From an apoplectic Gotti today:
If the current dramatic decline in Chinese apartment buying continues, in the absence of some other offsetting factor, it could easily lead to a recession in Australia. Australian bank profits are not in the front line of vulnerability but they will be hit.
The Chinese have been wonderful borrowers but the questions we ask on the bank lending forms do not correspond with the way they make their money, so, in the past, many bank loan executives have encouraged them to answer questions about their income sources with what are at best half-truths.
The lower levels are now being used in bank valuations for a “60 per cent of valuation” loan. Accordingly, bank loans are now often down to a small fraction of the purchase price ..we have effectively blocked them completing the purchase…Accordingly, vast numbers of Chinese purchases are in danger of lapsing. If that happens, it will send property developers to the wall. They are funded to about 50 per cent of the cost of building an Australian apartment block by banks and the balance by second mortgage lenders — some of whom get their money from banks.
Unsecured suppliers who borrow from banks also fund developers.
The great danger is that, in about 18 months, parts of the Australian building industry will be drowning in a sea of red ink. And the blame can be laid squarely on APRA and the banks that backed the developers but then turned their backs on the developers’ customers. These are kindergarten errors by our banks.
Gotti, it was a bubble based on corruption and money laundering. Such things come apart and should. As we’ve said many times, if you try to lie your way to prosperity eventually you’ll get found out.
As it busts, interest rates and the dollar will fall and we’ll the post-boom adjustment we needed all along: higher competitiveness, productivity, innovation and hard work leading the recovery.
