Some free advice for a property billionaire

From Domainfax:

Adelaide billionaire Con Makris has a simple message for investors looking for an edge: Don’t trust the sharemarket, and the “paper money” on which it is built.

Makris, who came to Australia as a 16-year-old from Greece, has built up a property empire worth more than $1 billion which puts him at No.47 on the BRW Rich 200 list. He says he closely adheres to the fundamentals of investing in bricks and mortar in the right locations, and picking trends that will ensure the values of those commercial properties and shopping centres continue to rise.

But he steers clear of the sharemarket, which he says is becoming even more volatile in part because of the increasingly complex world of derivatives, hedge fund trading and short selling, which exacerbates the extreme fluctuations and can mean that vast amounts of sharemarket wealth on paper can go up in smoke in a short space of time.

…”Nobody loses on land.”

God ain’t makin’ any more of it after all. But folks do lose on land sometimes, Con:

After the Melbourne land bubble in the 1880s it took 70 years to recover your money. Property is also “paper money”.

You’ve prospered on the back of the greatest land bubble in Australian history, Con.  Cash out now. Some enterprising Chinese firm or Canadian pension fund will massively overpay for your malls!

Comments

  1. ResearchtimeMEMBER

    Sage advice – which no one will heed of course.

    Or better still, tell him to follow these guys, getting out at the very top – The end for Britain’s biggest landlord marks the start of the great buy-to-let sell-off (http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12046604/The-end-for-Britains-biggest-landlord-marks-the-start-of-the-great-buy-to-let-sell-off.html) – interesting tidbit, getting out because the UK government have changed the law which discourages individuals from investing and becoming landlords, but encourages corporations to own the houses. This is the case throughout Europe, and I have no idea why. Its a dangerous move IMHO!

  2. I share this guy’s concerns about market volatility. Maybe if I knew more about market analysis and spent more time on it it would make more sense, but right now the ASX200 seems to shoot up and down without any degree of predictability…at least for someone like me. It’s gone from around 5250 to 4900 and back to 5100 since the start of December with wild intra-day gyrations, and that sort of volatility is very disturbing to me. Sometimes I wish I was Chris Becker so I could figger this out. 🙂

    Anyway, this volatility makes me think that the market is not acting as a market and a means for providing money to productive enterprises. Rather, it seems to be acting as a means for smart people to game the system with their algorithms and insider knowledge so that they can fleece people like me, so I’m avoiding it right now.

    • Sharemarket investment is not about daily or weekly ups and downs. Traders and Hedgers are no more than gamblers. Investing is and always will be about backing companies that can grow and pay an increasing flow of franked dividends which can be then further reinvested. Have a look at long term performance of our Future Fund amongst many others.

      • Lots of long term m&ds holding TLS, NCM, BHP, RIO etc. I guess the tune will be nuanced a bit…only professionals (like the sell side managing those super funds lol)

    • “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” Benjamin Graham…

      Money printing and all of the other central bank shenanigans have increased the short run volatility of the voting electorate, but that does not change the long run- just see it as opening the potential for greater long term gains…

      For example, saw the other day that this calendar year is the worst for Berkshire Hathaway relative to the S&P since 1999… (Then Buffet – Ben Graham’s most notable student – and Munger were seen as old and out of touch with technology and the “modern” investing environment)… We all know what happened soon after, and over the next 10 years their outperformance continued nicely… (Disclosure: am invested in Berkshire Hathaway through my SMSF – in fact, recently increased our position 🙂 )

      • There is no money printing Brett, unless you want to ascribe that activity to equities…

        You have to look at the M series to see if its expanding.

      • There may be little printing of paper/plastic notes, however I understand that money is being created at a great rate.
        In the old days there might have been 100 pounds in circulation for every worker and something like a house cost 1000 pounds. Now a house costs 1,000,000 dollars so it is reasonable to figure that 100,000 dollars of money exists for each worker IN SOME FORM OR ANOTHER.
        Even if you compensate for the housing shortage and every woman working, you still might get 25,000 dollars of money for each worker. Going from 100 to 25,000 is a hell of a lot of money printing (I mean creation).

    • Increased volatility is actually a good thing as it throws up more opportunities to buy good assets at cheap prices. Though on some days it certainly doesn’t feel like a good thing!

    • Hi LSWCHP
      The Bear lives to destroy all those involved in the sharemarket.
      Those big up days in the market are designed by the Bear to maul the ‘shorts’.
      The Bear can’t ruin everyone without volatility.

  3. I love the way land speculation is treated as a social good by domainfax, all those debt slaves and rent peons, they are the ones that funded this. I am constantly amazed that the other side of the ledger is not seriously seriously p8ssed off.

    It’s like the wide ones sucking down the fat-free yoghurt with 20 teaspoons of sugar a tub … There appears to be no desire to understand.

  4. Reflecting this there was a bloke in the coffee shop this morning talking about how he wished he’d snapped up houses in Northcote and around 20 years ago when you could get them for sod all. Now this indeed is a true statement, but fast forward to today and what would the equivalent opportunity be? Snap up properties in Laverton, or Werribee or wherever at 500k a pop? Or how about around where I live in SE Melb, buy up units at 800k a pop. Easy way to lose all your money.

    This experience was a one-off which will not and cannot be repeated. And may be undone to a large degree over the next couple decades.

    Melbourne is not London with its ability to continually create wealth and high-paying jobs which can underpin ever-expanding gentrification.

    • How long can extreme monetary policy juice asset prices – that’s the question. Interestingly, the facts are starting to show negative rates acting as a tax on banks – ie they ain’t working!

      • .. and what happens when they lose effectiveness? Does it all unwind?

        Just in the last 9 months in my Chinese-favoured area, block of land has gone from 800k to 1.3m back to 1.1m.

      • Small quibble aj… monetary policy is not juicing asset prices, that, is what market players are choosing to do with it e.g. pay themselves.

        Skippy… there are other options imo… its sort of like watching the waiter feed Mister Creosote a mint…

      • I’d disagree skip, the main point of monetary policy over the post Greenspan era has been to outrun asset price deflation and keep the banks solvent. The rest is just flow-on…

      • The under weighed risk had a floor put under it, after that basil buttressing, yet the fed does not dictate what entity’s do, that’s congresses job and to reiterate…. the problem has always been congress… it has the constitutional power… not the Fed.

        Skippy… but yeah its an ideological stocked pond of quasi religious ideologues…

      • Yes, the central banks are just a political tool. The perception of independence makes for easy political policy…

      • How long can extreme monetary policy juice asset prices

        Good question. Extreme monetary policy seems to juice asset prices up until hyperinflation is obvious to all and there is a final and total catastrophe of the currency system involved.

      • Claw when will you bimetallism sorts figure out hyperinflation is not what you think it is, that there are more dynamic factors involved than money or ideological wankery…

        Skippy…. not to mention most of your stripe think propaganda is academically sound methodology…

      • The thing I find most interesting about extreme monetary policy is that the top 1% now owns a larger percentage of total assets than they did before the monetary easing. This basically continues and unbroken a trend that one can trace all the way back to the 70’s, simply put the rich are getting richer.
        Now personally I dont have a problem with this outcome but I do sometimes wonder what the other 99% will do when they finally figure out what’s been happening…I get the feeling that ISIS isn’t really about religious fundamentalism it’s really just about inequality (not to suggest there is anything equal or egalitarian about ISIS)
        Now remind me again, how high are those fences around that new gated compound?

      • Bob like I said… the Fed does not have the Congressional powers nor afforded the rights to influence distribution, its charter is very narrow and after the Greenspan reign kinda foo’ked.

        Skippy…. how do you unwind and mitigate decades of crazy ideological driven policy agency since Rubinomics. Sure those with the most finical assets reap untold wealth, but as all of it is paper driven without nary a sound industrial or service invested in to put a foundation under it, wellie, stay away from tall buildings with windows.

      • @CB – Monsieur Piketty made that very point (re ISIS) a couple of weeks ago….dropped like a stone. The West has no interest whatsoever in examining how our non-military intervention in the Middle East has impacted people. Keep it simple….clash of civilisations…blah blah blah…

      • CB,
        As I see it, monetary policy and wealth inequality works in the opposite direction.
        ie. a period of loose money reduces wealth inequality – eg. the high inflation policies of late 60’s early 70’s.
        and a period of tight money increases wealth inequality – and that is what it has been since Volcker raised the federal funds rate above 20% in 1981.

    • That was then, this is now. In case you haven’t noticed Australia has changed a massive amount in this timeframe. Expecting history to just repeat in such cases would be a mistake in my view. I expect we will be seeing significant examples of Urban Blight in Australia in the not too distant future and some forms of blockbusting and redlining (you can outlaw these things but if you look at the US you can’t really stop them happening, RE agents, buyers and sellers just become much more nuanced about the way they do it). These are things we haven’t really seen in Australia before to any great extent.

  5. The rub is lawful rights, equity is a residual claim on notional price units which has next to no rights unless one has a significant share thereof, tho they are highly liquid. Where as physical ownership has much more robust rights and a much longer history in common law, public perception.

    Skippy…. Hay even Engels was blindsided by the offer…. tho jurisprudence has watered it down and ephemeral nature due to profit taking for the club… some call it fundamentals…

  6. The old sharemarket volatility getting worse canard from the real estate industry.

    Drop the last 30 yearly ASX charts on top of each other and you won’t see much difference in terms of gyrations.

  7. Put it this way, my neighbor is selling and up sizing due to family needs. They are quite aware of the nascent factors in price and funding dramas, tho are in it for the long run [30Y] and are not done in the head over price fluctuation.

    • At a practical that’s still about certainty of income, and interest rate fluctuations. A good career and income can ride the waves for sure, the problem is those ranks are thinning…

  8. So we have to go back 130 years to find an example of someone who lost on property (aggregate data) over the long term… and even then it’s only in real terms. The high inflation of the early 1900s may have softened the blow for them in nominal terms.

    His comments are one-eyed, but you’d have to expect that from someone who has lived their entire life and built an empire around property like he has.

    • Looks like you would have done pretty badly buying in the early to mid ’50s, if you were only able to hold for a couple of decades, and ditto if you bought at the wrong time in the ’70s

      And, of course, during the period(s) where the market in aggregate was going sideways for a protracted period, you needed to choose the right property and pay the right price for it to end up ahead.

    • I know some people who lost out quite badly on property when they needed to sell in the early nineties after they paid top dollar in the late 80s.

  9. He might be right. The big foreign owned banks are still largely in charge of asset price inflation in Australia. To what ever class of asset and where ever they direct money you will find the price of those assets going up as money is lent by the big banks, mostly using funds offshore, to willing investors and home buyers. And with lots of superannuation money moving out of other investments (like shares) and into property he might be right.

    Successive governments have regulated to create FIRE as the preferred asset classes and have done this at the expense of industry and manufacturing.

    • Correct, and most underestimate the market control they have on prices. Even in a downturn they can just sell into a SPV and protect their balance sheet.

      Debt and housing go together now, and it won’t be improving any time soon.

    • “He might be right.”

      He might be right or he might not be. One thing is for sure, over the next few years the property market is going to get tested like it hasn’t been for many, many years (if ever).

      • Agree. And the results will be far from uniform. In the short term I expect some areas to do very badly, many to go not so well, some others to hold and some to keep powering on…

  10. Con obviously hasn’t spent too much of his hard earned billions on travelling or reading. Then again, he is talking out of his arse.

    While I tip my hat to the bloke for making a quid, you only have to go through his portfolio to see how “you never lose on land” is bullshit.

    http://www.makris.com.au/property-portfolio/

    Oracle at Broadbeach went bust on settlement and ended up being vended via the carcass of HBOS (from memory) to a Morgan Stanley led syndicate for about 30c in the $. It says Con picked it up in 2014 – he would be the fourth punter to have a go at it I estimate. Wonderful place to rent a sub penthouse for a party, btw.

    Marina Mirage has a history of battered investors too who thought “you never lose on land”. Developed by none other than Christopher Skase in the early ’90s. A recession made the tagline “too good to be true” rather relevant.

    It will be interesting to see Con’s wealth perform through the next recession. The fact he has been buying in recent years makes me wonder.

    I’d love to see his debt levels against those assets – anything more that 40% and I’d like to short him.

    Lang Walker on the other hand – now that is a guy who knows what he is doing.

    • A rather lengthy list of aussie “enterpreneurs” can swear black and blue that you definitely CAN lose on land and severely so. If you want further proof, wait a year or two to see what happens to the throng of apartments currently built almost everywhere, that will never be sold even at substantial discounts. The only lot getting rich will be “insolvency practitioners”.

    • If you wanted to learn about the world by reading and/or travelling you wouldn’t become a billionaire – too much time wasted NOT reading and/or travelling.

    • Every time I go into Marina Mirage I scratch my head wondering how it makes any money. Boutique shops with 5 items in them, vacancies left right and centre, high upkeep costs directly on the salt water. He’s probably talking it all up in advance of offloading.

    • If I understand this right, UK also allows tax deductions on mortgage repayments I.e. Negative gearing

      Negative gearing is the offset of expenses against unrelated income. Eg: investment property mortgage interest against salary income.

      • “Negative gearing is the offset of expenses against unrelated income”

        I don’t think that’s strictly true, but it’s what makes “negative gearing” in the Australian context unique and such a good tax loop hole.

      • I don’t think that’s strictly true, but it’s what makes “negative gearing” in the Australian context unique and such a good tax loop hole.

        I don’t know if the term is used elsewhere, but in Australia that’s almost always what people mean when they say “negative gearing”. The only time I’ve seen it NOT used with that meaning is people trying to be disingenuous and suggest that “stop negative gearing” means “stop any ability to claim expenses against income”.

      • @drsmithy

        Exactly, the only time negative gearing is used in that context is when the NG defenders try to blow smoke at our eyes.

    • Also remove the CGT discount and the CGT exemption for the home. And implement land tax reform. That should remove this form of unproductive malinvestment and help people direct their efforts and investments towards more productive enterprises.

  11. “a property empire worth more than $1 billion”
    Cool!
    But how much debt has he got? What’s his net paper worth?
    (NB: Let’s all remember that clever investor person on “Sunrise’ whose answer to that same question was “None”, to which the interviewer asked “But what about the mortgages against all your properties? How much debt is that?” to which we got that fabulous quote:
    Mortgages aren’t debt! Everyone has those”

    • They say insolvency experts will be making out like bandits in the next crunch, but your average Psych will do pretty good with the need to brainwash so many back to reality.

      • Shrinks are gonna make a mozza prescribing SSRIs and suicide counselling to all of the terminally depressed folks who’ve blown their dough buying at or near the peak in the Sydney property bubble. Not to mention those who’ve seen their “wealth” increase massively then revert to what it was due to not unloading at the peak.

  12. “After the Melbourne land bubble in the 1880s it took 70 years to recover your money. Property is also “paper money”.”

    Yes, but is there any analysis to show how the property owners fared relatively to non property owners at the time and after during the long suffering “recovery”.

  13. Wow.. the accompanying video “How to help your kids become homeowners” reaches new levels of desperate douchebaggery, even for DomainFax.

  14. It’s certainly an interesting problem, Assuming he has $1B equity distributed across an RE portfolio which he somewhat understands.
    Does risk increase or decrease for a given target return under any other portfolio allocation model?
    At least bricks and Mortar has risks that are simple to understand, Technology on the other hand is globally exposed to risks that are invisible to the casual investor. Think about how secure Nokia was in the 2000 till 2007 period….they were rock solid with 53% (may even have been higher) of the global cell phone market ..they owned the high end market outside the US and had great product structuring targeting all markets segments with true global reach and fantastic growth in all the BRIC markets. Today I wouldn’t give you a thank you for all Nokia’s cell phone business. Sure it was obvious to industry insiders that all was not well at Nokia maybe as far back as 2004 but by 2010 nobody could deny it ….the wheels had fallen off and the engine was in pieces. But the question is how any outsider is supposed to know this?
    Personally I suspect the entire Aussie sharemarket is very over valued IF Sydney real estate takes a hair-cut, if I were him I’d probably talk up my assets and somewhat deleverage freeing some cash so that in the future I could buy back exactly those strong RE assets that I understand…Somewhat like Kerry Packer wrt channel Nine.
    As for the idea I sell everything I understand and buy something that I’m unfamiliar with right at the point of maximum volatility ahhh yea I’ve got a place for that advice…now where’s the paper?

  15. I often see Con Makris in City Cross Food Court in the Adelaide CBD strutting around like he owns the joint (he does). Interesting to watch the foot traffic through the food court over the last 9 years since it opened. Noticeable drop off in people buying lunch from a few years ago. Out of about 15 food stalls each year 3 or 4 close. The yiros joint that had been there since opening recently shut. The Greek owner once told me she wasn’t looking forward to a long weekend because the rent was so high that one day of lost revenue was bad.

    I was thinking to myself the other day that this guy has no idea what is coming. Been doing great in the good times but completely disconnected from the reality of job losses in Adelaide CBD (BHP across the street, Santos 2 blocks away).

  16. Is this Con Makris fella’s alter ego really Reusa? Certainly looks like a good looking bloke who knows property is a sound investment.

  17. In 1932 the Hoover government expanded the supply of paper money(currency in circulation) by 49%, interest rates going down to zero.
    It didn’t work…Bernanke’s thesis was that they didn’t do it for long enough but after 7 years?…it still doesn’t work.
    Policymakers still do not realise that the current deflation is the predictable consequence of previous inflationary debauchery in credit and currency creation.
    These clowns will soon reverse the recent interest rate increase and eventually go to negative interest rates, causing further increases in asset prices until it all blows sky high.
    When everyone realises that there is no safe place to go except government bonds at negative interest rates, then you know we are getting close to the end.
    Then governments will finally get their inflation, making government bonds worthless by maturity date…what a mess.

    • And here is an article that kind of sums up why rents are so high

      https://au.news.yahoo.com/a/30426061/teen-injured-saving-father-in-night-of-sydney-blazes/

      At Granville, residents could be heard shouting as fire ripped through a house on Florrie Street.
      Residents look on as firefighters battle a blaze in Granville. Photo: Screenshot/ 7 News

      The blaze started at the rear of the share-house, home to seven boarders.

      They all made it out, thanks to the heroic efforts of one tenant, who alerted everyone inside then saved a man who was asleep.

    • The only renters in this country that are valued are Rent Seekers. And unfortunately this country is breeding them like bloody flies…

  18. What a moron.
    If you bought a long duration bond in 1981 and maintained the duration until today, bonds have far outperformed housing.
    And the only reason housing has performed (albeit not as well as people think) is because bonds (a paper asset) has performed. Housing is largely a derivative of bonds. Con Makris should send a Christmas card to “paper money” because it’s the sole reason for his wealth.

    • Yes the capital gains received from the falling interest rate structure have been amazing but they have been the cause of the deflation.
      Anyone with a gift for wisdom would not seek the answer in bonds at the zero bound or at negative interest rates which is the position of the world in 2015, 34 years since Volker increased the Fed Funds Rate to 19% and the 20-year bond at 15.78% yield.
      Buying the bond today when we know that central banks are desperate to have inflation devalue the bond at maturity is not at all attractive.

      • But the same argument can be made for housing. If the 34 year bond bull market is over, then the housing bubble is well and truly over. People like Makris don’t realise how serendipitous their bets have been. Personally I think housing will burst first, it has in every other country.

      • I remember talking to friends one lunchtime in town about the size of mortgages, house prices and interest rates.

        We agreed that if interest rates went up 1% everyone owning a house would be screwed. Those with mortgages more – so.

        That was in late 2001 early 2002 (sometime in summer).

        So we (as young men) knew the state of the game.

        Makris and the elite new the state of play better and for longer.

        I tend to agree that the party is almost over. But exactly when I cannot say.

        I just can’t believe there was a lot of unrealised serendipity for the mega elite.

        Also, I’m sure they analysed population growth and tax changes etc etc

      • If you asked him he would probably say he bought in high yielding areas, made good deals etc. etc.
        And that explains maybe 10% of his success.
        The other 90% (which wouldn’t even get a mention) is the bond bull market. And there is no way he could have expected it either, because the bond market didn’t even expect it. Big increases in bond prices year after year for 34 years is an admission that the market screwed up its forecast for interest rates (overestimated) for the following 20/30 years year after year. Anybody holding a long duration asset with a stable cash flow was gifted an unexpected gain. That’s the serendipitous part they never admit. Negative gearing etc. was all priced in; so while it partly explains high prices, it can’t explain the spectacular CG’s (although CGT discount was a bonanza for anyone with inside knowledge).

      • Dunno Sweeper.

        I’m not in finance and could see interest rates not increasing too much after 2001. (Your bonds not being priced low).

        After that time I learned more about the mining boom and how taxes were lowered and benefits were handed out.

        I then learned after 2008 about stimulus.

        I reckon Makris can say what he likes (and yes his 10% effort in buying wisely and gentrification of areas is all him) but I’m sure he had good advice about future trends in finance, tax and population.

        In fact when I started working as a commercial manager I was all over population statistics and finance – and I was not part of the elite.

        I’m sure these guys and their tenants don’t organise new builds unless they think there’s a demand and a decent return.

      • Yeah Sweeper,
        I agree about house prices, but you can understand that central banks will desperately hold interest rates down so that governments can afford their exorbitant deficit spending and sovereign debt.
        None of it makes common sense and none of it is pretty…History will judge the period as though we were all a bunch of morons…living it is another story.
        Good luck to our future survival.