{"id":30846,"date":"2012-07-15T08:18:48","date_gmt":"2012-07-15T12:18:48","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/07\/why-the-australian-property-bubble-is-only-the-beginning\/"},"modified":"2012-07-15T08:18:48","modified_gmt":"2012-07-15T12:18:48","slug":"why-the-australian-property-bubble-is-only-the-beginning","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/07\/15\/why-the-australian-property-bubble-is-only-the-beginning\/","title":{"rendered":"Why the Australian Property Bubble is Only the Beginning"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

There are two things you can\u2019t discuss at the Smith\u2019s extended family gatherings. Religion and politics. And that\u2019s mostly because there\u2019s no talking when those subjects come up, just yelling, fist pumping and table thumping.<\/p>\n

And after a recent weekend gathering, we added a third \u2018no-go\u2019 topic. After all the noise, thinly disguised name calling and our colour blind electrical engineer uncle setting fire to the dining room table, we decided to never discuss\u00a0Australian property <\/strong>with them again.<\/p>\n

Chances are, we would never have discovered the passion for the\u00a0Australian property\u00a0market<\/a> if it wasn\u2019t for all the media attention toward the deflating Aussie property bubble<\/a>.<\/p>\n

<\/span><\/p>\n

Just this week\u00a0The Age<\/em> commented on rising negative equity for homeowners in the outer suburbs.<\/p>\n

\u2018Many people who bought houses on Melbourne’s fringes in recent years could be facing financial ruin after a slump in prices has left them owing more to the bank than their homes are worth, experts have warned.<\/em>\u2019<\/p>\n

<\/em>But that wasn\u2019t what grabbed our interest. It was further down in the article where a property spruiker changed his tune.<\/p>\n

\u2018The average plot of land in the outer suburbs is <\/em>[worth] half what it is in the middle suburbs and it is the land that appreciates, albeit slowly on the fringe. The houses they are building actually depreciate. On top of that, the\u00a0quality of construction is often cheap<\/strong>. So that’s what’s behind the negative equity.<\/em>\u2019 <\/em><\/p>\n

Say it ain\u2019t so? Aussie homes are built on the cheap? For years property spruikers told you the reason Australian house prices<\/a> are so high is because of the\u00a0high quality of Aussie housing<\/strong>.<\/p>\n

Six years ago, the Reserve Bank of Australia<\/a> suggested in a report\u00a0\u2018Australian House Prices\u2019<\/em> that the higher quality of new homes added to the overall housing quality in the Aussie property market.<\/p>\n

And then in September last year, the\u00a0Herald Sun<\/em> repeated something similar:<\/p>\n

\u2018Higher Australian property prices can also be justified by the higher quality of Australia’s housing stock, with renovations and extensions naturally adding value.<\/em>\u2019 <\/em><\/p>\n

In fact, even as recently as six months ago the spruikers were still claiming Australian housing stock was of a high quality. As Paul Bloxham, an economist at HSBC wrote in\u00a0The Australian Housing Bubble Furphy <\/em>report:<\/p>\n

\u2018First, the quality of the housing stock is high. Australia has the largest dwellings in the world, and they are of high quality. Estimates suggest that the average Australian dwelling is 214 square metres, and the real expenditure on new dwellings is now 60 per cent higher than it was 15 years ago, reflecting the increase in both the size and quality of dwellings.\u2019<\/em><\/p>\n

<\/em><\/p>\n

At the time, Kris Sayce didn\u2019t buy the spruikers talk. He told\u00a0Money Morning<\/em> readers in his article\u00a0Another Housing Market Myth Busted<\/a>, \u2018To our mind Bloxham had confused quantity of housing (the size of houses), with quality of housing (how good they are).<\/em>\u2019<\/p>\n

How is it that suddenly Australian houses have gone from being of the highest build quality in the world to cheaply built?<\/p>\n

You see, the idea that Aussie homes were of a high quality was just a myth, often used to support overpriced houses. And now those myths and hype are falling apart.<\/p>\n

But of course, an Aussie housing crash<\/a> is nothing compared to another, bigger property bubble…<\/p>\n

That\u2019s right, China.<\/p>\n

Economics professor Li Daokui from Tingshua University recently told the\u00a0Financial Times<\/em>, \u2018The housing market problem in China is actually much\u2026 much bigger than the housing market problem in the US and UK\u2026 It\u2019s more than [just] a bubble problem.\u2019<\/em><\/p>\n

Yes, We Really Mean Billion<\/h3>\n

<\/center><\/p>\n

Around 2009, hedge fund firm, Kynikos Associates, CEO Jim Chanos wanted to find out exactly why mining stocks were so profitable during America\u2019s great recession. His team came back with one word: China.<\/p>\n

So he started digging deeper. What could China be using all this copper, iron-ore and cement for?<\/p>\n

One of his analysts looked into it. He did the math. And checked his figures\u2026.three times. During the northern hemisphere summer of 2009, China was building 5.5 billion square meters of high rise space<\/strong>.<\/p>\n

Half of the construction space was \u2018office\/mix use\u2019.<\/p>\n

Chanos tried to put the data into perspective. He said:\u00a0\u2018Well gee, that\u2019s 30 billion square feet use for office mix use. And 30 billion square feet is a five foot by five foot office cubical for every man, woman and child in China.\u2019<\/em><\/p>\n

Using this information, Chanos decided China wasn\u2019t a stable economy.<\/p>\n

But that 5.5 billion sqm of high construction was over three years ago. And the construction hasn\u2019t stopped.<\/p>\n

Even though both home sales and demand for high rises are slowing, building is still going ahead at a rapid pace.<\/p>\n

At the current rate, every five days China completes a new skyscraper. According to a report by\u00a0Skyscrapers Magazine<\/em>, by 2016 China will have more than 800 skyscrapers taller than 152 meters. Four times more than the US.<\/p>\n

Less than two months ago, Chanos told CNN, \u2018We\u2019re bearish on China\u2019s property sector and the credit sector. This is a country that\u2019s in the middle of an epic property bubble and construction bubble that will end at some point and it won\u2019t be pleasant when it ends.<\/em>\u2019<\/p>\n

China Going From Boom to Bust<\/h3>\n

<\/center>
\nChanos isn\u2019t the only analyst who\u2019s negative on China.<\/p>\n

\u2018China is now on the other side of its boom,\u2019<\/em> says Greg Canavan, editor of\u00a0Sound Money. Sound Investments<\/em>.<\/p>\n

And the economic growth<\/a> numbers are just the beginning of a China slow down. Gross domestic product was down to 7.6% for the second quarter, down from the previous quarter\u2019s 8.1%.<\/p>\n

Consumer price inflation grew by only 2.2% and the producer price index (PPI) dropped to 2.1%. Since March, the PPI has fallen every month.<\/p>\n

\u2018I am absolutely certain that combining a credit bubble with a Communist regime was a recipe for disaster. The credit bubble is playing out like they all do \u2014 first the inflation, then the deflation. First the boom, then the bust,<\/em>\u2019 Greg tells me.<\/p>\n

\u2018The Chinese slowdown is gathering pace. This has major implications for Australia<\/em>.\u2019 <\/em><\/p>\n

As an Aussie, you can\u2019t stop the Chinese economy from failing<\/a>, but you can prepare your portfolio.<\/p>\n

Greg has detailed insight and information into what he believes is the most important development for Australian investors right now \u2014 how to protect your wealth from what he calls the \u2018China Bust\u2019.<\/p>\n

China’s economy is changing…and fast. If you want to hear what Greg has to say about the coming ‘China Bust’, click here<\/a>.<\/p>\n

Shae Smith<\/strong><\/p>\n

Money Weekend<\/strong><\/p>\n

The Most Important Story This Week\u2026<\/em><\/p>\n

The reason Australia managed to dodge a recession during the global financial crisis in 2008 was thanks to China.\u00a0 This was because China spent billions of dollars to stimulate its economy with huge levels of construction. This translated into huge profits for the big Aussie miners.<\/p>\n

Thanks to this Australia has managed to avoid the worst of the global recession seen in Europe and the USA.\u00a0 But just as China has held the Australian economy afloat so far, there is a massive risk that China will cause it to sink.\u00a0 See what Kris Sayce says in\u00a0How to Survive and Thrive from China\u2019s Bust<\/a>. <\/strong><\/p>\n

Other Recent Highlights\u2026<\/em><\/strong> <\/strong><\/p>\n

Kris Sayce on\u00a0Payday Loans: Why This Lender of Last Resort Isn\u2019t the Bad Guy<\/a>: \u201cBut there is one line of business that has resisted the urge to fiddle with interest rates. And not surprisingly, in a world where credit and debt have become dirty words, this line of business is doing very nicely indeed\u2026\u201d<\/p>\n

Keith FitzGerald <\/strong>on<\/strong> <\/strong>What I Wish Ben Bernanke Knew About Japan\u2019s Economy<\/a>: <\/strong>\u201cBen Bernanke and his central banking buddies think it\u2019s easier to print money than actually stimulate real growth. In doing so, they are re-creating Japan\u2019s \u201cLost Decades\u201d here at home with years of smouldering, piss-poor growth as our destiny. Yet it doesn\u2019t have to be that way. We can still choose a different path.\u201d <\/strong><\/p>\n

Dr. Alex Cowie<\/strong> on\u00a0What A Slowing Chinese Economy Means For Pork Chops<\/a>: \u201cIt\u2019s been well over a year since I tipped any stocks in iron ore, coking coal, and copper \u2013 commodities tied to Chinese infrastructure and construction\u2026But I\u2019ve steered clear of those commodities for a while, focusing instead on strategic minerals such as graphite and lithium. This strategy is to avoid the effect of the crashing Chinese property construction sector.\u201d<\/p>\n

John Stepek<\/strong> on\u00a0The Sticky Plaster Fix For the Spanish Economy<\/a>: \u201cThere was the prospect of the European bail-out fund buying sovereign debt too. And yet Spanish bond yields soon ran back up to around the 7% mark. So there\u2019s been another emergency discussion session. So here\u2019s the big question: is another eurozone disaster looming? The answer might surprise you\u2026\u201d<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nWhy the Australian Property Bubble is Only the Beginning <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au There are two things you can\u2019t discuss at the Smith\u2019s extended family gatherings. Religion and politics. And that\u2019s mostly because there\u2019s no talking when those subjects come up, just yelling, fist pumping and table thumping. And after a recent weekend gathering, we added a third \u2018no-go\u2019 topic. After all the noise, thinly disguised … <\/p>\n

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