Prospect of a sudden & dramatic drop in prices should not be ignored

[alexlee]

One day, at a research conference in 2009, Chanos listened to an analyst tick off numbers about the scale of China's building boom. "He said they were building 5 billion square meters of new residential and office space -- 2.6 billion square meters in new office space alone. I said to him, 'You must have the decimal point in the wrong place.' He said no, the numbers are right. So do the math: That's almost 30 billion square feet of new construction. There are 1.3 billion people in China. [In terms of new office space alone] that amounts to about a five-by-five-foot cubicle for every man, woman, and child in the country. That's when it dawned on me that China was embarking on something unprecedented.''

Here's another point of view:

http://www.latimes.com/business/la-fi-office-space-20101215,0,965694.story

I have no idea whether China is overbuilt, but does it change one's perspective when they are, then currently building what amounts to 'normal' office space for 1/8 of the country?

 

[Deltaberry]

i think Australia is safe, in the sense that there are many people from China, India, Asia and other migrants that are snapping up properties, not just for their own residence but also for investment.

The govt was smart to let more Asians come in during the GFC.

Yea well there won't be as much since:

- Recent events have left a bad taste for around 40% of the world population (ie India + China)
- India has issued some warning about travelling to Australia, or was it Melb, ever since bashings and killings of Indians
- High currency is deterring other parts of Asia as US/UK now appear cheaper and have far more friendly migrant policies (can get TR in a day in the US, while it takes 6-7 months in Aust)
- Recent leaked comments by Rudd about waging war on China doesn't help. If someone over there had a choice about migrating, I'm sure they'd think twice about coming any more
- FIRB rules obviously reinstated, not that they'd want to invest any more due to currency

 

[Deltaberry]

Here's another point of view:

http://www.latimes.com/business/la-fi-office-space-20101215,0,965694.story

I have no idea whether China is overbuilt, but does it change one's perspective when they are, then currently building what amounts to 'normal' office space for 1/8 of the country?

Most predictions are 50% of population will hit middle class by 2040 anyway. That's around 750m people. So I guess it'll come into good use, or if you like, around 3x USA's middle class population.

 

[.toe]

Most predictions are 50% of population will hit middle class by 2040 anyway. That's around 750m people. So I guess it'll come into good use, or if you like, around 3x USA's middle class population.

You may well be right, but that's 2040, those offices will be finished in the next year or two which leaves plenty of time for a big bustup and a recovery before then.

In order to keep growing they'll have to build more offices still, or something new.

 

[Ausprop]

the 'sudden and dramatic drop' will most likely be confined to the south east of the country, which has defied gravity and had price increases for no apparant reason all in the midst of a GFC. the wealth states have already had this dramatic drop pver the past 2 years and with the resources boom upon us it is likely to translate to some decent growth

 

[Perp]

One of the best articles I've read for a long time Zoran. Will be frighteningly educational for some.

I have repeatedly acknowledged that economics is not my strong suit - primarily because it's not that interesting to me - but I admit to being staggered at how many property investors seem not to know the very basics, eg fractional reserve banking.

It's hard to imagine how one could make any sense of the news, or articles such as Zoran's, without at least some basic understanding of how our monetary system works.

 

[JCM]

What does this mean for property Investors?

As a relative newy who is cashed up and ready to invest I would like others to shed some light on what does one do when times do turn sour!

If the secret to property investing is "time in the market" and not "timing the market", would you agree that there will still be bargains out there, just somewhat harder to find. Is there always money to be made somehow in the property market regardless of the interest rates, by becoming more innovative?

If interest rates kept slowly increasing or remained stagnant over the next decade what do avid property investors do in the meantime. I understand as a former daytrader that one cannot force the market, and maybe need to sit it out for however long till conditions become favourable once again.

John

 

[Deltaberry]

As someone cashed up you should consider the equity markets...

 

[evand]

The thing with newish investors is they think they have to be doing something all the time. Not true.

Most of the gains are made at certain times. Its ok to just watch, study and do nothing for periods of time.

In fact thats what experienced investors do.

 

[pieman]

I had a bet a few years back with a friend of mine over the Melbourne median, He is a PhD in Economics and a Steve Keen Fan too(tragic really), he was listing everything under the sun calling the property crash( for the last 5yrs - as in it will happen any day now) even after banks tightened their LVR 's by 5%. I still think if we have a major fall, it will require high unemployment to do it.

mmm i have a friend with a Phd in Finance, I wonder if its the same one? Typically he is wrong with his forcast and has been since I've know him (last 15 years). The frightenting thing is he teaches MBA subjects but when I think back to his poor personal financial I wonder why they dont teach, say "how to invest" or some other 101 subject and then get a RE expert in and show how easy it is if you are PATIENT and do heaps of DD.
In my eyes, I woudnt want anyone with an MBA near my business.
He too is a sk fan but of course the end of the world didnt eventuate like he thought and we all continue on but the doomsday predictions dont.
hohum

 

[Ed Barton]

The thing with newish investors is they think they have to be doing something all the time. Not true.

Most of the gains are made at certain times. Its ok to just watch, study and do nothing for periods of time.

In fact thats what experienced investors do.

this applies to all investing, not just property. timing is difficult though. if you've got cash burning a hole in your pocket it's tempting to invest it.

 

[random]

People here say say Eastern states took off for no reason , stimulus .
They seem to have written off Keen and others already , stimulus .
Patients , well wouldn't that be in going down as well as up, stimulus .
Or the larger the boom the more severe the drop back, logical I'd think?
Or that WA will recover first - but it's had among the largest of spikes in the country and it's still way over priced even now, so just when do they expect this recovery , next week ?
They seem to think we'll all be off like a piece of cheese no problem within 6mths , or that this slight slow down right now - IS the actual event .
And what , after 11 yrs off never before seen growth ?

People act like this is a cycle and it'll be all over next week, yet look at our prices ,look at where we've just been , has that balance even begun ?
Look at the charts over the last 100 yrs , we're not even remotely close to anything even resembling a correction or stagnation in our charting history so far, yet this spike has been 3 fold, anything,ever !

Keen , Dennings , any of them , things were just artificially reignited & the US could still face a double dip. Personally I just think there's a hell of a lot off very unrealistic talk going on .
As far as where we're headed, no idea except that it would have to be an economic miracle by world standards and history , for anything to just sore off into the sunset anytime soon right now.

Cheers

 

[recruit2]

In my eyes, I woudnt want anyone with an MBA near my business.

Lol, totally agree.

 

[Sunfish]

if you've got cash burning a hole in your pocket it's tempting to invest it.

If you have CASH I would say it is critical to find somewhere to invest it. That does not exclude a bank deposit though.

If you merely have "lazy equity" (a term I detest) then Evan is correct.

 

[Ridin-High]

If you have CASH I would say it is critical to find somewhere to invest it. That does not exclude a bank deposit though.

Can you elaborate on this sunny

 

[VYBerlinaV8]

If you have CASH I would say it is critical to find somewhere to invest it. That does not exclude a bank deposit though.

If you merely have "lazy equity" (a term I detest) then Evan is correct.

I'm not sure what's so bad about lazy equity. It's a great risk mitigation.

 

[PeterC]

6.5% savings account isnt a bad option until something else comes up. dont go racing into buying something just so the money is being put to use...

 

[Ed Barton]

If you have CASH I would say it is critical to find somewhere to invest it. That does not exclude a bank deposit though.

If you merely have "lazy equity" (a term I detest) then Evan is correct.

don't worry i don't have a stash of greenies under my bed. and it's not lazy equity, it's my cash, invested at the bank atm. cash at bank will return zero real returns, but it preserves my money. it will sit there till i think other assets classes are worth investing in.

i was saying for a lot of people wanting to become wealthy that it can be hard to make the decision to not aggressively invest and just leave it in cash investments. making the decision to do nothing can be hard for some.

 

[PeterC]

cash at bank will return zero real returns, but it preserves my money.

surely 6.5% is above current inflation...

 

[Ed Barton]

surely 6.5% is above current inflation...

after tax it's just above inflation