Category Archives: Real Estate Agents and Salespeople

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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DEMOGRAPHIA

I would urge those of you with a sense for what is REAL out there, to go to http://www.demographia.com/dhi.pdf   and download/digest this large document.

It shows just how seriously UNAFFORDABLE Aussie real estate remains and how we are still poised for a major correction.

Mark my words – it will come.  The current situation just cannot continue.

As wise Persians once uttered…”this too shall pass”

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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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KARMA

Should I gloat? I’m going to anyway.  A real clever fellow screwed me out of a fair sum of money many years ago and gloated over the fact.  I gave up, settled out of Court for a lot less than he owed me but….I knew he would get his.

At the time he boasted about the purchase of a very expensive piece of land (that I’m sure had MY money in it too!) and further crowed about the equally expensive house he built upon that land.

Well, Karma came in the shape of the GFC and I’ve just learned that he flushed about a million bucks.

Time for a gin and tonic!

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MARKET UPDATE 12 AUGUST 2013

And so it goes. Interest rates at an all time low and still the real estate market refuses to budge.  Why?  Because it’s still overpriced to the moon!

Read the main newspapers and capital city prices are “on the move”, up 2.5% this month alone.  Wow at that rate, houses will be 30% higher by this time next year (compound of course).  What  a load of crap.  Drill into the data and again all you see is a median being thrown around by the odd very high priced property skewing the result.

And real estate agents are telling porkies as well.  Reading in a local paper today, an article that’d give you the impression the place is literally on fire and if we don’t get in quick we’ll be left behind.  Here we go again!  The article mentioned particular addresses and their amazing results!

$1.235 million – Wow – what a sale price in “this market” they say.  the ill educated reader will think that the market really is on fire.  Mmmm – let’s see what it last sold for and when.

2003 – 10 years ago – now, to make a profit one would think you’d probably have paid about $600,000 for it, maybe a little more.  Nope – $1.17 million.  Brilliant!  Effective loss after ten years – what a fabulous investment.  So – the market is blazing along is it?

Next property – $1.2 million.  Originally advertised at $1.7 million so again, another great result for the sellers – NOT!  It was also subject to a major refurbishment so I have no idea what they made, or probably LOST on this sale.

And last but not least a speculative (spec) home – the land cost them $700,000 7 years ago and the house cost a mint.  Sold for $1.3 million.  Not happy.  See, they thought the crazy price rises that were still happening in 2006 would keep going and they got caught.

Do not believe anything you read in the mainstream press about this market.  I’ve been chatting to some Bankers and the number of people coming to them suffering Mortgage Stress is soaring, but the Banks will never release a statement saying so as they want to keep it all on the level and not upset the apple cart.

With interest rates at all time lows, this market should be soaring but it isn’t and it won’t until AFFORDABILITY returns.

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MARKET INTELLIGENCE – SURVEY

Oh dear.  People DO get excited about buying land to build on, or an existing house to renovate or move straight into.  They engage a law firm or conveyancer to assist them with the settlement process.  Searches are done to make sure its not flood prone, going to have a free-way or railway line built next door, is set for full or partial resumption or major power-lines nearby now or in the future.

When I was actively selling I’d always advise buyers to obtain a boundary survey even if the property was brand new. Not one of the hundreds of buyers I’ve advised over the years has ever spent the $700.00 – $1,200.00 to obtain a brand new, sparkling boundary survey. Continue reading

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MARKET UPDATE 09 JULY 2013

I monitor several hundred properties that have been recently sold or are on the market across a wide range of sectors.  Houses in the suburbs, acreage properties, duplexes, town-houses, apartments, waterfront, ocean front, well positioned, poorly positioned, new, old, renovated, ones that are owner occupied and those that are clearly rental properties.

Despite the best efforts of self serving spin doctors across all forms of media, for most people, the market is just not their friend at the moment.

I read a report last week about a ‘seemingly’ spectacular sales result for an Agent and owner which would have had tongues wagging within a couple of miles radius.  Ever the sceptic, I made a few phone calls.  The property had not been renovated nor had a pool added, or even solar panels and hot water.  Mmmm.  What could have caused such a price hike?  I called the local Council Town Planning Department.  BINGO. A long fought for Town Planning permission to add another house at the rear of the property and a height limit increase from 2 levels to 4 levels, which would give the top level spectacular views, had finally been approved.

Talk about spin and plain old fashioned lies.  The property had not appreciated on its own but had value added by the approvals – significant value.

So, that just throws a huge statistical spanner in the statistics for that street, suburb and area and skews the results so that no-one really knows what’s going on.

The following is an example of what is really happening in the market.  Family home. Nice street. Well finished. Great pool. Close to everything. Great regular public transport.  Ticks a lot of boxes. Sold for $182,500.00 in 1997. Sold again in 2002 for $275,000.00 just when the market started to soar. 7 months later the new owners flicked it for $341,000.00 in May 2003. Just as the GFC hit the owners put it on the market in the mid 600’s and finally settled on $575,000.00 in mid 2009.

The new owners set about renovating, adding the pool, solar hot water, a roof full of solar panels, new landscaping, ripped up and re did the driveway, all new fences.  All up I would say they would have had no change out of $100,000.00.  Add that plus stamp duty and other costs and they are staring at a cost base of near $720,000.00.

The house has been on the market now for 9 months, starting at $750,000.00. The agent who listed this property at $750,000.00 should have been shot. I know who it is and he’s an idiot and tells people ANYTHING to get a listing.

Several Agencies later and the ASKING price is now $525,000.00 with not an offer in sight.  There is nothing wrong with the home except that there are a lot of other homes in better locations with nicer facilities and neighbours, for less…pure and simple…

And that, my friends, is the true state of the market.

DEPOSITS – I’m hearing murmurs about people agitating for the use of Superannuation Funds as deposits to enable first home buyers access to the market.  Good Grief what a ridiculous, short sighted idea.  One of the reasons we are in such a pickle today is free and easy credit with no discipline. The housing market is a dangerous enough place as it is without drawing out most of your Superannuation to place a deposit on an overpriced property that may well crash in value (will crash in my humble opinion expressed elsewhere in this blog).  Result – loss of saved deposit AND a 5 or 10 year setback in your retirement savings. Some people are nuts, really.

More soon – thanks for reading!

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ANY FOOL CAN SELL A DOLLAR FOR SIXTY CENTS!

Today I received the following flyer in my letterbox and of course was very interested to know what the property had sold for.  I searched online for the original advertisement and found it advertised at “Range $759,000 – $819,000”.  This is a most ridiculous practice and if any Agent ever suggests it to you – tell them NO!  If you, as a buyer, were confronted with an advertisement like this, where would your first offer lie?  At $805,000?  No, I didn’t think so.  You would treat the lower figure as a price the Sellers MAY accept so you would pitch under that.

Of course that actually happened, with offers starting at around $705,000.00

Good Grief!

Good Grief!

Continue reading

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