Australian Property

Australian property is one the widest and deepest asset bubbles in the history of capitalism. Any objective assessment of this “market” can lead to no other conclusion.

With a long history of commitment to home ownership, Australians have always been prepared to structure their finances around property. This showed up in a total dwelling stock to GDP ratio that persisted around a very high 150% from 1960 to 1990. In the late 1990s that shot up to 200% and then embarked on near ceaseless climb to 360% today.

There are many other guides to the extreme overvaluation of Australian property. The ratio of household debt (overwhelmingly mortgages) to disposable income is the highest in the world at 186%. Median price to income multiples are anything from 12x in Sydney, to 10x in Melbourne, down to still immensely unaffordable 6x in smaller capitals, up from 3-4x times in all over the long run for all. The extent of overvaluation is plain.

What makes the Australian property bubble unique is the degree to which it has warped the nation’s political economy. Once a diverse and vibrant resources and manufacturing economy, over the twenty years that the Australian housing bubble grew that shape changed completely. An huge proportion of the debt underpinning Australian property is borrowed from offshore, almost $1 trillion, mostly by its big four major banks. This perpetually inflated the local currency, as well as input costs like land prices, which dramatically diminished Australian competitiveness and drove tradable sectors like manufacturing offshore. From 14% of output in the 1970s, manufacturing hit 5% of output in 2016, the lowest in the OECD.

Moreover, the centrality of Australia property to the wealth of the national polity increasingly distorted policy and even elections. In the 2008 global financial crisis, the then Labor government bailed out the the big four banks with guarantees to their offshore loans, rewriting the entire rule book for Australia’s financial architecture in one panicked afternoon. Public subsidies poured into demand-side stimulus, as well as RMBS markets. Any notion that Australian property was a “market” evaporated. Australian property was, and remains, a kind of asset quango, a public/private partnership in support of the retirement plans of its pre-dominant Baby Boomer generation.

MacroBusiness cover all elements of Australian property daily.

These guarantees exist to this day and reached their peak distortion to the political economy in 2016 when the ruling Liberal/National Party Coalition government fought and won an election in the singular defense of “negative gearing”, the principal tax policy most responsible for investor’s favouring property over other asset classes.

Contemporary Australia does not just have a property bubble, it has morphed into Propertocracy in which the primacy of house prices determines who leads the country, what policies are chosen and which generations prosper.

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Canadian mortgage bubble exposed to China “ghost collateral”

Oh dear: In China, “linkages between the banking and shadow banking systems are also becoming more complex and opaque, increasing the underlying credit risk,” the Bank of Canada’s December 2016 risk report says. “The experience of the 2007-09 global financial crisis showed that financial stability can be threatened by vulnerabilities originating in the shadow banking

7

The new foreign property buyer regime appears tougher

From Lexology: In Federal Budget 2017, the Government is clamping down on tax avoidance by foreign investors in real estate, by tightening the foreign resident capital gains tax withholding regime. The new laws apply to both Australian resident and foreign resident vendors: Australian resident vendors of real property of $750,000 or more need to provide a Clearance

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Australia’s flammable apartments facing costly repair bill

By Leith van Onselen In the wake of the towering inferno that engulfed London’s Grenfell Tower, killing more than 50 people, action is expected to be taken to fix the many highrise towers across Australia that used similar flammable cladding, which could result in costly repair bills. From The Australian: Australian Society of Building Consultants

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The Pascometer burns red on cheap mortgages

Weeoo, weeoo, weeoo. If you’re planning on refinancing or picking up a new interest-only non-bank loans to dodge APRA curbs then The Pascometer is screaming a a warning for you today: The Law of Unintended Consequences does not sleep. The Australian Prudential Regulation Authority’s crackdown on real estate lending by the banks it regulates is

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One specufestor has had enough and is not taking it any more

From Morry Schwartz’s Parasite Herald comes Simon Pressley, Managing Director of Propertyology: Far from being the ‘bad guys’, property investors actually keep the Australian economy afloat, according to Propertyology managing director Simon Pressley. Propertyology research found that federal, state and local governments collect about $50 billion in property taxes every year – with property investors

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How widespread is flammable cladding?

By Leith van Onselen In the wake of the towering inferno that engulfed London’s Grenfell Tower, killing at least a dozen people, questions are being asked regarding the use of similar combustible cladding across Australian high-rise buildings. Here’s  ABC 7.30 Report, which last night investigated the issue: MICHAEL O’CONNOR, NATIONAL SECRETARY, CFMEU: Most buildings that

29

CoreLogic: Housing sentiment is breaking

Via CoreLogic: The Westpac and Melbourne Institute’s consumer sentiment index for June 2017 was released earlier this week.  The Index was recorded at 96.2 points which was the lowest monthly reading for the index since April 2016. When the Consumer Sentiment Index sits below 100 points it means that consumers are more pessimistic than optimistic. 

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London apartment blaze a stark warning for Australia

By Leith van Onselen It appears that the towering inferno that engulfed London’s Grenfell Tower, killing several people (picture above), may have used cheap combustible cladding that enabled the fire to spread quickly up the apartment’s exterior walls. From The Brisbane Times: The London tower devastated by a vicious building fire may have been installed

4

Money launderers love Australian property

By Leith van Onselen The Diplomat’s Yigal Chazen is the latest to warn that Australia’s property market is a potential haven for laundered money, especially from China: Australia is in the midst of a housing affordability crisis… The price spiral has coincided with ballooning Chinese investment in Australian real estate markets… Australia limits foreign investors

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Gulf between housing finance and CoreLogic index narrows

By Leith van Onselen With the release of the ABS’ housing finance data for April, it is an opportune time to once again plot CoreLogic’s dwelling price series against the total value of finance commitments (excluding refinancings) as measured by the ABS. Note: the ABS’ housing finance data is current to April 2017, whereas CoreLogic’s

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Are Chinese fleeing Aussie property?

Via Domain: Soon after the New South Wales government announced it was doubling the tax for foreign home buyers earlier this month, calls started flooding in to Sydney-based real estate agent Shan Lin. “My phone never stopped, I charged my phone three times, no kidding – overseas clients, overseas agents, my channels in China,” said Lin, who deals

6

Mystery shopper reveals big mortgage tightening

Via Macquarie today: Rations are getting smaller In our view, housing lending credit standards are continuing to tighten as banks are responding to the macro prudential requirements and buffers imposed by the regulator. We believe these changes are likely to result in ongoing pressure on the outlook for banks’ volume growth. Furthermore, we see risks

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Expect a big housing correction next time around

By Leith van Onselen CoreLogic’s Cameron Kusher has released interesting analysis looking at the past two housing corrections, which saw some major capitals post double-digit peak-to-trough losses: Looking at the declines which commenced in 2008, the magnitude of falls was fairly minor considering most advanced economies fell into recession as a result of the financial

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Property parasites hate on H&H

I don’t bother with Twitter much given it’s so limited but this was brought to my attention today: Does anyone remember what life was like before MB when these property parasites ran amok without fear of accountability? These days they huddle in dark virtual backwaters licking each other’s wounds. It is a great improvement!

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REIA locust swarms Budget’s foreign buyer CGT changes

By Leith van Onselen The property lobby’s opposition to the Federal Budget’s modest changes affecting foreign buyers of residential property continues in earnest, with the Real Estate Institute of Australia (REIA) now complaining that the changes affecting capital gains tax (CGT) will increase real estate agents’ workloads. From The AFR: Under the government’s new regime

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Suncorp goes full blown rate hike in “sobering” market

Via Banking Day: These are “sobering times” in the banking sector, David Carter, chief executive officer, banking and wealth at Suncorp says. “I suspect that credit growth is slowing,” Carter told Banking Day last week. “The S&P piece [the downgrade of credit ratings for many banks] has made people relook at all that data,” he

15

Sydney/Melbourne specufestor demand continues to rise

By Leith van Onselen Australia’s speculator frenzy has continued its resurgence, according to Friday’s Lending Finance data for April, released by the ABS. As shown below, the annual value of investor loans in New South Wales (read Sydney) rose for the ninth consecutive month, with Victoria (read Melbourne) – the second hottest market – also

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Auction clearances fade some more

CoreLogic released its auction report yesterday, which revealed another weekend of strong auction conditions, although the national auction clearance rate slid to 71.8% from 73.9% last weekend, but was still well above the 65.7% recorded in the same weekend last year: Auction volumes nationally were 1,265 – well above the 1,100 recorded in the same

5

Housing finance weakened in April

By Leith van Onselen Today’s housing finance data for April, released by the Australian Bureau of Statistics (ABS), posted falls in both investor finance and owner-occupied commitments. According to the ABS, the total number of owner-occupier finance commitments (excluding refinancings) fell by a seasonally adjusted 0.7% over the month to be up just 1.5% over