Yesterday the Australian property market hit the $6 trillion mark, with Melbourne as the country’s “best performer”. In the year to July, the market grew by half a trillion dollars (CoreLogic RP Data head of research Tim Lawless said), and in the past three months Melbourne was the best performing capital city – rising 6.1%.
Who is really benefiting here. All the talk is about “best performing”, “booming”, “sale prices on the up”. It all sounds so deliciously positive.
But what is the downside?
We have to live in houses, and everything we buy and depend on is housed in some building. This floor space is going up in value – so surely this means we will keep on paying more and more for everything. This means it becomes harder and harder to compete in the international marketplace – and Australia will lose more manufacturing industries.
Home mortgage costs, according to data collected in the Census, rose 38.5% from 2006 to 2011 in Australia, almost double the rise of household income. Rent rose about 50% in that time. And about 35% of people who own a home, have a mortgage.
So many Australians are benefiting in the short or medium term from past property investment, but will the next generations of Australia being paying the price in the future? It is not worthwhile making or inventing anything anymore in Australia. Australia’s big industry is just “sitting on” property and waiting for payday. But then what?
One of the winners in all this, is the banks. They must be having the boom of a generation. As the price of property soars – the loans become ever greater. With little effort (except maybe Carpal Tunnel Syndrome), they type a couple of zeros into their computers – and “create” money out of thin air. And these ever increasing loans will generate massive interest over the next 30 years. (How many trillion?)
And millions of people (and couples) will be working like busy bees for 25 – 35 years – just to pay off these loans and interest (and ever-increasing rents). It seems madness. Surely, there is a better system for 23 (plus) million people living on this vast continent.
So in the end, does this glorious rise in property not become a self defeating exercise? Or am I missing something?
The Chinese Question
There is another issue causing the rise of property.
Over the last few months I have been hearing more and more anecdotal stories of foreign (mainly Chinese buyers) purchasing land and housing in Australia. An associate said he knew of a Chinese individual that had been given a $300 million blank cheque from the Chinese government just to purchase warehouses around Melbourne – at any price. This associate (a part-time property developer) had just sold two homes and was given a $600,000 cash deposit. Cash from the boot of a car.
Another relayed a story of a real estate agent taking a Chinese client on a tour of 14 Melbourne homes. At the end the tour, the agent asked his client “Which one do you like?” “All of them. I would like to buy all of them”.
Whether these stories are factual does not matter. We know the trend is fact. Foreign buyers are snapping up property, raising the price of property – and the real estate agents and the government love the business.
But what about Australians? (and that includes all Australians that have immigrated from over 150 countries). This associate spoke of a sobering prediction – that most farmland will eventually be controlled by foreigners. Tony Abbott did say when he became the Australian prime minister, that “Australia is open for business”.
It seems Australia is up for sale – and being bought with Chinese money – money also created out of thin air.