Forum Replies Created
The Julian Robertson interview sounded like a hoax and it was:
http://www.andongkim.com/articles/2005/07/cnbcstoryjrobertsonandongkim.htmYep, the whole shebang depends on the commodities boom continuing.
Some analysts think the commodities boom is part of a ‘super-cycle’ driven by China emergence as an economic powerhouse, others see commodity prices softening or plateauing in coming months.
Its notable that steel prices have softened recently, so perhaps coal and iron ore prices (the main inputs for steelmaking and Australia’s most valuable commodity exports) aren’t far behind.
Steel Input Commodities: Is The Next Move Down?
http://www.aireview.com/index.php?act=view&catid=5&id=2206Chinese Steel Demand Softening
http://www.aireview.com/index.php?act=view&catid=8&id=2408Don’t Buy Steel Recovery Story, Says GSJBW
http://www.aireview.com/index.php?act=view&catid=5&id=2346Anyone who thinks these tax breaks are better than lower tax rates needs their economic head read.Hear Hear!
Amazing divergence of opinions on the effect of the removal of the vendor tax. Louis Christopher, head of research at APM reckons it will put a floor under prices, while Gittins and other economists predict it will trigger further falls as lots of sellers come onto the market.
One thing’s for sure volumes will be up, and lets face it, turnover and cashflow is what the real estate industry cares about.
Fascinating post Terry W.
Its interesting to see the wildly different attitudes to property investing in different countries. Most of the Anglosphere (UK, USA, NZ, Aus etc) has gone property crazy in recent years, while most of continental Europe and Japan couldn’t be less interested.
In Australia, perhaps as much as 50% of our economic activity revolves around property, whereas I’d guess less than 10% of the Japanese or German economies would be property related.
Makes you wonder how and why so much ‘wealth’ has been generated in Australia recently out of buying and selling houses. Where has all the money come from?
Has anyone considered that abolishing the vendor tax will bring a flood of sellers into the market and who have been holding onto their IPs because of the vendor tax?
More sellers means lower prices.
So you think, WA will have 4-5 year growth?No idea … depends when the resources boom ends. Bear in mind that prices (and demand) for resources are at record highs and no-one expects these prices to last forever.
Simple answer: Resources boom.
There’s a lot of money sloshing around WA at the moment, it has to go somewhere, and Aussies being Aussies will put it into houses before anything else.
Do the new Peugots have such engines? The fuel consumption on their mid size diesels are incredible. If they can run on bio-diesel I might be interested.
Any idea?Peugeot makes good diesels, but I recently sold a late model Peugeot because it fell apart on me (literally).
I now own a 2.0L VW Golf turbo diesel. This car has the same torque (320Nm) as a 3.5L V6 at only 1750rpm, but it uses just 5.7L/100km (official numbers) and less than 7L/100km in stop/start traffic. On a trip from Canberra to Sydney last weekend it used 4.6L/100km (or 61.5mpg in the old money).
The only downside to owning a diesel is finding a pump, and when you do it might be a bit oily/greasy … but then you go to the service station half as often.
Biodiesel is very hard to find in Australia, and the Howard government made the situation worse recently by taxing small ‘home brew’ producers.
Check out these links:
http://www.farmersfuel.com.au/
http://www.pipeline.to/biodiesel/projects/aus.html
http://www.mypage.tsn.cc/biodiesel/
http://biodiesel.infopop.cc/eve/ubb.x/a/frm/f/939605551
http://forums.tdiclub.com/postlist.php?Cat=0&Board=UBB44Agreed. I won’t start complaining until prices get above $2.50/l. I think reducing our reliance on oil would be a good idea, and higher costs at the pump will help. Anybody who struggles to afford $1.20/l is likely to be lacking financial nouse.On a side note, today’s newspaper reports that Swiss scientists have developed a car using hydrogen fuel cell technology that “could circle the globe on 8 litres of fuel”. Neat.
Completely off topic, but fuel cells are blue sky stuff, massive infrastructure problems to solve with distribution of hydrogen etc. Far more practical are modern turbo diesels. A modern diesel engine will use 40% less fuel than similar petrol engine, produce similar power, and about twice as much torque. They are very clean burning and will run on biodiesel unmodified.
Over 60% of new car sales in Europe last year were diesels, which is 100x the number of hybrids sold worldwide. Also, several European countries mandate a percentage of biodiesel in all diesel fuel sold.
Frankly, while petrol is cheaper than bottled water we are never going to wean ourselves off our crude oil dependency.
I went to an inner suburban auction Saturday, beautifully finished new townhouse. Bizarre auction … hardly anyone there. First two bids were vendor bids, then the auctioneer went for instructions and two sales people worked on the two interested parties (took about 30 minutes, while we stood around like stale bottles of beer – some people left but we wanted to see the outcome).Not bizarre at all. That sounds like every auction I’ve been to in Sydney in the past 6 months.
FWIW, I can’t see a rapid fall in prices happening over the next few years, rather, I see a slow grinding decline for a decade or so. The market will only pick up when people stop talking about their investment properties at dinner parties.
Patrick, this is a pretty representative thread about the state of the market:
https://www.propertyinvesting.com/forum/topic/17947.html
My view (in brief):
– Not all cities the same, east coast markets have slowed with prices slowly drifting down, while Perth continues to boom.
– Volumes down sharply in east coast markets
– Properties take longer to sell in east coast markets
– Auction clearance rates around 50% (or below) in most east coast markets
– Barring some major shock to the economy, most analysts/economists expect market to stagnate for a decade or longer. i.e. no sudden crash.Interestingly very few economists/analysts are prediciting a house price crash in nominal terms, just about everyone expects a decade of stagnation.
Shane Oliver concludes:
In the absence of sharply higher interest rates or unemployment, both of which seem unlikely, Australian house prices are now in for a decade or so of stagnation as rents and wages catch up to justify current prices.If you look at the booms of the early and late 80s, both were followed by very modest falls in nominal terms, followed by a long period of stagnation. This boom-stagnation-boom-stagnation cycle is quite different to other real estate markets such as the UK, where nominal house prices have crashed 30-40% in the past, and I suspect will crash again this time.
I can see your view point , however by taking that view point , you will not change the way the Australian Property market works.No, the way the Australian Property market works has already changed. The bubble is deflating and we are very unlikely to see much real capital growth (i.e. above inflation) for the next 10 years. So your strategy of buying and holding property may have worked brilliantly for the past 10 years, but its not going to work for the next 10.
You may think our current account and foreign debt problems are irrelevant to your property investment strategy but they’re not. Our housing boom was funded by foreigners because our banks borrowed heavily from overseas. We can no longer afford to do this because our current account deficit now stands at 7.2% of GDP, our net foreign debt is almost 50% of GDP, and global interest rates are rising (esp. in the US) which means the cost of servicing that debt is rising.
See how its all connected?
Amused, people like you make me despair of this country. The great economic success stories of the past 60 years (Germany, Japan and now China) were not created by building houses, they were created with exports. You cannot create wealth by buying and selling houses, real wealth is created by selling something to the rest of the world.
I’ll leave you with this letter to the Economist magazine this week:
LETTERS TO THE EDITOR
The Economist
Publication Date: June 2, 2005Sir–You waxed lyrical about Australia’s 15 years of continuous economic growth. However, you gloss over the fact that Australia’s external imbalances have never been larger, even at a time when international commodity prices are booming and China is expanding rapidly. You also failed to note that Australia’s housing bubble and consumer over-indebtedness make the United States look like a paragon of frugality. A more balanced view might have asked what happens to Australia when commodity prices ebb and when China’s investment bubble bursts?
what r u doing about creating WEALTH for your futureI’m developing software and selling it to the world and fighting a losing battle to reduce our foreign debt. Someone has to!
As for investing I have no plans to invest in real estate for the next 3-5 years at least, apart from my PPOR. (I’m between houses ATM)
As for other investment opportunities, at some point in the future the AUD will have to fall 20-30% to correct our CAD, and when that happens our beaten-up exporters will benefit.
I may be a drop in the ocean, but Australia must change. Our current debt-fuelled housing binge is clearly unsustainable.
I just disagree that thumping the property industry is the way to achieve higher exports.I’m not “thumping” the property industry. There is a place in any economy for property investment and development. I’m simply making the point that the property industry in Australia has grown out of all proportions and sucked in resources from other sectors of the economy.
I read a stat recently that 3 out of 4 jobs in Australia are somehow related to the property industry. That’s horrifying! We desperately need to diversify and rebalance our economy if we are to get out external debt under control.
For all those thinking lower interest rates mean a renewed property boom should realise that the only reason the RBA would lower rates is if the economy struck trouble. i.e. a slowdown (or recession) and higher unemployment. This is not an environment where property prices rise.
This is the most interesting comment in the BRW article:
The Australian economy will take a cold shower on April 1 next year, when many large commodities contracts will be renegotiated down in price.resiwealth,
My main problem with the way Australia operates (and the kind of thinking that I find at this forum) is that we’ve become convinced as a nation that the one sure way to prosperity is not to work hard and save, but to borrow and invest in property. The obvious flaw in this thinking is that if all Australians did this we would rapidly become bankrupt, and (judging by the current account deficit numbers) this is already happening.
What is little understood about the CAD is that most of it is an income deficit (i.e. interest on debts owed to other countries) not a trade deficit (the difference between imports and exports). And why have our interest payments blown out? Because the banks (on our behalf) have borrowed heavily from overseas to fund a humungous real estate bubble. Unfortunately, when the bubble deflates Australia will learn to its detriment that our debt is real but our house prices are illusory.
At some point Australia has to reform its tax system to encourage people to work hard, save for their retirement, and create productive enterprises that earn export income to pay off our debts. At the moment we have a tax system that punishes you for saving (super, interest etc) and rewards you for borrowing (negative gearing). This is madness! You cannot have an economy where everyone has five investment properties and a mountain of debt. We can’t all be property investors, someone in Australia has to do some actual work!
Ross Gittins explains the relationship between the housing boom, household savings and consumption and our external debt here:
http://smh.com.au/news/Business/Welcome-to-life-after-the-housing-boom/2005/06/05/1117910186727.htmlSo to get back to the point. I feel a great sense of pride when I see my software sold and used around the world, but I am not particularly proud of having the luck to buy a property in 1993 and see it triple in value in 9 years. Its not clever, its not smart, its just pure luck.
If you look at previous housing cycles in Australia a boom is followed by an extended period (5 years or longer) of flat or slowly declining prices. This is what happened after the housing booms in the early 80s and late 80s, and there is no reason to think that things will be different this time. Indeed, the “flat to down” period my be longer this time because the boom was longer.
Regardless, we are now in a very different market to the boom of 1997-2003 and anyone expecting double-digit capital growth anytime soon will be sorely disappointed.
I bought a property in 1994 that every body told me i was an idiotSo you bought 5 years after the peak and before the boom. You’re a genius! What about the poor buggers who were still in school/univesity in 1994? They’ve been waiting >10 years for sensible prices to return.
today i am rubbing it in their faces because of the profit i have made.Really? You much be great company at dinner parties.
BTW, I bought my first property in 1993, but unlike you I actually feel some guilt and shame about the amount of money I made out of it. It was thoroughly undeserved.
