Kohler tips 10% house price growth in 2014

ScreenHunter_04 Nov. 12 09.44

By Leith van Onselen

Business Spectator’s Alan Kohler has today provided a bullish take on Australian house prices, which he believes could record another year of 10% growth:

…despite all the complaints that Australian house prices are too high for first home buyers, or just too high full stop, the potential is clearly there for more rises in 2014.

Interest rates are going nowhere (neither up nor down, probably for 12 months), incomes and wealth are rising and the emergence of strong investment buying from self-managed super funds and Chinese cash exporters looks to have only just begun.

More importantly, 2013 was the first year of solid gains after three years of flat prices. In fact prices have only been rising for nine months, and mainly in Sydney, which saw an extraordinary 15 per cent rise in the median house price between March and December.

That sort of pace in Sydney probably won’t continue (it slowed to an annual rate of 9.6 per cent in December) but other cities that were left out of last year’s boom (Canberra, Darwin, Brisbane) could take over and produce another 10 per cent year for the national average.

Certainly, Kohler is correct that momentum is with Australian housing. Perhaps the best short-term indicator of price momentum is housing finance, which is growing strongly and traditionally has a strong correlation with prices (see next chart).

ScreenHunter_822 Jan. 15 09.52

Based on the above chart alone, growth of up to 10% this year is certainly possible, which according to Chris Joye would likely see Australian housing valuations relative to incomes hit their highest ever level by mid-year (see next chart).

ScreenHunter_824 Jan. 15 10.04

That said, there are dangers lurking under the surface, which raises the risk of a painful correction for house prices down the track.

First, housing demand is being driven primarily by investors, with first home buyers largely absent (see next chart).

ScreenHunter_823 Jan. 15 09.53

This suggests that demand is largely speculative, rather than based on fundamental demand, which raises the specter of a reversal in sentiment down the road.

Second, the Australian economy is facing rising unemployment and weaker growth as the once-in-a-century mining investment boom unwinds, with this retracement likely to accelerate from 2014 as large mining projects come to completion (see next chart).

ScreenHunter_825 Jan. 15 10.11

When combined with the falling terms-of-trade and weakening income growth, the fundamentals facing the Australian economy and, by extension housing, are likely to worsen materially, making the current run-up in house prices a dangerous proposition.

 

unconventionaleconomist@hotmail.com

www.twitter.com/Leithvo

78 Responses to “ “Kohler tips 10% house price growth in 2014”

  1. migtronix says:

    10%? Piker! So if last year saw gains after 3 flat years and this year we’ll see 10% gains – will there be no wage growth this year either? Or will inflation finally start to put up wage pressures? PMs think so.

    • flawse says:

      “10%? Piker! So if last year saw gains after 3 flat years and this year we’ll see 10% gains – will there be no wage growth this year either? Or will inflation finally start to put up wage pressures?”
      :) It’s Glen’s songbook!

      The only thing that will stop this is a crisis in the external account. What are the chances of that any time soon? Sure there is a fall-off in commodity prices but the Chinese have $3.66 TRILLION worthless paper dollars they want to swap for real assets. The mind boggles!

      • mykef says:

        “Chinese have $3.66 TRILLION worthless paper dollars they want to swap for real assets”

        I’m tired of the Chinese getting bucket loads of money to overinflate Aussie+NZ housing = so I’ve stopped buying Chinese products.

    • Mik says:

      I bought a place last April, but would not pigeon hole myself of neither an investor or speculator but a family man who wanted to provide a home for us to live in, without the fear of being moved on from when we rented. I bought because I was unable to get a lease for longer than 12 months. The chances of being asked to move were probably negligible but still there all the same. I think that the government should introduce guidelines so that good tenants do not have to be under the cloud of being asked to vacate at a moments notice. If this was the case we would still be renting (although glad we bought when we did.)

      • migtronix says:

        All the difficulties you described to provide simple long term lodging for a single person or a family are precisely the worst effects of property bubbles and why the political class should be getting deep fried for pathetic policies intended to exacerbate the issue.

      • scottmuz says:

        I like you are “family man who wanted to provide a home for us to live in”.

        I also find the uncertainty of renting unpleasant. But certainty has a price, and the price of housing certainty is too high in Sydney.

        It is also important to understand the costs of housing immobility, inherent in being a home owner. Being able to move for employment, and other reasons is of considerable value.

        All other things being equal being mobile will lead you to have higher earnings than someone who is immobile.

  2. flawse says:

    “This suggests that demand is largely speculative, rather than based on fundamental demand,”

    Not sure that’s strictly true. I’m thinking that, given our population increase, we have ‘fundamental demand’ It’s a question of who will own the houses? Speculators or family home owners?

    • DMc says:

      Labelling all investors “speculators” is a misnomer. The term speculator implies that the investment is speculative, the definition of which is, “(of an investment) involving a high risk of loss”.

      There may be some risk of loss, as there is with virtually all investments, but I wouldn’t say that risk is high.

      • Mining Bogan says:

        The amount of leverage involved makes the risk very high in my book.

      • flawse says:

        Agree DMc Misuse of the term on my part. I was just trying to distinguish between ‘Investor’ vs ‘Home owner’

      • DMc says:

        Not all investors are highly leveraged, Mining Bogan.

      • Mining Bogan says:

        Still reckon the Chinese are in the minority.

        The average punter is taking on the leverage and therefore higher risk.

      • DMc says:

        If your investments are based on what you “reckon” then, yes, I would say they are speculative.

      • roballin says:

        Investment = buying for the present value of the future cashflows
        Speculation = buying because you believe the price will go up

      • DMc says:

        roballin, that’s an overly simplistic definition and not one that I’ve ever seen in any reputable publication.

        Investopedia isn’t exactly the most highly regarded publication but its explanation is a good match to the widely accepted definition of speculative investing…

        http://www.investopedia.com/terms/s/speculation.asp
        http://www.investopedia.com/ask/answers/09/difference-between-investing-speculating.asp

      • AB says:

        I prefer the Minksy definition. Not too hard to figure out where the Australian housing market sits according to these criteria.

        http://blogs.cfainstitute.org/insideinvesting/2013/03/04/investment-vs-speculation-using-the-minsky-criteria/

        - Hedge finance, where the borrower can repay interest and principal out of cash flows;

        - speculative finance, where cash flows can repay interest but not principal, and therefore need to roll over any financing;

        - and Ponzi finance, where cash flows cannot pay either principal or interest and therefore must either borrow more or sell assets to support those costs.

      • drsmithy says:

        Labelling all investors “speculators” is a misnomer.

        Some 2/3 of property “investors” are negatively geared and therefore losing money today in the hope their asset will be worth enough in the future to recover those losses.

        Calling a random property investor a speculator is going to be right more often than it is wrong.

      • roballin says:

        Warren Buffet – 2000 Berkshire Hathaway Annual Report

        “Now, speculation – in which the focus is not on what an asset will produce, but rather on what the next fellow will pay for it, is neither illegal, immoral nor un-American. But is is not a game in which Charlie and i wish to play”

        http://www.berkshirehathaway.com/letters/2000pdf.pdf

        Reputable enough?

      • aj. says:

        I prefer to look at this in human terms and avoid the ‘investor’ term altogether since that implies that there is some kind of business risk for productive gain.

        Since parasitic rent-seeeking in established housing doesn’t change the size of the pie, but just kicks someone else in the nuts and grabs their stuff, the term investor is a little too kind.

      • migtronix says:

        That line by Buffet is sort of nonsense – true speculation is simply time arbitrage, the only reason the asset should go up is value is because it’s considered more productive in the future than today! It’s essentially buy when none are interested (no productive value) and sell when the demand is off the charts (productive capacity is apparent to all).

        Buy high sell higher is simple economic distortion and mal investment nothing else and not speculation.

      • DMc says:

        AB, that’s not a bad definition if the “interest” referred to is the real interest rate (payable interest rate minus inflation). In that case, most investment properties in Australia would fall under hedge finance category because retail mortgage rates are around 5%, inflation around 2.0% to 2.5% so rental returns need only be 2.5% to 3% (or greater) to be “hedge” financed.

      • DMc says:

        roballin, yes, reputable enough for me but he was referring to shares and short-term price fluctuations, not long-term growth, when he talks about what the next guy will pay. I doubt even Buffett would call it speculation if you were to buy shares in a growing company that pays only small dividends, with the expectation of capital growth.

        Having said that, the property investors who focus solely on short-term price increase are speculators, no arguments from me there. The majority, however, will consider a combination of rental yield and long-term capital growth, which is investing, not speculation.

      • rich42 says:

        …….”but just kicks someone else in the nuts and grabs their stuff,”………

        That made me laugh.

    • Lef-tee says:

      Notional demand vs effective demand. The real demand from the younger cohorts is there but they are increasingly less likely to have the money needed to back up said demand.

  3. Kohler might be right, he might not. If we ‘enjoy’ a 10% rise, then what?

    I regularly calculate my buy v rent equation. I can do it twice a day if I want. Even with that tax-free rise, in my opinion it doesn’t make sense to buy, given the towering risks. We are in an era of financial repression. What passes for a market in land is a joke, gamed by every rent-seeking ticket-clipper who can see a soft dollar.

    I rent through this ‘permanently high plateau’.

    Don’t Buy Now!

    • Andy! says:

      Spot on with ‘enjoy’ – and on that note I wonder if these forecasters who predict house price increases are happy or not when it inevitably comes true year after year.

    • China-Bob says:

      You keep doing that David, the RE systems needs your dollars set aside for helping out those poor unfortunate souls that’ll loose everything if the RE market crashes. Our banks thank you too because they can lend with wanton abandon thanks to the stability provided by your deposit (home savings) base. If you are also happy than the world is indeed a perfect place…In Australia we must have accidentally discovered housing utopia.

      • migtronix says:

        Correction boomers have discovered housing utopia, Australians are discovering housing dystopia and, along with the Japanese, will be world experts before the decade is out.

        Honest question: what’s the book value of Kirrabili house? When it starts to look like the valuation of the lmperial Palace @ Tokyo it’s T-5 seconds and counting.

    • fitzroy says:

      David, I too think housing is poisonously expensive, but renting is not cheap either if it is not tax deductible. With the current financial repression in place and tax paid on interest received and the stock market being in the fragile position it is in because of money printing, it would be cheaper for me to buy the place I am living in! I see unemployment getting higher and higher and interest rates getting lower despite inflation risks. When do you think it will all end. I note interest rates are on the march overseas…

  4. flawse says:

    “Real finance Commitments vs real House price Growth”

    We need to get that line really heading upwards. It needs a more exponential shape to have this economy really humming. Let’s hear from Bill! We need more rate cuts!

  5. Escobar says:

    I wonder what’s Kohler’s track record on predictions.

    At least the Kouk was mostly right.

    • jelmech@bigpond.com says:

      Kouk might be shaking his head…

    • marked64 says:

      I’m sure you can google it, but he predicted the market to drop another 40% in 2009. It went up 40%.

      He predicted it would take a big dive in 2012 (no number specified) and it went up 20%.

      Just another dart throwing joker.

  6. The Patrician says:

    Is it really any surprise that with the OCR held at all-time record lows that we are seeing (and will continue to see) double-digit house price inflation?

  7. myne says:

    Woo!

    10% for the next 10 years!

    +50
    +55
    +60.5
    +66.5
    +73
    +80.5
    +88.6
    +97.4
    +107
    +117.9

    Fuck working! Watch your wealth grow by a staggering 796k just by owning a 500k kennel in the sticks!!!

  8. burgo100 says:

    the new housing finance commitment numbers need to be adjusted for total growth in outstanding housing finance

    i recently looked at the figures and whilst housing finance commitments are on the up and up the growth in outstanding is more lackluster. this is reflected by paydown of existing housing debt and to a lesser extend refinancings.

    that said, the rate of housing finance outstanding growth is picking up but is still relatively slow.

    interesting that house price growth has picked up more dramatically whilst growth in debt is not as fast (when you account for population growth and inflation). is this being driven by equity being thrown at property?

    • DMc says:

      Where do your total housing debt figures come from?

      I can only find figures up to October 2013, and they show a fairly steady 6% to 7% p.a. growth since early 2011 (which is well down on the double-digit growth of the early 2000′s).

  9. matt0t3 says:

    House prices will continue to rise, until they abruptly don’t. And then, it’ll be “who coulda see that coming?!” at BBQs around the nation.

    Me, I just renewed my lease for another 18 months with no increase in rent. My annual rent payment is 4.91% of the recent purchase price of the unit (to say nothing of agents’ fees, strata fees, council rates, etc.). The rent vs. buy math is so simple a 5-year-old could do it. Anyone buying into this market needs their heads checked.

    This might be the year I start an FHSA, though, so that I can max out my government contributions in the 2016-2017 fiscal year, when the unemployment poop will really be hitting the fan.

    • The Claw says:

      Me, I just renewed my lease for another 18 months with no increase in rent. My annual rent payment is 4.91% of the recent purchase price of the unit (to say nothing of agents’ fees, strata fees, council rates, etc.). The rent vs. buy math is so simple a 5-year-old could do it.

      Crap like that infuriates me. The math is not simple. You have failed to take into account huge increases in rent over the next decades – largely due to inflation.
      In the past these rent increases justified prices paid. The future? Who knows.

      • matt0t3 says:

        The same inflation that affects rent affects interest rates, which affects mortgage repayments (also interest on savings, which I have heaps of due to renting). Perhaps you’re infuriated by your inability to understand simple math.

      • obiwan says:

        I owned a place in The Gap in Brisbane from 1989 to 2001 and the rent I was getting in 2001 was the same as 1989. During that time rent had a $30 variation. Rents in 5095 have not moved in 4 – 5 years and my mothers rent in 2444 has not moved since 2003. In 2444 they are just starting to edge up now.

        My experience is that rents can stagnate for considerable time.

      • Virus says:

        obiwan,
        thats right, I used to rent in 5095, rents did not change…. over 2.5 years.. unit was put on sale.. was sold after 6 months after a 15% hair cut to initial asking price. and right now I can see listing for 10% less rent than what I was paying….. did i forget to mention that they have built 300 new units in 5095 in the last 6 months?

      • The Claw says:

        also interest on savings, which I have heaps of due to renting

        Wow! Your savings are due to renting. If that is the case, why don’t you rent 3 or 4 houses and thereby save even more? That is more simple math for you (as accurate as your previous simple math).

  10. aj. says:

    Unfortunately we have a seen a preview of the risks for the housing bears, and that lies in the assumption that fiat value can be used as a meaningful comparative to asset values over the long-term and during risk periods, and that there is any long term stability to fiat values.

    At the first sign of asset deflation, we have fiat deflation. Whether by negative rates, cash-holding fees, bank bail-ins, QE and money printing etc its all on the table. I have been truly surprised how easily this has been achieved in this cycle and how even more easily the punters have accepted this. Asset prices are king.

    So granted housing is just one asset of many, but we should all be very very careful in assuming that fiat can act as a deflation hedge against falling asset values or even a meaningful valuation tool for assets.

    Fiat is a useful transactional tool and short-term value holding mechanism but it would seem to be a clear mistake to assume the stability of the past will be reflected in the future.

    • migtronix says:

      I think you mean fiat inflation/devaluation but +1

      • aj. says:

        Price inflation if you like, but i’m actually pitching at a subtle difference.

        Price inflation still uses the fiat value as a fixed and reliable value.

        But i’m really talking of fiat deflation here, in other words if an asset looks like it will move from 100 fiat to 50 fiat, then the value of that fiat is deflated so it can still only get that asset, and the fiat has become a very poor deflation hedge.

        So it is irrelevant that the asset may deflate in fiat terms, because the value of that fiat is quickly and equally deflated.

      • migtronix says:

        @aj Ooooh absolute deflation vs comparative?

      • aj. says:

        Relative. It’s the relativity of fiat to asset values that surprised me this cycle.

        There may be a sharp deflationary correction in asset prices, but unless one acts quickly to arbitrage that difference, the asset value will be protected by changing the fiat value.

        You could argue that its the asset price getting reflated, but this is achieved by mechanisms that effectively devalue the currency. Assets, pms and fiat are like planets rotating around each other, there is no fiat sun at the centre.

  11. melbourneguy says:

    Clear and well evidenced analysis. Thanks UE.

  12. Cornflakes says:

    What would be the best method for “shorting” the residential housing market?

  13. OMG says:

    The game has changed

    Fairfax reported that Chinese buyers had purchased 90% of homes in Glen Waverley during the second half of 2013.. 60% were purchased by Chinese living overseas

    Our wage growth and our multiples ( X times wage = house price) mean little in this new reality

    Prices in desirable areas for Chinese buyers went to the moon in 2013, Balwyn up 45%, Mount Waverley 22%

    This will continue throughout 2014

    Prices in non chinese preferred areas will continue to remain flat

    For those that are still speaking of multiples and wage growth, you are blinded by the trees

    • migtronix says:

      OMG indeed! (pun intended)

      Can’t have wage growth AND property price rises that equals inflation and the RBA is onto that

    • blacktwin997 says:

      Hey OMG, ignoring for a moment that Fairfax might not be objective or realistic in it’s reportage, would you happen to know whether the property in question in Balwyn and Mount Waverley was new or established?

      The only reason I ask is that (for what it’s worth) the FIRB apparently reckons that non-residents cannot buy established real estate – according to their website and dodger at least:

      http://www.firb.gov.au/content/guidance/downloads/gn3_jan2012.pdf

      Interesting if it’s true and/or actually enforced.

    • netti says:

      There seems to be 2 entirely different sets of Chinese “investors” buying here at the moment.
      The first are buying off-the-plan apartments marketed at conventions/seminars offshore.
      The second group seems to be getting a slice of the market via on-shore contacts/syndicates.

      The reason for buying through a local syndicate rather than those marketed at seminars in China is that the buyer is getting a larger chunk of land. A share in a single residence near good schools with potential for development versus an overpriced patch of virtual space in the sky apartment – I know which I would rather be buying into.
      The numbers wanting to buy into our market are something else, Aus no longer needs local “investors”. The game rules have indeed changed.
      Sino-fication of prime real estate zones is the new game. Once a threshold quantity of homes in a desired suburb is held, sellers to the next round of Chinese investor can name their price in Yuan if they like. Forget 10%, more like 15%/yr for next 3yrs at least.
      FIRB, Labor, Libs, all MIA.

    • OMG says:

      Hi BlackTwin,

      There are able to purchase existing properties as long as they knock down and put up a new build, here is the article

      http://news.domain.com.au/domain/real-estate-news/chinese-buyers-in-rush-for-melbournes-prestige-school-zones-20131219-2zmbn.html

      You are correct Netti

      There are syndicates and contacts these investors use

      I’m friends with a few Chinese from the mainland that I went to university with and each has bought 1, 2 or 3 houses since finishing, now these houses are $700-$800k a pop so some have invested in excess of $2million, no mean feat on a graduates wage, of course these purchases have been fully subsidised by their parents

      • The Claw says:

        I’m friends with a few Chinese from the mainland that I went to university with and each has bought 1, 2 or 3 houses since finishing, now these houses are $700-$800k a pop

        That’s interesting. How many Chinese are living in each one at the moment? The reason I ask is that if there are more than 2.6 living in each house then they are actually reducing the housing shortage!

  14. Black8 says:

    Not sure that aussie unemployment will affect the demand from chinese investors too much!!

    I’ve been holding out for years for the prices to fall, but I’m now at the point of giving up hope and just jumping on the bandwagon…

    • aj. says:

      This is an example of what i discuss above. What in substance you are doing is expecting asset values in this class to deflate against fiat value.

      This is not what was allowed to happen, here or anywhere.

      So in a sense, those saving for a house have been double tricked. Tricked that they can compete with established capital, and tricked that their fiat savings have any stability in a deflationary environment. Again i’m surprised there is just not more anger about this.

      This is a very ugly choice now for new entrants, and quite unfair.

  15. The Patrician says:

    Could someone explain to me how (and on what planet) median disposable household income is calculated at over $100,000
    See Chart#2

    • netti says:

      One of the oldest tricks in the book:
      In 1980s homes used to be x3 times a household income
      Now they are now x7 in many capital cities & x9 in Sydney.
      What has changed since the 1980s – there are now 2 incomes in many homes. Cost of living necessitates it.
      Average income is about say $70,000 x 2 = $140,000/household.
      Of course, not all households have 2 incomes.

      • The Patrician says:

        It can’t be that fraudulent surely?

        Seriously. Disposable income $100k+?

        In 2009-10 (the latest ABS figures), the median pre-tax income of Australian households was around $68 800.

  16. ecostatsnerd says:

    average household disposable income from chart 2 is taken from national accounts – approx $115Kpa. This is for Q3 2013. The average from the ABS survey would be around $80K if we inflate the mean value from the 2011-12 survey of income and housing. (note mean not median). The national accounts includes quite a few elements not included in the survey such as imputed rent (eg. if a pensioner owns their house outright the NA’s includes the rent they are paying to ‘themselves’. Also includes not for profit transfers (about $32B or $3.5K per households per year). I don’t think it’s as relevant as the survey data. Also has a wider scope than the survey data.

  17. ecostatsnerd says:

    Generally gets used as it’s the only clean time series on a quarterly basis and the RBA uses it (perhaps) to show a more affordable light on housing. It’s useful for showing the ‘movement’ in affordability (as much as such a simple measure can) rather than the level in my book.

  18. meltfund says:

    He is exactly correct. History repeating. We are where we were in ’96. We will get:

    10% y/y for another 5 years
    then a very short mid cycle crisis
    a boom period of 3 years 30% y/y growth
    followed by 3 more years at 10%
    and finally another recession in 2026

    You heard it here first!

    One only has to look to history, and ignore professors and experts.

    Anyone can do it. All it requires is the balls to affirm the reality of it, in the face of what our academies preach to us about.

    “What will happen to wages?”

    We do keep saying. They will fall relative to de facto annual rental value and the capitalised nominal value of these rents – house prices.

    http://www.meltfund.com/2011/06/who-is-getting-your-earnings-useful.html

    This is the way the pyramid works. Gamble on property, against all your other investments. To do both is that act of the mentally ill.

    This is why only the fool invests in anything other than property.

    • pithoneme says:

      Yes, do remember where you first heard it, foolish young man and woman alike. Australian median capital city house price of $2M by 2026, with accordant wages growth of 12-15% yoy, sustained high terms of trade, credit growth at record highs, with sustained low interest rates, sustained taxation incentives, inflation look through, increased government expenditure, as we all climb the summit of pyramid property investing. And you heard it here. First.

      • meltfund says:

        Yes, that’s exactly correct.

        So why do you still deny its happening in every other part of your life?

        Its no use projecting it onto others, like bankers. Its YOU. You are playing a part in this as much as any scammer. Me too. Affirm this and start to see some astonishing things happen.

        True, the authors of this blog know all about it too. But they are forbidden from making it clear. Why? Because they would be fired in the morning. Professor Steve Keen, your compatriot, is in exactly the same position. We have this on very good primary authority as we do for many other high priests.

        These characters are known historically as “The Scribes and the Pharisees”. Or Gatekeepers in The Game. http://bit.ly/thegamslides

        They have the key, use it very unwisely themselves, and deliberately hide it from others who could use it well. They are rewarded highly for this.

        There are a couple of others on this forum we can see very clearly. They are not the ones being rude or defensive. They are the ones who come across as tending to agree under a veil of expertise and radicalism, yet still hiding reality from you.

        There is no conspiracy. Its the way it works in pyramid selling. We offer training classes.

      • pithoneme says:

        No, it is exactly incorrect. An erstwhile evangelical preacher with a real estate license doesn’t necessarily have more credibility because he has pretensions to running a hedge fund with the imprimatur of some crankpot Oxbridge academic who has looked through history and seen the future.

        By all means keep pleading your case – just somewhere else, perhaps.

        Unprovoked ? No, you’re asking for it, mate.

      • dumpling says:

        Episode 37

        Disclaimer: All characters and events in this Episode -–even those based on real people–-are entirely fictional. All celebrity voices are impersonated…..poorly. The following Episode contains coarse language and due to its content it should not be viewed by anyone.

        Not so long ago in a galaxy not so far away……

        2026

        Darth Banking Complex: We finally managed to blow out the median house price to x10 the median household income. Now, with ZIRP, the interest bill alone consumes 30% of one’s gross income.

        Darth Housing Complex: We had pretty much exclusively invested in the residential properties over the last few decades, which did not add much to the GDP growth by the way, so the nation’s debt to GDP ratio also blew out to 500%.

        Darth Banking Complex: And the nation’s total interest bills alone consume 15% of the GDP. The crippling economy impoverished millions who are now busy scraping the bottom of the barrel.

        Darth Housing Complex: It has been a while since the local dickheads went straight after the Chinese with the FIRB affair, and the ensuing riots enabled us to enact the Martial law with strict curfew. I recently heard disquieting rumours that the local debt slaves are planning another riot, this time against us.

        Darth Banking Complex: They are losers trapped in the quick sand of bottomless debt. Their sole purpose of existence is to serve us with their labour that cannot be adequately replaced by robots, just yet.

        Darth Housing Complex: It is presumptuous of them to think that they are better than the Greeks. These idiots already forgot that you had successfully installed your apprentice Darth Papademos as the head of state of Greece without an election (not to mention the installment of Darth Monti to the head of state of Italy) – they are indeed no better than farm animals – even my dog knows how to appreciate his master.

        Darth Banking Complex: It is time to install my apprentice Darth Palpatine to the Lodge using the same trick. I have been secretly training him with the Robespierre – Stalin –PolPot doctrine. Reactivate the Martial Law, dissolve the Parliament, and shoot whoever disobeys the curfew. I can hardly wait to see our streets covered by fresh blood.

        Darth Housing Complex: As you wish.

    • Mik says:

      This falls in to the 14 year RE clock cycle. just make sure you sell out in 2025/2026 which is what I am going to do.

      • meltfund says:

        Yes. 7 + 7 + 4 years is the repeating cycle.

        4 years of recovery 1990-94, 2008-12
        7 years of redemption 1994-2001, 2012-19
        mid cycle crisis of about 2 months
        7 years of boom 2001-08, 2019-26

        crunch!!!

        Do not worry too much about getting in low and out high. Look at property prices in general right after the 2008 recovery recession. Prices dipped 30% immediately but only for a few months before being bailed out and largely recovering. The timing is too fine.

        http://www.meltfund.com/2013/06/datasourceurldocs.html

        The only concern really is to get in as soon as possible and just keep getting in. Sell all other assets because they will all fall in value relative to property. This is guaranteed because everything else depreciates, is heavily taxed and not underwritten by government of all party’s like property.

        All productive capacity or growth ends up in higher land values so this expected increase is constantly bid up much higher than inflation despite any supply or demand constraints.

        Mortgage contracts are the best thing to trade because no delivery is required, transactions can be made hard to trace and tax. And if one is “on the inside”, one can get up to 60% discount on repossessions. (aka Below Market Value trading BMV)

        For short term, the best time is right after the mid cycle crisis where you will see 30% year on year for 3 years.

  19. Sean says:

    I wonder what % of recent purchases are Chinese investors expatriating their currency with little or no leverage, thus inflating the median ‘falsely’ in that it is not conventional domestic house purchasing activity.

    Further, the fact that foreign nationals are essentially paying cash for their purchases means that the activity will not be reflected in the ‘Housing Finance Commitments’ stats.

    Then there is the claim that many foreign investors don’t even like having tenants ruining their parked capital gains nest egg, so the apartments remain empty on the promise of a future sale capital gain that will supposedly at least equal inflation once holding expenses such as council rates and body corporate fees are taken out. It doesn’t really matter anyway, since the main aim was to expatriate Chinese currency and stop the CP from possibly confiscating it wholesale one day. Hence developers are selling a commodity that has very little to do with actually providing housing to anyone, at least in the present. This is not at all dysfunctional of course, just like the 64 million empty apartments in China that no ordinary Chinese worker can afford to rent.

    But the property spruikers and paid shills like Alan Kohler are loving it.

    DMC’s attempted defn of ‘speculator’ is essentially wrong, of course, the risk is inherent in the supposed time arbitrage of a belief in a future capital gain premised on very little but past capital gain, driven up by other hopeful speculators. These were the ‘behavioural economics’ circumstances that lead to the 1880s land boom and bust and the 1929 Wall St Crash and the NASDAQ crash and so on and so on.

    So the defns by others are essentially all correct — speculators are ‘speculating’ on a future hopefully large capital gain that will supposedly outweigh all their losses and expenses and capital gains taxes and also beat inflation into the bargain. They make this decision based on observing previous gains which we now know only came about because lenders doubled the pool of available credit for leveraged purchasing of property.

    speculate
    1. form a theory or conjecture about a subject without firm evidence.
    2. invest in stocks, property, or other ventures in the hope of gain but with the risk of loss.

    [Latin speculr, specult-, to observe, from specula, watchtower, from specere, to look at; see spek- in Indo-European roots.]

    As far as I’m concerned, the gainsaying eco-babblers can just go home on that matter (and many others they pontificate upon).

    • DMc says:

      By your definition any form of investment that carries a risk of loss, no matter how small or unlikely, is considered speculative.

      • Sean says:

        Not if the current cashflow exceeds expenses, and is considered likely to do so for the foreseeable future, due to rents being set reasonably against wages with some margin built in for potential recessions (heightened unemployment, wage freezes) and so on. Today’s negatively geared investors/speculators in property are actually building a loss into their ‘investment’ basically forever in the hope of a future capital gain outstripping all losses and taxes incurred in the interim, mainly by using a lot of leverage to make the acquisition. Of course if a Chinese national buys a place for cash and actually chooses to rent the place out and make some revenue, then anything that is greater than annual body corporate fees, rates, maintenance, taxes and REA PM fees is of course a net positive cash flow return on equity, no matter how small. Assuming it at least equals nominal inflation — whatever inflation actually is in reality.

        It’s not my definition, it’s the 5 second google definition from whatever source. It should say ‘envisaged future gain’ rather than just gain to be accurate in fact, thanks for pointing that out. That’s the crux of what speculating is vs investing in something that will make a net return in the immediate present from present identifiable sustainable revenues, just like any sound, viable, solvent business. Of course, some business startups expect to make a loss for the first year or two of business, with projected net profits in the years immediately after that, otherwise they wouldn’t bother starting the business with such risk and liability, and without any good way of redeeming the startup losses — however the ‘perverse incentive’ of negative gearing tax breaks on personal income from the govt and the fervent hope of ongoing large capital gains in an unknown future timeframe keep the Ponzi going. That, and unmeasured expatriation of overseas money.

      • DMc says:

        Your description here has moved a long way from the dictionary definition you gave. The dictionary uses “risk of loss” as the main determinant but you use negative cash-flow.

        So how about a property investor that is not borrowing but using their own cash to purchase, rents out the property for a pittance (enough to cover ongoing costs) and hopes to sell in 6 months, making a huge profit? You’re long-winded, contrived description would suggest this is NOT speculation because it is cash-flow positive. What a nonsense.

        I suggest you do more than 5 seconds of google “research”. Since you seem to like dictionary definitions, you may want to start with Merriam-Webster online: “to invest money in ways that could produce a large profit but that also involve a lot of risk”. Note the presence of the words “A LOT”.