The future of Australian property prices

[DB008]

Yes, Germany is a very good country indeed. Since they have good economic governance they have had no housing bubble, and as a result they have not experienced the same wage inflation Australia has due to it's need to service monstrous mortgages, and thus it has maintained it's manufacturing competitiveness - even though their currency is higher valued than the aussie.

Berlin - maybe l shouldn't have used it as an example, it's broke....

http://www.dw.de/dw/article/0,,1983556,00.html

http://www.guardian.co.uk/world/2007/jun/15/germany.kateconnolly


To me, the major difference between Australia and USA/Europe is the mining boom.

Electricians/Refrigeration mechanics getting paid ~$150+ p.a.
Riggers/Scaffies/Haul pack drivers on ~$3k+ a week
Chefs on ~$130k+ a year
These are not BS figures, l spent around 3 years doing FIFO work in WA ex-PER/SYD.

As long as China has an appetite for the resources in Australia, I can't see Australia's housing 'bubble' popping.
China still has a long way to go before it really starts slowing down. The only way l can see China slowing down is if it gets nuked...

 

[Starcraftmazter]

China still has a long way to go before it really starts slowing down. The only way l can see China slowing down is if it gets nuked...

It doesn't have a long way to go, it's already finished. At the rate China has been constructing apartment buildings, it will be able to house the entire world's population in 3 years.

The slowdown has definitely began, even the government is now targeting 7.5% growth - say that even that is optimistic. Manufacturing PMIs have been contracting all of this year so far.

There are massive amount of bad loans and bankruptcies. Many businessmen have committed suicide lately, the shadow banking system is huge and is collapsing.

Honestly, I could go on and on - but the fact is, China is finished. At least so far as growth is concerned.

It's also not just me saying this, investment banks (IIRC Citi came out with a report last month on this) have already called the peak of China's resource usage, and we are past it.

The commodity bubble has already began to crash - and this is even before the new iron ore capacity comes online in the coming years. But alas this is how bubbles work - the unrealistic prices sent incorrect signals to the market, and world miners massively over-invested in iron production. Now iron ore prices will plummet for years.

 

[moXJO]

It doesn't have a long way to go, it's already finished. At the rate China has been constructing apartment buildings, it will be able to house the entire world's population in 3 years.

The slowdown has definitely began, even the government is now targeting 7.5% growth - say that even that is optimistic. Manufacturing PMIs have been contracting all of this year so far.

There are massive amount of bad loans and bankruptcies. Many businessmen have committed suicide lately, the shadow banking system is huge and is collapsing.

Honestly, I could go on and on - but the fact is, China is finished. At least so far as growth is concerned.

It's also not just me saying this, investment banks (IIRC Citi came out with a report last month on this) have already called the peak of China's resource usage, and we are past it.

The commodity bubble has already began to crash - and this is even before the new iron ore capacity comes online in the coming years. But alas this is how bubbles work - the unrealistic prices sent incorrect signals to the market, and world miners massively over-invested in iron production. Now iron ore prices will plummet for years.

And then there was India

 

[DB008]

It doesn't have a long way to go, it's already finished. At the rate China has been constructing apartment buildings, it will be able to house the entire world's population in 3 years.

Link please...

The slowdown has definitely began, even the government is now targeting 7.5% growth - say that even that is optimistic. Manufacturing PMIs have been contracting all of this year so far.

Yes, the slow down has begun, Government initiated.

Many businessmen have committed suicide lately, the shadow banking system is huge and is collapsing. Honestly, I could go on and on - but the fact is, China is finished. At least so far as growth is concerned.

Please do go on, l am interested in this. Link please.

It's also not just me saying this, investment banks (IIRC Citi came out with a report last month on this) have already called the peak of China's resource usage, and we are past it.

Over 1 billion people, and we are over it? Citi link please...

The commodity bubble has already began to crash - and this is even before the new iron ore capacity comes online in the coming years. But alas this is how bubbles work - the unrealistic prices sent incorrect signals to the market, and world miners massively over-invested in iron production. Now iron ore prices will plummet for years.

Iron Ore prices to plummet?? Do the Iron Ore contracts get re-newed every 6 months or yearly? Lets keep an eye on this, and see if Iron Ore has plummeted, why are companies building mines in WA like crazy? Better tell RIO/BHP/FMG/Hancock Prospecting/Metallurgy to slow down...

http://www.theaustralian.com.au/business/companies/hancock-prospecting-and-partners-seek-roy-hill-funding/story-fn91v9q3-1226314925755

http://www.news.com.au/business/china-iron-ore-demand-flattening-bhp/story-e6frfm1i-1226305233629

Mr Ashby said he expected China's steel production capacity would reach up to 1.1 billion tonnes by 2025, up from about 700 million tonnes currently.

 

[young-gun]

And then there was India

no doubt, but theyre not ready to pick up the slack yet, give them 10 years.

 

[Starcraftmazter]

Link please...

I don't have a link on it, I calculated it a last year when I was reading an article about construction rates in China.

Yes, the slow down has begun, Government initiated.

And it's a good thing they did, otherwise they would have complete economic collapse due to their housing bubble.

Please do go on, l am interested in this. Link please.

I don't keep links for everything, how have you not heard of this? What exactly do you want a link for? I suggest searching FT first.

Over 1 billion people, and we are over it? Citi link please...

Yes, most of them are old and aging. China's population is going to drop very quickly now that it's peaked.

As for the link, since this is a recent report I do indeed have it. I again question why you are making statements about China if you are not aware of these basic fundamental facts.

http://www.macrobusiness.com.au/2012/03/citi-weighs-in-on-commodity-super-cycle-debate/

Iron Ore prices to plummet?? Do the Iron Ore contracts get re-newed every 6 months or yearly?

In case you aren't aware, China just opened an exchange where it's companies will buy iron ore at spot prices. Both mining companies and China have been moving to price structures which reflect the most recent prices possible.

Lets keep an eye on this, and see if Iron Ore has plummeted, why are companies building mines in WA like crazy? Better tell RIO/BHP/FMG/Hancock Prospecting/Metallurgy to slow down...

Because they are incredibly stupid and it's the only thing they know how to do. But even they are now realising their mistakes:

http://www.marketwatch.com/story/bhp-may-tweak-plans-as-china-growth-slows-report-2012-03-19-1939510

BHP Billiton Ltd. BHP +1.41% Chairman Jacques Nasser has told investors the company is reevaluating its massive spending plans as slowing Chinese growth prompts a more cautious outlook for commodity demand, The Australian Financial Review reported Tuesday.

BHP is looking more closely at where Chinese demand for iron ore is likely to peak before committing to a US$20 billion-plus investment in mine and port infrastructure in Western Australia state's Pilbara region, the report said.

 

[Glen48]

Suckers wanted:
The Victorian first home buyers grant should be restricted to newly constructed dwellings to give the building industry a much needed boost, the Urban Development Institute of Australia says.

The UDIA is also calling for a further interest rate cut when the Reserve Bank meets on Tuesday.

The peak industry group says the two measures are urgently needed to revive the flagging property market and protect thousands of jobs in the construction industry.

Victorian first home buyers receive up to $7000 for a home. They get an extra $13,000 if they purchase a newly constructed dwelling, increasing to $19,500 if they buy new in a regional area.

The UDIA says the payments should be limited to first-time buyers of new homes.

This is in conflict with the Real Estate Institute of Victoria (REIV), which believes the additional payment scheme for new home buyers should be scrapped in July because it has achieved its purpose of stimulating building projects.

"It is important to move quickly to restore broad confidence in the property sector," UDIA Victoria executive director Tony De Domenico said in a statement.

"Whilst we still have population demand as a positive driver of the market, it needs to be complemented with the first home buyer grant for new housing and the interest rate cut."

New home sales were down 18 per cent in February compared with 2011, according to the Housing Industry Association. But this followed a period of rapid growth in construction and buying between 2008 and 2010.

Mr De Domenico said the Victorian property industry directly employed about 310,000 people, contributing about 12 per cent of the state's gross domestic product and $4.6 billion in taxes.

The Victorian government has committed to halve stamp duty for first home buyers by 2014.

 

[Starcraftmazter]

Suckers wanted:
The Victorian first home buyers grant should be restricted to newly constructed dwellings to give the building industry a much needed boost, the Urban Development Institute of Australia says.

Just as I predicted. This is why a housing downturn will not result in the reduction of over-capacity. Because they will stimulate and stimulate - but direct their stimulus to new construction to save jobs. This way the over-capacity continues. They will just keep on building and building and building until house prices plummet to all-time lows.

 

[drsmith]

I don't have a link on it, I calculated it a last year when I was reading an article about construction rates in China.

I'm curious about a link to that article.

 

[Beej]

I'm curious about a link to that article.

I wouldn't hold your breath..... It's a ridiculous claim!

 

[Starcraftmazter]

Wish I could find it, but the data was graphed in an MB article at least 5-6 months ago. They publish hundreds of articles every months so it's not really practical to go through them all....but if you want, you can.

To narrow it down a bit, it was probably put under one of these 2 categories:

http://www.macrobusiness.com.au/category/chinas-economy/
http://www.macrobusiness.com.au/category/global-housing/

EDIT: Amazingly I found it! How awesome am I? Pretty damn awesome. Anyway - article:
http://www.macrobusiness.com.au/2011/06/socgen-on-chinas-construction-bubble/

Analysis from SocGen:

China has built the entire European housing floor space stock (limited to Czech Republic, Sweden, Portugal, Greece, Poland, Netherlands, Spain, UK, Italy, France and Germany) in less than 10 years. Within 10 years, China has built slightly more than 16 billion sqm of completed residential floor space, enough to provide accommodation for 600 million people assuming 30 sqm per capita. Over the same period, the urban population increased by just 185 million. With around 1.8 billion square metres of new residential floor completed in 2010, China has built the equivalent of Spain’s housing floor space stock. This construction has already provided accommodation for 60 million people while the urban population only increased by c. 20 million. If China were to keep its current construction rate within the next five years, the 9 billion sqm of new housing built would provide accommodation for 300 million more people. China would thus have the available floor space stock to accommodate an urbanisation rate of 65-70%… the IMF’s forecast for 2030!

This is unrealistically bullish though. You have to understand exponential growth and the power of compounding. You also have to understand that not everyone lives in luxury, and in China which is very densely populated, a lot more people live in the same amount of residential floorspace.



At the current rate of construction China will add a Europe's worth of housing every year in just half a decade!

It is ridiculous, especially for a population that will experience significant shrinking between now and 2050. Already China has way more residential apartments than it will ever need. Massive ghost cities sitting there unfilled for a rapidly decreasing rural population.

Not to mention as wages rise in China, there will be fewer businesses looking for labour there. Textiles is already moving to Vietnam. Where are the jobs to fuel further urbanisation going to come from?

Nowhere, all construction that is happening in China is pure malinvestment and will never be used!

 

[FxTrader]

Just as I predicted. This is why a housing downturn will not result in the reduction of over-capacity. Because they will stimulate and stimulate - but direct their stimulus to new construction to save jobs. This way the over-capacity continues. They will just keep on building and building and building until house prices plummet to all-time lows.

Ask yourself where all the "building and building and building" is occurring. It's on the urban fringe of Melbourne where the greatest risk exists of a significant price decline in the future even though property there is the most affordable. There is no "over-capacity" 20km within the CBD as evidenced by the ridiculous rents asked for and being achieved by landlords and low vacancy rates. Melbourne is not a monolithic property market that can be described and generalized as a whole.

"All time lows" compared to what period of time? The only way such fanciful and unsupported speculation would ever come true would be in the wake of a catastrophic economic and financial collapse on the scale of Greece, Spain or Ireland here is Australia. The probability of this would have to be extremely low here.

 

[Starcraftmazter]

Ask yourself where all the "building and building and building" is occurring.

I live in Sydney and I see construction bloody everywhere.

"All time lows" compared to what period of time? The only way such fanciful and unsupported speculation would ever come true would be in the wake of a catastrophic economic and financial collapse on the scale of Greece, Spain or Ireland here is Australia. The probability of this would have to be extremely low here.

Compared to the last 100 years. Our economy is one of the worst in the world, so it's pretty likely.

 

[FxTrader]

I live in Sydney and I see construction bloody everywhere. Compared to the last 100 years. Our economy is one of the worst in the world, so it's pretty likely.

You originally commented on an article about the VIC first home buyers grant. It's quite clear you do know much about the Melbourne property market. There is no construction boom in the areas were most Melbournians would like to live (within 20km of the city), there's virtually no land to build on! Apartment building is a different matter but this has slowed considerably.

As for the throwaway line regarding our economy, clearly you are not keeping up with recent events. The problem here is our dependence on China keeping the resource boom ticking along, not the current state of the economy. The "worst in the world" prize would be a dead heat between Greece, Spain and Ireland followed closely by a large number of eastern European economies. Australia's economy can't be compared with these basket cases on any measure.

 

[Starcraftmazter]

It's quite clear you do know much about the Melbourne property market.

Thanks, I do my best

There is no construction boom in the areas were most Melbournians would like to live (within 20km of the city), there's virtually no land to build on! Apartment building is a different matter but this has slowed considerably.

Why is Apartment building a different matter? When demand increases, so must density.

As for the throwaway line regarding our economy, clearly you are not keeping up with recent events. The problem here is our dependence on Chin

a keeping the resource boom ticking along, not the current state of the economy. The "worst in the world" prize would be a dead heat between Greece, Spain and Ireland followed closely by a large number of eastern European economies. Australia's economy can't be compared with these basket cases on any measure.​

I agree, except we are the basket case - they are much better than us. Maybe not Greece - I am willing to say they are around as bad as us. Spain and Ireland though? Much better. They are also textbook examples of what will happen to Australia - except we will fare worse for our property bubble is much bigger than theirs.​

 

[So_Cynical]

Thanks, I do my best



Why is Apartment building a different matter? When demand increases, so must density.



I agree, except we are the basket case - they are much better than us. Maybe not Greece - I am willing to say they are around as bad as us. Spain and Ireland though? Much better. They are also textbook examples of what will happen to Australia - except we will fare worse for our property bubble is much bigger than theirs.

Are you drunk?

For a start their property bubble has popped, unemployment in Ireland is like 14% and something like a third of all mortgages are worth more than the houses the mortgages cover.

http://www.google.com.au/publicdata...onality:sa&dl=en&hl=en&q=ireland+unemployment

http://www.ronanlyons.com/2011/08/30/top-ten-facts-in-relation-to-ireland’s-mortgage-debt-arrears/

 

[Starcraftmazter]

Are you drunk?

For a start their property bubble has popped, unemployment in Ireland is like 14% and something like a third of all mortgages are worth more than the houses the mortgages cover.

http://www.google.com.au/publicdata...onality:sa&dl=en&hl=en&q=ireland+unemployment

http://www.ronanlyons.com/2011/08/30/top-ten-facts-in-relation-to-ireland’s-mortgage-debt-arrears/

Yes, they are at a different point in time of their housing bubble crash - that doesn't make us any better than them.

The point is, once our crash has progressed as far as theirs, we will be in a much worse economic situation than they are now.

It's all relative.

 

[lenny]

I agree, except we are the basket case - they are much better than us. Maybe not Greece - I am willing to say they are around as bad as us. Spain and Ireland though? Much better. They are also textbook examples of what will happen to Australia - except we will fare worse for our property bubble is much bigger than theirs.

Using the rule of thumb that our stock market leads our economy by about 6 months I'm pretty confident to say our stock market bottomed out on Aug 9th, If that is the case our economy should recover some time 2012 .

If our stock market can break to new ground this would confirm my thinking.

 

[Starcraftmazter]

Using the rule of thumb that our stock market leads our economy by about 6 months I'm pretty confident to say our stock market bottomed out on Aug 9th, If that is the case our economy should recover some time 2012 .

If our stock market can break to new ground this would confirm my thinking.

I don't think the stock market indicates anything to be honest. Just a measure of investor sentiment going forward. Also heavily manipulated.

 

[Starcraftmazter]

Morgan Stanley outlook on Australia
http://www.morganstanley.com/views/gef/#anchor0a67815c-7a60-11e1-8bc0-6f37658be6eb

Take a note of the housing section;

#5 The Housing Bubble Deflates

We think that the single most important reason for the escalation in house prices over the past two decades was the rising willingness and ability of households to increase leverage.

No single variable, aside from rising leverage, explains the breadth of the housing boom and its timing. The simple fact is that the big increase in house values, in both real terms and relative to income, occurred in the late 1990s/early 2000s. This pre-dates many of the ‘reasons' put forward to explain why Australian housing is so expensive by global standards. That list of reasons includes population growth, supply-side blockages, a peculiar Australian preference for houses, and the fact that our largest cities are coastal.

That leverage is the key driver of house prices is, in our view, supported by another simple fact: the end of rising household sector leverage has coincided with weaker house price performance. In inflation-adjusted terms, house prices now are no higher than in late 2007. Relative to income, prices are no higher now than 6-7 years ago. If, as many argue, the key to house prices was supply/demand factors, then house prices should have continued their sharp increase over the past 6-7 years. What explains softer house prices, in real terms and relative to income, is the end of the leverage boom.