Regarding the future of Australian property prices, I think everyone should be aware of the secret GREAT GAME currently going on in the international economy, and how it will affect us.
American manufacturers can't compete with cheap Chinese goods. They want the Chinese to revalue their yuan against the greenback. This will make Chinese goods more expensive, and therefore stimulate US manufacturing.
China refuses to revalue it's yuan. A low yuan keeps China's exports cheap, keeps hundreds of millions of Chinese peasants employed in factories making cheap goods, and therefore keeps them happy and unlikely to protest against their communist leaders.
So in response, America, the world's largest economy, is printing money!!!
China then has to print an equal amount of yuan, and use it to buy greenbacks, in order to maintain the currency peg. But this means lots more greenbacks and yuans out there, chasing the same amount of goods. Result is inflation.
America is deliberately creating inflation in order to hurt China. But how will it work?
Well, Americans have a secret weapon! It is the amount spent on food as a percentage of income. Average Americans spend less than 10% of their income on food. If global inflation hits 100% and food prices double, Americans' food cost will hit 20% of their income, and they won't be able to supersize their Big Mac meals. They will whine and whinge and vote for the other political party.
But if food prices in developing economies also double, then people won't be able to afford basics like rice. They will starve, and violently protest, and force government policy change, or even bring down governments altogether.
A brief Google and I was able to find a few stats. The average Indonesian spends 45% of their income on food. The average Indian spends 53%. If global food prices double, then people will starve and you will have anarchy on the streets.
Some examples of this already happening are the Arab uprisings. The Arabs accepted dictatorships for decades. But now that food prices are skyrocketing, we see mass protests and decades-old dictatorships suddenly collapsing overnight.
The same thing could happen in China. The communist leaders know it, and they are scared. They are desperately trying to cool inflation by restricting bank lending and instituting price controls (which are a desperate last stand on any dictatorship).
I found one stat on China, saying it's lowest income earners spend up to 48% of their income on food. That represents many hundreds of millions of peasants. What happens when the price of a basic like rice doubles in price? I saw a story on CNN a while ago where the price of cabbage went from 3 to 4 yuan a kilo, or something like that. It was a ridiculously small move (considering what is to come) but it resulted in massive protests and violent government clampdowns and price controls (cabbage may only be sold for 3 yuan a kilo, the govt ordered, despite what the free market decided).
I understand that there may be doubters as to my theory but ask yourself, what would you do? If you were the world's largest economy, with the world's largest military and intelligence apparatus, and you heard you were going to be overtaken by China in 20 years time, would you sit back and say bugger and do nothing about it?
China's greatest strength is that it has 1.2 billion cheap labourers. But China's biggest weakness is it has 1.2 billion mouths to feed. The idea that China will dominate the planet in 20 years time is wrong. The Western world will starve it into submission long before that, and China may tear itself apart as fertile (but poor and suffering) Western farming provinces break away from it's rich Eastern factory provinces.
Inflation in China is already extremely damaging. Workers are demanding, and receiving wage increases. This is pushing up production costs and reducing profit margins. Marginal producers are shutting up factories, sacking workers and causing more social unrest. In response China lent out money to build empty shopping malls, and empty cities, just to keep workers employed and non-protesting. But how long can you build stuff you don't need?
Despite wage increase demands, China may eventually have to revalue it's yuan upwards. So in effect, China will be forced (by the US money printing) to do what the US wanted it to do in the first place. So America gets to print money to keep living above their means, while ****ing over the commies. But an increased yuan value will make Chinese goods more expensive and reduce their exports (Sri Lanka, Bangladesh, Vietnam etc etc etc will be cheaper for factories) and therefore slow their amazing economic growth. And unemployment there will rise and social unrest increase, and eventually China will be forced to trade internationally on a level-playing field.
This is the GREAT GAME in the world's economy, and will probably define all our lives for the next couple of decades. I just want people to be aware of this global trend, so that they will be armed with the truth in order to make the best investment decisions.
So, if I'm correct, what does it mean for the future of Australian property prices?
Farmland will go up (as food prices go up), so rural towns might do well.
Mining towns will boom, or bust (depending on the price of resources).
Inner-city homes, and especially those along public transport corridors will hold up well (as petrol price goes up).
Holiday homes will drop, particularly the upper end of the market (ie Noosa, Gold Coast, Palm Beach).
Overall, I think Australian property prices will drop over the next few years. I am not sure by how much, but the property around my beachside suburb in Adelaide seems overpriced by about 25%, so a drop of that much is entirely possible within five years.
I think it is obvious, given the media coverage of the effects of inflation on everyday Australians. Seems like you can't turn on the telly without some battlers whingeing about the rising cost of food and electricity and water bills and petrol and private education and health insurance etc etc etc. Hardly a recipe for rising house prices, or people wanting to move up the property ladder. Instead Australians are resorting to credit cards just to stay afloat. And not many people are unleashing equity in their homes for holidays any more. Many Australians are swimming hard against the current, just to stay afloat.
Globally, interest rates are going to have to rise as governments try to contain inflation. The GREAT GAME has only just begun. There will be opportunity, and there will be ruin. Be warned!