Kohler: Triguboff symbolises what’s wrong with Australia

By Leith van Onselen

While his Business Spectator colleague, Robert Gottliebsen, continues to lobby the Government to support his billionaire mate, “Highrise” Harry Triguboff in a bid to stave off an apartment bust, Alan Kohler has penned a timely article today claiming that Triguboff’s rise to the richest person in Australia is a sign of what is wrong with the economy. From The Australian:

[Triguboff] also symbolises what’s wrong about Australia: debt… apartment approvals are now running at 10,000 per month, having risen over seven years from the long-term average of around 4,000 per month. That’s why Harry Triguboff is so rich.

Another thing has happened over those same seven years: Australia’s ratio of debt to GDP has taken off…

It turns out that the doubling of our terms of trade between 2000 and 2012, from 60 to 120, was a bubble, based on unsustainable Chinese demand pushing up commodity prices…

Happily a new bubble — apartments — has replaced that one…

China’s and Australia’s debt to GDP ratios are almost exactly the same, and close to the highest in the world…

Both of these debt mountains represent a danger for Australia.

…it would feel a bit more comfortable if Australia’s wealth was coming from competitive advantage rather than debt-funded apartments.

Well said Mr Kohler. The Australian economy’s so-called “rebalancing” is really just another bubble – a bubble in apartment construction, dwelling prices and private debt – which is not sustainable.

Worse, as noted by Houses & Holes yesterday, we are precariously placed “to be collateral damage in a gargantuan monetary fight between the world’s two super powers”.

Thus, like Gina Reinhart before him, Harry’s place atop the BRW Richlist is likely to be short-lived and will end as soon as the apartment bust arrives. Unfortunately, so too will Australia’s so-called economic “rebalancing”.

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  1. ‘to be collateral damage in a gargantuan monetary fight between the world’s two super powers’

    I’m afraid I didn’t quite grasp that the first time around. The US wants to strengthen their currency (inadvertently) and China wants to depreciate the yuan (albeit slowly). Where’s the fight exactly?

    • ResearchtimeMEMBER

      US will claim that China is manipulating its currency for advantage, and that will play into the narrative of rising US protectionism. And unlike the EU, the US can move quickly on this point.

      China on the other hand does want to lower its currency by at least 20-30% on a trade weighted basis. Problem is, a linkage to the USD means that as the US rises they will too. The other game China is engaged in is trying to destroy Japan economically. Recent subs decision as an example. It has to have a lower currency to under cut Japans high end manufacturing prowess. That works in two ways, it removes a geo-political competitor, moreover, it allows its own economy to transition, which they know they have to do.

      The current argument about China transitioning is only half the question, always concentrating on consumption – total bollocks. Labour slogans this election is an example, they call investment into education and health – but its not true… they are services with no real net economic outcome. China knows this, they want to provide additional services such as health and education, but they need a way to pay for it. High end manufacturing is a large part of that answer. But Germany and Japan stand in the way.

  2. Original John

    Well said UE, I flew back into Sydney yesterday morning, and the cranes are visible everywhere even in the gloomy rain. Sydney is selling itself as a “world city” but after being in Shanghai and HK on this trip and Osaka and Tokyo earlier in the year, Sydney has a long way to go before it be a world city. Right now, it resembles Bangkok or Jakarta, a large sprawling city with a constrained airport infrastructure acting as a gateway to a series of holiday destinations. Some nice points and areas, but infrastructure wise, miles from a world class city. My mother in-law in Shanghai has become so accustomed to public transport working, she takes the MTR and bus everywhere, even though we have a car and driver on call.

    Noticed yesterday a lot of excitement over the new approval figures that were released. Just remember, there a long time between approvals and completions. Development finance is still difficult to obtain and getting harder. Just look at the Greenland project in Sydney for example of how hard it is becoming to make the numbers stack up for existing approved projects…..

    • Jake GittesMEMBER

      Yep. The ‘world class’ epithet was always smug parochialism. Borrowing other people’s money to achieve such status is not going to last.

    • Sydney is nowhere near being a world city. It is an overgrown residential area.

      I have been a couple of times now, and I’m sure there are some lovely neighbourhoods for locals, but as a visitor I got the impression I had seen all there is to see after my second visit. Not a fan.

      • reusachtigeMEMBER

        I’m hoping that with all the developments going up Sydney eventually doubles of triples its population as this will increase things of interest to visit. Bigger cities always equals more stuff!

      • Sydney is a great city, for beaches, outdoor lifestyle, nature etc.. But it’s choked by poor infrastructure, congestion on the roads, the massive choke point from Sydney CBD -> Parramatta which is Parramatta Rd and getting out to the Western Suburbs.

        Not far from the city you can go North toward Gosford / Newcastle and see lots of nice scenery and do a lot of outdoor activities. Or go South to Wollongong or head to Canberra etc..

        Honestly lifestyle wise it is good and I’ve been to many places in Europe, North America, Asia, Middle East… It ranks pretty high on my list of places to live. Winter is very mild and summer is great.

        Sure it can’t compete in terms of opportunity / jobs / career, the lousy public transport sucks, Bondi and Eastern suburbs are overrated due to being over-priced and difficult to access and over-crowded on weekends etc..

        Sydney lacks good night life in terms of bands, creative types like artists which are being pushed out due to gentrification etc.. So it certainly has a lack of ‘cultural’ aspects – which is where Melbourne is a lot better than Sydney.

        But it certainly doesn’t have the same amount of things to do as say London, New York and rich culture of those cities. Still I’d rather live here than London or New York or even San Francisco (which has many homeless and a lot of traffic and congestion heading out to Palo Alto / Mountain View).

        Honestly I love Sydney, but I hate this bubble…Melbourne is where I grew up and I love aspects of Melbourne, but I hate it’s winters and I’m so sick of the AFL and Cricket…

      • Original John

        I can not argue with anything you said. I lived in NYC and Boston, Valencia for a short while and spend a lot of time in Barcelona, Paris and Brussels. I like Sydney because I can moar my boat up near Pittwater and enjoy being out in the magnificent scenery. But it is not a world city. It has many good features, nightlife and culture are not in this list though. It is all about compromises. I have the ability to travel extensively for extended periods through out the world and have called a number of cities home through the years. Right now Sydney is home, but arriving back in Sydney, I always feel I am coming to holiday destination, not a city focussed on business. I have my doubts that this bubble will burst in a meaningful way some days. There is just so much riding on the housing and construction bubbles. But in those moments, I remember 2007 in Valencia when I drove north to Barcelona – the sea of cranes and construction that was underway at this time to support a northern-European immigration surge. 8 years later on the reverse trip, the cranes might be gone, but the empty shells of started developments litter the landscape, and the volume of empty completed apartments was an eye-opener during the peak tourist season.

    • ceteris paribusMEMBER

      There is another perspective on a sunny Sydney around the harbour, gentlemen. Who would want “world class” when you can have a slice of paradise?

    • The one thing that Sydney has is better fresh air -while Shanghai air is likely to put you in hospital if you’re at all susceptible to the daily high air pollution. I got as sick as -after 3 weeks there in 2013 and needed medical attention in Malaysia of all places. – just saying — – -some things are free.

      • Original John

        Air quality this trip is much improved over 2013 and 14. Pop was telling me that Beijing air quality is a bit better also. Still, grey and miserable in Sydney today. Sydney does have OK air quality, but I wish it would drop the pretence of being a world city. I find it easier to get around in Tokyo or Paris than I do in Sydney. Public transport systems in both cities leave Sydney for dead, and the upper level and back street nightlife/cafe bars in both cities leave Sydney for dead. 1am lock out laws? Are you kidding me? In Seville, many clubs start at 1am….

      • AlbyManglesMEMBER

        the whole east coast of china is one giant cess pit, world city or not at least we can eat and drink without getting cancer

    • It’s just the smoke off his weekend BBQ’s on his face. Must be having lots of them too judging by those approval numbers.

  3. Were Australian companies wrong to invest in new iron ore infrastructure? Clearly there was a price bubble, but the majors at least always sort of new this and new that volume of demand, which they could supply at much lower cost, would remain at much higher levels. Meanwhile the Chinese and a few juniors elsewhere jumped in expecting sustained boom pricing and have paid the price for it.

    Likewise there looks to be an apartment price bubble, but it is Chinese developers now paying sky high prices for land, while most Australian developers have wound back their participation. But yes sadly there are still plenty of small Aussie investors buying up apartments. I guess someone’s got to be left holding the baby.

  4. Speaking of what’s wrong with the country, I heard a Sky News business commentator complain that our greedy government (his words) is unfairly taxing innocent foreign property buyers when all they’re trying to do is diversify their portfolio. No mention of the risk that this money poses to our already hot property market.

    These property spruikers are full-blown parasites. I almost threw my Weeties across the room listening to him.

    • surflessMEMBER

      Yes, well sky news is one of propaganda arms of dear uncle Rupert, along the same lines of Fox News. Do you like your subscription to foxtel?

      • “Do you like your subscription to foxtel?”

        What? Hell no! I listen to the free podcast. It’s good to know what the other side thinks.

      • surflessMEMBER

        Your correct, you do need to read and or watch the tabloid press to understand friends and colleagues who do only get their news from these sources. This enables you politely to counter their arguments with good reasoning.

  5. The scariest part for me was:

    “As Morgan Stanley pointed out a few days ago, while markets are concerned about China’s need for $6 of debt to create $1 of GDP, Australia is using $9 of debt for the same $1 of GDP growth — up from not much more than 1:1 just seven years ago.”

  6. The Patrician

    “Apartment billionaire Harry Triguboff was surprisingly candid at a lunch held by the American Chamber of Commerce last October. He told the audience he was able to pay “very little tax”. “I keep a lot of my properties. And if you keep them and there’s capital gain it’s beautiful,” he says “You don’t pay tax. I don’t lease them so I don’t pay tax on the rent, but I get depreciation.” He paid tax on apartment sales but that’s where the land banking came in. “You have to buy lots of empty land,” he said. “You keep the land and it brings you no income, so you claim it against your tax.”

    That’s what wrong with Australia

    • surflessMEMBER

      Corporate welfare is alive and well, allow the 1% to continue this long proven wrong theory of trickle down economics.

    • I’m sure Harry has worked very hard hard but I’d love to know how much of his wealth is a direct result of goverment policies etc, not to mention the amount for the top 10 given the fact nearly all of them are in industries that benefit from government policies.

    • BubbleyMEMBER

      I’d like to see compulsory development within 3-5 years of purchase on residential land.

      Stop the damn land banking.

  7. They could have mandated that 21% of new apartments must have double glazed windows – so that the quality of apartments is better.

    But no. Corruption boom to replace the coal boom!

  8. The Patrician

    A couple of questions for Harry.
    1. How many apartments do you own?
    2. How many are vacant?

    • desmodromicMEMBER

      A Dutch colleague once claimed that the coldest winter he experienced was the year he spent living in Cronulla whilst on sabbatical. Apparently the house had a constant gale screaming under the front door and the walls appeared to be made of sticks and cardboard. Or so he says!

      • Not just what he says, it is exactly what it is!

        Your forgot the frame made of matchsticks. We marvel. [edit] Oh no, you did mention this!

    • AlbyManglesMEMBER

      all my friends from Europe complain about the cold houses here – its pretty much a strayan thing to just ignore the winter for 3 months and then its warm again

      • … but then you have to crank up the aircon more than required if houses were properly built!

      • All the British and Irish backpackers we’ve employed where I work have made the same comment, they feel cold in the Sydney winter, even a Polish colleague says she feels cold in winter here.

        Having been in Europe in February, I can see what they mean, it might be cold outside, but the houses and buildings are all well heated and insulated.

      • I thought it was just me!
        Also the big fans in the bathrooms that don’t shut when off are where plenty of the heat goes in winter, mine spends the whole day splnning due to this.

    • PantoneMEMBER

      A good rule of thumb is never live in a dwelling that comes with air conditioning; you’ll need it.

    • My wife always complains about Australian houses and how poorly they’re constructed / insulated. She grew up in the North East of the US and is used to much harder winters than Sydney will ever see but she still expects the internal House temperature to be kept somewhat constant at 72F. The last house we rented in Sydney was definitely up market Executive living but it was still impossible to keep warm. If you burnt enough gas and locked all the doors you could get one room warm but you could never get the whole house anything like warm. My wife hated the experience, I grew up in Sydney so I just sort of accept it, sucks but it’s the way it is. The real joke for me is that I have relatives (vote Green party) that’ll tell me what an environmental nightmare I’m creating by keeping my house so warm in winter. The joke is that they burn more gas to keep their smaller house barely a couple of degrees C above external temperatures.
      Aussie Construction standards are a bad joke!

      • Sheeshh New Zealand property …Wellington houses are made of wood and stand up to fierce cold winds. Most houses are not insulated at all, especially rental properties. The fierce cold wind whistles right through them and the occupants.
        NZ is finally coming up with a building ‘warrant of fitness’. If your house has more than an A4 size of wall (collectively) that is covered in mildew then it is not fit for rental. I think the Dept of Health is getting sick of paying for asthma (pun int)

    • One of my favourite critiques of Australian housing, specifically the dominant brick veneer style of construction, is, from an efficiency viewpoint, they are built inside out. The bricks should be on the inside to provide thermal stability, and be clad with an insulating layer of lightweight material. (maybe not gyprock though). Instead it’s all about the superficial appearance of the solidity of bricks on the outside.

  9. I don’t think Australia is going to become a ‘competitive’ economy any time soon. Once the ‘economic readjustment’ takes place there will not be much left. The current ‘innovation’ initiative is a complete joke and will do little. It will probably contribute to the erosion of what little competitiveness the Australian economy has left.

  10. Just out of interest: What industry / activity expansion would you classify as Good Growth as opposed to the Bad “bubble” Growth that we’re witnessing?
    Would good growth include:
    More exported financial services (hint dont dig too deep into that cess pool, from my limited experience dont even step into it without your fishing waders on)
    More educational services (cough cough PR)
    More 457’s or other immigration
    More CSG wells and LNG plants
    More Iron ore or Coal Mines
    More heavy manufacturing (naturally also with more air/water pollution by product)
    More light manufacturing
    More agriculture (along with reduced water quality in our inland rivers and reduced water tables)More tourism

    I see lots of people suggesting that Australia can grow its “Knowledge economy” but to be honest Education (lack there of) is the biggest fundamental barrier to us achieving this goal and on this score the trend is definitely not your friend.

    So realistically speaking which industries / sectors should Australia be trying to grow? Is there any consensus on this issue?

    • I’m all for the nuclear dumping ground, as long as we get paid properly for it, do the research and get it right. For the highly radioactive waste we could look at transforming the isotopes (see Silex technology). It’s something that Australia geologically, and from the security side, is suited too.

      We are excellent at medical research. CSL is a world class company. Cochlear is an excellent example of university research transitioning to an excellent product. We need the ideas and research that we have to be commercialised in Australia.

  11. Harry’s contribution was to build thousands of cage housing units, owned by Chinese criminals to house some of the 2.4 million migrant guestworkers in the subletting bunk share racket.
    Mascot Square is a case study.