Welcome Guest [Log In] [Register]


Reply
  • Pages:
  • 1
  • 3
Australians don't believe they are living in a housing bubble; Perhaps they don't think real estate collapses in America, Great Britain and Spain will apply them
Topic Started: 16 May 2013, 11:51 AM (5,836 Views)
Admin
Member Avatar
Administrator

Quote:
 
The Housing Bubble You Haven’t Heard of (Yet)

by Leon Yang on April 14, 2013

My father recently went to Australia and met with one of his old friends who had been living in Australia for a couple of decades. His old friend, let’s call him Mr. Chen, in his late fifties, runs a restaurant seven days a week. While Mr. Chen admits it is an extremely unbalanced work life, he nevertheless finds his Zen when he counts the cold, hard cash that comes in at the end of every night.

Mr. Chen decides to invest in real estate as a result of his economic situation steadily improving. Mind you, he is not making money like Gordon Ramsey (otherwise he would not be working seven days a week). However, he recently bought a 2 bedroom apartment in Canberra for A$500,000 and bought a piece of land to build a 300 sq. meter (that’s right, this is international talk, go make the conversion) house for him and his family that will ultimately cost A$900,000.

He just invested A$1.4 million (at this point Australian dollar is actually stronger than the dollar, but for practical purposes, let’s just say $1 to A$1) in real estate and will only have two properties show for it!

The 2 bedroom apartment, his investment property, can only be rented out for A$500 per week, getting him only about A$2,000 a month. A gross return of 4.8% that will be more like less than 3% after expenses. His old house, which I believe is now free and clear, probably rents for about the same.

How Does Cashflow Look?

So with A$4,000 a month, will that amount allow him to service his debt?

Briefly looking into the Australian mortgage market, I would say he is probably paying 6.5% over 25 years. Assuming that he put 20% down in the A$1,400,000, his principal and interest will cost him A$7,562 a month!

That’s more than A$3,500 out of pocket every month! That’s a pretty dangerous operating level (believe me, I get enough flak from the BP community about investing in properties that break even in cash flow every month)! Yet, Mr. Chen is quite happy that owns several pieces of real estate and talks grandly about how fantastic his new house is going to be. Also from what I hear the bankers have enticed Mr. Chen to borrow more than he originally had intended to borrow.

The grease that pushed America home prices up seems to have shown up in Australia as well. Yet Australians are continuing to buy houses despite the exorbitant price levels. Home constructions are still booming. Every few years I return I see new subdivisions popping up here and there.

But why does it make sense to buy now? Is it the fear that homes will continue to get more expensive if you wait? Australia has gone a couple of decades without a housing crash. Is it the golden child?

The Problem for Australia

I fear that Australians do not believe that they are living in a housing bubble. Perhaps they do not think real estate collapses in America, Great Britain, Spain, and etc will apply them. I do not see the economic justification for Mr. Chen, who works like a dog seven days a week, to borrow so much money to buy so little. Although his business has been going well, can he be sure that he will have enough savings to pay out A$3,500 a month if business begins to suffer?

With that being said, Mr. Chen’s case is just one of many cases happening all over Australia. Keep in mind that the median household income for Australia is only about A$65,000 a year. So for the average Australian, buying a home at half a million Australian dollars or above is not something that is easily affordable. Since the country’s economy is extremely dependent on China and commodity pricing, the oncoming slowdown can really decimate Australians’ ability to keep up with expensive house payments.

What’s the moral to all this? If I were an Australian I would’ve looked at what happened in America and say, “you know what? This is starting to get a little crazy. I think I should get out of the market.” Since I love Australia, I will be sitting here in America looking across the moon and waiting for Australia’s real estate market to collapse. I would love to get into the market at that point. You never know. You have to keep your eyes out there.Opportunitiescan appear at any moment.

I hope Mr. Chen will be okay.

Read more: http://www.biggerpockets.com/renewsblog/2013/04/14/housing-bubble-australia/
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Admin
Member Avatar
Administrator

Quote:
 
Aussie dream straddles a fault line of expectations

PUBLISHED: 24 Apr 2013 00:03:11
Mark Eggleton

Recent figures from UBS suggesting house prices are on the rise present the economy with a double-edged sword.

While the rise over the past six months is a reflection of a low interest rate environment, rising rental yields, a tightening of supply in some cities and an improved credit market, the danger is prices are rising in an already inflated market.

UBS suggests the market is being driven by investors as negative gearing remains one of the few tax incentives left for high-income earners with the federal government’s new changes to superannuation coming into play.

A worry is the rise could lead to another property bubble and the Reserve Bank doesn’t seem to have much room to manoeuvre when it comes to raising rates at a time when commodity prices are coming off the boil and the global economy is still in the doldrums.

An Australian real estate bubble reflects the thinking of economist Andy Xie, who believes Australia’s property market is at least 20 per cent overvalued. His view is the Australian dollar could fall to its more “natural level” of US75¢ to US80¢.

IG Markets head of research Chris Weston says the only people predicting a bubble are foreign commentators who don’t understand the minutiae of the local market.

Read more: http://www.afr.com/p/special_reports/inflection_point/aussie_dream_straddles_fault_line_hAjZpIZ18v944ay3XOF5xH
Follow OzPropertyForum on Twitter | Like APF on Facebook | Circle APF on Google+
Profile "REPLY WITH QUOTE" Go to top
 
Thatguy
Member Avatar


When nobody thinks it's a bubble......
Profile "REPLY WITH QUOTE" Go to top
 
themoops
Member Avatar
Ruby Member
There's no question that it's a bubble, it's whether or not it will pop or will be able to be maintained. AFAIK no bubble has ever been able to be maintained.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
Member Avatar


If it were a real bubble yields would be far lower. Yields were as low as 0.2% at the height of the Japanese property bubble.

Property is expensive, but it isn't a bubble.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

Profile "REPLY WITH QUOTE" Go to top
 
Trojan
Default APF Avatar


Alex Barton
16 May 2013, 11:51 AM
So with A$4,000 a month, will that amount allow him to service his debt?

Briefly looking into the Australian mortgage market, I would say he is probably paying 6.5% over 25 years. Assuming that he put 20% down in the A$1,400,000, his principal and interest will cost him A$7,562 a month!
If Mr Chen is playing 6.5% interest he is an idiot as all 4 major banks publicly offer much lower than that.
If someone wants to argue that the 6.5% is the average rate over 25 years, then I'll suggest rent over the 25 years will be a lot higher than $4k pm
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
Profile "REPLY WITH QUOTE" Go to top
 
Blondie girl
Member Avatar


stinkbug
16 May 2013, 03:05 PM
If it were a real bubble yields would be far lower. Yields were as low as 0.2% at the height of the Japanese property bubble.

Property is expensive, but it isn't a bubble.
Yes
Property is expensive but it isn't a bubble...

Such wah wah about inflated property prices..
themoops
16 May 2013, 02:56 PM
There's no question that it's a bubble, it's whether or not it will pop or will be able to be maintained. AFAIK no bubble has ever been able to be maintained.
Go buy yourself some bubble gum you got better chance of making bubbles.

Wah wah wah chucking a tantrum.
Edited by Blondie girl, 16 May 2013, 03:45 PM.
Newjerk? can you try harder than dig up another person's blog. My first promo was with Billabong and my name in English is modified with a T, am Perth born but also lived in Sydney to make my $$
It's Absolutely Fabulous if it includes brilliant locations, & high calibre tenants..what more does one want? Understand the power of the two "P"" or be financially challenged
Even better when there is family who are property mad and one is born in some entitlements.....Understand that beautiful women are the exhibitionists we crave attention, whilst hot blooded men are the voyeurs ... A stunning woman can command and takes pleasure in being noticed. Seems not too many understand what it means to hold and own props and get threatened by those who do.
Banks are considered to be law abiding and & rather boring places yeah not true . A bank balance sheet will show capital is dwarfed by their liabilities this means when a portions of loans is falling its problems for the bank.
Profile "REPLY WITH QUOTE" Go to top
 
themoops
Member Avatar
Ruby Member
stinkbug
16 May 2013, 03:05 PM
If it were a real bubble yields would be far lower. Yields were as low as 0.2% at the height of the Japanese property bubble.

Property is expensive, but it isn't a bubble.
Yields are often non existent and very much in the negative.

It's definitely a bubble.

This year has been a sucker's rally, and a rally for rich Chinese who want an escape property.
Blondie girl
16 May 2013, 03:44 PM
Yes <br />Property is expensive but it isn't a bubble...<br /><br />Such wah wah about inflated property prices..
<br />Go buy yourself some bubble gum you got better chance of making bubbles.<br /><br />Wah wah wah chucking a tantrum.
Not chucking a tantrum, just stating facts, you sound like you should be hosting Romper Room.

Is your family from Rhodesia or some African country?
Edited by themoops, 16 May 2013, 03:48 PM.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
Profile "REPLY WITH QUOTE" Go to top
 
stinkbug
Member Avatar


themoops
16 May 2013, 03:47 PM
Yields are often non existent and very much in the negative.

It's definitely a bubble.

Yields are not negative, Moops.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

Profile "REPLY WITH QUOTE" Go to top
 
Pig Iron
Member Avatar
Bogan scum

themoops
16 May 2013, 03:47 PM

Not chucking a tantrum
yes you are, it's been a 12 month tanty since you realized property isn't going to crash like promised.
I am the love child of Tony Abbott and Pauline Hanson
Profile "REPLY WITH QUOTE" Go to top
 
1 user reading this topic (1 Guest and 0 Anonymous)
ZetaBoards - Free Forum Hosting
Free Forums with no limits on posts or members.
Go to Next Page
« Previous Topic · Australian Property Forum · Next Topic »
Reply
  • Pages:
  • 1
  • 3



Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.

Forum Rules: The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.

Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.

Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.

This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.

For more information go to Limitations on Exclusive Rights: Fair Use

Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ

Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy