Category Archives: Foreign Investment

The Sky is falling … albeit slowly

I was almost relieved to see ABC Four Corners finally bring some sense to the argument that Housing in Australia is a No Lose, Bulletproof and Unassailable fortress of wealth.

I stand by my assertions that this market is poised for failure.  I am seeing in south east Queensland some REAL (not imagined) failures happening every single day.  For example three are 3 fairly major apartment developments within 5 kms of each other.  One has failed as the builder went belly up.  The new builder has yet to start the last leg of the project because there is NO FUNDING!  Huge banners on each had prices for one bedroom apartments (facing the car park, the main road or the railway line (your choice!) starting at $389,000 and $399,000.  Over about 7 months, the banner’s prices went down and down to eventually $319,000.  The banners disappeared altogether.  Not because all the nasty tiny 1 bedroom apartments had sold, but because the Banks will only finance 50% of the Contract price of such disasters because they are too small, have a limited market and quite frankly, the downside risk to the Banks is too high.

 

I saw a Studio Apartment that sold for $199,000 in 2006, $239,000 in 2009, sell last week for $169,000.  Progress?  Everyone making money?  I don;t think so.

Fancy agents are advertising their “record prices” achieved last month!  Rubbish.  One place was sold for $20,000,000.  Wow!  Trouble is it sold for $32,000,000 8 years ago!  A record?  For what, the last 7.8 years?  Probably.  Liars!

 

Here is some of what happened on Four Corners recently, copied from their site and acknowledged as not my own work…

Betting on the house: Australia’s real estate obsession driving us to the brink. “I think it’s a powder keg.” Investment consultant

The statistics are startling. Australians are carrying more personal debt than ever before. For every one dollar earned, on average, Australians have nearly two dollars of debt. We hold the dubious position of having the second highest level of household debt in the world. Much of this stems from our obsession with buying real estate.

“Housing has never been rational. In Australia, it’s probably more akin to a religion or a cult so it’s all about faith. You’re either a believer in property or you’re not.” Former banker

On Monday, Four Corners investigates the forces driving our debt fuelled housing boom and the risks it poses for the nation.

“I’ve been studying the market here for a good number of years and I have never seen this perfect storm of issues coming together.” Financial analyst.

The program draws together key experts to map the danger zones in the housing market and will reveal the Australian suburbs currently experiencing the highest levels of mortgage stress.

“It’s the nightmare that you live with all the time. You wake up in the morning and you think, ‘How much longer will we be living here?’ Constantly.” Mortgage holder

Experts are warning that a wave of home owners and property investors will be unable to cope if there’s an increase in interest rates or a change in their personal circumstances.

“You’re effectively toast if you lose your job or the main breadwinner does. That’s the point of fragility that we’re at now.” Investment consultant

Regulators have been tightening the screws on lending requirements but there are concerns it’s too little too late.

“All bubbles really depend on loose credit, that’s one of the things that’s really fuelled the Australian housing market. Anyone with a pulse could essentially get a mortgage.” Economist and investment fund adviser

The program investigates the lending practices that have driven the boom in residential lending, and asks, 10 years on from the global financial crisis, if the banks are prepared for a potential crash landing.

“If there’s a shock to the economy, that potentially leads to a rise in sensitivity to the banking sector. The banks could in fact experience higher losses because households are more indebted.” Ratings agency analyst.

It all points to exactly what I’ve been forecasting for the last 3 years.  The demise of this market has been delayed by aggressive interest rate cuts by the Central Bank, the Mining boom with huge wage earners be able to buy multiple properties, and the Chinese getting their capital out of China as fast as they can.  All 3 major influences have stopped dead… here it comes!

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THE ELEPHANT IN THE ROOM

Sydney Morning Herald today – all credit to them for this article – thanks ladies and gentlemen….

I continue to argue to all who’ll listen, that this rate cut is just fuel to a fire that will burn a lot of people when it finally rages out of control.  What is not reported is the high number of people who are diving into this super heated market who are not sophisticated investors. I recently chatted with a young couple at a Cafe who I overheard talking about buying a house.  Their SOLE source of advice – their blue collar, working class parents who owned precisely ONE HOUSE between them, bought 20 years ago!  And of course their “friendly” Broker who had given some really awful advice, far outside his legal ability to do so.  I left them pretty sure they were going to buy a nasty house in a nasty street and a nasty suburb for a “top of the market” price and rue the day they did.  This scenario is repeated hundreds of times a day all over the country.

Let us not forget the dodgy companies who still prey on people’s fear and greed to “stitch them up” into overpriced negatively geared properties with “rent guarantees” and other incentives paid for out of their overpriced purchase.

And, of course, our crazy overseas buyers who, in many cases, just want their money out of their “old” country and into the supposedly “safe haven” of Australia.  These people are losing all sense of propriety and in certain sectors of the market are causing chaos.  This chaos filters down and sideways into other sectors, fuelling speculation, rumour and fear that others may miss out on an endless bull run, and greed for the capital gain that, in my not-so-humble opinion, will never eventuate – or if it f does, will be short lived….

Sydney Morning Herald, today —- A deteriorating economic outlook sparked the latest interest rate cut, but the Reserve Bank remains concerned about the continued strength of house prices and investor activity in some pockets of the housing market.

The minutes of the RBA’s February meeting, released on Tuesday, show the board decided to cut Australia’s cash rate to a new record low of 2.25 per cent after new figures revealed the economy wasn’t doing as well as was previously expected.

But the bank also remained concerned about the continued strength of the Sydney and Melbourne housing markets.

“Housing price inflation had moderated from the rapid rates seen in late 2013, but remained high and in Sydney and Melbourne had been well above the growth rate of household income,” the RBA said.

The RBA said growth of investor credit had continued to increase “at a noticeably faster rate” than owner-occupier housing credit.

And a range of indicators suggested further growth of dwelling investment in the near term, the bank said.

The RBA said it would keep a close eye on developments in the housing market, as well as the impact of moves late last year by the Australian Prudential Regulation Authority, designed to temper investor activity.

“Given the large increases in housing prices in some cities and ongoing strength in lending to investors in housing assets, members also agreed that developments in the housing market would bear careful monitoring,” the RBA said.

“They noted that it would be important to assess the effects of the measures designed to reinforce sound residential mortgage lending practices announced by APRA in December.”

Despite the housing concerns, the RBA said it decided to cut the cash rate after indicators of economic growth began to look weaker than it previously expected them to be.

Economic growth was expected to pick up later than the RBA expected, while unemployment looked set to peak higher than originally forecast.

The central bank also took another swipe at the Australian dollar, repeating its familiar line that “a lower exchange rate was likely to be needed to achieve balanced growth in the economy”.

The RBA said it had considered acting at the March meeting instead but decided to cut in February, giving the opportunity for more detailed communication of its decision in the quarterly Statement on Monetary Policy, released three days after the February 3 meeting.

“On the basis of their assessment of current conditions and taking into account the revised forecasts, the board judged that a further reduction in the cash rate would be appropriate to provide additional support to demand,” the minutes said.

END OF ARTICLE

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‘Rich Dad’ author Robert Kiyosaki warns investors to avoid real estate in Australia

Yes, even Robert says this place is overheated and he is warning all who’ll listen to give our real estate market a wide berth.  The reasons he gives are sound, and echo my sentiments expressed over the last few years.

Kiyosaki said that foreign investment was spiking domestic prices and forcing local buyers to pay well above the true market price.

“Foreign investors are queuing up to buy anything they can get their hands on. This is causing average Australian punters to think they need to start buying now. It has created a bubble,” Kiyosaki told Fairfax Media.

Again – do not go there.  Its just ridiculous and whilst commentators here are saying its all good, there are still people near where I live suffering huge capital losses on sale.

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MARKET UPDATE – 25 MARCH 2014

I receive a fair bit of ‘junk mail’ from local real estate agents squawking about their ‘successes’ in the market. Today I once again did the exercise of digging into their claims about speedy sales, plenty of buyers and wanting more listings.

One would think that if, as an agent, you’d sold and settled a property sale in December 2013, you wouldn’t still be proclaiming it as a “Recent Sale” in late March the following year…or would you you?  Well, YES!  That is really sad, and by any measure, false and misleading.

The newspapers are full of “leading agents” saying they can’t get enough listings, the market is white hot right now, you’re surely gonna miss out…and so on.

So now to the “analysis” of the listings, sales and other nonsense contained within one piece of junk mail today. Just Listed for Sale at $480,000.00.  This place was sold to the current owners in mid 201 for $485,000.00.  Gonna be a great outcome for them by the looks.  Snap this up at offers over $550,000.00 – it was bought by the current owners for $570,000.00 in January 2009 – another success!  And lastly, Offers over $825,000.00 please, so you know its going to sell for mid to high 700’s. It fetched $1,040,000.00 in early 2007 (at the near height of the madness), changed hands at $875,000.00 18 months ago and now the new owners want out.  That’s just nasty.

I cannot find anywhere, a real story of anyone making a real, tangible profit.  Sure there are buys 4 years ago at $500,000.00 with a recent sale at $535,000.00 but that doesn’t take into account buying and selling costs, nor, in most cases, the tens of thousands of dollars spent on repairs or additions.

I’m still looking for this “golden era” but alas, unless a Chinese buyer has their hooks in the deal, it’s all smoke and mirrors.

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CHINA’s INFLUENCE ALL PERVASIVE

As I write about China’s insatiable appetite for real estate resources across the Globe, I’m sent the following article from the BBC UK.

http://www.bbc.com/news/world-europe-26639991

There are some serious problems for the countries mentioned therein as they seek short-term gain without analysing and planning for the long-term pain associated with their respective agendas.

I’ll leave you to reach your own conclusions on this.

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FOREIGN INVESTMENT REVIEW BOARD (FIRB)

…is an Agency with no teeth.  Of no use to Australians. Should be scrapped or given power to do what it’s supposed to do.

A friend of mine is a foreign national who bought property in Australia a while ago.  He found out he wasn’t supposed to own property here so he called the FIRB to see what he had to do.

FIRB told him there were no penalties, that he would have to sell the property but, and here’s the kicker, that he could take as long as he needed to.

Worthless.

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CHINA UPDATE – CANADA

My 100th post stirred up some emotions.  Thanks for the feedback, good and derisory.  Appreciated.

Apparently we aren’t the only ones being affected by the tsunami of Chinese money pouring into our real estate markets.

Just Google something like Chinese Buyers and Vancouver to see what comes up.  There’s a real problem there too.

I’ll leave you to do your own research.  

I wonder what other markets are being similarly invaded?

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CHINA’S INFLUENCE

I’ve been banging on for nearly a year about the high level of Chinese buying in the market, especially in Sydney and Melbourne.  I’ve also said that their buying sprees are based on “get anything desirable at any price – just beat everyone to the property”.

I’ve been criticised for over stating the facts.  Thanks to all you who’ve “had a crack”.  Well now you are going to look rather foolish, and those of you who emailed me can now say “Sorry GW, you were right after all”.

Below, from the Sydney Morning Herald of 06 March 2014 by Reporter Max Mason….thanks Max!

Close to one-fifth of new properties in Sydney are being bought by wealthy Chinese investors and the flood of money is set to continue.

Using data from the Australian Bureau of Statistics and the Foreign Investment Review Board, Credit Suisse estimates that Chinese buyers account for 18 per cent of new property purchases in Sydney, and 14 per cent of the supply in Melbourne. This does not include second-hand homes.

”A generation of Australians are being priced out of the property market. Many face a lifetime of renting,” analysts Hasan Tevfik and Damien Boey said.

There are currently 1.1 million millionaires in China who could easily afford properties in Australia’s two most expensive markets, Credit Suisse said.

Wealthy Chinese buyers have purchased $24 billion of Australian housing in the past seven years, and over the next seven years an additional $44 billion will be spent on residential property, Credit Suisse estimates.

There was $17.2 billion worth of approved residential property investment coming in from overseas in the year June 30 2013, down from $19.7 billion in the previous period, according to the FIRB. Foreigners must seek approval to buy established real estate and rural land, but can buy up to 50 per cent of a new building ”off the plan”.

Of the 2013 total, $5.6 billion was approved for residential properties in New South Wales.

Read the rest of the article here – http://www.smh.com.au/national/locals-priced-out-by-24-billion-chinese-property-splurge-20140305-347oq.html

What this DOES NOT tell you, because its all Foreign Investment Review Board figures, is the number of properties being bought by Chinese Australian citizens and permanent residents, with money (not theirs by the way!) repatriated from China via Hong Kong.  Now that is a whole other story!

More as it comes to hand.

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I LIKE CHINESE

I like Chinese food, almost as much as I like the many Chinese people I’ve met and had stay in my house as a part of the “couch surfing” movement. Chinese people are no different to anyone else.  They have the same basic needs and wants as any of us on the planet, so individually they are not to be thought of any differently.

The only thing is that there are so many of them.  Lots.  Billions in fact.

When you gets “billions” of anything and that “anything” decides to shift its weight around, well, things can happen.  Its kinda like trying to turn a huge aircraft carrier around in a small harbour.  If it misses by even a little, a lot of damage can happen – and you just cannot stop it, because its so big and has so much force behind it.

Billions of anything can distort the environment in which it moves.  Billions of tonnes of ice dumped into Sydney harbour would probably make it too cold to swim in the summer…maybe.  I don’t really know – just saying…

So, you have to be careful where you put billions of anything and you have to mindful of the short term gains vs the long term pain, which is why I’m reproducing an article in full today from the pages of NEWS.COM.AU ….

CHINESE investors are driving up property prices in hot spot Sydney suburbs by as much as three times the city average.

Carl and Marie Mascarello sold their four-bedroom house in Strathfield for $230,000 more than they expected to an investor who had just stepped off a plane from Hong Kong.

“The house sold for $2.28 million. Far out, I was cheering when I heard. It was really unexpected,” said Mr Mascarello, who is downsizing because his two children have left home. “He was a Chinese investor who got off the plane from Hong Kong the day before. He had missed out at two earlier auctions and clearly did not want to miss out on this one.”

Strathfield is one of at least 10 hot spot Sydney suburbs that have been targeted by Chinese investors who are estimated to have spent $5 billion on Australian residential property last year. The average house price here has risen by up to 27.1 per cent — almost three times the Sydney average of 9.2 per cent.

Brian White, chairman of Ray White Real Estate, said that the Chinese property investment boom “is an absolute fact”.

Together with a number of leading estate agents, including McGrath’s, he has opened a China desk to improve liaison with buyers from the booming new market.

China had the second-highest number of immigrants settling in Australia last year with 27,334 people moving here.

Mr White said he is also opening offices in Beijing and Singapore, which funnels large sums of Chinese investment to Australia.

“A lot of Chinese are very keen to balance their investment portfolios with overseas investments because the Chinese government is restricting people buying in China to try and cool the market,” he said. “In many cases they are buying off the plan to provide homes for their children, who they are sending to Australia to be educated.”

Non-resident foreigners are only allowed to invest in brand new properties under Australian law. The rules have led to a boom in investment in units bought off the plan.

Peter Gray, manager of the 750-apartment Billbergia development at Rhodes, said more than 85 per cent of the development had been sold to Chinese investors. “The first block sold off the plan within a couple of months,” he said.

But it is not all good news. Marketing executive Lara Germane, 28, has been trying to buy her first unit with partner Olaf Wright but has been beaten out of the market.

“We have been looking seriously between Randwick and Maroubra for the last six months but the prices are up $100,000 on where they were last year. It seems to me that it is Chinese buyers who are moving into the area because that is the vast majority of people we see at inspections.”

TROPHY HOMES ARE MUST-HAVES Matthew Benns

CHINESE investors are also looking for trophy properties with Harbour views on the lower north shore and in the eastern suburbs.

Richard Simeon from Simeon Manners real estate agents sold a five-bedroom waterfront home in Pearl Bay Ave, Mosman, last week to a Chinese buyer for more than
$7 million.

“It is bigger than Ben Hur. In recent years I have sold more than $100 million worth of property to Chinese buyers,” he said.

“They are looking for trophy properties with the classic Opera House, Harbour Bridge view.”

“The highest price for a property in Mosman last year, 34 Julian St, Middle Harbour, was $13.88 million and that also went to a Chinese buyer,” said Mr Simeon.

He is now working with cashed up investors from the recent luxury property expo in Shanghai and also developing new, off-the-plan, apartment buildings in Burwood and Terrey Hills specifically for the Chinese market.

“The money from China is just extraordinary,” he said.

“It is a brave new world.”

Stupid, short sighted fools these agents.  The residential real estate market here in Australia needs to cool off and correct to where it’s historically been.  Some sectors of the market are cooling off and some are crashing back to pre 2001 prices (I’m not just saying this, I know and can quote hundreds of real life, real time examples) but to actively encourage this stupidity will do nothing but make the inevitable correction much more fierce, damaging and will embarrass us internationally.  Capital will flow out of here like a broken dam and the correction will bankrupt tens of thousands of Australians…

Just sayin’

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MARKET UPDATE 15 NOVEMBER 2013

I’m seeing nothing that convinces me that anything has changed or turned around.  Whenever you see an article telling you differently, please read it all, to the end, where oft lies the truth or a disclaimer!

In my City the Council has foregone $35 million in developer fees to ‘kickstart’ new projects.  If a project can’t stand on its own with those ‘normal’ fees in place and has to rely on the local authority taking a haircut, then the project’s chances of failure are high. I’ll keep an eye on the list of projects that have miraculously ‘come on’ during this amnesty period to see how they fare.  A couple of phone calls and I discovered that many of the projects were going to go ahead anyway, and that the ‘discount’ on local government fees was just a bonus.  Government interference in free enterprise – it never works.

So everything is going UP is it?  Almost every real estate article you read says so so it must BE SO!  No.

Big sale of a site in Southport for 3 million dollars!  Wow!  Whoop-de-doo!  How about the poor schmuck who got his timing wrong when he paid 5 and a half million dollars for it at the very peak of the craziness in early 2007. Add to the obvious loss of 2.5 million dollars the holding costs over nearly 7 years and I wouldn’t be surprised if he watched double that go down the toilet.

Of course there’s always going to be the “odd” sale that surprises everyone. I know that.  But they are rare and there’s always some quirky reason why someone has apparently paid too much. I know of one in a capital city where everyone said the buyer was “nuts”.  But was he?  No-one at the time (not even local guru agents) knew that the blocks of land either side were already held by interests associated with him and that securing the third parcel made the whole piece of land so much more valuable as a height restriction went from 4 to 8 or 10 stories as a result.  Smart I’d say.

I lived at a fairly famous Resort on the northern end of the Gold Coast many years ago because I wanted to try the lifestyle.  6 months was enough. I was ‘out of there’… In the early 1990’s vacant blocks of land (non-waterfront) were changing hands for $500,000.00 and all the “wannabes” lapped it up.  It was fine marketing spin at its very best.  So exclusive and so magnificent was the Resort that today, more than 20 years later, dry blocks are selling for….wait for it…..$500,000.00… Oh dear.

Last but not least – commercial. Tenants renegotiating rents down 50% or more and basically holding landlords to ransom is the business of the day.  My local newspaper is full of “Mortgagee In Possession”, “Liquidator”, “Owner wants out”, “Overseas investor quits holdings” and other negative headlined commercial property for sale. These local agents are so duplicitous it makes me sick.  One one page they talk up the market like its the 2004 rocket sled, and yet at the back of the paper they try and suck you into a BARGAIN as a bunch of poor sods are forced to offload their property as drastically discounted prices.

I rest my case and step off my soapbox for this week.

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