Sydney property prices are going berserk

Find below the latest RPData daily house price chart for Sydney up to the day:

ScreenHunter_60 Oct. 23 06.33

This index is volatile and should not be taken literally. However, in trend terms it is a reliable indicator and there is no mistaking where it is going (unless you work at the RBA). Over four months it has added 10%, an annualised rate of 30%.

If left to run, Australia’s largest city is going to blow up the economy.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Either the economy now blows up or the housing market does . Take your pick. Perhaps, though, as your have always said, “they’re the same thing.”. The days of alternative options, are over….

    • The bigger the house price bubble gets, the more the overlap in the blow-up of the housing market and the economy.

      There is no pain free solution. The best advice is “don’t start”.

      Any argument that the price can go higher yet, is a good argument to stop it from doing so, not a good argument that there is no bubble.

      • Janet. Normally I agree with your astute observations. Now? Consider Kohler’s tsunami of money from China. It’s a scenario I agree with and has been developing for a few years. It may well be about to start hitting our shores or more correctly maybe it has already started?

        In that case, given the standard belief that all foreign money coming is is just grand and the more the better, this could all get seriously insane. Well it’s been seriously insane for 50 years. I just don’t know how to adequately describe the mess!

      • Nice: property is the new “gold”.

        Pity property is an essential to everyone’s lives while it doesn’t really matter to most people what the gold price does.

      • I understand your concerns, F; and see them on a daily basis in a marketplace 1/6th the size of, and with even less impediments than yours. But I console myself with the thought that,”Well when the market does implode ( I have absolutely no doubts about that as I have said to Peter Fraser on numerous occasions) that it will be ‘their’ money that funds the crash…not ours”

      • Flawse, you are old enough to hear about the “wall of money” coming from Japanese investors in the 80’s. What happened then?

      • @PB – dead right this is really where the central bankers miss the point and it is primarily because they have no primary residence issues that they are detached from the problem.

        It would be seriously easy for politicians and central banks to put a negative speculation bias on residential property and direct this money to where it belongs – stocks, gold etc. They don’t because the global usury industry owns their ar&es.

      • Fair point Mav. Make no mistake it did distort our economy and, in my opinion, did lasting damage. Many don’t see it so maybe it is just my viewpoint. We get these distortions from capital flows but we never try to undo the harm. So everytome it happens we just gear up some more.
        I also am thinking that this wave will be much bigger than the Japanese one. The Chinese are sitting on MINIMUM 1.2T worth of USD. Further there is a pent up pressure this time. I’d guess a lot of Chinese have been wanting to shift money out of China but have not been able to do so. Certainly my experience, in trying to get a couple of projects going, is that it is not easy. We have a very definite ‘kink’ in one project because of this factor. Again there may be more urgency in this shift. The USD is coming under some real pressure and as these things go they generally grow exponentially. So, in summary I’m guessing there will be one heck of a lot of money that may be wanted to be moved very quickly into real assets. As in other times as this starts the rising A$ becomes its own self-fulfilling prophecy.
        Note that some or a lot of this USD may head back to the US in the form of RE and other asset purchases. Unlike us the US has, has on a few occasions, proven that they don’t quite believe in the free and open capital market where there are assets they don’t want to sell. Will teh Chinese again send the California property market soaring? Maybe…but I reckon there might be a few hundred billion or half a trillion left to come here?

        One last factor which is possibly important. What assets have we left to sell? Most of the mining is gone but I’m guessing that is where most of the money might still head. We’ll sell the mines and because we know RE is a safe investment we’ll buy RE. We have little industry and the vast majority of any size is largely foreign owned already. So maybe that means they’ll be trying to buy lots of farmland although there aren’t too many really large enterprises to buy but aggregations may be the go. That leaves RE….Sydney, Gold Coast, Perth? and ????

        Feel free to disagree! I’m sort of thinking out loud and therre is surely more than one way this might play out.

      • Phil re property and Gold.

        We can’t print property. We think we can print Gold.
        Meanwhile the Chinese keep squirreling away tons of the actual stuff!

      • False
        Who said we cann’t print property? We can sell the title to multiple ‘owners’. Who cares ! They never come to take procession and not going to rent it out.

      • @flawse No one can liquidate USD treasuries in a big way. The moment they do, the dollar collapses, taking half the financial system with it. For all it’s huffing and puffing, the Chinese gov know this.

        Having said that, I am starting to think this is what the US actually wants.

        Edit: If this does actually happen, watch rates go through the roof as US stops exporting cheap money.

      • Mav, flawse,

        I’m not old enough to have known the details at the time, maybe you can provide some insight.

        I recall that the mid-80’s was a golden age for the NQ tourism industry that was all but wiped out by the late 80’s asset bubble, the subsequent 20% interest rates and recession we had to have.

        How much did the incoming Japanese money flow potentially help along asset prices (the money had to come from somewhere in the days before financial deregulation) and contribute to the bust?

        If it did, I agree with flawse, the damage has been very lasting. I can’t see how non-mining regional AU (or NQ in my experience) has recovered in the 20 years since.

      • Mav – nice work.

        Yep – The RBA is throwing the national economy under the bus to save the business plans of the banks.

        Sure those mutant blobs of accounting entries will cover us in green slime when one goes pop but nothing that cannot be cleaned up with some buckets, hot water, a govt with cojones and a fiat currency.

      • It’s alright PFH, all those directors and executives who ‘could never have seen it coming’ will get their taxpayer funded golden parachutes. It’s win-win for everybody except the taxpayer, and those who actually restrain their consumption for their (and their children’s) future.

    • Janet, logic says you are right and I’ve been saying this for ten years.

      Between SMSF and gold it looks like it’s going to continue, despite financial irrationality of it all.

      A quote that seems apt about now “Never doubt the stupidity of people in large numbers”

      Especially if they have cheap money.

      • Bubbley…you’re just a young whippersnapper! I’ve been saying it for near 50 years! I’ve always thought some idiot somewhere would try to do the right thing. Nobody ever did! So I’ve been ‘wrong’ although the GFC etc seemd pretty obvious to me.
        I’m not sure but maybe I’ve attained the wisdom, in my old age, to understand the motivations that a combination of stupidity and sheer treachery that result from shallow self-interest and, as a result I’m considering backing the stupidity and treachery for the time being.
        Alternately the dozey stage is just setting in!

    • Wouldn’t the property market correct (on an international level) when the AUD corrects?

      If we drop to 80cents Vs USD that’s about a 16% decline. Sure it won’t make a difference to those who earn AUD. But our exports should rise followed by the economy and salaries.

      The further the fall in AUD the bigger the Tsunami no?

  2. By the way, I cannot get onto the thread “Does Housing Affordability Equal Labour Mobility”? a couple down from this one. When I click on “Read More”, or the title, or “comments”, I get a message:

    Page Not Found – Sorry, no posts matched your criteria.

    When I bring up the “Global Housing” category, this post is not listed at all.

    If there are 3 comments, obviously others have not had this problem……

  3. Yes. Thanks for the numbers.
    It ain’t only Sydney! It’s spreading rapidly. Glen will be sitting back laughing and yelling dementedly ‘Go you good thing go!’
    They’ve backed this horse and it’s well in front two furlongs out!

  4. “….a run-up in housing prices and debt need not be dangerous for the macroeconomy, was probably inevitable, and might even be desirable.” – Luci Ellis

    It’s all part of the dumb, inflationary, financially repressive plan.

    Lets run house price inflation at 10x the rest of the economy.

    It’s called financial stability…don’t you know?

    • Yep. it’s clear RBA policy. I think that is the most important thing to understand about this. They said they’d do it and they are doing exactly what they said they would do.

  5. This must be making the clueless RBA very anxious. Booming house prices (which is not what they want, IMO) and soaring dollar. Total policy failure. 😯

    • Perhaps they did not want booming prices but they certainly wanted rising prices when they were already at record levels.

      Ever tried to encourage a smouldering fire with a cup full of petrol?

      It is rare that the result is a nice warm glow.

    • Yep the RBA have us fixed now.

      Is it a coincidence that Glenn Stevens contract was about to expire just before an election?

  6. Sydney’s rich I tell you RICH. Why would such a rich man/woman not spend the fruits of their investments and enjoy the good life? Sydney has worked for their wealth so this is just the beginning of positive feed back loop that’ll see Sydney take its rightful place in the world.

    What’s missing from this discussion is the effect that a 10% increase in housing prices has on the 90% of houses that dont change hands. All the 2009 vintage marginal loans are now safe loans and safe by a good margin. Today the RBA needs to hold its course, the banks can then slowly back away from the risky end of the market and leave that sector to be funded by the secondary markets.

    Wow the futures so bright that I’ve gotta wear shades!

    • You should apply for a job at the RBA. I know you’re taking the piss a bit, CB, but where’s that tradables focused chap gone?

      Since when did house prices blowoff and then settle nicely afterwards? The only two occasions I can think of was 2003/2010 and that was exclusively owing to a 150 year mining boom which sent incomes through the roof on both occasions.

      If they let this run it will melt down at some point next year when the brakes are hit and there’s no income supporting it. The same investment boom that saved prices last time is in deep reverse next year.

      Better to hit the brakes now and take the pain. It’ll hit the dollar hard and begin building a real recovery.

      • Tradables you ask me about tradables when Sydney housing is the hottest globally Tradable commodity in the world. We have an absolute Monopoly on Sydney RE only Sydneysiders can make Sydney housing and the Chinese want to buy it so bad. @#$% manufacturing that’s what I say!

        You propose rational economic decisions but the economy you’re describing is a pure momentum play. Sydney’s a FUBAR economy, the option for rational decision making left the room a long long time ago, all that is left is a momentum play. That’s it momentum, many years living in startups-ville has taught me a lot about momentum investing, because ALL successful exits from Startup’s require sector momentum.

        As for “income supporting it” that’s BS fundamentalist economics shining through, it should be viewed by readers with the same disdain as “value investing” in a boom, its pointless.

      • How are you hitting the brakes though? Raise interest rates? Doesn’t that raise the dollar through the carry trade?

        Macroprudential? Does that choke off investors?

      • Karan,

        Selective capital controls will soften the dollar and increase rates.

        Along with encouraging low cost land and housing development you have a recipe for deflating the bubble and rebalancing the economy.

        Start today and we will be there in 15-20 years.

      • And I’d like to add NG and SMSF investments only on new builds.

        Also higher levels of checks that investors are actually residents of Australia, checking whether they have an residency stamp on their passport or place of birth on their drivers licence should do it.

      • flyingfoxMEMBER

        I’m with CB on this. It is a momentum play and has been for a while. If you think you can get in and out in time, go for it.

      • pfh007,

        The only “selective” capital controls you are likely to see, are those favouring the usurer class, by preventing alert citizens from trying to flee their thefts yet to come:

        “The path to tyranny is almost always paved with good intentions.

        And so, enter stage left, the innocuously named Consumer Financial Protection Bureau (CFPB).

        These government agencies with the catchy, high-sounding names are always the most dangerous. After all, it was the ‘Committee for Public Safety’ that was responsible for wanton genocide during the post revolution Reign of Terror in France.

        Recently, the CFPB ‘encouraged’ retail banks in the Land of the Free to ‘help’ their customers regarding international wire transfers. And by ‘help’, they mean prohibit.

        Of course it’s all for ‘consumer protection’.. So under the guise of safety and security, several banks will curtail retail customers’ abilities to send international wire transfers.

        Chase, for example, will start to limit cash withdrawals and ban business customers from sending international wire transfers from November 17 onward.

        And starting October 20th, HSBC USA’s Premier clients will have to wait a minimum of five days before transferring funds to their OWN international accounts!

        This is the very nature of capital controls– restricting the free flow of capital across borders until it is trapped inside the country and forcibly denominated in a rapidly devaluing currency.”

        – The Sovereign Man, October 16 2013

        http://www.economicpolicyjournal.com/2013/10/shock-hsbc-usa-joins-chase-in-limiting.html

      • Op8,

        Yes, but we are talking about relative evils here.

        Short of granting you your wish – fewer and more selective capitals flows are a good thing.

        But it is amusing that US authorities are trying to force locals to keep capital in the US WHILE driving their dependence on low cost Chinese capital with low interest rates.

      • pfh007,

        I suspect the US move has more to do with that IMF report just out calling for an EU-wide “One-off Capital Levy” on everyone with “positive net wealth”. Coinciding with all the USA’s debt ceiling dramas, that report would be sure to scare a few of the wiser horses in the Land of the Free as well. Preemptive strike?

  7. Compared to Beijing Sydney looks positively provincial in pricing and without the choking smog.

    Without macroprud and capital controls it is going to go from nuts to insane.

    AUD is going to fly.

  8. Like I posted late last night (which probably no one saw on a dead thread)

    Which one would you rather have in charge?

    “housing prices in German cities have been rising so strongly since 2010 that a possible overvaluation cannot be ruled out.” – German Central Bank, October 2013

    “I think there are a lot of people, the minute housing prices start to pick up they say, ‘Oh my goodness, we’ll all be rooned.’ The minute housing prices start to pick up they imagine it’s a bubble.” – Australian Central Bank, October 2013

    http://www.theglobeandmail.com/report-on-business/top-business-stories/housing-bubble-fears-spread-around-the-world/article14980341/

  9. What do we observe with Bubble behaviour? They inflate slowly; always look like there is room for just a few more breaths of air, and then deflate spectacularly.

  10. reusachtigeMEMBER

    Time for warnings and discussions on averting crisis is long gone. If anything, engaging in such activities may be detrimental to what is now clearly required. We don’t need any delays caused by caution.
    .
    I’m a raging bull, and it’s so much more joyful I can tell you! Come on board the night train….

      • @ David Collyer who says “Don’t Buy Now!” – how has that advice worked out over the past year or two for anyone who may have chosen to follow your advice? Especially for any of your followers in Sydney?….

        For non Sydney people, the observation I would add is that what history actually shows is that when Sydney booms, the other cities soon follow within 12-24 months.

      • gonderb, the RPData graph at the head of this page tells it all. The Sydney engine is redlining with twin turbos plus a nitrous kit for extra horsepower. Every moving part is at or exceeding manufacturer’s tolerances. Something will eventually break.

        My advice is for FHBs and similar non-owners. It is coherent. By standing aside they have avoided the staggering costs of ownership at current settings. Renting is a bargain, subsidised by clueless ‘Gearers.

        For anyone seeking somewhere to live, this is the worst moment to buy property in the 140 years of data Philip Soos has assembled.

        Read Hyman Minsky and

        Don’t Buy Now!

      • Anyone remember 1988? It was just like this.

        Then the party stopped and in1989 the hangover set in.

      • @ Bubbly – you are right re the late 80s hang-over! It was a doozy. However, in Sydney during that boom prices more than doubled, then came back during the “hangover” to a point that was still 50-60% higher than where they had been before the boom. And they have only risen from there since….

      • Wake up late honey put on your clothes
        Take your credit card to the liquor store
        That’s one for you and two for me by tonight

        I’ll be loaded like a freight train
        Flyin’ like an aeroplane
        Feelin’ like a space brain
        One more time tonight

      • I feel lightheaded, it must be the bubble(s)!

        +1

        Or vertigo from the view from the edge of the cliff.

    • Careful, reus.. Your idea of crowd sourced spruiking may cause job losses amongst professional RE spruikers like Dr Ando Wilson, Stephen Nicholls and Terry Ryder.

      Oh wait… Where do I sign up? 😉

    • I feel like you are just about to break into a song and dance like the sales guys in the Simposons who sells Springfield the monorail.

  11. Wow, absolutely no-one saw this coming 12 months ago. I thought prices would rise in accordance with incomes. Ha.

    It’s going to be fun to watch when interest rates return to something near-normal, but that could still be a few years away.

    You guys are taking the p about the party, but there will be plenty partying right now. Anyone who bought a while ago and sells now has made some swift and tax free coin. In fact, at 10% in 4 months, it seems I could have bought in Jan, sold in Oct and come out in front. Who said property was a long-term investment!?

  12. It is going beserk. I wish I had the faith you lot have in a crash. It really is demoralising seeing your home town being stolen from you to feed the riches of a bunch of low lives, a lot of whom have never done a day’s real work in their lives, and rich Chinese who had 500 million people to exploit for $2 an hour.

    • Don’t worry Bluebird, there is going to be a big dirty property crash. Ireland-style. 50%. One fell swoop.

    • I agree with you bluebird. I don’t know why I bother working and getting taxed at the rate I do. Super is a joke. And spivs getting publicly funded capital gains…… With a rate cut coming in March as the real economy continues to collapse…I better go off and do my occupational therapy…

    • Are there really that many rich Chinese?? Something stinks somewhere if articles like this have any credibility;
      http://blogs.wsj.com/chinarealtime/2013/08/15/chinas-millionaire-population-grows-less-quickly/

      The number of Chinese with assets of $1.6m or more is around 1 million (2012 data). So much for the more millionaires in China than Australians in total claim. So where’s this money coming from? They must be borrowing there at low rates and dumping it here. Massive leverage. Otherwise the article is flawed and completely ignores their black economy.

      Something’s amiss. In light of this data and as a country that barely makes top ten when it comes to their investment preference, there seem to be plenty of them here with supposed fistfuls of cash.

    • @ Bluebird: It’s not being stolen, you need to check the definition of theft. The people selling are being paid $$$ for their property – lot’s of $$$, and the point being, it’s their property to sell, not yours!

      • @Bluebird – no “clues” required for me, as I’m not the one spouting extremist rubbish. IMO, comments like your represent what is wrong with most of the comments on these boards – head in the sand, denial, extremism, etc. Sensible people with no axe to grind quickly begin to lose interest.

        The fact is that it is perfectly legal for an owner of an asset to choose to sell it to someone else in exchange for $$$ if they choose. No theft has occurred. The fact that you are angry that someone is willing to pay more than you is immaterial to this fact.

        In fact what you would propose as an alternative – that somehow existing property owners should be restricted such that they are forced to sell their property to you at a heavily discounted price – would be closer to an actual “theft” than your characterisation of current transations.

      • You sound like a sleazy lawyer. It’s “legal” there it isn’t criminal or theft.

        Thanks for wasting my time, and that of the decent people of MB. Do us a favour and go straight to hell where you belong.

        I really can’t be bothered refuting all of your lies and propaganda.

  13. i guesss the other way of looking at this is that massive money printing and debt creation in an interconnected global system means traditional analysis no longer holds. This does not of course mean that prices are sustainable, just that we have no idea whether they are or not. The wall of money creates inflation and for the most part its been plowed into property. If millions of Chinese are trying to get their laundered money out via property purchases who knows how long this can continue? If banks / govts are prepared to print / loan at exponential rates to keep a bubble going who knows how long it can last? If our govt is prepared to open the immigration gates whilst shutting off land supply etc then who knows?
    dont forget that slavery was an effective and sustainable plank in most successful empires. Ridiculous house prices is primarily a moral tragedy – its about a deliberate transfer of wealth from unestablished to the established. We need to rise up, otherwise it is unlikely to change.

    • @Squirell, I’d say the uprising has already begun. Did you know that the ‘Don’t Buy Now’ tsumani’s facebook page has over 1,100 ‘likes’!?

      (Serious face) I really enjoyed your post. My only question is ‘what happens when interest rates return to normal, or even near-normal?’ It is pretty clear that most mum’s and dad’s are going to struggle. Are the Chinese that wealthy that they can just keep ploughing endless amounts of cash into Aust property? What if something else takes their fancy?

      • “Are the Chinese that wealthy that they can just keep ploughing endless amounts of cash into Aust property? What if something else takes their fancy?”

        given their numbers it can seem endless, or at least can continue for some time yet before their funds are exhausted. But agree, if something else takes their fancy then the bottom could fall out.

        I’m not saying it wont turn to shite, just that its not by any means guaranteed. I’m a long term bear who gave up and bought recently because I know our policy makers are prepared to sell out the “unestablished” to maintain the status quo.

      • Are the Chinese that wealthy that they can just keep ploughing endless amounts of cash into Aust property? What if something else takes their fancy?

        We got nice beaches, great weather, no pollution (except the smoke and ash from the odd bush fire).. and of course, kangaroos and boomerangs..

        Why the hell would Chinese buy anywhere??? Buy now before the Chinese wall of money hits us!!

        To attract more people, we might as well move the world famous Sydney NYE celebrations to January 31 2014 to coincide with the Chinese NYE . 😉

      • Stop worrying, everyone.

        The Chinese have been a source of reliable foreign investment for years and years and years. At least since 2003. There’s no prospect that could possibly ever change.

        The fact that the Japanese money flood in the 1980s did not last is irrelevant. The problem there was that the Japanese like KOALAS. Unfortunately koalas are endangered and therefore their presence is not a sound basis for housing investment.

        By contrast, the Chinese like kangaroos. We will never run out of kangaroos. The presence of kangaroos underpins the eternal desirability of Australian housing.

      • dumb_non_economist

        Squirell,

        Based on that I guess Canberra RE is going to fall not because of potential PS redundancies, but because of the macropod cull?

      • d_n_e’s logic is inescapable!

        I actually hit a roo with my car here a few months back. That month, Canberra property prices dipped a fraction of a percent.

      • Thanks for the free plug, turnitup.

        Visit facebook Don’t Buy Now! and prosper.org.au for genuine insights into Australian real estate.

        HnH, macrobiz is seething with trolls. The latrines at Australian Property Observer must be blocked.

    • “We need to rise up …”

      That which has been is what will be, that which is done is what will be done, and there is nothing new under the sun:

      Usury became the major force polarizing ancient society as credit passed out of the hands of public institutions into those of private households. By classical Greek and Roman times, no palace rulers were left to cancel agrarian debts and otherwise keep creditor power in check. Thus, what seems to have begun as justifiable debt in third‑millennium Mesopotamia evolved into classical usury. Its corrosive dynamics polarized ancient society more than any other factor, destroying the archaic social balance between rich and poor, mercantile creditors and cultivators, despite the nominal decline in interest rates.

      The power of creditors increased in the face of declining royal authority. Although the normal lending rate declined from Bronze Age Mesopotamia through classical Greece and Rome, creditors were able to render irreversible the forfeiture of land and personal freedom which debtors traditionally had been obliged to pledge as a condition for obtaining loans. In sum, what is first documented in Sumer is a revolutionary institution, revolutionary in that interest-bearing debt ended up by inciting populations to revolution at the end of antiquity, in the second and first centuries BC throughout the Romanized Mediterranean world.”

      http://michael-hudson.com/2000/03/how-interest-rates-were-set-2500-bc-1000-ad/

      Babylon The Great rules.

    • I agree, it is up to Sydney’s young to simply say $%^& the planning permission, council ripoffs Infrastructure payments and GST, I’m building my house!
      If enough people make this decision than the establishment must fold and increase the supplies of land for both new construction and redevelopment. This one change in attitude (let the world know what is your birth right) will have more impact on Aussie RE prices then all the macro-prudential BS ever could.

      • DNE is right.

        I would also add that you are assuming that young people own any land. Stats show (McKell institute paper ‘homes for all’) older generations own most land.

        Even of those young landowners – how many would be willing to sacrifice real money in the pursuit of protest?

        The only thing that can make any difference to house prices is a housing crash that leaves nothing but scorched earth in its wake.

    • From taht article’s comments:

      Q: How is it that some places like Bali do not allow foreigners to buy land yet we let everyone without any concern for our young people

      A: It’s because your politicians are in bed with the global power elite.
      They couldn’t care less if you all starved to death.
      You are irrelevant, pointless and worthless in their eyes.
      It’s just that, in order to get elected, they have to tell a few lies to deceive you.

      I without a doubt, fully agree with this answer. I’m sorry but this is beyond short-term / election thinking. It’s economic terrorism.

      • “It’s economic terrorism”

        Yes, that’s exactly what Usury is … a weapon of war.

        One might well argue that the most profound success of secular humanism can be seen in the so-called “Judeo-Christian” West’s gradual loss of basic biblical literacy. Any thinking, half-witted reader of the Pentateuch can/should easily and immediately observe that the practice of usury in any form was/is completely banned by “divine law” when it came lending to one’s “brother” (tribe), but was/is encouraged when it came to the inhabitants of lands sought to be conquered.

        Ergo … (hello?! McFly?!?! join the dots).

      • It’s also because our moron voters keep voting them in. We had a chance to do something about it in this year’s election.

      • Sadly Bluebird, the election was about getting Labor out, with very little thought for what was getting voted in.

        We’ve got the government we deserve.

        If we weren’t screwed before, we sure are now.

  14. I’m not sure where people are getting the idea that Chinese money is inflating the Sydney property market – squirrell, China Bob, bluebird any evidence to back it up?

    First, FIRB rules prevent foreigners from buying existing housing. They’re only allowed to buy new developments. Someone will probably be able to tell me what the proportion of sales is between new and existing housing, but if their buying is restricted to new housing only can they really be driving the market?

    Second, as someone who works in property development, I can tell you that the proportion of foreign buyers is typically very low. The reason is that banks and financiers get nervous when they see a large percentage of pre-sales to foreign buyers – it raises issues of enforceability if things turn sour. My understanding (anecdotal only though) is that while you’ll often see a lot of Chinese names in a list of presales for new development, they’re typically Australian residents.

    It’s possible there’s an inflationary effect going on from Chinese money, but I haven’t seen any data yet to support the hypothesis.

    • And where do you many think those Chinese residents are getting their money? It’s a perfect loophole which is actually really hard to enforce. I don’t even know if it should be enforced. The trouble is that we are a desirable destination. That’s a good thing of course but the fact locals are priced out and our politicians want even higher prices make it a very sad state of affairs.

      • i suspect for the most part its recent immigrants buying on behalf of family back home – but there are also student purchases etc etc. And many may simply ignore the rules for all we know – its not like a passport needs to be supplied on purchase. The root problem is really that immigration is way too high which in turn creates a conduit for further money from Asia to pump the market.

        And if foreign investors merely soak up the existing supply of new builds / developments (as opposed to creating new builds) this has the same effect on demand as more locals will be pushed into the existing homes market whilst the new build remains vacant or underused.

      • I know one buyer ( family friends), they only have a tourist visa here, they are applying in NZ for a temporary visa (they dont have it yet)(, and they bought a house 5 months ago when they came ( for a short stay).

        they do not have the right by the FIRB’s rules, but they dont know it( or dont want to know), paid cash.

      • How hard is it to enforce the checking of residential status and a background check on the money at the point of transfer?

        If this is enforces, the agents will enforce it themselves.

    • i dont have hard numbers, but anecdotal evidence for when I was looking for a house in middle East Melbourne is that “persons who were clearly foreigners or recent immigrants” won 7 out of the 8 auctions I attended. They may have been recent immigrants, foreign investors, students etc but the pressure from this source was clear and 2 agents I spoke to said the uptick in demand from chinese seemed to be related to the AUD dropping.
      … and remember, to impact the supply / demand dynamic you dont need foreigners to be a majority. Even an additional 5% of buyers in the market has a massive impact.

      • I agree.Pconnors need only go to any auction in the eastern suburbs of Melbourne. Off shore money being parked where the the Party Insiders can’t get to it. Totally unrelated to the local economy. Some might say mercantilism. Try doing it in China and see how far you get. FIRB a total waste of time. We need to act in self defence. Suggest a land tax, rate increase, capital controls or the same rules to apply as apply to Australians in their country. Except in China there is no rule of law, and contacts cannot be enforced. Why should they be able to be enforced here.

      • GunnamattaMEMBER

        I have had (in Melbourne-Victoria)

        Real estate agents tell me that they are selling the vast bulk of their sales to Chinese – including an old guy who retired a year or so ago (middle innner burbs of Melbourne), who had started in the 1970s and had logged every sale he made in the intervening years with a coloured in flag – back in the 70s it was lots of Union Jacks but in recent years is all red (he is married to a Chinese woman). Two other RE agents have told me that Chinese buyers are the biggest single factor in the difference in prices between Geelong and Ballarat.

        Chinese nationals have asked me why it would be that Australia allows this and point out to me that there are a load of Chinese language forums – essentially similar to this – where people discuss Australian RE, and a load of RE website often providing better details than real estate .com or domain .com.

        Vendors (including an old Polish lady who sold – about 300 metres from Alamein station in Melbourne – and told me the only people who came to look through her house had interpreters with them and were chinese).

        A mate who is a property developer. He is Chinese Singaporean originally. Now bounces back and forth between China and Melbourne. Tells me they dont even bother marketing their stuff in Australia.

        It’s all apocryphal, I know. There is no hard data. The Chodley Wontok stunt essentially showed that nobody in FIRB wants to look at the issue or has the resources to do so.

        But the sheer volume of experience related to me my people in the game or who have been participants in the game in some way in the recent past all points (in Melbourne – but I understand the issue is essentially the same in Sydney) to the likelihood of Chinese buyers (whether holding the appropriate visas or not we will never know) being the biggest single factor in the market. And certainly a factor at the margins.

      • nice summary Gunna. Its particularly bad in areas where there are good schools – it seems the premium for these areas (eg dreary North Balwyn) are out of all proportion to any level of sanity.

      • You are spot on Gunna

        The only ones that don’t see this have their head in the sand or don’t live in the Eastern suburbs of Melbourne

        I live close to Alamein station myself, have been to a number of recent auctions in the area (as an observer) and each has been purchased by Chinese, I won’t go into whether they are locals or not

        I previously lived in Glen Waverley and witnessed the same thing happen there from 2006 onwards, there is a lot of money flooding in from China and I’ve had friends buy (using money from their parents back on the mainland) houses with cash in the inner/middle east of Melbourne

        Its having a big impact on the market, there aren’t figures but would Chinese born buyers make up at least 50% of all home sales between Balwyn and Glen Waverley in the past year? No question

      • flyingfoxMEMBER

        @Gunna and OMG I have no problems with this as long as it is deemed legal. Even if kids are helped by their parents in a legal manner, it’s fine because it happens just as often with locals.

        The issue is when the FIRB rules are not being enforced.

      • GunnamattaMEMBER

        @fitzroy

        No prosecutions that I can find (I looked).

        The Wontok thing basically had FIRB come out at a senate inquiry and acknowledge that they dont have the resources to follow it. They noted that their concern was not people putting in dodgy applications but not putting in any.

        Then when you think about it if anybody is making an ‘application’ FIRB simply dont check – the whole thing is a sham designed to convey the possibility that there is a process and a system which is monitored (for Australian mug punter consumption) but which is actually not (and known not to be – for foreign investor consumption).

        Essentially as has been pointed out here a number of times there is nowhere in the system where any buyer has to prove a right to buy anything.

        Apparently in the event of FIRB deciding they do have an issue they can order the property sold (but I couldnt find an instance of this). Even if they did, whoopy do.

        I have been told that Immigration have pointed out to FIRB (in writing) their concerns with the management of the issue.

        I have also recently been told that the majority of the 1-2 million rural and semi rural places going in and around the Bellarine peninsula are being sold offshore.

      • FOREIGN ACQUISITIONS AND TAKEOVERS ACT 1975

        s.26A

        I think this just about covers it. One or two prosecutions and an amnesty would do the trick. Give the AFP something to do.

        “1) In this section, person to whom this section applies means:

        (a) a natural person not ordinarily resident in Australia;

        (b) a corporation in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest;

        (c) a corporation in which 2 or more persons, each of whom is a natural person not ordinarily resident in Australia or a foreign corporation hold an aggregate substantial interest;

        (d) the trustee of a trust estate in which a natural person not ordinarily resident in Australia or a foreign corporation holds a substantial interest; or

        (e) the trustee of a trust estate in which 2 or more persons, each of whom is either a natural person not ordinarily resident in Australia or a foreign corporation, hold an aggregate substantial interest.

        (2) Where a person to whom this section applies:

        (a) enters into an agreement by virtue of which he or she acquires an interest in Australian urban land and did not, before entering into the agreement, furnish to the Treasurer a notice stating his or her intention to enter into that agreement; or

        (b) having furnished a notice to the Treasurer stating his or her intention to enter into an agreement by virtue of which he or she is to acquire an interest in Australian urban land, enters into that agreement before:

        (i) the end of 40 days after the day on which the notice was received by the Treasurer; or

        (ii) the day on which advice is given that the Commonwealth Government does not object to the person entering into that agreement (whether or not the advice is subject to conditions imposed under subsection 25(1A));

        whichever first occurs;

        the person is guilty of an offence and is punishable, on conviction, by a fine not exceeding 500 penalty units or imprisonment for a period not exceeding 2 years, or both.”

      • Thanks Gunna, tremendous ! But if there has been no application it is a job for the police. If there has been an application that is a different matter. If deep T’s figures are right about there being little equity in mega bank and the LMIs an enforcement of these laws has a systemic risk. I’m sure it would take steam out of the market in Sydney.

      • GunnamattaMEMBER

        @Fitzroy

        I think that what a few people nutted out earlier is that there is not a single place in the whole process of someone buying a place where anyone needs to actually show that they have an ‘approval’

        Think about.

        Punter (from wherever)

        Turns up at auction and wins bid – all they get asked for is deposit, name and proof of ID.

        Puts in bid for place (not at auction) – same as above.

        This person then simply makes sure they have the readies.

        Austrac will make note any transactions larger than 10K. But they ask questions about (I am reliably told) 5% of transactions, and amongst the standard responses to them if ‘funding of real estate purchase’)

        conveyancing types arent going to look at any issues with buyer. vendor isnt, vendors lawyer isnt, agent isnt (I have been told this very very reliably more than once, by real estate agents in the eastern burbs of Melbourne – who explained the whole process to me in detail, not that there is much detail to go through).

        Sale and title deeds need to be registered, but nobody is going to ask about buyer bona fides vis FIRB there.

        Basically the FIRB process is a self reporting process – doesnt check anything.

        My understanding is (from having looked through Chinese web sites and blogs discussing the issue) that the prevailing view is that IF anyone ever gets pulled then you simply tell whatever authority that asks that you have put in an application from FIRB and that it hasnt come back yet

        But when all is said and done absolutely nobody nowhere is likely to ask – making the risk virtually nil.

      • Thanks again Gunna, I am sure you’re right. There are no checks. Anything to keep the ponzi going. I was contemplating bidding in Hawthorn on the weekend. Read deep T again and changed my mind! Keep up the good work.

      • @Gunna Thanks. Moreover there are no alarm bells even when these purchases are made with cash. I wonder how much money is being laundered through Oz RE.

      • GunnamattaMEMBER

        ‘I wonder how much money is being laundered through Oz RE.’

        As someone who does a lot of work for investment banks and legal firms in Eastern Europe and Central Asia (with Russia a speciality) and who regularly gets paid via shelf companies in the British Virgin Islands and/or Cyprus, into more obscure bank accounts in more obscure locations than I would care to think about (as long as there is a Visa or Mastercard I can withdraw cash from at any ATM here) I would make the following observations.

        Anywhere in Europe certainly has tighter money laundering and real estate purchase controls.

        The US certainly has tighter money laundering and real estate purchase controls.

        The UK certainly has tighter money laundering and real estate purchase controls.

        Turkey, North Cyprus, and anywhere I know of in the Middle East and the Persian Gulf (Dubai, Emirates etc) certainly has tighter money laundering and real estate purchase controls.

        Canada certainly has tighter money laundering and real estate purchase controls.

        Off the top of my head I think that for anyone with large amounts of cash they wish to stash somewhere/put into the hands of relatives/get outside their own country/jurisdiction and not have too much of a documentary trail/too much of a question asked about the purpose of the funds/have any question at all asked about the provenance of the individual or the funds, I think that an investment in new RE development in Australia (in particular) would have to rank very highly as a place for giving any dubiously acquired cash a quick wash and scrub.

        There may be an issue for any putative money laundering types with how liquid the purchase may be (should one need to get ones dough back quickly) but this often isnt a real issue for punters benefiting from corruption elsewhere.

    • pconnors, you say “FIRB rules prevent foreigners from buying existing housing”.

      Could you explain at what stage of the purchasing process are foreigners “prevented” from buying existing housing?

  15. IRRATIONAL EXUBERANCE is currently at epidemic levels in this country.

    Bears are starting to believe the Bull Baloney. And why not?

    No Slow melt I’m afraid.

    Boom, Boom, Boom.

    Followed by…… 😉

    • GunnamattaMEMBER

      It needs to happen old coq……

      Theres never been a better time to buy!

      Go you good thing!

      It’s gold, gold, gold for Australia!

      • And there’s the crux of it for me Gunna.

        “There has never been a better time to buy!”

        Its a $1,000,000 question.

        I ask myself, with all this madness underway, and prices at levels everyone agrees are extremely high by historical standards: Is now the right time to buy?

        For me the answer is clearly, no.

        I have my armchair in the reclined position and I’ll pick the prime bits from the carcass when the time comes.

        This country has made housing a speculative fetish, an obsession, from which I am 100% CERTAIN future economic historians will teach students about what happens, when that happens.

      • GunnamattaMEMBER

        Pop me down with you mate…..

        I was at a conference with a major fund manager about a month or so ago (I wrote about it somewhere here) looking at bubbles. Everyones jaws dropped when I pointed them in the direction of Oz RE – and I am not in Sydney.

        But basically I have come to the view that there would never be a slow melt, which basically means it has to blow up.

        I dont think it is going to blow up with a rate rise (as I dont think rates will rise)
        I dont think it will blow up with macroprudential
        (as I dont think we are going to see any macroprudential)
        I dont think it will blow up with Chinese buyers exiting
        (as I dont think Chinese buyers are going to exit Australian RE – they are exiting China)

        It only ends when the only thing left in the Australian psyche is the RE deformed economy. Its sort of like a heroine addiction, it’ll justify anything until it is far too late.

      • Chris Joye has borrowed it…..and he’s right to have….There’s always a spike just before the Big Chuck. ( your Bears getting out!). The week before Lehmanns went? The GSE’s, Freddie and Fannie were ‘saved’, and the market spiked. Then……

      • GunnamattaMEMBER

        Just make sure you (or Janet) dont buy in about now. Reusachtige and flawse are pretty much on the same bandwagon too.

        But for everyone else –

        There has never been a better time to buy RE!

      • dumb_non_economist

        Gunna,

        Thanks for the advice, I just signed up to a 95%LVR loan on an IP I can’t really afford based on your comments.

        Let me know where you live so I can come and thank you appropriately when the time is right 😈

      • Thanks Gunna and Ortega, you hit the nail flush on the head. Let the muppets buy now…and wait. Who knows how long, but it will be monumental when the tide rushes out

      • reusachtigeMEMBER

        Exactly. Let them buy. Encourage it even! Right now, for other people, there has never been a better time to buy and don’t you dare get in their way! 🙂
        .
        Oh, and all of you warming to CJ for getting on the bear wagon… I didn’t like him before and I like him even less now. Shhhhhh!!!

  16. The point about Chinese money entering the Sydney RE market is not the absolute magnitude of the problem but rather the effect it has at the margin.

    Even if Chinese are buying only 1% of available Sydney RE BUT gladly paying a 10% premium then in no time flat +10% becomes the new norm, it’s economics 101 price discovery especially for a market that has no possible “shorting” mechanism. While the tide is rising everyone will be able to party, who knows maybe the tide will just keep rising and rising and rising (that’s certainly been the case with Shanghai RE).

    When the party gets into full swing (probably mid next year) it’s highly likely that our balance of trade will come under extreme pressure. Now unlike our RE party a balance-of-trade blowout needs to be funded with real external cash-flow, I’d guess HnH is expecting a local manufactured liquidity crises to arise when the tab for the CAD blowout arrives, I’m convinced that we’ll just hand over a few more assets and carry on with the RE party.

    • CB That’s the point
      , I’m convinced that we’ll just hand over a few more assets and carry on with the RE party.
      We’re looking to sell and by that point the Chinese may well be in a serious mind to get rid of a wad their USD. So it all looks good!

  17. I am sick and tired of waiting. First I hoped macrobusiness will elighten the masses.. then i thought ppl reading macrobusiness will enlighten the masses… none of you are capable of doing it.. So when going gets tough, the tough gets going….

    I am hereby pledging my legions to “property spruikers” and will coax all my acquaintances who mention anything about property to BUY the property with the MAX LVR they can get.. I want this to end.. so let me help it blow out quickly!

    p.s: dont ask me when i am buying because that will be right after the pop

    amen

  18. @DC, you are more than welcome. Some call it a juggernaught. Others call it a freight train. I myself prefer to keep and simple and refer to it simply as ‘the Don’t Buy Now! Facebook page’.

    I think you’ve sold it well short, saying that it contains ‘genuine insights’ into the property industry. I’d go as far as to say it’s on the cusp of becoming THE one-stop-shop for all things property.

    Don’t Buy Now!

  19. (Pops on serious hat. God I hate doing that)

    Aren’t the recent gains in property prices merely getting things back to where they were in 2010? (A drop in real terms) I understand the headline to this article is alarming, but it’s off the back of a soft-as-butter couple of years. And with record-low interest rates and incomes at an all time high (well, mine anyway), I would have thought that a robust market would not surprise so many.

  20. Lance Roberts in the US wrote recently about how the property market is the only financial market exempt from money laundering legislation. The property lobbyists have got away with exemptions so cash sales are allowed without tracking investigation.

    It’s pretty obvious Chinese wall of money = (mainly) managers of SOE’s laundering money out of China.

    But then again other injustices such as the current taxation regime for super for over 60’s in Australia is obviously intergenerational theft but is allowed to continue to erode the tax base.

    But the mother of them all is the fed initially bailing out banks and now continuing QE. The end of the road for this is the fed owning more than 80% of treasuries in the secondary market. They currently own 50% of 10 year treasuries in the secondary market.

    The Chinese will be left with worthless treasuries and their brightest and most crook will have all emigrated to Australia with most of the other cash.

  21. George Tremendous

    Long time reader first time poster here.

    I have been following a few particular post codes for the last 5 years, as I have been saving a significant deposit. I am fairly mobile for work therefore housing for me is a lifestyle choice and where will my children work rather than where do I work.

    To that end I will share my outlook on the particular post codes that I have been researching observing over the past five years. These are in no particlar order;

    4567 Noosa, QLD
    2540 South Coast, NSW (Huskisson / Vincentia)
    2035 Maroubra, NSW (Sydney)
    2535 Berry, NSW
    2031 Randwick, NSW (Sydney)
    2042 Newtown, NSW (Sydney)
    2016 Redfern, NSW (Sydney)

    What I have noticed is basically that since 2008, all of the postcodes with exception of 2540 have had increasing clearance rates reported (as of the last 3 months)on lower than average volume. Basically these suburbs have had trending lower or stagnant volumes. Of particular note is the MSM reporting that these Sydney postcodes clearance levels are also on increaed prices.

    Now you can call me simplistic, but the recent RBA action of the past 18 months to now has only encouraged speculation and thus enthusiasm by some segments and in my opinion has painted the entire Sydney market with the a very broad brush of prosperity. I beleive this is not the case. I dont believe the momentum of so few properties can lift the median value of the remainder over a short period.

    The tree change suburbs of 2535 and 4567 are basically reserved for the affluent tree/sea changer and appart from the free fall of the ubber priced properties above the $5m mark I see no real change in value under $1m. These suburbs enjoy the same demographic profile of the people from Sydney with respect to disposable income.

    In short, in 5 years of following all these postcodes very closely, they are all (except for 2540) in my opinion have remained at the same median price range. I believe that there is a lot of “spruike” by RE sector and MSM that median values are increasing. Obviously my 7 postodes are not representative of the whole of Sydney or Australia, however, in my opinion the current bull market is on too few sales in too few areas and some sales are handpicked to rally market momentum via the MSM.

    I am sure there are perceptions and indeed a reality that it is difficult competing with so many investors for a place to call home, but these same investors are also compteting against themsleves on what has been a diminishing pool of quality properties – hence the $1+ renovators dreams within 10km of the CBD, it reeks of desperation. This weekend in Sydney there will by in excess of 1300 properties up for Auction which is a significant increase on the weekend auctions thus far. With the Spring selling season and RE agents pushing for 2 week inspection periods from time of listing to Auction feeding the frenzy you wont see too many level heads buying property, only the desperate, the show off’s buying another property over and above and the off shore investor who does not know the difference. It is a gamble at present, and I say let them have it, it wont last.

    By the time Hockey and Abbott have stripped back the country to bare bones prior to next budget, I have my doubts that low volumes will not be an issue.

    FWIW I am bearish on the RE market in the long term due to domestic wage concerns and productivity.