They're just out to subsidise accomodations for those that could otherwise not afford it.
Does this means you let people who cannot afford to pay rent to live for in your properties for fee?
Quote:
They're also trying to make sure they're not a burden on a tax payer when they retire.
Are you sure ... By misallocating most of available capital in nonproductive assets on the expense of future development? By destroying foundations for future jobs?
Looks to me that your actions are making you current and future burden on your own children instead of future taxpayer burden.
How it is better to force our children pay twice over 30 years for a basic need than to force them to pay 10% more in tax for less than 20 years?
Does this means you let people who cannot afford to pay rent to live for in your properties for fee?
Are you sure ... By misallocating most of available capital in nonproductive assets on the expense of future development? By destroying foundations for future jobs?
Looks to me that your actions are making you current and future burden on your own children instead of future taxpayer burden.
How it is better to force our children pay twice over 30 years for a basic need than to force them to pay 10% more in tax for less than 20 years?
Catweasel laugh. Good to see a out a box thinking. Catweasel say how a society advancing if mouse spend lifexon treadmill to put roof on head? In advanced society it make a sense that mouse work less for more and spend more a free time on contribute to society & a culture, a leisure, and a self actualize. It a not happen in a Australia. Now looking more like feudal than the advanced. Bank, govt, and white shoe owns mouse. That why a thinking the big same and very little independent.
Does this means you let people who cannot afford to pay rent to live for in your properties for fee?
Are you sure ... By misallocating most of available capital in nonproductive assets on the expense of future development? By destroying foundations for future jobs?
Looks to me that your actions are making you current and future burden on your own children instead of future taxpayer burden.
How it is better to force our children pay twice over 30 years for a basic need than to force them to pay 10% more in tax for less than 20 years?
Learn to laugh a bit more. :laughing: It was just a sarcastic way of saying that your comment was as cheesy and half truth as I made mine out to be - except you took mine seriously. You probably take yours seriously too.
Property speculation is a type of gambling... But everyone knows that in gambling, the house always wins in the end.
Recently, we received an email from one of our readers:
Just wondering if you’d like to touch on possible investment ideas for hedging australian real estate?
I’ve had a look at puts on the banks before but the banks have mortgage insurance along with an implied guarentee from the gov so I was thinking that while their may be some correlation, it may not be as high as one would like when the chips are down.
As such any other possible hedging ideas would be appreciated, ideally it would have to be highly leveraged to act as a suitable hedge.
Looking at other places that suffered a debt/property collapse with a low housing supply may be a good place to start? (UK?)
Today, we will talk about this topic. We haven’t talked about Australian property for quite a long time. But you can read through our old archives and know where we stand on this topic. Also, please take note that nothing that is said in this blog should be construed as financial advice. Instead, we are just voicing out our ideas and suggestions for discussion and brainstorming. With that disclaimer, let’s dive into it.
It is no secret that Australian house price is heading for stagnation at best and a crash at worst. Even the most optimistic forecasts from the vested interests call for stagnation. Already, house prices in Perth have been falling for over a year already. There are reports of rising supply of homes for sale while at the same time, demand is weak and auction rates are weakening.
So, if you reckon Australia is heading for a house price bust, what are the ideas for shorting/hedging Australian house prices? Since there exists no financial instruments that can short Australian house prices directly, we can only do so indirectly through the side-effects of falling prices.
First, before we run off to take up short positions, it is helpful to envisage a few possible scenarios:
Professor Steve Keen sees that we are facing a scenario whereby house prices fall 40 percent in nominal terms over a period of say, 15 years. That’s basically the Japanese scenario whereby the housing bubble deflate with a slow hiss. In this case, the fall in prices will be so slow (a few percent a year) that it becomes almost imperceptible. A rapid fall of say 10-15% followed by slow deflation. A big crash of say, 40-50% in a short period of time, say a couple of years.
In the first scenario, there is nothing much to short. The economy may be able to muddle through in stagnation for a very long time.
In the second scenario, the banks will suffer heavy losses but they will probably survive. The obvious idea is to short the bank shares. In this scenario, we can imagine consumer spendings will be depressed as well. Therefore, shorting retail related stocks is another idea. Property developers and builders will be shorting candidates as well. In this scenario, we imagine that the AUD will be weak as well, as the RBA will have to cut interest rates.
The third scenario will be the nightmare scenario. Such a precipitous fall in house prices will put the Australian banking system in serious trouble. For one, since property is the most popular collateral for lending in Australia, a house price crash will result in a credit crunch. As you can see what happened in the United States during the GFC, a credit crunch result will ultimately result in rising unemployment, which will in turn will feedback into a second round of effects into the economy through more mortgage debt defaults. If the entire banking and financial system falls into deep trouble, we will likely see an AUD currency crisis (see Will there be an AUD currency crisis?). In this scenario, we will not even bother to short Australian banking stocks. The financial and economic situation in Australia will be unpredictable and volatile. As we wrote in Protecting yourself against currency crisis.
Personally, we feel that the best way to protect yourself from a currency crisis is to leave the country before TSHTF. If not, stock up some physical cash (both foreign and local), physical gold and silver (see our book, How to buy and invest in physical gold and silver) and supplies- these will tide you over while the sh*t is hitting the fan. For the longer term, you may want to move some of your savings overseas- you may not be able to use them in the midst of the crisis, but when it is all over, the local currency may no longer exist (e.g. you may have to convert the old currency to a new one at unfavourable rates).
Even if the AUD is to survive, we may witness rising interest rates as the RBA sought to defend the AUD from speculative sell-off.
Now, some people may ask, what if the Commonwealth government bail out the banks? Will that avert a crisis?
The problem with this question is that the word “bail out” is too vague. Does that question ask whether the government will bail out depositors? We imagine the government will do that. But does it mean that the government will bail out depositors and bank bond holders? Or even better still, will the government bails out depositors, bank bond holders and bank stock holders? Obviously, the more stakeholders the government bail out, the more expensive it is going to be. Will the government be able or willing to fork out that much?
With that, we turn to our readers. What are your thoughts and ideas?
Professor Steve Keen sees that we are facing a scenario whereby house prices fall 40 percent in nominal terms over a period of say, 15 years. That’s basically the Japanese scenario whereby the housing bubble deflate with a slow hiss. In this case, the fall in prices will be so slow (a few percent a year) that it becomes almost imperceptible. A rapid fall of say 10-15% followed by slow deflation. A big crash of say, 40-50% in a short period of time, say a couple of years.
In the first scenario, there is nothing much to short. The economy may be able to muddle through in stagnation for a very long time.
I think Mr Keen is right about the scenario just a bit off with the timing. we've started deflating and this will continue to accelerate but bulls are too deluded to see the price falls, by the time they see it its too late to do anything about it or end up selling at the bottom of the cycle. :lol:
Could of sworn i subscribed to my own thread! oh well.. good to see so many great replies.
@Mahamed great stuff and very cautiously written with no aggressive pushing of a property crash. Some great ideas on profiting from different scenarios too. It seems that shorting the banks with the most property exposure on their books seems to be the way to go.
In the event of a catastrophe scenario it would be hard to imagine the Oz govt letting the big four go down. It may be more likely that they follow what was practiced in other nations and either nationalise or provide emergency funding for the banks.
Posted by Delusional Economics in Oz Housing Bubble on Jun 16th, 2011 | 25 comments
Australia’s greatest housing champion, Chris Joye, is back with a new product for housing investment:
Tired of the drudgery of finding, buying and managing an investment property? If the Australian Stock Exchange’s plans come to fruition, you will soon be able to get exposure to Australia’s $3.5 trillion residential real-estate asset-class without buying a home, paying stamp duties and land tax, or bearing the burden of maintaining and overseeing your property.
In fact, rather than investing in one home, with its many idiosyncratic risks (e.g., the local zoning, economic activity, and the specific pros and cons of the dwelling in question), you will be able to buy an exposure to an exceptionally well-diversified portfolio comprising literally millions of homes spread right across the country. And you will not own any of them. Seriously!
Perhaps most interesting of all, you will be able to make this investment for as little as about, say, $10,000. That is, one-fortieth the cost of buying a median-priced property outright. Over and above professional investors, this could be very attractive to mums and dads stuck in the rental market who are worried about the costs of home ownership outpacing the interest they earn on their savings.
Another benefit of these new products will be that they are likely to afford users superior “liquidity” – put differently, a better ability to enter and exit your holding – than the many months of inconvenience one can experience when disposing of a home.
How will this be possible? My best guess is that within the next six to 12 months Australians will be able to invest in capital city, or even national, residential property “index funds” available through the ASX, which will offer the capital growth and net rental returns generated by houses in those cities. This will be similar to putting money in an index fund that tracks the performance of the Australian sharemarket index. The key difference is that returns will now be tied to a house price index.
I am quite supportive of this type of index, the US has a similar index and as far as I am aware it works very well. I think providing an index where the general public, professional traders and institutional investors can invest against a broad-based asset backed index, either for or against, is a good idea.
I think many of our more bearish readers (and bloggers) would have wished they had the opportunity to short the housing market over the last 12 months. I have a couple of comments.
1) I think this index would be very popular, especially with self managed super funds and institutionals.
2) I think this article throws a revealing light on some of the author’s previous work.
3) If this index is going to launch, can we please clear up the total value of the stock it represents. The article above claims $3.5 trillion but I note an article on the same site gives the value at 20% higher ($4.2 trillion).
4) My expectations are that if/when the index is introduced it would pull capital out of the physical market as some investors would seek to spread their risk. If that is correct, then the launch of such an index in itself could put downward pressure on the housing market. Then again, if investors pile in on the assumption that it fool-proofs an underlying investment, the bubble could get bigger.
5) RPData’s website states:
RP Data is the index provider to the Australian Securities Exchange (ASX) for its soon to be released Property Index Contracts (PICs). Under an agreement between ASX and RPData, these innovative new contracts are to be based on the RP Data Rismark Residential Property Indices. PICs will enable wholesale and retail investors and traders to gain or manage their exposure to the residential property market without the need to buy or sell actual property. The ASX’s PIC market will include contracts listed over six RP Data Rismark All Dwellings indices.
Given that Mr Joye is the Managing Director of Rismark, a co-provider to the ASX for this index, one has to ask what effect this will have on Mr Joye’s own ability to provide continuing opinion on the market. In my view, Mr Joye should now fall under the guidelines of ASIC and the AFSL. I have argued before that housing “advisors” should be required to register and disclose their interests when offering their views. There is at least some justification for preventing this when most houses bought are not an explicit asset but just the family home. However, with tradable indices even that very thin justification evaporates.
6) An even better outcome, guaranteeing the integrity of the system, would be the use of data sources free from private interest. I am not suggesting impropriety, but such products should be free of perverse incentives. I think the listing of such an index would be an opportune time for the ABS to begin creating its own hedonic index.
I am interested to hear others opinions. Maybe you think it is morally reprehensible to be trading in houses or that this is just likely to increase the speculation in the already highly speculative housing market.
Note to all: I have a delete button and am willing to use it, keep it on topic, clean and legal.
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