IvanM

Indeed but sheep like behaviour encourages more investors. You then multiply the availability of Chinese money (sorry rationally sourced finance based on carefully assessed risk) by the number of investors.

Steve2009

Can Chinese buyers invest unrestricted in Australia?

littda01

I think Ivan is talking about indirect Chinese financing of Australian mortgages (as China does with the US), in which case fair point :-) "sell us some rocks and stuff, and we'll give your banks some cash to lend to property investors".

Ivan your point about investor sheep is right - this is why there is always demand for an appreciating asset, until it stops appreciating. The people who get in at the end always suffer the most pain. But obviously they can only get in at all if the finance is there to play with.

Steve2009

That depends, suckers in Ireland who've been paying mortgages for 7 years now find themselves wiped out. Whereas the guys who bought in 2007 would only have been paying since then if at all. Not sure if either is better off. We're a long way from the bottom though. Maybe mid to late nineties prices by the time we're finished. Plus wages have been cut so in real terms we're probably already back to 90s prices.

littda01

Agreed - the guys who got in at the end usually are in the worst position of all, but they're not alone :-)

90s prices, you might be right. When you look at things in the long-term, say 50+ yr horizon, the period 1990-2010 may become viewed as a historical anomaly of unsustainable price growth.

freebo

I always think the term "investors" is somewhat generous when it comes to residential property, I prefer "speculators".

N.B. I'm not referring to people who're buying their own house to live in, I mean folk who take leveraged finance in the hope of making a killing on rental properties. They're speculating to make a profit, but they may, or may not realise their hopes.

Steve2009

My point was that if you'd been paying mortgage for 7 years and had to walk away, you've had to take more pain than a guy whose been paying his mortgage for only three years and walks away. The 'irrational exuberants' in Australia will say that the 'doomers' have been proved wrong year in year out, but if house prices get wound back 15 to 20 years in real terms then that becomes irrelevant. Imagine paying off your mortgage for 20 years to find out you've lost all your money.

freebo

Wow, I thought I was bearish - but I don't see that happening, price falls maybe but not to the extent above IMHO.

Steve2009

Who knows what will happen in Australia. But that's what has happened in Ireland. We never thought we would see it either. I think even the most bearish were wildly wide of the mark. Isn't this effectively what happened in Japan too? Or worse?

If you look at this graph then would twelve to fifteen years be unreasonable?
http://static.seekingalpha.com/uploa...an-Onselen.jpg

lapin_windstar

Not quite!

Average wage in NYC is $1,055.95 per week / $54,909.40 per annum. http://www.crainsnewyork.com/article...FREE/100909958

Average wage in NY County is $1,520 per week / $79,040 per annum. http://www.bls.gov/ro2/qcew9350.htm

MartinLuther

It would feel like you've rented the place for the last 20 years. Although without the landlord risk.

MartinLuther

I always thought something was going to go tits up in Ireland after they joined the Euro, giving them all that cheap credit and people started building properties at an unprecedented rate.

IvanM

That is correct. To keep the Yuan down the chinese government has to buy investments elsewhere. This shows up in the current account defecit which indicates a high level of borrowing from overseas.

In the US the Chinese own several hundred billion dollars of RMBS!

It is just another distortion that currency manipulation generates.

freebo

Not quite, in Australia renting seems considerably cheaper than buying. So IF the above happened you'd also have saved a bunch of money which could (at least) have been earning interest in the bank.

MartinLuther

I thought we were talking about Ireland.

Also, if we are talking Aus, then would it be much cheaper to rent over 20 years than to pay a 20 year mortgage? I suspect after 7 years they'd be breaking even and after that the mortgage would be cheaper.