Sydney speculators eat their young

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By Leith van Onselen

As noted earlier this week, Tuesday’s Housing finance figures for October released by the Australian Bureau of Statistics (ABS) revealed a blow-off in investor demand, with investor finance commitments jumping by 8% in October, 29% over the year, and hitting the highest level on record (see next chart).

ScreenHunter_654 Dec. 10 11.52

 

Today’s Lending Finance release by the ABS provides a break-down of investor mortgage demand at the state and territory level, which revealed another increase in New South Wales (read Sydney) investor mortgages, which are clearly driving the blow-off nationally (see next chart).

ScreenHunter_724 Dec. 13 11.50

According to the ABS, investor finance commitments rose by 30% in rolling annual terms in the year to October 2013, well above the national average increase of 20%.

Moreover, as at October 2013, investors accounted for a whopping 51.1% of total housing finance commitments (excluding refinancings) in New South Wales, which is the highest share since September 2004 and well above the experience of the other major capitals (see next chart).

ScreenHunter_725 Dec. 13 11.56

And with investors so active, first home buyer (FHB) demand in New South Wales has collapsed, with FHBs accounting for just 9% of total finance commitments in the year to October 2013 – an all time low. FHB demand has also collapsed in Queensland, although investors are less active there and Victoria is heading the same way (see next chart).

ScreenHunter_726 Dec. 13 11.58

The divergence between New South Wales investors and FHBs has also widened once more, hitting a new record in October (see next chart).

ScreenHunter_727 Dec. 13 11.59

Sydney is clearly a speculators’ market writ large.

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Comments

    • Agreed!! That divergence , and the rate of divergence!, is staggering!

      No to be seen MSM. If Aunty covered this – hello AM/PM? – I’d be damn proud

      • at least 2 close friends have done the first home buyers grant obligatory 6 month move in, then moved out and rented the house.

        they then live somewhere else.

        apparently they can still claim it as a PPOR for CGT purposes for up to 5 years, all while claiming negative gearing.

        so your right plenty of FHB are actual investors. so the headline figure could probably be worse.

      • KlimashkinaSydney

        I had read some commenters on this site before saying that there is a phenomenon of FHB’s not reporting themselves as such, as there is no benefit (?!?!).

        Is there any substance to this?

    • If the first and last chart doesn’t make your heart skip a beat you probably numb with debt that you don’t know what it is to feel free anymore….

  1. This isn’t a Sydney-thing or even an Australian-thing, it’s a Global-thing. The objective being to export the debt of the major economies of the developed world to – the rest of us! To do that, those ‘lesser’ economies have to provide their borrowers with something to borrow against. The shermarkets only account for so much of that, so Main Streets everywhere are being poked into doing their bit. Given all that, one has to ask (1) why would the RBA/Government backtrack on its mandated path and (2) has enough debt been exported yet? I’d suggest that – they won’t and not enough are the answers. Ergo “Sydney”, like Auckland, hasn’t got close to Blow-Off….. yet! But it will………(NB: It won’t seem to matter as much when the inevitable Depression arrives, as by then all economies will be equally affected. The gross debt will have been apportioned )

    • Janet,

      But even the developing world is accumulating debt at a record pace.

      The $64 question is, who is lending all this money???

      I suspect there are more than the two family names which begin with R involved here. Families with a Japanese, Chinese, Indian and African name or two are also bound to be involved.

      One thing I do know however, with well over $30 Trillion US dollars in offshore tax havens around the world, any so called rich list I have read is a complete and utter fraud.

      • But what is the “developing world’ doing? It’s buying ‘stuff’ – our farmland; your farmland; Africa’s farmland; Sydney property, Auckland property, London property – anything it can gets its hands on that those of us ‘playing the good game’ are willing enough to sell them. Because rising property prices will make us rich! Good on them, if they see what we refuse to! Because the debt, as such, doesn’t matter to them. They will have tangible assets ( because sure as eggs is eggs we aren’t going to nationalise it back!). I don’t buy gold; but I understand why people do. For the same reason that the Developing economies are buying assets. When this lot turns to custard, they will at least have something of value. What it’s worth in dollar terms then is irrelevant. We will have the ‘dollars’, they will have the stuff….

      • “When this lot turns to custard, they will at least have something of value.”

        Maybe they will, maybe they won’t?

        But what concerns me is that they may use these assets so that we are the ones who turn to custard.

      • The $64 question is, who is lending all this money???

        Your assuming that someone is saving for someone to lend. Most of it is being created out of thin air …

        One thing I do know however, with well over $30 Trillion US dollars in offshore tax havens around the world, any so called rich list I have read is a complete and utter fraud.

        Yeap …

      • notsofast: “with well over $30 Trillion US dollars in offshore tax havens … so called rich list I have read is a complete and utter fraud”

        Oh but Clive Palmer is so rich and scary ha ha ha. Yes especially if we ever find out who the beneficiaries in due course are of all those not-for-profit NGOs are!

      • Ha Indeed! All taxation laws have lost their moral and normative value.

        Citizens should feel free to abuse, twist and distort the taxation system as they feel their personal risk under the penalty provisions allow for.

        Without equality under the law there is no moral obligation.

      • Both you and I know that the QE is QE infinity by default. I don’t think they can taper without massive record number of bankruptcies and/or other serious consequences.

        Do they have the guts to pull the trigger no matter what? I don’t think so. After all, policy makers have been choosing the easiest option available to them at any point in time, without applying enough thought to long term implications.

        So, what they will do is keep shifting their goal posts while finding plausible excuses each time they do so.

        After all, Japan has been doing this for 2 decades and there is no end in sight.

  2. Roll up. Rollup. Rollup.

    Make your money while you can.

    Make your investment then sell and move your money offshore. Leaving the Australian Taxpayer, Australian superannuants and Australian Households to pickup the tab.

    Really, I can’t understand for the life of me why people can’t see that we are just shovelling more and more money into an ever increasing gapping hole that is opening between average household incomes and average housing prices. Money that is then distributed through out the economy to raising spending and increase our living standards, which is then slowly leaked out of the country on the trade deficit/capital account via spending on cheap foreign holidays, even cheaper trinkets and money sent overseas to be replaced by more borrowing from overseas. Eventually Australia is going to run out of sources of new money to fill in this ever increasing gapping hole and housing prices will collapse. Taking much of the economy and people livelihoods with it.

    To those who think collapse will be good and will allow reform, I ask them to think again. There are far too many entrenched interests in Australia, both domestic and foreign, who don’t give a shit about the average Australian and will be more than happy to see them rot in the absence of opportunity and real competitive reform. Dropping wages and conditions, which I think probably will be forced to happen now, might help a little but won’t make a significant difference to the eventual outcome.

    • Pretty much!

      I have had several years of trying to save a substantial deposit (against an ever increasing amount of debt required) and as I approach this goal the prices jump again & again! Collapse/reform is wholeheartedly welcome – I am desperate and it’s my only hope.

      I’ve also come to realise that this opinion is moral & rational, since it’s just the flipside of the fact that the reason I don’t have a house, is because someone else does.

      • Andy,

        It is a tough situation to be in and one that fhb’s have been facing since around 2001 during the first of the latest series of booms

        This may anger some of you but one of the wisest things I have been told is that waiting and saving isn’t necessarily the best option

        They said that the trick was to get in, buy what you can afford and have a buffer in case rates go up to 9%, that way you can sleep at night

        I’ve seen the same house sell for $350k in 1999, then 560k in 2003 and recently it sold for $920k. The guy waiting and saving that bit of extra deposit would still be on the sidelines today

        I await to be crucified by some of you on here, anyways that is just my experience. There are no guarantees that the market will grow like that in the next 15 years

        All I can say is that if it does then your modest home in the outer suburbs grows with it and you work your way up

        Ps. The advice didn’t come from a real estate agent

      • Actually OMG there are many of us that predicted exactly this outcome from the loose monetary policy and political support inevitable for housing. Deflation in the housing market is an economy killer, the government and RBA will not roll over on this one easily.

        The risk is systemic not local – locally, there is every chance that this boom will just keep going, there is nothing to stop it.

        Globally, there is systemic risk, but central banks are moving heaven and earth to bridge the asset deflation gulf, including undermining the value of money itself.

        It leaves a very unenviable position for new home buyers, almost a faustian choice. Many are, not unreasonably, saying they have no choice but to take the bet and hope the government has their back, and the global risk does not materialise in the short term.

  3. TheRedEconomistMEMBER

    As usual the Spuikers come out in force on Friday.

    See this mornings “Money Minute” on the Today show.

    http://today.ninemsn.com.au/videoindex.aspx?uuid=f5ccc9ad-2461-4569-a131-25b0280c3735

    As usual Channel 9’s Ross Greenwoord talk about House Price’s in the “Property Report”…

    Oops sorry… It is a FInance Report apparently

    I love his loaded language about prices In Adelaide and Brisbane are yet to see those gain of recent in Sydney and Perth.

    It is also Fait accompli that they will.

    I urge anyone who lives in Sydney to call Ross on his 2GB program (131873) and question his motives.

    One night I could not believe my ears.

    A women called complaining about the banks not handing on the full 25 basis points cut in the OCR/
    Apparently she was finding it hard to keep up with payments on one of her investment properties.

    Que Violin sounds

    Ross sat on the fence and offered some rubbish advice and understood her anger.

    I called not long afterwood and said to Ross,

    Why don’t you tell her to sell the place??”

    He also agreed with me but said he could not really advise her to that… blah blah

    Guys are Greenwood are the cancer unfortunately.

    They like the rest of the MSM are just salesmen dressed up as experts.

  4. Thinking about this whole distorted-unbalanced access to housing issue for some time.

    Opportunity knocks:

    “On 12 December 2013, the Senate referred an inquiry into affordable housing to the Senate Economics References Committee for inquiry and report.”
    Submissions closed on 25 March 2013, and reporting date is 26 June 2014. http://www.aph.gov.au/parliamentary_business/committees/senate/economics/affordable_housing_2013

    What if a group prepared a Petition aimed at exposing the antics of those influencing land pricing.
    That way the Senate Committee panel cannot publicly play dumb or make inane remarks in summing up.
    The petition would need to be cohesive and include is wrong (land release policy, taxation distortions, too easy credit) and also what is a better model, eg. see Prosper.org.au.

    Petition:
    http://www.aph.gov.au/Parliamentary_Business/Petitions/Senate_Petitions/petitions#samp
    “Individuals and organisations may seek to have petitions presented to the Senate. Petitions generally express views on matters of public policy and ask the Parliament to take – or in some cases, not to take – a particular course of action.”

    Petition would need to be submitted to public webspace in next couple of months.
    Any other ideas?

    • Good idea, abelsee. Anything that brings the bubble to the forefront is good but will anything be done about it? Eventually, maybe, but don’t expect anything to change straight away. Too many vested interests.

  5. Honest question for anyone here. So, as I understand it, piles of debt are being created basically out of thin air. Excess $ are flowing into property, art, stocks, etc. Is this a way for this to unravel in an orderly fashion? What does that look like? Are there any natural breaks on the debt creation? Is there a good precedent to look at (e.g., how relevant is Japan)?

    • avatar, I don’t know whether piles of debt are being created for art or even stocks, but the one thing that people leverage into is property. An orderly way to unravel it? I would have to say definitely no.

      Is there a precedent? You mention Japan and I’m no expert on Japan but the one thing they didn’t have at the height of their real estate boom was foreign investors outbidding locals. Now that foreigners have open slather on Australian properties, it’s a whole different ballgame to what we’ve ever had before.

      We don’t even know how many foreigners are buying residential property because the government won’t tell us, and in any case they are buying up a lot more established property through various means (they are only supposed to buy new).

      But I read in this article: http://www.brokernews.com.au/news/breaking-news/chinese-investment-grows-by-5000-local-investors-reenter-market-182312.aspx that in 2007 the amount of Chinese direct investment in commercial property was $17M. In 2013 it was $871M, an increase of 5,000%. Now this is commercial property only. Who knows the extent of residential investment?

      So at this point there is no unravelling. The government have found a way to prop up the bubble and to keep it growing, so they will allow as much foreign investment as needed to keep the bubble growing for a long time to come. For the same reason, we have the highest rate of immigration in the western world.

      The government is destroying any chance for ordinary Australians to get onto the property ladder without a big handout or without an enormous mortgage. By endlessly feeding this property monster, jobs are being lost, and businesses are suffering or closing down.

      Manufacturing is all but lost but hey, at least we have one of the most unaffordable housing markets in the world, so that’s something to be proud of, isn’t it? So if it ever unravels, I can’t see how it can be orderly. By then, too much damage will have been done.

      • I agree with all you say, but as Janet pointed out above, the problem seems to be global. Canada and NZ have very similar stories of foreign property investment (and they allow purchase of used homes as well as new) and very similar soaring prices and debt. Garth Turner is talking today about how to invest when there’s deflation:
        http://www.greaterfool.ca/2013/12/13/choices-6/#comments
        and the general chatter on that possibility seems to be increasing. I don’t want to believe we’re heading into another world wide great depression – thus my question of what does an orderly unwind actually look like?

      • I don’t think there is such a thing as an orderly unwind. Human psychology doesn’t work that way. What exactly are you envisaging with an orderly unwind?