Why it’s time to sell Australian property

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A commenter this morning remarked that my recent call that its time to sell Australian property is “bold”. Others have said much the same thing. To me it’s the opposite, that is, selling now is bleedin’ obvious and here is why:

  • Australia is entering a major economic adjustment involving falling wage, welfare (and likely) asset incomes;
  • this will run for the better part of decade and segue with deteriorating demographics;
  • it is being driven by China doing likewise, which ensures that there will be no let up on the key driver of the changes, Australia’s terms of trade;
  • there is a rampant bubble in property prices on every measure but the most important is price to income which is at or passed record highs;
  • the bubble is now underpinned only by surging speculative loans constituting half of mortgage lending with interest only and loans outside normal approval criteria on a tear. Real demand in FHBs is collapsing. Sydney is hilarious:
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  • the offshore bid in housing that is coming from China is not sustainable and it will get squeezed by China’s anti-corruption crackdown, as well as by currency fluctuations;
  • there is a supply response in all cities right now, even if not as large as population growth and rents are under pressure everywhere;
  • immigration growth is slowing and will keep doing so because unemployment remains stubborn. There are market forces at work in migration as well as government fiat;
  • monetary policy is almost exhausted with perhaps 1% more cuts left in the can, versus the 4% plus drop during the GFC;
  • fiscal policy is close to spent with the Budget at 21% of GDP per capita and S&P committed to stripping the AAA sovereign rating when it breaches 30%, which is certain the moment the next global downturn hits. As most business cycles last 8 years, we likely only have have only two years left on this one. That will mean downgrades for the the banks and more expensive credit during the next crisis and far less stimulus will be possible;
  • the Murray Inquiry looks likely to recommend higher capital for banks meaning more expensive credit as well;
  • and, contrary indicators like Alan Kohler are telling us that it’ll go forever.

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.