Why Australia really IS different

Discussion in 'Property Market Economics' started by keithj, 19th Feb, 2016.

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  1. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Partly agree as already mentioned in my earlier posts. The direct causality is difficult to establish (also mentioned by the authors of the paper) due to following factors:
    • Simultaneous Events: The country was already under a recession and a high interest regime was in place, so it is difficult to segregate the consequences of simultaneous events viz. recession, high interests and TRA.
    • Scope of TRA: The TRA was a far a far more ambitious and broader instrument than the current political speculation in Australia. Marginal tax rates was just one of the components (NG, CGT, Cost of funding, depreciation schedules) of TRA, rendering it even more difficult to unscramble the omelette. The composition of TRA was ( Italic is Australian equivalent):
      • Reduction in marginal tax rates. Our treasurer is already making noises for similar reduction in income tax in the forth coming budget.
      • Reduction in standard deductions. Has already happened in Australia (2012-13 ?)
      • Depreciation provisions were amended to encourage home ownership rather than rentals. Not too sure about Australia. Hopefully others can fill in.
      • TRA 1986 eliminated distinction between Capital gain and other type of income however with a provision of 125000 lifetime tax exclusion for housing gains. In Australia we (both political parties) may well be headed towards phased reduction in CGT exemption.
      • Anti shelter provisions: Passive loss limitations i.e. passive losses could be offset only against passive income. Takeaway from this is that real-estate partnership sales declined by 90 % between 1985 and 1991. The ALP proposal appears to be a bit hazy but if on similar line wherein, the RE losses can be offset only against RE income, the effects will be monumental.
      • Other Provisions: Removal of amortization of interest on builder bonds and limits on tax-exempt financing for housing development raised the cost of rental construction. APRA guidelines are having an eerily similar effect of encouraging OO loans against investor loans.
    There is a broader (than marginal tax rates) point that you might be trying to make here (if I am permitted to interpret it as such), with regard to the major differences between the Macro economics of current Australia and TRA 1986:
    • Policies
      • Policy changes under consideration are not as broad as TRA, which might take the sting off a bit.
      • Pollies will not go as hard as USA, but try to drip feed the changes or grandfather them.
    • We have very low inflation as well as historically low interests here which might mitigate the effects. On the contrary:
      • Low interest and inflation did not help SG and HK much.
      • RBA has limited ability to encourage productivity unlike US 86.
    • Demographics as argued in OP will not be that significant. Might actually exacerbate the consequences.
    On the contrary, our economy is heavily (certainly more than US 1986 ) reliant on highly leveraged property. So the major economic policy changes even though limited to property, can precipitate a recession. Difference of sequence of events might (A BIG MIGHTY MIGHT) be as under:
    • USA 1986: Recession->Policy changes (TRA)->Property Crash
    • Australia: Policy Changes->Property Crash->Recession.
    I do see the differences between US 1986 and Australia today, just that in my opinion the sum of (similarities+negatives of differences) out weighs the differences. The severity of what actually happens will depend on the actual policy implementation.

    Nevertheless, thanks for a robust debate.
     
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  2. Perthguy

    Perthguy Well-Known Member

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    Hmm. Not sure I agree with that. My opinion is that the Australian Economy is heading into recession regardless, so it would be difficult for me to "blame" changes to negative gearing if they happened and the economy went into recession.

    Some other things to consider: TRA 1986 did not retain 'negative gearing' for new properties and I think the impact of this in Australia could be underestimated. If the changes were implemented and NG for new properties retained, it could result in increased construction of these types of dwellings (increased economic activity) and actually reduce the severity of the recession. However, in the longer term, it is possible that a price bubble could form in the new dwelling market with a resultant crash down the track.

    Agreed, it all depends on the actual policy implementation.

    Without any changes, it is possible there will be a severe correction in prices and a recession. With changes, it is possible the price correction in new dwellings will be less severe and overall that the recession might be less severe. Only for the new dwelling market to collapse down the track. Either way, the future is looking quite bleak in the short term.
     
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  3. Perthguy

    Perthguy Well-Known Member

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    Anyone who is not alarmed by those graphs is delusional in my opinion. Booms have never lasted "forever" and have always been followed by a price correction. The bigger the boom, the larger the correction. The graphs suggest this has been a sustained boom.

    While I don't agree with all of his predictions or conclusions, there is certainly a lot to be concerned about in this article:

    Uncovering the big Aussie short

    Interesting comments about Australian bank stocks: "We anticipate most bank shares will cut dividends entirely, raise capital and stock prices will likely decline 80 per cent."
    If the big 4 stocks dropped by 80 per cent, I would buy. :D

    Might be a good time to buy USD @barnes. "He also predicted the Australia dollar could trade to 40c against the United States dollar."

    So if you bought US dollars when AUD is 72c and sold when the AUD drops to 40c, you would made a killing ;)
     
  4. DowntownBlock

    DowntownBlock Well-Known Member

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    History suggests that whenever someone suggests a country is different (exceptional argument), this is always corrected...
    Here we have one of the most respected hedge fund managers in Australia going short on Australian Property. Good luck everyone..

    Uncovering the big Aussie short
     
  5. Perthguy

    Perthguy Well-Known Member

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    Hey! I just linked to that article ;)

    By the way, how do you "go short" on Australian Property?
     
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  6. Tyler Durden

    Tyler Durden Well-Known Member

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    I find it ironic that it takes an Indy film and an American doomsdayer to get Australians to look at charts that our own economists have been trying to get us to look at since at least 2010.

    I guess that's the kind of drama that MSM loves.

    How do you go short on Australian RE?

    The banks of course, perhaps Genworth (LMI providers), McGrath anything RE related on the ASX. Easiest way would have been to buy up a bunch of USD ETF's (or US RE) back when we were at parity, back when you knew it was too good to be true that you were earning near 200k PA in USD terms. ;)
     
  7. Perthguy

    Perthguy Well-Known Member

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    I have been following the charts for more than a year and planning to de-leverage for longer than that (done and dusted now). I doubt many Australians will take these charts seriously.

    Shorting Aussie banks right now would feel like gambling to me. I will almost certainly be proven wrong but I am not comfortable risking my money by shorting stocks. We should list the stock prices now and compare in 3 monthly intervals until we all wished we had done it :p
     
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  8. Tyler Durden

    Tyler Durden Well-Known Member

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    Sorry, I was quoting you but didn't mean to imply that you weren't watching the charts yourself, I've read enough of your posts to know where you're at...;)

    Just a generalisation about MSM and the average Aussie punter.

    I wouldn't risk shorting them yet either, I've never been short anything on the ASX. Wouldn't know where to start. :p
     
  9. Perthguy

    Perthguy Well-Known Member

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    Makes sense. Any market is subject to herd behaviour. In this thread or another thread, it was posted that Joe public in America realised a problem when a major investment bank failed. I see that general public in Australia as more savvy than that. They have followed the crowd into property and won't realise there is a problem until it is too late.

    I think it could be an opportunity for those who know what they are doing. Not the the inexperienced IMO.
     
  10. barnes

    barnes Well-Known Member

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    Sell now, buy later at a lower price. :)
     
  11. barnes

    barnes Well-Known Member

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    I have never been long on anything on ASX. :) Only shorts. Because the market goes up by the stairs and rides down using an elevator.
     
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  12. Perthguy

    Perthguy Well-Known Member

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    Sounds like a good strategy :)

    Do you think you will short this crash?
     
  13. barnes

    barnes Well-Known Member

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    I'm shorting it but not on ASX. I quit ASX in 2007 in favour of Forex and never looked back.
     
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  14. Tyler Durden

    Tyler Durden Well-Known Member

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    Hopefully you'll do ok. It's cyclical like everything, I guess it only ever really hurts the over leveraged, the impatient or the complacent (which is probably most of the herd :p). The stairs I've been on since 2003 (career earnings and RE) have been so kind that I don't need to do anything too drastic except keep topping up my HSBC account.

    I'm sure there will be opportunities on the downside too but I'll just be an amused spectator.
     
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  15. Barny

    Barny Well-Known Member

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  16. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    The last suggestion from the article

    The simplest way for the individual Australian to short the property market is to sell the home and rent one instead.

    Anyone contemplating selling PPOR ?
     
  17. Redwing

    Redwing Well-Known Member

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  18. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    I am trying unsuccessfully to get my hands on following data (either USA or Australia preferably both)
    1. Corporate vs private (OO and investor) ownership of residential property ?
    Any ideas ?
     
  19. seachange

    seachange Well-Known Member

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    I just have! Sold my PPOR and moved into a rental. Prices are still booming in the eastern suburbs ( I was fortunate to make about 15% more than expected in my sale). Places I've been looking at recently - the more appealing ones anyway- have been consistently selling for about 10-20% over auction price guide. Question is how long it will take to slow down. Unless interest rates go up , I don't think they will..
     
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  20. JayWin

    JayWin Member

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    So, what happened here? Property still going strong I see.
     
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