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Thursday, July 05, 2018

Why this house price slump is different from the last one

Post to Facebook on 12/11/2018 at 5:00 PM
Commenting on “Why this house price slump is different from the last one”
https://www.theage.com.au/money/investing/why-this-house-price-slump-is-different-from-the-last-one-20180613-p4zl7u.htm


It is easier to be an “expert” on hind sight. Being able to foretell before a price slump is the job of a Spherical Thinker who uses more than a virtual crystal ball, but has very perceptive mind.

If there was no “Chinese” invasion around 2011, the slump after 2009 would be unbearable. After the floodgate was opened, Australian real estate market went on a tailspin, and created a very unprecedented surge of property prices.

The then toothless tiger FIRB was to be revamped, and government given those in breach of the laws an amnesty to dispose of their properties acquired illegally.

New FIRB caused a stir, but many did not take heed. There was no credit squeeze yet, because many investors and agents underestimated the new investment policies, and in fact, these people were arrogant and showed respect to the aws.

I the meantime, China was also controlling the outflow of money from China. This double whammy was the start of the Chinese retreat. The hype began to die down, but there was no other market segment to fill the void.

The Australian lending establishments came in at the wrong time to tighten the credit in an attempt to curb the overheated real estate market. Property owners who purchased during the peak time paid too much, and will have difficult to recoup what they spent if they are to liquidate their properties now.

It is a scenario of stalemate. Many people who want to upsize or downsize need to sell their own houses first. Unfortunately, if no one is willing to budge to lower the prices, demand and supply will stall.

Prices of new buildings have also increased tremendously, and therefore many will be left unsold.

During the real estate boom, economy grows too. The state government can sing and dance but not for long because the amount of stamp duties and land taxes collected during the past few years were phenomenal. City Councils also benefited from Council rate collection, too. Although most clothing retail sales suffered, hospitality and other service industries did well.

Circumstances change, as I often wrote, house owners will have to sell the houses, not at the prices they expected to achieve.

The first batch of houses will be from mortgages who have difficulty in serving their loans. Paying high prices at peak time means many years of high mortgage payment for years to come. These mortgages need not necessarily be owner occupiers, they can be investors who have been conned to believe negative gearing the best investment strategy since the invention of slice bread.

The ageing population results in many have to sell their own homes in order to have sufficient fund to buy a place in an aged care home. Time is not on them, and they do not have an upper hand to demand an extraordinary price.

I still hold firm that the prices will continue coming down until 3rd quarter 2019 before they become stabilised.

Just simply blame the credit squeeze as the cause of price slump is laughable. I had to raise 40% as deposit to buy my first house, and I experience pay 18% for my housing loan.

Thank you for reading.