Nobel laureate, Professor Vernon Smith: "Pretty good bubble in Sydney & Melbourne"

Discussion in 'Property Market Economics' started by Guest, 30th Jul, 2015.

Join Australia's most dynamic and respected property investment community
?

How large a nominal bust (over 3 years) would confirm a bubble had existed?

  1. Over 10%

  2. Over 15%

  3. Over 20%

  4. Over 25%

  5. Over 30%

  6. Other

Results are only viewable after voting.
  1. Bayview

    Bayview Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    4,144
    Location:
    Inside your device
    It is not about trying to make folks poorer. :rolleyes:

    Considering that most of the population (most of voters) are at or below average wage (the workforce is a pyramid; with most of the lower paid below the average), it is not in the Gubb's interest to try and make their voters poorer and decrease their revenue (taxes) base, and/or risk not getting re-elected.

    It is the Gubb's job to encourage an economy for growth, to encourage businesses to invest, to grow and provide more jobs, more infrastructure and basic services

    This proposed change has been intialised by the plethora of businesses which are closing/have closed on that day, and/or cutting Staff.

    This is because due to the pay rate, it is not viable for them to be open, or to staff the premises correctly. Some folks think that bosses make a squillion on a Sunday. If so; why are they closing the doors?

    If the staff levels are not correct, and the service suffers as a result; the business will probably not be as profitable, and will close anyway. Noone gets any work.

    If businesses close just on that day, noone gets any work.

    If businesses are open - and paying staff at a reduced penalty rate; the business may be able to stay open and make a profit, and more folks get work.

    The key word there is REDUCED.

    The workers are still getting paid above the normal rate under the proposal.
     
    Last edited: 12th Aug, 2015
  2. Bayview

    Bayview Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    4,144
    Location:
    Inside your device
    What most folks fail to realise is that most of the wealthy families and rich investors started off as young folks with no assets.

    They did not suddenly wake up rich and successful at aged 20, and commence a property feeding frenzy.

    They bought a small one which they could afford, when they could afford it (at least; that's what I did) - not in the prime suburbs; but in a suburb which was cheaper and affordable for them.

    Then you build from there...work hard, save a bit, pay down some debt, and if you have the inclination to be bothered to try and provide your own future and have a bit of financial education...you might buy another property as an IP, or two or three, and a few shares, or go into business.

    At 24, I owned nothing. No assets at all.

    I had a car (which is not an asset by the way) - which had been hit by a kangaroo, and some clothes, and a job - not earning average wage.. a year later I got my first business as as the Resident Golf Pro at a small Country Golf Club. 1985 this was.

    No financial assistance whatsoever from friends or family. Started trading with no stock, no capital; just a 90 day credit arrangement from a few golf companies for about $5k of stock.

    And went from there, and arrived at a point in 2009 where I had a million dollars of equity across my portfolio of 5 IP's and a PPoR.

    Rich investor/wealthy family; indeed.
     
    Last edited: 12th Aug, 2015
    Catalyst, cheekykoon, Sackie and 2 others like this.
  3. TheSackedWiggle

    TheSackedWiggle Well-Known Member

    Joined:
    28th Jun, 2015
    Posts:
    1,826
    Location:
    canberra
  4. headsonbeds

    headsonbeds Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    155
    Location:
    Brisbane
    I think 20 to 30% that's what the US moved down by, but I doubt it will happen. As others have said when does a boom turn into bubble and then to bust. The GFC makes so much sense now but didn't even appear on most people's radar 6 months before it happened.
    Australia seems to like good speedy growth followed by slow and smaller loss, often these losses are only via inflation. There are exceptions like mining towns. I think the fly in the ointment at the moment might be APRA changes. It may reduce that usual closing of the get between Brisbane and the southerners but maybe not.
     
  5. HUGH72

    HUGH72 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    3,022
    Location:
    QLD
    Rental growth appears to be trending down to similar levels experienced from 1990 to 2002. But interest rates are so low which must be a major influence. House prices in Brisbane would have dropped by close to 10% in nominal terms 2011-12? That wasn't a bubble. I don't like the word as its too emotive IMO, is Sydney overvalued? Maybe but calling it a market bubble doesn't really mean anything, at the top of any market the last in will be those who lose money in the short term. A drop of 10% through a slow deflate is more likely but who knows.
     
    Last edited by a moderator: 10th Oct, 2021
    turk likes this.
  6. Tekoz

    Tekoz Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    1,374
    Location:
    Sydney
    Guest Something is happening with global stock market falling across the world. $3.3 trillion wiped out since China devalue Yuan. The biggest root cause of stock market crash is currency crisis or devaluation or currency wars by money printing, lower interest rate, etc. I really can't see the Fed reserve increase rate soon. What most likely scenario is this recent global stock market collapse is not contained then we will see more aggressive rate cuts and money printing in hyperdrive mode all over the world.

    The other issue is oil price is now below $usd 40 per barrel and most likely continue to fall to $20

    Anyway China devaluation is good for gold.
     
    Last edited by a moderator: 10th Oct, 2021
    RetireRich101 likes this.
  7. C-mac

    C-mac Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,348
    Location:
    Sydney
    No @acorn123 , APRA is only supressing those investors who are taking out loans (and loans from local lenders, at that!).

    So, lets run with this for a moment and assume for just a moment that 'everyone involved is playing by the rules' (even though many aren't...):

    - APRA makes life harder for local investors who need loans sourced from local lenders (i.e. 90%+ of local investors!)

    - So, home buyers should have a leg up, Yay! Hooray! End of story, right?

    - No. Foreign investors, who, lets assume are playing by the rules, swoop in with their local cash-only dollars (i.e. no loan, local or otherwise!) and JUST buy all that 'great' (read: I'm being sarcastic) OTP stock that is being built everywhere, even in the non '-wood' suburbs and other places where they tend to only selectively buy). Right? Right?? We build OTP everywhere and foreigners just buy, buy, buy ONLY that stock?

    - So, home buyers still have that leg up right?, because all those old established dwellings in the good areas they want, they now have a chance with, right? Yay! Hooray! Local home buyers get a chance!

    - Except, No, again. Foreign buyers are swooping in and still 'somehow' buying up all those eatablished properties. They arent touching the glut of poorly built OTP stock in areas that arent foreign or Chinese-favoured (you know, the seemingly endless stock that is coming online everywhere in the five major cap cities right now).

    - So, what clearly is happening is this: local home buyers dont stand a chance to buy the older stock in the better suburbs on bigger land plot sizes that they are wanting. That real estate wealth and position is slowly being transferred to foreign owned

    - So, what are local home seekers going to be left with? Sadly, only their 'choice' of THIS OTP crummy dogbox unit, versus THAT crummy OTP dogbox apartment, versus THAT one... all in the areas they dont really want to live in. They will be forced to overpay in the beginning, and then re-pay more in 3-5 years when their ******* apartment starts falling apart due to such god-awful build quality.

    And it really is frighteningly awful quality stock that is being built in so many places. Some of the worst I've seen in my life! I inspected some recently completed OTP units in both inner brisbane and south Sydney city areas (dont worry, dear god i had NO interest in buying anything, i just wanted to see if the rumors on quality that i heard, were true!)

    Local home buyers will loose out in cap cities unless they have deep enough pockets to go head to head against the Chinese endless pockets. So, only those already wealthy enough will stand a chance to win the properties they actually want!
     
    Tekoz likes this.
  8. Natedog

    Natedog Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    373
    Location:
    Brisbane
    My take is that your post above is talking about locals wanting to buy OTP?

    I don't see anyone in my circle or even many on PC that are remotely interested in OTP.

    AND I disagree that foreign buyers are swooping in buying every established property.

    There are definitely pockets of Sydney and Melbourne I see that are, but for most of the market it isn't.

    My opinion only, no hard facts
     
  9. radson

    radson Well-Known Member

    Joined:
    4th Jul, 2015
    Posts:
    1,563
    Location:
    Upper Blue Mountains
    Where are you getting this from? I imagine that education, financial services tourism and would be lurking somewhere in that top 20?
     
  10. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    great post, BB.

    I would suggest a bubble-pop has dire consequences; like credit tightening, lack of inter-lending etc and a similar risk profile attached to any and all debt no matter what for.

    you know, like 2008.

    a steadying of property prices though would signal a rationalisation of prices - without the above issues.

    I daresay the Sydney and Melb upswing were, for the most part, an upward correction due to a decade of lost growth and a catch-up for the 'false-start' in Melbourne.

    I do, however, also think there's a level of mania in there that's dangerous.

    I would suggest the market is still overheated.

    Much like the stock market - irrational bull runs come from overbought positions. Currently Sydney is "Overbought" and Melbourne would be a "Watch".

    The danger starts now. A mild cooling / price breather could be seen as a "self cooling moment" and then the real mania begins. That's dangerous and that's the worry.
     
    RetireRich101 and Bayview like this.
  11. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    ...but, what if they want to be poor? where's their choice?
     
  12. C-mac

    C-mac Well-Known Member

    Joined:
    26th Jun, 2015
    Posts:
    1,348
    Location:
    Sydney
    Hey @Natedog nah i was being a bit cheeky and sarcastic; locals mostly dont want the OTP crud being served up/shoved in their faces.

    Established houses-on-plots (houses only, not other property types) are realistically only in the hands of the wealthy and the (wealthy) foreign few. In Sydney and Melbourne.

    Like you, this is my opinion only - no hard facts. Just anecdotal observations in media, on the ground at inspections/auctions, anx observance of the language certain property types in Sydney are being marketed in.. I.e. youll find that a high volume of houses in many pockets of Sydney are aggressively marketed bi-lingually. Obviously the OTP stuff is too, but it concerns me that established houses that shouldnt be available to foreigners are:

    a) marketed bi-lingually
    b) auctions conducted in Mandarin, with bidders doing phone-in bids in Mandarin to the auctioneer. Seriously.. who is on the other end of that phone and why arent they attending themselves??

    Yeah yeah, sure theres the good old argument that i am being assumptivr that the Chinese language speakers at these auctions / being marketed to in Chinese language for these established houses ARE all Australian citizen buyers, but come on, it just isnt realistic to zay that.
     
    Natedog likes this.
  13. Kangabanga

    Kangabanga Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,497
    Location:
    Brisbane
    c-mac, come December this year ATO will swing into action and there will be a flood of houses up for sale through ATO forced sales. Which will bring in much needed moolah to our national coffers as well as a flood of supply :D

    Heck if the big multi-million net worth individuals are buying big ticket properties illegally (the $39 million Point Piper mansion Villa del Mare force sale in sydney is a case in point and more recent forced sale of 6 properties http://jbh.ministers.treasury.gov.au/media-release/070-2015/ ) , there must be a flood of smaller players from china doing the same thing.

    With ATO taking the reigns over from the tiny FIRB, its gonna be a field day come 30th November. In fact, I can see a mad scramble for the exit in November before the deadline comes about and word gets out to China. Christmas is gonna come early for the ATO this year.
     
    Last edited: 28th Aug, 2015
    Tekoz likes this.
  14. Bayview

    Bayview Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    4,144
    Location:
    Inside your device
    I don't think I've ever met someone who wants to be poor and remain poor.

    But I've met thousands of folks who are poor, or hand to mouth etc; and have given up on ever becoming rich, and look for ways to manage their poverty.

    I guess they do exist though; these are the folks who live in communes and wear hessian sacks and so forth, and live on fresh air?
     
  15. Bayview

    Bayview Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    4,144
    Location:
    Inside your device
    I think the irrational exuberance is from both PPoR and investors.

    I reckon so, otherwise most wouldn't bother investing.

    The more experienced investors will be planning for worst case scenario though; better cashflows, buy at the lower end of the cycle where possible, and so forth.

    I don't know that credit has gotten easier to obtain - except to say that very low interest rates have improved folks' serviceability currently.
     
  16. THX

    THX Well-Known Member

    Joined:
    24th Jul, 2015
    Posts:
    843
    Location:
    Sydney
    I think it comes down to plenty of people believing the reasons they are poor are beyond their control.
     
  17. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    It was sarcasm, BV....
     
  18. Bayview

    Bayview Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    4,144
    Location:
    Inside your device
    Ah! sorry Aaron - missed it. :oops::)
     
    Aaron Sice likes this.
  19. Aaron Sice

    Aaron Sice Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,588
    Location:
    Ocean Reef, WA
    as we move into spring, this "selling season" will determine if we have a boom or a bubble come new year's day.
     

We provide our clients with the opportunity to select their own investments from a wide range of ASX listed securities. We provide the research to ensure your selections will achieve the goals. This is the value of advice.