if they put even some of the money they gave to manufacturing into this. No vision - time will tell what the result is for Australia long term.

 

[Melbournian]

don't think it would drop 50% although areas where the recent manufacturing closures could impact the population living in those areas particularly geelong etc. When jobs go, financial pressures become bigger as living in australia isn't actually cheap, lots of money goes out to just day by day bills etc.

areas where they are pockets where they are migration or bigger inflows of money would be relatively be unaffected as the holding power and their income is non-reliant on day to day jobs.

 

[Melbournian]

Just had a quick look at the link. Looks promising & totally agree with your post. Imagine if they put even some of the money they gave to manufacturing into this. No vision - time will tell what the result is for Australia long term.

They should put money into manufacturing. they way the government spends on things where they could save is beyond me.

certain departments see budgetary allocations as if they don't spend it they won't get it again next year. So bang yeah spend $1000 an hour on weekend work for contractors - just crazy.

 

[topcropper]

Too many govt subsidies into coal and cars perhaps?

Besides the diesel fuel rebate, which gets returned to miners and farmers since their machinery is not using the public road system, list all the subsidies that coal companies get? I'd be interested in what you come up with?


See ya's.

 

[perthguy]

They should put money into manufacturing. they way the government spends on things where they could save is beyond me.

Well, I meant on manufacturing things that are actually useful to export

The reason I picked CETO as an example is that we have developed the technology (just need to prove it), we have the capacity and raw materials to manufacture it and we could sell it. I just see a missed opportunity with the middle east (think Dubai and Abu Dhabi as examples) being cashed up but in need of water.

Desal plants supply 98.8 percent of Dubai?s water but producing desalinated water is so energy-consuming that future water and energy plans must aim for a more sustainable balance. And here we have tech for zero emissions desalination that just needs to cash to enable the tech to be proven. Meanwhile we pump millions of govt dollars into cars? It's very frustrating for me.

http://www.bloomberg.com/news/2013-...pply-98-8-of-dubai-s-water-forum-is-told.html

I don't pretend that CETO will save the Australian economy. It is just one small example of how our economy could have diversified if the govt had backed emerging techologies instead of propping up unviable industries of the past.

 

[perthguy]

Besides the diesel fuel rebate, which gets returned to miners and farmers since their machinery is not using the public road system, list all the subsidies that coal companies get? I'd be interested in what you come up with?

I don't know how accurate it is and I don't have time to fact check every claim but this will give you some idea of how much money the government expends to support coal.

https://theconversation.com/coal-curse-the-black-side-of-the-subsidised-resources-boom-7801

 

[topcropper]

I don't know how accurate it is and I don't have time to fact check every claim but this will give you some idea of how much money the government expends to support coal.

https://theconversation.com/coal-curse-the-black-side-of-the-subsidised-resources-boom-7801

I've got no reason to stick up for coal. But coal contributes way more than 1.8% of Australia's GDP. Anyway, most of the subsidies listed seem to involve the bad effects of coal mining on the environment, so I suppose that's a subsidy, although debatable?

Another is seawater desalination combined with wave energy, a low power input desal plant. How we haven't resolved this technology and sold it to the middle east is beyond me. Too many govt subsidies into coal and cars perhaps?

http://www.carnegiewave.com/index.php?url=/ceto/what-is-ceto

As you said, desalinating water uses an enormous amount of energy. To produce something that is worth cents per tonne. Water is almost worthless. So why does wave technology suddenly make it sensible? If wave technology is the go, then go ahead and put the electricity into the grid, but why on earth would you desalinate water with the energy produced? Doesn't make any sense to me?


See ya's.

 

[BayView]

The two best times to invest in real estate was 20 years ago, and today.

We've all got that story, and like shares - it depends on your window of time you gaze through.

The older you are, and more windows you have gazed through; the more you see that your statement is not that accurate. There have been lots of "best times".

For example; The best time to invest in real estate was back in about 1955 when my Grandparents sold their then guest house on Dandenong road about 3 km's from the CBD for a few thousand pounds.

It would be worth a few million now. I mean; $3m or more.

 

[impala67]

We've all got that story, and like shares - it depends on your window of time you gaze through.

The older you are, and more windows you have gazed through; the more you see that your statement is not that accurate. There have been lots of "best times".

For example; The best time to invest in real estate was back in about 1955 when my Grandparents sold their then guest house on Dandenong road about 3 km's from the CBD for a few thousand pounds.

It would be worth a few million now. I mean; $3m or more.

...it was just a quote I saw somewhere to conclude and illustrate my point.

The general point being - Realists buy property(assets) and make money; there is no perfect market or time...etc.

Yeah, I know what your saying also. I'd like go back and buy Manhattan, New York from the Native Americans for $24.00 worth of trinkets also.

 

[perthguy]

As you said, desalinating water uses an enormous amount of energy. To produce something that is worth cents per tonne. Water is almost worthless. So why does wave technology suddenly make it sensible? If wave technology is the go, then go ahead and put the electricity into the grid, but why on earth would you desalinate water with the energy produced? Doesn't make any sense to me?

It would not make any sense in Australia, where water is plentiful and cheap. I'm thinking more of selling the tech overseas to places where water is not plentiful and is not cheap.

"Desal plants supply 98.8 percent of Dubai's water but producing desalinated water is so energy-consuming that future water and energy plans must aim for a more sustainable balance."

It would make a lot more sense in a place where 98.8% of potable water is from desal plants... and they want to reduce the energy used to produce the desalinated water.

http://www.bloomberg.com/news/2013-...pply-98-8-of-dubai-s-water-forum-is-told.html

 

[rodimus]

Don't worry about property dropping. Real estate always go up in the long term. 50 years or 100 years ago, property was worth peanuts in today's money!

People need a place to live.

In Hong Kong, tight little apartments are all above the 3 million $ mark.

Property being expensive and unaffordable now? It's happening in almost EVERY CITY ON EARTH.
You think with our average apartment prices at around $500,000 is expensive, then try buying in Singapore, Hong Kong which is over the million dollar mark. Even in Malaysia an apartment is costing $800,000 to $1,500,000, in a country where the average income is around $2500 (in their currency).

 

[impala67]

That?s not a bubble - Greg McKenna - Feb 7 2014

That's not a bubble

"...The key point about rising house prices now compared to other markets and even Australia in the past is the first one on Michael Blythe's slide. It's one the RBA has made in the past. House prices rises per se don't cause a bubble ? what is needed is for the rises to be fuelled by increased borrowings ' leverage ' which makes the system fragile and unstable.

That just isn't happening at the moment.

Which brings us back to Dent. Interestingly Dent doesn?t seem to be saying that Australian property prices per se are going to fall. Rather, housing in Australia will fall after the there is a stock market crash after the Chinese property market crashes.

To me this sounds like the conditional probability of a crash in Australian property prices is much lower than the strength with which Dent is making the assertion prices will fall by 30-50%.

Australia's major bank chief economists - Blythe, Evans, Oster and Eslake/Hogan their teams - have proved more adept at predicting the swings and roundabouts of the Australian economy than pretty much anyone else over the past decade..."

http://www.businessinsider.com.au/in-one-slide-heres-why-cbas-chief-economist-believes-australias-not-in-a-housing-bubble-2014-2

 

[joeExpat]

Property being expensive and unaffordable now? It's happening in almost EVERY CITY ON EARTH.
You think with our average apartment prices at around $500,000 is expensive, then try buying in Singapore, Hong Kong which is over the million dollar mark.

Not really a fair comparison with tiny land constrained cities. Australia is more expensive than almost anywhere comparable in Europe or the US.

I'd been looking to buy in Barcelona recently, I need a place there. Good apartments can be acquired for under 200K Euro, or even under 120K. Agents there tell me prices down 50%, which seems about right. A place I own further north is down that much (I bought when it was 35% down).
In the end I decided to rent, the problem with falling prices is all the buyers retreat from fear of more falls, so it self-perpetuates. Banks not lending anything doesn't help.