The Business does the coming property correction

By Leith van Onselen

In the wake of Standard & Poors (S&P) downgrading of 23 smaller banks because of an “increased risk of a sharp correction in property prices”, ABC’s The Business ran an interesting segment last night examining the potential fallout.

The most interesting guest was Chinese real estate agent, Ming Li, who specialises in selling Melbourne properties to Chinese investors.

Li claims that Chinese buyers are losing interest in Melbourne apartments due to the pending oversupply and the lack of capital growth. Li also claims that 80% of Chinese off-the-plan buyers may not be able to settle their Melbourne apartments due to, among other things, capital restrictions in China and the unwillingness of Australian banks to lend.

The segment also features LF Economics’ Phil Soos describing the bubble, as well as BIS Oxford Economics’ Angie Zigomanis, who acknowledges the oversupply but claims that the broader Melbourne and Sydney markets’ prices are based-up by ‘fundamentals’.

Worth a watch.

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Comments

  1. last comments by the chinaman are ominous – highlights the stupidity of giving away visas for a free education in the schools that our taxes pay for

    • Expect the government to step in to keep the bubble going. Expect
      1.mortgages to be paid by pre-tax money
      2. first home buyer exemptions on stamp duty and,
      3. more immigration, through more students and “skilled” migrants.

      Our pollies own too many investment properties themselves to let prices fall.

      • +1. Hence the further opening of the immigration floodgates recently and the continued blind eye on money laundering from Asia….

        https://www.domain.com.au/news/developer-demolishes-kew-mansion-advertises-block-for-almost-double-the-price-20170524-gwc40z/

        ‘The developers who paid $9.6 million to bulldoze a stunning Federation house in one of Melbourne’s most valuable streets have put the dusty vacant block back on the market – sans mansion – for almost double what they paid for it two years ago.

        Hong He and Yuhan He purchased 9-11 Edward Street, Kew for $9.6 million from Hawthorn Football Club president Andrew Newbold and his wife, Sarah, in May 2015, public land titles show. The Hes this week listed the empty 2700-square metre block for sale at $17.5 million.’

        They’ll ‘find’ a buyer for it.

        Edit: As per Jacob’s post below.

      • “1.mortgages to be paid by pre-tax money
        2. first home buyer exemptions on stamp duty and,”
        Remember – construction is slowing. This means unemployment will start going up. There will be no pre-tax money if people don’t work. Nor First Home buyers if no jobs.

      • BrentonMEMBER

        1.mortgages to be paid by pre-tax money
        Oh aye, everyone use their mortgage payments as a tax write off…lunacy

        2. first home buyer exemptions on stamp duty and,
        People getting their foot in the door is only a tiny part of the problem now, it is servicing Mt Vesuvius levels of debt that is the real problem.

        3. more immigration, through more students and “skilled” migrants.
        Again, the problem is servicing the debt. Capital controls and lending tightening bleed out the effectiveness of this strategy.

      • HadronCollision

        yes please to number 1.
        you can pre tax your car

        Some time ago I was working for a health NGO and could pre tax up to $600 a fortnight for my mortgage.

        would love to know how many people are doing it and what the impact would be to budget.

        seems a good idea, maybe capped to the median house price for your postcode or uncapped, whatever makes sense and is fair

      • BrentonMEMBER

        @Hadron, it is the dumbest idea I’ve read on this website, or anywhere else for that matter.

        The last thing Australian housing needs, or the Australian budget for that matter, is more tax interference. If anything, there should be a roll back of existing tax relief measures (NG CGT discount) and taxes ADDED (aka a land tax), to quell sentiment.

        Housing needs to reset to sustainable levels, THE END.

      • kiwikarynMEMBER

        Cant blame the Chinese for demolishing homes – that’s the rules the Govt made. They can only buy established housing for the purposes of redevelopment, so they buy houses and knock them down. Then they are supposed to sell them when they leave the country, so they put them back on the market at twice the price. All within the stupid rules. We will end up soon with whole streets of vacant lots and derelict homes unlived in while their council consents get “processed”.

      • Very sensible Brenton but most economies allow interest to be deducted from their pre tax in Australia we allow just for investors. So its not that dumb an idea to bring it to level playing field.

    • billygoatMEMBER

      What would Ming Lee know? Chinese do not buy enough property in Australia to impact house prices regardless of whether or not they are willing and able to pay 10% more than Australian counterparts (house buyers.)
      Potential racist – hardly worth quoting or the air time!

      • Exactly foreign buyers are NOT to blame for current house prices. Domain said so.

      • kiwikarynMEMBER

        Exactly. Just like foreign buyers only bought 3% of NZ housing, despite the auction rooms being full of them. Conveniently ignoring the daigou trade in house buying where temporary residents buy for overseas relatives.

  2. We have lost this due to the bubble and mass immigration:

    “paid $9.6 million for 9-11 Edward Street in Kew and ripped it down, after a last-ditch bid for heritage protection was knocked back.”

    “The flattened home had undergone a full renovation by Mrs Newbold, an interior designer, including the restoration of its many period features such as its stately facade.”

    https://www.domain.com.au/news/developer-demolishes-kew-mansion-advertises-block-for-almost-double-the-price-20170524-gwc40z/

    What a disgusting act by Labor and possibly foreign buyers.

    • AlbyManglesMEMBER

      the after picture makes me think they wanted the block to look more like home

      • Didn’t they fiddle with the restrictions on foreign buyers? The answers lay back in time. Or we could just have another fiddle. Pre fiddling hasn’t necessarily precluded further fiddling in government policy. I mean most of it is just selling the family jewels and increasing external debt in the first place.

    • Utterly disgraceful and unfortunately all too common in sydney and melbourne inner city areas. When architectural and historically valuable homes are allowed to be flattened by greedy Chinese and their local political arselickers. All in the name of pandering to more chinese wannabe wealth flaunters with their bad tastes. When things like this happens then you know how badly this country is selling its soul and erasing its history

      • Ha ha ha. What a frickin’ disgrace.

        Get used to it Straya.

        @Alby LOL. But not quite – needs some more piles of garbage. Plus – remove those ugly trees and shrubs and get some cement poured.

      • DominicMEMBER

        I’m not saying a I disagree but aren’t all architecturally important buildings “listed” these days?

      • billygoatMEMBER

        ‘Local political arse lickers’
        Ha Ha Thanks for laugh Barry. Great turn of phrase & appropriate for local, state & federal government, councils, property agents, banks, lawyers, architects, planners & vendors etc. Does soap remove the taste of sh$t from ones mouth? Curious?

      • You forgot local parasitic developers. They make the news way more than the Chinese developers.

    • kiwikarynMEMBER

      Cant blame the Chinese for demolishing homes – that’s the rules the Govt made. They can only buy established housing for the purposes of redevelopment, so they buy houses and knock them down. Then they are supposed to sell them when they leave the country, so they put them back on the market at twice the price. All within the stupid rules. We will end up soon with whole streets of vacant lots and derelict homes unlived in while their council consents get “processed”.

    • ‘Disgusting’? Care to elaborate? Similar language could have been used generations ago to describe the same in East St. Kilda and Caulfield generations ago, and Kew too? The latter suburb has been transforming for over generations aka apartments on housing blocks, but used to be mostly well off Australian or British, so that was all right then, but not now?

  3. “5000 apartments”.

    If only a law was created to say that no more than 10% of new apartments can be smaller than 50 sqm.

  4. StephenMEMBER

    Why on earth would our banks lend to foreigners to help them settle on these things? I mean there is risk everywhere in this underwritten by the Aus taxpayer. Capital loss, default risk, building standards, bullshit loan applications, inability to track down individuals overseas, and on and on. If they are telying on foreigners to settle who can’t then they simply need to relist on the local market – and take the fkn losses

    • The Penske FileMEMBER

      Because they’re sitting on the development finance and want some money back. I hear Westpac are sitting on a big one in Sydney of some 200 apartments. At least passing it on to someone else gives them a chance.

    • Kouk is another Laborite. How they still get the caring party status is beyond me. Just feral people. Except for Ermington.

    • Well bugger me. I never thought I’d see the day when that knob would recognise that house prices might fall. He still seems to think that would be a terrible idea though, rather than the best thing that could happen to the country.

  5. I’ve been hearing about this settlement crisis for a long time now. When is it supposed to come exactly?

    • You aren’t supposed to question this

      You are supposed to tow the MB party line

      You know the stuff about how the Chinese can’t get money out of China and our market will collapse, also that one about how gross rental yields are down and everyone will die

      Just nod your head and go along with it

  6. There is talk coming from the Treasury that there is now a confirmed plunge in the number of foreign buyer applications for Australian property purchases. There will a more than 60% drop! Down to only 15k vs 40k the previous financial year!

    • They have stopped bothering to apply for approval after they saw how the dust settled after they Kelly O’Liar inquiry and crackdown. They had a LOL, hocked back a big loogie and spat on the sidewalk then proceeded to call Blackdiamondz to source them a good Australian property.

      • reusachtigeMEMBER

        This is the real truth! The Chinamen are investing in our houses more than ever. They just don’t need to bother with our silly regulations. Did you see the hot chinamen ladies on channel 7s Sunday show? I’m seeing more and more of them at the relations parties. They bring diamond studded toys. Now that’s hardcore!


      • They bring diamond studded toys

        They’ve been had – silicone parts are made for toys.

      • billygoatMEMBER

        @ Peachy GOLD
        I saw a guy do this very same thing outside Bernasconis Cafe in Rose Bay/Bellevue Hill NSW about 16 months ago. Astonishing to see a man in shiny, bespoke suit gob one out in that posh little strip of shops.

      • Have you checked the children?

        The call is coming from inside the house..

        They are already here and don’t need to get FIRB approval

  7. TailorTrashMEMBER

    I like this story …..”jobs and growth ” getting in the way of defense …..but then who needs to bother about defending Straya when you can can get rich selling it ………..
    …………http://ab.co/2rVgtrK

      • Nah, that’s nothing. 50% rise in listing constitutes “explosion”? Pffft. Get real. What would Garth call a 500% rise then?

      • BrentonMEMBER

        No, you’re right, a precipitous 50% increase in listings, coupled with a 16% decline in sales can only signal boom times ahead!

    • reusachtigeMEMBER

      LOLOLOL!!! That’s just some weirdo trying to push shares over property. Reminds me of those Aussie losers from The Daily Reckoning that were saying that housing was crashing so that they could push their share subs yet housing boomed! Watch out for these share spruikers, they are selling you a lie!!

    • What are you talking about? Those Canadians are rank amateurs – just look at this:

      “Just two weeks ago this breathless blog told you that for the first time in the history of polling more than half the people expected house prices to keep on going up.”

      LOL! For the first time in history the majority expected houses to rise last week ! In Australia the psyche has been pegged to the always-goes-up end of the spectrum for decades! Decades!

      • BrentonMEMBER

        and what happens when that psyche is shattered by a hard knock from reality?

        That vacant eyed, dribbling basket case rocking back and forth somewhere down in the southern ocean.

      • “what happens when that psyche is shattered by a hard knock from reality?”

        You don’t have to worry about that – they just need to take more blue pills, that’s all.

    • I am (with wife and kids) heading back to the old stomping grounds of southern Ontario for a month in September, hopefully the market is rolling over and will make for an interesting discussion topic over dinners and drinks…..or not.
      The wife is Canadian and kids born there but we decided to head back to my home town of Perth 5 years ago, we were back there a year ago and what a snooty lot they have turned into in Toronto.
      Oh, I must mention, we rent in Perth so we can afford regular holidays.

  8. Angie sez property is priced for perfection, but sees no downside.

    He must have stepped out of one of reusa’s glittering parties to make that comment.

  9. You ain’t whistlin’ dixie, Branton! Them speculator/masterbators must be shittin’ bricks as we speak. Sooner rather than later, their wonderful investment will turn into evidence to be presented in a bankruptcy court. As mentioned before millions of times, greed and stupidity are a toxic cocktail that will ruin many people’s lives. They all HAVE BEEN WARNED many times before by many different parties.

  10. TailorTrashMEMBER

    “But those who are able to sell at what appears to be the very tippy-top of the market are not complaining. Bloomberg cites business school professor Michael Hartmann who put his north Toronto home up for sale on May 17 sold it on May 22 for C$1.65 million, C$10,000 above asking price. He and his wife are planning to rent and see.”

    I know of quite a few boomers on Sydneys north shore have done that in recent times ……….but will they be right or wrong ?……if Canada really rolls over and NZ follows ……will Straya be different ? http://investmentwatchblog.com/all-heck-breaks-loose-in-torontos-house-price-bubble/

  11. Episode 71

    Disclaimer: All characters and events in this Episode – even those based on real people – are entirely fictional. All celebrity voices are impersonated…..poorly. The following Episode contains coarse language and due to its content it should not be viewed by anyone.

    Not so long ago in a galaxy not so far away …..

    Darth Vader: Ming Li, take all of your Melbourne apartments off the market.

    Ming Li: You said they’d be left in the market under my supervision!

    Darth Vader: I am altering the deal. Pray I don’t alter it any further.

    Ming Li: Lord, what about my clients’ Sydney properties?

    Darth Vader: They must never again be put on the market.

    Ming Li: That was never a condition of our agreement, nor was allowing the Aussie Senators offload their IPs in an artificially undersupplied market!

    Darth Vader: Perhaps you think you’re being treated unfairly?

    Ming Li: ……..no.

    Darth Vader: Good, it would be unfortunate if I had to revoke your licence.

  12. One of the big reasons I have found from people who say that there is a property bubble and prices are too high BUT also say a correction will not happen, or it will be only a small 5-10% drop is because if it does drop a little then there is heaps of demand ready to snap up the small bargain.

    This is a common, flawed trap to think that a persons sentiment and the market in general at price X going up, is the same as price X (i.e same price) going down.

    • “This is a common, flawed trap to think that a persons sentiment and the market in general at price X going up, is the same as price X (i.e same price) going down”

      Well, it is actually much more than that. It is gravely flawed to think that there will be a point in time in future at which one can sell his asset at the break-even price – because the price movement in a market is actually discontinuous (even if it may look continuous when moving averages are used in a graph).

    • Bankers hand you an umbrella when it’s sunny and take it off you when it rains. A large portion of that ‘demand’ requires credit ‘supply’. It’s because supply and demand you know.

      • “Bankers hand you an umbrella when it’s sunny and take it off you when it rains”

        This is a great and succinct way to summarize the essence of the reality. Similar dynamics are at work in the rating agencies and capital markets in general.

      • +1 Great analogy. People are assuming that bank’s risk models are static and won’t change if there is a change in market trends.

  13. kiwikarynMEMBER

    Not buying properties is only the first stage. The Chinese hate losing money, its bad face. Once they realise the game is up existing foreign owners will begin selling. And since they can only sell those dog boxes to Australian buyers not other foreigners, they are going to be up shit creek without a paddle. Prices will plummet, and fast.
    I know in Christchurch, where prices have begun dropping, that the number of “overseas vendors” have been increasing.
    But at least anyone can buy them, not that anyone wants them, as everything is just sitting on the market at the moment.

    • Do the Chinese hate losing money? I thought everyone would….. Oh, silly me!! Of course, Australia is different!!!

      • kiwikarynMEMBER

        No one likes losing money, but losing anything for a Chinese person means loss of face, and the embarrasment of losing money goes far deeper than just $$$ to loss of social standing, honour, prestige etc. For us its just money, and we can shrug it off and move on. Loss of Face in China is a big deal.

    • This is the thing that I keep coming back to – once these Chinese investors start seeing their money disappearing, the rush for the exit will be a stampede. So not only will they not be buying, they will be selling as well.

      Then as the banks start taking hits, raising interest rates and lending standards, or struggling to borrow money from anywhere, it will take down much more of the market than just inner city apartments.