Monthly Archives: September 2017

The rot is starting to set in

As soon as I saw the huge number of Apartment starts planned for South East Queensland I knew there’d be trouble.

I watched the advertised “starting from” prices for 3 nearby developments go from $399,000  to  $389,000  to  $349,000 and $309,000  over 12 months until now where there are no prices listed, just FOR SALE signs.

Chinese who bought off the plan face capital export bans and are unable to complete their purchases. No solution here either as local banks will not finance them. The fallover rate for offshore Contracts is running at 50 to 70%.  Buyers are walking away from their 10% deposit and Developers are unable to force completion.  Try suing an individual in China…  good luck.

Panic re-sales are resulting in spectacular losses. One large high floor apartment sold at a 42% loss before completion with the average loss now creeping  into the 35%+ range.

This in the start of a pandemic.  You cannot have such a large sector suffer huge monetary losses and loss of confidence without the effect spilling over into the rest of the market.  Banks will pull tighter on lending criteria  – there are many calls for Royal Commissions into Broker and Bank predatory lending practices – nothing will come of it of course, the blame being put on “market conditions” or some other such nonsense.

With interest rates on the rise, Banks under pressure and “the market” suffering a serious case of “the wobbles”, it won’t be long…


More experts weighing in

From Robert Gottleibsen at The Australian today…

Understand the new dynamic of Australia. Businesses that don’t could face a tough time.

The latest ABS household income and wealth survey raises all sorts of alarms about the rising debt of certain sectors of the population, particularly younger people buying homes and those punting the property market with negatively geared loans.

The Australian Bureau of Statistics is putting numbers to forces we have observed in our neighbourhoods, particularly those who live in Sydney.

However what we are seeing in those debt levels is a surface manifestation of much deeper trends in the society.

Hey how about this for good news! Back 13 years ago the average Australian had net worth of just over $600,000 and that’s risen to just over $900,000 — that’s a 50 per cent rise.

The ABS has done some calculations that makes the improvement in “my wealth” in recent times even better.

They take the 2015—16 average Australian household wealth (net worth) of $929,400 and then adjust it for inflation and discover that, average wealth has increased by 11 per cent since 2013—14.

That’s a lot better than money in the bank at today’s interest rates.

And the share market, on a risk for reward basis, is also well behind.

Better still, the average Australian is not borrowed to the hilt —-the mean value of household assets was $1.1 million while the mean level of household debt was only $168,600, or 15 per cent.

Taking averages or mean levels can, of course, be misleading because it conceals a lot of households that are over-borrowed. But there are a lot of Australians who are feeling very comfortable, thank you. The fact that they are usually older Australians is a problem.

But it’s one thing to have assets and another to have the money coming into the till to spend on necessities and the luxuries you think you deserve given the rise in your wealth.

When we look at the income graph we see a totally different picture:

According to the ABS, in 2007-08, or eight years ago, the average Australian’s mean weekly income was just under $1000 and it had been rising very well in the three years previously.

Then came the global financial crash and their income stopped rising. Looking back over those long eight years from 2007-08 what little gains were achieved were wiped out by a fall in 2015-16.

During those eight years the cost of services where people are paid at government rates (teachers, health workers, government employees and council workers etc) has continued to rise.

Still, as the average Australian, while my income has not risen my assets have gone up so I don’t feel too bad. That is unless I have a huge mortgage that was agreed to when the bank manager did a sum that assumed my income would rise with inflation.

But there is a sting in the wealth tale.

It’s true that the average Australian has assets of $1.1 million but more than 60 per cent of those assets are in property, if you include the fact that industry superannuation funds have a major stake in the unlisted property market.

And property values have often been driven by the decisions of state government and local councils to restrict supply.

So Australians have backed one sector of the investment area and it has delivered.

If ever property falls in Australia the affects will not just be directed to the over-borrowed parts of the society (and the bankers who loaned based on blatant lies by those applying for loans), but it will spread through the wealth of the community.

And not only are we looking at personal balance sheets.

A vast number of Australians are employed in the industry which is feeding this allocation of savings — the building industry.

We have to understand that as a nation we have made a huge play on one investment class.

Because this investment class is also our residences it has created deep social problems as well as the indebtedness that goes with booms that deliver 11 per cent a year.

We are watching Sydney apartment prices fall 10 per cent and the building rate fall.

In the overall scheme of the nation that is not a big deal.

But if it were to spread, watch out.


Now the News is catching up with Reality!

Interesting to read some “non-fake” news today where the truth is slowly being leaked out by major media outlets.

One of the largest builders and holders of apartments in Australia is now saying people will be wiped out in the (just starting) (watch out for that cliff!) current downturn, sighting Government activity both within and external to Australia as being at fault.

Settlements are failing at 50% as buyers walk away from their deposits due to buyer’s remorse and being scared by what they’ve actually bought into.

New South Wales Government has an application fee of $10,000 to buy if you are not an Aussie.  Stamp duty on foreign buyers has been raised from four to eight per cent and a land tax of 0.75 per cent will commence in 2017. Local councils are also chipping in with extra charges.

Wow!  What I’ve been saying for years is suddenly BIG NEWS.  Aussie Banks are sitting on $500 BILLION of what they call “Liar Loans”.  Borrowers lie on their applications for finance, however, Brokers and settlement agents within the Banks do not and have not properly checked and validated applicant’s claims as to income and expenditure.  Watch out Bank Shareholders is all I can say.  Profit?  What profit when this House of Cards tumbles!

Economies are “recovering”.  Crazed Central Bankers decide to act in advance and put the brakes on early by increasing interest rates.

The Liar Loan Borrowers have no spare capacity in their budget (what’s a budget?) so there WILL be huge numbers of defaults and the market will be flooded with Mortgagee In Possession sales.  Watch prices dive with no over eager international buyers, wary investors and savvy folk like us, sitting on our hands waiting for the inevitable blood bath.

“Safe As Houses”   Bullshit

The Australian Financial Review

The AFR is finally publishing what is really going on.

In Melbourne, apartments selling now for exactly what was paid in 2007!  Wow… a stunning investment.

Apartment projects across the country being stalled, cancelled or failing as overseas buyers see that our market is a crock of shit, Banks become more conservative, and local investors finally see the downside risk.

Sell now.  Buy back later.

The Multiples are still Sky High

Post war and right up until the early 2000’s, the old fashioned Dad at work and Mum at home raising the children worked a treat.  I am not commenting on the social status of women or starting any such argument.  I am talking AFFORDABILITY!

The “Average House” which used to be say, a cottage of about 1400 square feet, 3 bedrooms, one bathroom, kitchen/dining and lounge room, with a carport or garage on just under a quarter acre, could be had for 3 times the gross annual income of the primary (and often, ONLY) wage earner.

This “multiple” persisted for more than 60 years until the whole thing went nuts.

The first house my father bought cost $10,000 when his annual salary was a smidgen over $3,000.  The first house and land that I bought and built cost me $75,000 when my annual salary was about $25,000.  The next house I built was a lot bigger, at 5 bedrooms and 3 bathrooms with a double garage on a fairly pricey piece of land.  The “multiple” went to 3.6 for that one, but that was to be expected.

Today, for a modest house of about 1,500 sq ft, typically with a single garage and a carport, 2 bathrooms but on a postage stamp piece of land (no value there folks!) the multiple in the majority of markets lies between 7 and 10.  In other words from seriously unaffordable to economic suicide.

Record low interest rates and “Honeymoon” deals have placed hundreds of thousands of people at risk of bankruptcy and homelessness.  The overall economic fallout from such a disaster, and it will happen, will be incalculable.  The media is full of people with “other interests at heart” who comment.  Why ask a major developer who has 5,000 apartments coming on to the market if he thinks the market is overheated, and due for a cliff like correction?  Is he going to answer YES and put people off buying?  Hell No.

Or other commentators who have hundreds of thousands of Bank shares in their superannuation portfolios…  are they going to tell the truth and watch their Bank shares tank?  Hell No.

Go out into the market and SEE for yourself what is happening.  I sold a number of 50 square metre studio units in 2004 and 2005 for $209,000 and $219,000.  12 and 13 years later they just changed hands for $159,000.

A large 2 story house I helped friends sell in 2007 for $650,000, had a minimum of $150,000 spent by the new owners on pool, gazebo, extensive landscaping and upgrades to 3 bathrooms and the kitchen.  Sold for  $795,000 this year.  That is a LOSS over 10 years of at least $60,000 in stamp duty, legal and agents fees, not to forget interest on loans, rates and insurance.

I do not care what you read elsewhere.  If you are in real estate now, get out while you can…

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