Tag Archives: chinese investments

HERE IT COMES!

Governments clutching at straws to balance the books. If people in business ran their businesses like the Government runs this country, there would be no jobs, no profits and no businesses.

But I digress.

Now Turnbull is talking about messing with Negative Gearing!  Oh My Lordy – ahhhhhh – idiots – didn’t a Labor Prime Minister do that is the 90’s? And look waht happened then!  Public Housing waiting lists stretched out for 5 or 10 years.  Those of us who has negatively geared properties back then (like me!)  just shook our heads and either immediately sold up back into private occupiers hands or held tight through 19 % interest rates and perhaps a reversal of Policy (which did happen thanks goodness) and came out the other side scarred but intact.

With this market at historical multiples, ANY jitter will accelerate the inevitable correction.  Playing with Negative Gearing is not a jitter boys and girls. It’s a bloody Tsunami ready to do some serious damage.

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MAYBE IF I KEEP TALKING

Maybe if I keep talking about a major imbalance in the market that is, and has been for a long time, overdue for a correction to reality, people will start to listen.  I’m OUT of residential real estate, and have been for a few years now.  The downside risk is just too high.

And today, Thursday 26 March 2015, the Reserve Bank has issued a warning that cheap credit has and will continue to fuel a housing bubble.  Hello!!!

Just Google  RBA cheap credit housing bubble.  There are many links to the various articles in today’s news.

Once again, I rest my case.

 

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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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CONFIRMATION

Full credit to Australia’s ABC News for this one

The international body that represents central banks has released data that puts Australia near the top of all measures of overvalued housing.

In its latest quarterly update, the Swiss-based Bank for International Settlements (BIS) has published extensive historical analysis on historical home prices in a large number of countries for which reliable data is available.

Confirming a recent analysis by the International Monetary Fund, the BIS has found that Australian home prices are higher than they typically have been when compared to rents and incomes.

Despite having had no real (inflation adjusted) property price growth over the three years up to when the BIS figures were taken at the start of 2014, Australian homes had the equal fourth highest price-to-rent ratio and second highest price-to-income ratio.

Australian home prices were 50 per cent higher than usual relative to rents, and around 40 per cent higher than usual when compared to incomes.

“A priori, this could be a reason to expect a price correction in the future,” the report’s authors cautioned, referring to countries where prices were more than 20 per cent higher than these historical averages suggest they should be.

In the months since the figures were taken, Australian home prices have increased much faster than both rents and general consumer price inflation, meaning that they would have deviated further above these historical norms.

The BIS analysts warn that these types of price rises in already overvalued markets increase the risk of future declines, especially where wages are not growing strongly –Australia has recently had wage growth that has failed to match inflation.

“This might lead to a reversal or moderation of recent growth or a further sliding of prices,” the BIS warned.

“This argument would be more compelling for markets where prices have grown rapidly in the recent past, and where income growth is projected to be rather moderate.”

The BIS has also compiled data that look at house prices back to 1970, with Australia’s current index reading of 200 second only to Norway’s growth over the past 44 years.

Out of the 14 advanced economies examined by the BIS, only the UK has house prices that come close to matching Australia and Norway for inflation adjusted growth over that period.

Recent Reserve Bank research showed that it was likely that most Australians would be just as well off, or perhaps better off, renting than buying at current home prices.

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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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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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