Robert Gottliebsen (“Gotti”) has gotten off the phone again with his mate, “Highrise” Harry Triguboff, who has asked him to “alert Australia that next year we could face a real estate crisis” if Australia’s banks pull funding from buyers of apartments, which are heading into oversupply. From Business Spectator:
The major assumption that both Asian and Australian buyers make when they invest is that the migrant-driven, rising Australian population will continue…
Very few owner-occupiers are buying these apartments…
Our banks are lending huge sums to developers who can only repay the banks if other banks fund their investors…
“The banks can vary the amount of deposit the purchaser has to find; the bank can vary the valuation; the bank can suddenly refuse to abide by the non-binding promise to finance an investor,” Triguboff says.
“I hope that the banks will only use these measures as a last resort, and not often”.
“If the banks become unreliable lenders, apartment prices will drop dramatically”…
“The value of residential properties that the banks financed in the past, which is where most of their money has been invested, will drop even more rapidly”…
Not only are the bank losses set to be huge but new apartment development will be slashed and its new apartments that are keeping the economies of Sydney and Melbourne (particularly Melbourne) going.
Can we just cut-out the middle man and get Highrise Harry to write directly?
And can we stop kidding ourselves that endless immigration and Chinese property investment – some of which is from corrupt sources – represents a sustainable source of jobs and growth for the Australian economy? Sure, employment is supported in the short-term, but like all investment/construction booms it will end, leaving a big void.
Rather than seeking a sugar hit from endless immigration and Chinese investment, Australia’s policy makers should instead be pursuing fundamental micro-economic (structural) reforms to the economy and tax system, along with a real depreciation of the currency, aimed at boosting both productivity and competitiveness.
Moreover, if Highrise Harry wants to engineer a sustainable dwelling construction uplift, he should argue to tackle the myriad of supply-side constraints that prevent affordable housing from being built, forcing-up land prices and killing productivity and living standards, not a continuation of the status quo.
Permitting a never-ending flood of immigrants and foreign money into Australian real estate is not a solution to Australia’s economic woes, nor will it raise living standards. Rather it is just another giant can kick that pushes Australia’s problems further down the road.
It’s time for some creative thinking about how to boost productivity and living standards, rather than more of the same flawed ponzi-like approach.
Besides, if property prices do decline, for reasons outlined by Highrise Harry, I can assure you there will be a generation of would-be home buyers that will rejoice at not being required to pay extraordinary sums for a tiny shoe box.
