Unsustainable borrowing
 

How China fooled the world.

Having borrowed 15 trillion dollars in only 5 years it looks like China is riding on the back of the credit tiger in a very big way. It'll be interesting to see the ways that Australia will be affected when the bubble eventually bursts.

Meanwhile in Sydney and Melbourne, the prices being realised at property sales are astonishing.

http://www.macrobusiness.com.au/2014...ty-is-bonkers/

Written in the comments section by an estate agent:

Re: Unsustainable borrowing
 

Only comment on what I see around my area of Sydney.

A townhouse went up for sale here in November with a guide price of $480,000 (I realize Agents use the under value trick prior to actions, but anyway).

This two bed very average looking townhouse near a very busy road sold for just a shade over $600,000 to an investor and a month later was back on the rental market looking for new renters. That is massively over the odds for such a dwelling.

This is the story being repeated over and over in our area. Houses / units (very very average / even poor ones) are not even making it to open house views. So many signs with 'Open house cancelled' written on them, it is an investor frenzy around here.

We have building sites dotted around our suburbs now also as suburban homes are bought and knocked down, often in groups of 4 or 5 and big unit block replacing them. The feel of our suburb over the last 3 years has changed big time from a mainly individual house suburban area to increasingly a unit suburb which is putting more and more pressure on the road and schools around here.

I have been around Sydney on and off since 2002 and I have never seen anything like the activity of the last 12 months. I am not experience enough to comment of if this can be sustained but it is just totally crazy at the moment.

I have actually been taking photos to document the change of this area it is that dramatic!

Re: Unsustainable borrowing
 

There is another factor, the change in demographics here in Melbournes North over the last 30 years is astonishing. It's like watching a metamorphosis... and it seems to be accelerating, everytime a average house get bought it gets ripped down and a million dollar property or townhouses goes up in its place.

Which may explain some of the rush into some of these inner city areas... they're very different to what they used to be.

In other words there is real value adding going on with almost every purchase.

New arrivals really need to look at Fawkner in Melbourne if they want a very likely 100 pct plus return in the next 4-5 years.

Re: Unsustainable borrowing
 

I do wonder if the dodgy state of the chinese economy, and the boom in daft house prices for investor properties, are related. Sure the interest rates have come down somewhat - but the spike in house prices is silly even from an investment perspective. Its clearly bubble to prices well above what wages will sustain, and if Hockey decides to make negative gearing even slightly less enticing....

Re: Unsustainable borrowing
 

Indeed.

So many what I would call working class normal suburbs have houses selling for a million or more now. It has become almost the normal for suburbs to have a sale for a house over a million. It is hard work to get a good unit for under half a million now also.

This is one of the few press articles from the Australian Guardian that tells it as it probably is - http://www.theguardian.com/commentis...-problem-worse

http://www.bbc.co.uk/news/business-26225205

I am no expert on property financials and how unsustainable it all is but I think it is pretty clear that the last 12 months has seen some crazy activity.

If you are a regular reader of the Sydney Morning Herald apparently it is boom time all the time and radio commercials tell you it has never been 'this' good to jump on the property market bandwagon.

Re: Unsustainable borrowing
 

Absolutely they're related.

Re: Unsustainable borrowing
 

That is absolutely insane and frightening for locals just trying to get on the property ladder, its no wonder so many cant achieve it.

Re: Unsustainable borrowing
 

So here we have it, it's the fault of the Chinese:

http://www.abc.net.au/news/2014-02-1...market/5262374
http://www.sbs.com.au/news/article/2...wing-australia
http://www.smh.com.au/business/prope...129-31m1b.html

...On the other hand, thats bollocks - it's just a load of hot air:

http://www.news.com.au/finance/real-...-1226829064131


But wait, were due a 50% house price reduction - though I suspect if that happens it'll be because of a devauluation of the Aussie dollar:

http://www.investmentu.com/2014/Febr...own-under.html


:unsure:

Re: Unsustainable borrowing
 

I'm really not sure that $4bn of Chinese money would make that much of an impact? Sales volume for the past week in Victoria is $874m (from here)...that's one week. Maybe it was a big week but $4bn across Australia as whole over a year doesn't seem huge.

I do agree houses and units are overpriced...says he who bought one yesterday! :eek:

Re: Unsustainable borrowing
 

I'd say it's a perfect storm of many factors:

Low interest rates
Foreign investors
Insufficient housing stock
Super investments
negative gearing
etc

Good luck with your new house.

Re: Unsustainable borrowing
 

Thanks.

The question is though, which of these factors are going to dramatically change? While the government may enjoy exaggerating about the state of the public finances they simply don't have the stomach to tinker with the things that are under their control to change...negative gearing being the biggie. They also won't upset any apple cart that impacts (voting) Australians' god given right to real estate speculation as a means of playing the tax / super systems!

Re: Unsustainable borrowing
 

Unfortunately I don't think the government has the stomach to tinker with any of them. On the one hand we have people speculating with the property market - aided and abetted by government policies and on the other we have young Australians who can't afford to get onto the property ladder at all.

Re: Unsustainable borrowing
 

Ordinarily I might agree with you. However, sane rational competence isn't really a forte of abbott and the dumbarses - is it?

Fools rush in where angels fear to tread - that might well be their slogan...