Real estate woes
Real estate woes

Hat tip to The Big Picture

Does the growth of Chinese real estate purchasers give a lie to these statements?

  • It was the government stimulus that stopped Australia going into recession.
  • Australian house prices reflect immigration led demand. Besides, they are not high compared to income (Don’t ask me how this squares with Australia having the highest house prices in the world).
  • The great Australian exception of a credit expansion fed housing boom without a bust is no problem. Neither is the fact we are running a $50bn deficit in the midst of a mining and agricultural commodities boom. Under the Coalition we ran a $20bn surplus.

The US and UK are both deleveraging. Or at least their private sector is. Government is trying to maintain debt at unsustainable levels. No prizes for guessing how that will work out.

Australian house prices did not really contract. Their bubble has not popped. Our savings rate remains low. We are in effect continuing to dig ourselves into the debt hole. When our credit expansion stops and goes into reverse, we will almost certainly experience declining prices as per the US and UK.

The role China played in our recovery through its demand for our commodities is generally acknowledged. What is not generally acknowledged is that Chinese demand for our housing may have had an even bigger effect.  Chinese demand grew from 14% to 20% of the market over a million dollars in Sydney between 2009 and 2010. Anecdotally they were big purchasers in Melbourne as well.

The demand followed regulatory changes

“Canberra finally caught up with public ire yesterday when the federal government reversed rules – conceived in late 2008 to avoid recession and established in March last year – that relaxed the laws of property ownership by foreigners, in the name of market flexibility”.

The reversal of the laws, together with expected declines in foreign students could remove the prop from under our housing market. We will then see just how sound our banks are. The people of Australia may yet rue the billions the government has wasted.

The chart also reveals just how dependent Australia is on China. Lets hope they do not experience a hick-up, although it is inevitable that they eventually will. Australia could experience the effect of Chinese pulling their money out of our real estate, at exactly the same time they reduce their demand for our commodities.  Either of these under normal circumstances could cause a recession. Together a depression is not out of the question, particularly if we are running deficits before these “shocks” hit the economy.

UPDATE

Remember, America wasn’t the only country with a housing bubble. The world’s central bankers let a global housing bubble development. As I noted in December 2008:

… The bubble was not confined to the U.S.

There was a worldwide bubble in real estate.
Indeed, the Economist magazine wrote in 2005 that the worldwide boom in residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – an increase equal to the combined GDPs of those nations.

Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.

And the bubble in commercial real estate is also bursting world-wide. See this.

Source: Naked Capitalism

More on real estate woes here.



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