Australia Faces Its Demons

[TheCountOfNowhere]

This list of 5 reasons the bubble will pop could be applied to no end of westernized countries

 

http://cheekyinvestor.com/five-reasons-sydney-property-prices-set-fall/

[Sancho Panza]

4 hours ago, TheCountOfNowhere said:

This list of 5 reasons the bubble will pop could be applied to no end of westernized countries

 

http://cheekyinvestor.com/five-reasons-sydney-property-prices-set-fall/

Worth printing in it's entirety.
 

 

 

'Over the last decade, property prices in Sydney have outpaced not just those in other Australian cities, but also those in the UK, the US and Ireland. In 2015, the Financial Times reported that all 159 apartments at the upmarket Barangaroo development, in a prime Sydney Harbour location, were sold within three and a half hours of going on sale. What’s more, about a third were bought by overseas investors.

 

Fast forward to 2017 and the Sydney property market isn’t looking quite so robust. So, is this a pause for breath, or the beginnings of a crash? Let’s take a look at the five key factors that may be decisive.

 

1. Oversupply of apartments

 

During the property boom, developers have been eagerly supplying the Sydney market with as

much property as they could build. While the supply of apartments has been roaring ahead, the buying population hasn’t been increasing at the same rate. Comparison website Finder surveyed 26 housing experts, 40 per cent of them claimed Sydney had an oversupply of apartments.

 

2. Settlement risk if values fall

 

Apartments are particularly prone to speculative buying because they can be bought “off plan” before they are even built, simply by putting down a deposit. The idea is, for a small investment, the buyer can reap the rewards of the increasing value of the property during the period it’s being built. They can then either take possession or sell it on.

 

But what if prices start falling during the building period? Buyers can find themselves having agreed a price which is higher than the apartment’s current value. If they need finance, their lender may decide there isn’t enough security. The buyer may have to renege on the deal, because it’s cheaper to lose the deposit than to be lumbered with an apartment that is losing value.

 

So now the developer must sell the apartment at the lower price. This is how market pull-backs start and if the drop-in property values accelerate, the self-reinforcing downward spiral can cause sharp reductions in prices.  Before buying off plan, ensure the location or area of the listing is trending in the right direction. An area seeing the positive period of a property cycle will not often lose value. To gain knowledge on property cycles and trends find a local agent via OpenAgent.

 

3. Chinese banks tightening money transfer rules

 

Previously, Chinese banks were fairly lax about applying the rules on how much money citizens could transfer abroad. In 2016, the Financial Review detailed individuals in China would restricted to exchanging the equivalent of US$50,000 in foreign currency each year. In the Australian housing market, this won’t get you far. 
So, Chinese investors wanting to buy property in hotspots like Sydney have found themselves unable to get their money out of China. They are now being advised not to sign purchase agreements on property unless their funds are already abroad. Which brings us to the next risk.

 

 

4. Banks getting cold feet

 

Banks have noticed the oversupply of apartments, they have decided they are riskier investments than they previously appeared. They are now tightening their lending criteria, leading to sales being cancelled, or mortgages refused. This is not good news for house prices, since first time buyers entering the market are the driver for sales of houses further up the ladder.

 

Another reason for the banks’ caution is the likelihood of interest rate rises. They calculate how many borrowers are not able to make increasing mortgage payments. With wage stagnation still widespread, the sums are not going to look pretty.

 

5. “Liar loans”

 

In February 2017, UBS Securities Australia reported that 28% of mortgages issued in 15/16 were based on untrue statements by the applicant – “liar loans”. These characterised the US housing bubble shortly before the great crash, so they are not a particularly reassuring sign. They indicate that people can’t afford to buy but are desperate to get on the property ladder by any means they can. By definition, these are poor quality loans.

 

However – people have been predicting a crash in the major city property markets for years. Those who delayed buying, or even worse, sold up to take advantage of a predicted crash, have lost a lot of money. Predicting property prices is not a game for the faint-hearted.'

[steve99]

On 6/20/2017 at 5:00 PM, TheCountOfNowhere said:

"In a world of low inflation and growth, the Reserve Bank is likely to raise interest rates very gently, cushioning households."

 

Screwing them for everything they have for decades to come.

 

Too many vested interests including RBA members and most MP's.  They have many more schemes ready and waiting before the big  crash eventuates. ie they are not going to screw themselves.  Just as the UK 'sees through'  10 years of inflation with zirp, they will do the same.

[Sancho Panza]

http://www.abc.net.au/news/2017-07-17/home-ownership-in-australia-declines-for-decades/8677190

'

The number of Australian homeowners has been falling for three decades, and it could take just as long to turn the situation around, researchers say.

Independent think tank the Grattan Institute analysed census data and found home ownership was declining among people aged under 55.

It has prompted warnings many young Australians are destined to be "permanent renters".

In 1986, 58 per cent of 25 to 34-year-olds owned their home. That number is now 45 per cent, and the drop has been particularly dramatic in the last decade.'

[Sancho Panza]

https://www.businessinsider.com.au/deloitte-gravity-is-catching-up-with-australias-stupid-house-prices-2017-7

'Growth in home building and house prices in Australia is going to shrink further, according to the latest business outlook report from Deloitte Access Economics.

The economists say the big home building boom of recent years has started to peter out, which could mean storm clouds for New South Wales and Victoria, the states with the biggest property price rises.

Even Sydney house prices, which have seen a huge surge since interest rates were first cut, are showing signs of losing momentum.

“The pace of home building is set to shrink further amid increasing evidence that gravity may soon start to catch up with stupidity in housing markets,” the economists say.

And the Chinese credit surge is easing back, suggesting the global economy won’t be doing Australia quite as many favours from 2018 onward.

“Yet those are merely caveats on an otherwise solid outlook,” Deloitte says.

“Relative to the rest of the rich world, Australia’s economic outlook may not be quite as impressive as it once was, but we are still kicking goals.”

The economists say the jump from a China boom to a housing price boom sent the nation’s money and momentum from its north and west to its south and east.

 

“Yet although the resource rich sunbelt — Western Australia, Queensland and the Northern Territory — is feeling pain, much of the drama for those regions already lies in the rear view vision mirror.

“Their next phase will be one of recovery, albeit not quite yet.”

In NSW housing construction is still growing solidly, although it has slowed from double digit growth rates of much of the past three years.

“Even so, Sydney house prices are silly-yet-still-rising, which helps to keep the ‘build versus buy’ equation in the favour of new building,” says the business monitor report.

However, the economists say today’s hero states of NSW and Victoria have clay feet.

“A house price boom borrows growth from the future, and both NSW and Victoria will have to pay back some of their current prosperity in the years ahead as housing prices gradually reconnect with reality,” the business monitor report says.'

[darkmarket]

 

Looks like Australia's finally joining in:

Quote

RBA flags higher interest rates

In a discussion that will send a shiver through the highly leveraged residential property markets of Sydney and Melbourne, minutes of the July 4 board meeting said RBA economists estimated that the official cash rate — currently at a record low 1.5 per cent — would need to rise to about 3.5 per cent to be considered “neutral” once the economy reaches its ­potential growth rate.

http://www.theaustralian.com.au/business/markets/rba-flags-higher-interest-rates/news-story/db608922f255d2f6a35bebbf10b02340

And Malcolm Turnbull's in with a warning for those who did what they were encouraged to do and borrowed beyond their means:

Quote

Rates will climb and borrowers should prepare, says Malcolm Turnbull

"Asset prices can move in two directions - down as well as up," Mr Turnbull said.

"It going to be important to be prudent. The banks and the Prudential Regulation Authority are doing their best to make sure of that."

"My sense is this risk is being well managed, but high levels of indebtedness with low levels of interest rates always pose a risk, particularly if there's an assumption of rising asset prices."

http://www.smh.com.au/federal-politics/political-news/rates-will-climb-and-borrowers-should-prepare-says-malcolm-turnbull-20170720-gxex1m.html

 

[Sancho Panza]

https://www.domain.com.au/news/mortgage-demand-suggests-australian-housing-market-is-cooling-20170718-gxdyp2/

'Mortgage applications were down almost one per cent in the June quarter, another sign the housing market is beginning to cool.

Credit reporting agency Equifax’s quarterly consumer credit demand index shows the number of mortgage applications in the three months to June across Australia were down 0.9 per cent from a year ago.

 

Equifax senior general manager Angus Luffman says this is the second consecutive quarter of declining mortgage applications, and it marks the start of a “downward trend” in all states.

“Any debate about whether the housing market is softening should now be put to rest,” Mr Luffman said in a statement.

“We can clearly see that, even in the historically strong geographies on the eastern seaboard, mortgage application demand is slowing or already in decline.”'

[TheCountOfNowhere]

Sounds oh so familiar....and will end the same way....

 

http://www.abc.net.au/news/2017-08-01/cant-afford-sydney-or-melbourne-house-investors-look-to-adelaide/8748210

 

House prices: Savvy investors shun Sydney and Melbourne LONDON and the S.E, look to Adelaide Manchester

 

"Australia's housing affordability crisis is forcing young people to take extraordinary steps — whether it's a home a long way from the city or a tiny spot in a block of flats."

 

"Sydney IT accounts manager Rob Cooper is one homebuyer who's looked outside the square.

He rents in Woolloomooloo but can't afford to buy there, so he's purchased a rental property in a trendy city suburb more than 1,000 kilometres away, in Adelaide"

Now, where have I heard that before....

Rob, if you're reading, you're a f**king idiot.

 

[TheCountOfNowhere]

Australia's demons are eating their children.

[Lord D'arcy Pew]

21 minutes ago, TheCountOfNowhere said:

Australia's demons are eating their children.

De-globalisation, will crash housing globally.

[TheCountOfNowhere]

8 minutes ago, Lord D'arcy Pew said:

De-globalisation, will crash housing globally.

That and a big war

I've said a few times, at some point people are going to turn on the immigrants and blame them for everything, anyone with half a brain will go home soon with a few quid in their pocket.

We've been here before, society I mean, Europe I mean.

Oddly enough the bankers were de-regulated at that point too.

If the SHTF, and I'm not saying that such an extreme event will happen, but then the non-home owners saving for a spaceship will be able to eat while the mess is sorted out.

Good luck to all those rich home owners eating those f**king twigs in their  hall to survive.

 

Edited August 3, 2017 by TheCountOfNowhere

[Sugarlips]

Some yummy Aussie bear food for y'all

4Corners is a weekly news prog like Panorama and airs primetime on the ABC - equililent to bbc1 or 2 i guess so this story has reached a big audience yesterday and is currently headline news on the sydney morning herald website:

https://www.domain.com.au/news/perfect-storm-of-issues-leaving-aussies-on-verge-of-mortgage-crisis-20170821-gy0k5g/

 

[Sancho Panza]

11 hours ago, Sugarlips said:

Some yummy Aussie bear food for y'all

4Corners is a weekly news prog like Panorama and airs primetime on the ABC - equililent to bbc1 or 2 i guess so this story has reached a big audience yesterday and is currently headline news on the sydney morning herald website:

https://www.domain.com.au/news/perfect-storm-of-issues-leaving-aussies-on-verge-of-mortgage-crisis-20170821-gy0k5g/

 

That's what I call bear food.

[TheCountOfNowhere]

9 minutes ago, Sancho Panza said:

That's what I call bear food.

It all started in Sydney

[Society of fools]

Here's the whole Four Corners episode in question, aired Monday: 

http://www.abc.net.au/4corners/stories/2017/08/21/4719901.htm

Straightforward question to the Brits: the ABC, Australia's National Broadcaster- whose editorial line I usually utterly despise because it is overwhelmingly concentrating on pushing for a welcome mat to be thrown out for the world's ship-borne refugees, more gay rights, huge dollops of tax-payer money to be handed to the Aboriginal Industry, environmental regulation that would turn most of Australia into a national park etc etc etc- has now been pushing the "House prices in Australia are screamingly overvalued" line for months and months, at least a year and a half.

I find myself transfixed with admiration in spite of myself: their premier housing and economic commentator Michael Janda has been relentless on the subject.

No other Australian media outlet pursues this with as much vigour as the National taxpayer-funded broadcaster. 

So why can't the BBC do the same ? Its a global story. And a  global problem.This kind of journalism would impress people just as much in the United Kingdom as it does in Australia. 

[darkmarket]

16 hours ago, Sugarlips said:

Some yummy Aussie bear food for y'all

4Corners is a weekly news prog like Panorama and airs primetime on the ABC - equililent to bbc1 or 2 i guess so this story has reached a big audience yesterday and is currently headline news on the sydney morning herald website:

https://www.domain.com.au/news/perfect-storm-of-issues-leaving-aussies-on-verge-of-mortgage-crisis-20170821-gy0k5g/

2 hours ago, Society of fools said:

Here's the whole Four Corners episode in question, aired Monday: 

Top quality bear food indeed, horrific situation there.

 

 

[Freki]

I loved the cliche couple seeing themselves as property investors who have arrived late at the party. 

In 10 years, if she ever gets to drink a pinacolada, it will be mixed with some tears.

[Sancho Panza]

http://thenewdaily.com.au/money/finance-news/2017/08/30/house-prices-australia-cgt-negative-gearing/

'The dire state of housing affordability revealed earlier this week surely confirms the harm caused by Australia’s badly designed capital gains tax.

The Housing Australia 2017 report, published on Tuesday, comes from perhaps Australia’s least partisan think-tank – the Committee for the Economic Development of Australia – which draws its views from “750 of Australia’s leading businesses, organisations and academic institutions”.

And the cool-headed economists asked to compile this year’s report pass a damning judgment on the way the housing market has been affected by the Howard government’s reforms to the way capital gains tax works.

The report notes that prior to the change, “capital gains on investment properties were taxed at their real values at investors’ marginal income tax rates” but that afterwards “the capital gains tax (CGT) discount system was reformed such that only 50 per cent of capital gains would be taxed, albeit at nominal values, to encourage greater levels of investment”.

So far, so good. Tax incentives that actually create new investment, and new jobs, can be quite a good thing.

However, that is not what happened when the CGT discount was applied alongside Australia’s negative gearing laws – which, the report notes, were already “among some of the most generous within the OECD”.

Mortgage frenzy

What it created instead was a feeding frenzy for accountants and banks, who were able to advise their clients to borrow up big and buy investment properties.

If the cost of borrowing exceeded the rental returns, the client was ‘losing’ money on the investment and hence got a reduction on their annual income tax bill via the negative gearing laws.

And as long as new generations of investors piled into the market, year after year, asset prices would keep rising.

So the hit to government tax revenues was two-fold. Many investors have seen their income tax bill reduced over many years, plus when they sell the property only half the of capital gain will be taxed.

This is at the heart of the current housing affordability crisis.

The report notes that: “The combination of generous negative gearing provisions and the CGT has encouraged debt financed property purchase by investors to chase speculative capital gains that are lightly taxed in comparison to ordinary sources of income.”

Elsewhere it adds: “The recent experience of very rapid price appreciation … is likely to have led people to over-invest in housing. Excessively generous capital gains taxation has encouraged the flight to property and other assets.”

The link with income tax

This year’s federal budget estimates that in the current financial year around $11 billion of capital gains tax will be foregone because of the 50 per cent discount.

Not all of that is wasted money – as covered recently, there are situations in which share investors can help boost real investment and jobs through negative gearing.

However, the clear conclusion of the CEDA report is the formal recommendation that: “A larger component of capital gains should be taxed.”

But how large? Labor’s policy, should it win government, would be to halve the discount.

Labor estimates that would return around $12.5 billion to the budget bottom line over 10 years – and that’s not counting the negative gearing savings.

While 10-year figures are always fuzzy, if it’s even close to that it’s a big improvement to a stretched budget. And as the chart below shows, that would take some of the pressure off personal income taxes.

So there are two reasons to reduce the discount.

One is that it is fundamentally unfair to ask households who rely on wages to pay proportionally more tax than those that use negative gearing and CGT to minimise tax.

Secondly, the monstrous credit bubble this tax law has stoked has shut a generation out of the housing market.

The great pity is that Prime Minister Malcolm Turnbull, the man who in 2004 warned Australia that this law was encouraging people to “invest in a manner which turns income into capital … then realise gains … at effectively half [their normal tax]

[Society of fools]

7 hours ago, Sancho Panza said:

Labor’s policy, should it win government, would be to halve the discount

I'd be astonished if Labor didn't win the next Australian federal election, but I wouldn't put any faith in them implementing what they promised. 

There was a time when for an entre generation- 1983 to 2007- Canberra governments could formulate, sell and execute sensible economic policy. 

Since 2008, its been drift and confusion, and constant instability surrounding the PM position. 

There's simply no conviction in anything that any Canberra government does, no matter what its ostensible colour. 

 

[steve99]

Australia still is not facing up to its demons, ie financialisation of everything and of course our favorite bogyman,  house prices:  About 15 years ago some Aus political bod concerned about house prices rising too fast said that 'we should tie up mortgage application details with tax office records with the person applying' based on the fact that back then everyone knew that liar loans were the in thing for aspirational people (ie greedy, tory voting, self serving, step over dead body type people)   Today in the paper we have this:

UBS says $500 billion of mortgages based on lies  (thats about £300 billion)

http://www.theage.com.au/business/banking-and-finance/ubs-says-500-billion-of-mortgages-based-on-lies-20170911-gyez9a.html

and

Loans from mum and dad lead to greater strain - says RBA

http://www.theage.com.au/business/the-economy/loans-from-mum-and-dad-lead-to-greater-strain--says-rba-20170911-gyexuc.html

 

But guess what?  none of this will be in the Murdoch press which 90% of Aus population read and will be completely dismissed as nonsense by the government and most of the population who dont like foreign noses inspecting their infinitely superior Australian standard of banking regulation and government.

[steve99]

On 8/3/2017 at 8:45 AM, TheCountOfNowhere said:

Sounds oh so familiar....and will end the same way....

 

http://www.abc.net.au/news/2017-08-01/cant-afford-sydney-or-melbourne-house-investors-look-to-adelaide/8748210

 

House prices: Savvy investors shun Sydney and Melbourne LONDON and the S.E, look to Adelaide Manchester

 

"Australia's housing affordability crisis is forcing young people to take extraordinary steps — whether it's a home a long way from the city or a tiny spot in a block of flats."

 

"Sydney IT accounts manager Rob Cooper is one homebuyer who's looked outside the square.

He rents in Woolloomooloo but can't afford to buy there, so he's purchased a rental property in a trendy city suburb more than 1,000 kilometres away, in Adelaide"

Now, where have I heard that before....

Rob, if you're reading, you're a f**king idiot.

 

Went to have a butchers at Adelaide last Christmas time.  A pleasant city in many ways but dead otherwise, still in the 1970s re infrastructure,  was a manufacturing city but most of that gone now and not a lot there to draw in big capital and wages. Houses are so overpriced vs wages and real unemployment levels.  I so hope this bod loses the lot when both Adelaide and Sydney go through a bust and real people in Adelaide can aford to buy their own housing again like in the old days.

[ParticleMan]

On 09/02/2008 at 7:27 PM, ParticleMan said:

Australia is the bloke at the casino that's put it all on black and come up a winner. But now, worryingly, he's borrowed a stake matching his winnings, and bet it all again.

The Australian economy is screwed. They're geared up to produce primary resources at a rate that will make the Poseidon bust in the late 60's look like the plot line of a little golden book. A high wage, high rent economy almost completely dependant on expansionary monetary policy in the western world and the rising commodity prices this brings. Dependant on exporting low order produce at top dollar prices. Dependant on large interest rate differentials with their trading partners to fund their own consumption. Dependant on foreign capital to provide domestic liquidity.

Once the western fiscal and monetary contraction starts, this guy is going to look like a wooly mammoth sitting in a roller-coaster, hurtling into a tar-pit at full pelt.

There's nothing that's being grown or dug up in the wide brown land that can't be grown or dug up cheaper, and nearer its market - or done without altogether. The domestic economy is as tight as a drum alright (those rates aren't that high just for comedy value), but the notion of any value-add going on is laughable. Broken tax policy and misdirected fiscal stimulus saw to it that the brightest and best fled long ago, and if they come back at all, it's on holiday. Or to localise scams that are netting decent rake overseas, while the good times roll.

But the end of all this is going to leave the locals more surprised than Marvin the Martian, to this day still expecting his earth shattering ka-boom. True to their heritage, they're busily pissing it up the wall on vanity projects, or ways to dig faster and grow more. It's a classic commodities mania, brought to you c/o- a national culture which is infamous for them. And these things end in gluts, not permanently high plateaus.

Some of the cities are investing in infrastructure, which will soften the blow by taking some of the sting out of the time and distance problem inherent in each and every transaction in this country. But it's going to be a hell of a hangover, that's for sure. The commodities super-cycle will give way to a super-bust as time marches on, and the locals haven't even considered the possibility it might, let alone taken measures that will let them deal with the outcomes when it does.

Australia, this is your Dreamtime. But dreams end.

Welcome to the nightmare.

[Sancho Panza]

1 hour ago, ParticleMan said:

Welcome to the nightmare.

Welcome back.

https://mishtalk.com/2017/09/11/500-billion-of-liar-loans-in-australia/

'Australian banks are sitting on A$500 Billion of ‘Liar Loans’ according to UBS.

In US dollars, that’s about $400 billion, quite a significant amount of money for a relatively small economy.

Here’s something else for policy makers to worry about as they attempt to engineer a soft landing in Australia’s property market.

The country’s lenders could be sitting on A$500 billion ($402 billion) of “liar loans,” or mortgages obtained on inaccurate financial information, according to an estimate from UBS Group AG.

A survey by the firm of 907 Australians who took out a mortgage in the last 12 months found only 67 percent stated their application was “completely factual and accurate,” down from 72 percent the previous year. The most common inaccuracies were overstating income and understating living expenses, the survey found.

These findings “suggest mortgagors are more stretched than the banks believe, implying losses in a downturn could be larger than the banks anticipate,” analysts including Jonathan Mott wrote in a note to clients dated Sept. 11.

I have no idea when some of these property bubbles truly bust for good, but they will, to devastating consequences in Australia, Canada, and China.'

[Sancho Panza]

https://mishtalk.com/2017/09/30/tipping-points-57-in-australia-cannot-afford-an-extra-100-if-interest-rates-rise-stress-in-wealthiest-areas/

 

Financial Hell: 57% in Australia Cannot Afford An Extra $100 if Interest Rates Rise, Stress in Wealthiest Areas

30 Saturday Sep 2017

Posted by Mish | September 30, 2017 12:34:02 | Economics

≈ 46 Comments

 

A new study shows 57% of Australia mortgage holders could not handle a $100 increase in their loan repayment.

Stress has turned up in even the wealthiest cities.

But who is truly wealthy? Paper profits on homes with enormous mortgages does not constitute wealth.

Please consider $100 Tipping Point for 57% of Mortgage Holders.

A staggering 57% of mortgage holders could not handle a $100 increase in their loan repayments, according to new research by Finder.com.au.

This additional $100 is equivalent to an interest rate rise of just 0.45% based on the national average mortgage of $360,600. This means the average standard variable rate of 4.83% would only have to rise to 5.28% to put more than half of mortgage holders in stress.

“The typical mortgage holder will begin to struggle once interest rates reach around 5.28% – that’s a pretty small window before borrowing costs start to hurt,” she said.

With the research also showing that 39% of all mortgages are interest-only, this highlights why the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA) have shown some concern, she added.

Comparing genders, 63% of women and 50% of men would struggle to repay their mortgages with an increase of less than $100 per month.

Across the states, South Australian borrowers were the worst placed with 70% saying they could not handle an increase of less than $100 per month. This figure was lower in New South Wales, Tasmania and Western Australia at 59% and further dropped to 51% in Victoria.

Stress in Wealthiest Areas

Also consider Severe mortgage stress is cropping up in some of Australia’s richest suburbs.

Severe mortgage stress is cropping up in some of Australia’s richest suburbs, revealing that wealthy Australians have been guzzling at the debt fountain. Thousands of households in suburbs like Mosman, Brighton and Nedlands are in mortgage stress, with some at risk of mortgage default in the next 12 months, according to new data from Digital Financial Analytics.

Wealth is impossible to see if the person doesn’t want to flaunt it, and easy enough to fake. You can mortgage yourself to buy a grand home and the car to match, and have the trappings of wealth while actually being so far in debt you’re in financial hell.

Looking rich and being rich are not the same thing at all, but when times are good, it’s difficult to tell the difference. As the saying goes, ‘When the tide goes out, you see who’s not wearing any swimmers’.

Financial Hell Coming

When top finally blows off the Australian housing bubble, the results will be devastating.

Mike “Mish” Shedlock

[Silverfinger]

Australia's Luck Has Run Out

Gaudy numbers mask serious flaws in the country's economic model.

By 

Satyajit Das

https://www.bloomberg.com/view/articles/2017-10-03/australia-s-economic-luck-is-running-out