Tag Archives: China

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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‘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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PERFECT STORM BREWING – 03 APRIL 2014

It’s all adding up….well, for me anyway, so let’s see how this pans out.

Retail stores are closing at an alarming rate in the USA and Europe, and yes, here in Australia.  My local large shopping centre has just had 5% of tenancies “walk” at the end of their leases, with strong suggestions from people I know who are “in business” but only just, in the same centre, that up to 10% of the tenancies could walk in coming months.  Unlike 2005 for instance, there aren’t 40 people waiting in the wings to get into this centre.  There is no-one.  No registers of interest, no active list, reserve list or any kind of list.

Large shopping centres are dinosaurs and some people just won’t admit it.  Ridiculous rents forcing retailers to charge equally ridiculous prices and therefore having no chance against online retailers with cheap-as-chips warehouse rent in the middle-of-nowhere.

There are otherwise intelligent people (I think) spending nearly AUD$700 million on rebuilding and revitalising another massive local shopping/destination centre.  The reasons they cite to try and justify their decision are plain ridiculous – the place will be an albino pachydermata.

If shopping centre owners drop their rents to a level where traditional retailers can once again run a half decent business, capital values will plummet.  Flow on to smaller commercial and industrial properties is sure. Lack of return, loss of jobs and its not hard to see residential housing taking a dive as well.  Don’t think so?

Massive interest rate cuts have failed to stem the drop in residential values.  The butchering of statistics continues.  I was recently challenged as to why my view differed from the those reported in the news and delivered startling “real results” to back up my view.  Yet again a number of properties in a suburb were quoted as delivering massive price rises that contributed to the percentage rises being quoted in the news.  Shallow analysis of each of these properties showed that there were, in each and every case, factors that impinged on the price rise and therefore those properties should have been excluded from the ‘results’ for that suburb.  Trouble is, you take those properties out, and the price FALL is dramatic.

Factors that made for selling prices being reported as UP from previous acquisition prices were as I’ve reported before in my blog.  Reconfiguring a home to cater for two families. Significant and costly renovations not taken into account. Rezoning of land adding to it’s base value.  And so on.  And… no IN and OUT costs taken into account to arrive at a nett gain (if any).

Make no mistake that fiscal policy makers are all out of ideas for getting our economy going.  The USA think-tank  has screwed up and nothing is working over there.  I know many people in the USA in business and they tell me it’s rubbish that side of the Pacific, more than a little scary and they’ve little to no confidence.

The USA 30 year mortgage rate when I was there in 2013, was about 3.4%.  A year later and its nudging 4.5%.  If the same rate of rise occurs here (and it will) our rates will jump 30%!  Imagine mortgage repayments for all those silly sods who dived in with their 90% plus loans on minimal deposit using their Mum n Dads place as extra collateral…  Most are paying over $500 a week – that could easily jump to $650 a week – and wipe out their ability to EAT!

An interest rate jump of that magnitude will cause a REAL and long overdue drop in house prices.

CHINA – for a start you can’t believe most of the numbers that come out of ‘Official’ China however the word from people I know who travel regularly to that mysterious land is that things are crap. I’ve heard it said that China is at about 2004/2005 on the Western GFC Clock.  When their house-of-cards comes down it will not be pretty and the flow on will be nasty.

Its all coming to  ahead.  If you have property, sell it NOW and take advantage of the pseudo reports and spin to get some sucker to cough up.  RENT, or take a long holiday.  And buy back in when the dust settles.  Go back in this blog to see just HOW CHEAP housing is in so many desirable areas of the USA – not the ghettos of Detroit but NICE PLACES TO LIVE.

We are waaay to expensive and need a correction… It’s coming…

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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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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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CHINA AGAIN AND A QUICK NUMBER CHECK

Sotheby’s Real Estate is opening an Office here on the Gold Coast.  Mmmmm.  The Chinese are coming here in droves and buying up.  It looks like the Japanese rush all over again.  Dr Boldy, Sotheby’s main man in our region, is quoted as saying, “Our Sydney Office under Michael Pallier just posted $300 million turnover in its first year and recorded nine sales worth more than $10 million…. half of those sales were to Chinese buyers but others came from all over the globe.”

It’s an interesting but also ambiguous statement.  Does he mean 4.5 sales more than $10 million per property went to Chinese buyers or that $150 million of their total sales went to Chinese buyers?  In any case it’s a lot of Chinese buyers!

People are emailing and calling freaking out that they should “get in now whilst prices are low and interest rates are low” and that I’m just a scare monger.  Well let’s have a look at a statistic that pertains to this RISING CAPITAL CITY MARKET that everyone is quoting to me as a reason to GET IN NOW!  Australia’s capital cities’ property values actually FELL 7.4 per cent from October 2010 to May 2012, and ROSE 8.7 per cent from June 2012 to September 2013 .  Simple maths – say at October 2010 we give the values a value of 100.00. Take off 7.4% and you’re left with 92.6.  Take the new lower value of 92.6 and add 8.7% and you get 100.65.

WOW!  Back to SQUARE ONE plus a little for Grandma. No surge, no value increase, no need to panic and as I keep saying….watch for the steep and sudden correction when it comes.

Take out the Chinese action and its all downhill baby!

Our hearts go out to the thousands of Aussies who’ve lost their homes, possessions and in one case so far, their life, around Sydney this past week.

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CHINA CONTINUES TO BUY UP BIG

Chinese buyers are really exerting their influence in my home town.  It’s different to the heady days of the Japanese though.  Many Japanese ‘investors’ were thoroughly lied to and screwed over by Gold Coast ‘sharks’ and paid the price years later when their investments sold for pennies on the dollar.  The Chinese are buying up distressed assets at the higher end of the market at bargain basement, ‘less than replacement’ cost.  Whilst there is still some downside risk, in most cases they are buying well.  That said, and as I’ve opined previously, some just don’t seem to care they are paying well over the asking price or reserve at auction, hence my questioning of their true motives.  There appears now to be two distinct types of Chinese buyers.

Anyway, back to the article below. I wonder if this Chinese buyer has even set eyes onf this penthouse.  Who in their right mind would live in the middle of Surfers Paradise is beyond me.  I am sure that living in the Penthouse would be lovely (I wonder if it and the Sky Homes have a dedicated elevator?) but having the share the foyer with the drunken ferals about to descend on the Gold Coast for the Motor Racing Festival followed by hoardes of out-of-control “Schoolies” would put me off.  Imagine living in that gorgeous penthouse and waking very early Sunday morning for a walk on the beach.  You’d step out to drunks, half-clothed foul-mouthed women, vomit and rubbish all the way to the beach.  No thanks.

And whilst this may not happen any time soon, the old real estate cry of ‘Location, Location,Location’ must always be applied to any purchase.  Most of the gorgeous views to the ocean could vanish over the years as massive high rises are built on the beachfront north and south of the already massive ‘SOUL’ building (another pricing disaster subject to many, many law suits as I write).  If you venture into a beach area with high rises, the ONLY position is absolute beachfront or across the road from a beachfront park that would/should never be sold off for development by local authorities.

Good luck to whoever bought this. Their first early Sunday morning walk may well see it back on the market!

Hilton Penthouse Article

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