My question for people is:
Is there going to be an almighty property crash worldwide and more relevantly for most of us here in Australia?
Keep in mind that positive cashflow properties are getting harder to find even for the seasoned investor. For many people purchasing a homes was hard before and it is now impossible. The first home owner’s grant is being reduced at the end of the year.
Great investors are predicting a crash. What do you guys think? Is it time to stay out of the market and invest once the rubble has settled or are we going to go up forever and ever?
Taken from a post by “redwing”
Interesting Post..
Legendary Funds Manager Predicts Utter Global Collapse Stemming From
Bursting of property bubble.
In a recent interview on CNBC with Ron Insana, one of the “old-timer”
funds manager, Julian Robertson, predicted “utter global collapse” as
a consequence of the bursting of the world-wide property bubble.Often called “Never Been Wrong Robertson”, the former head of Tiger
Management (once the largest hedge fund in the world), is extremely
worried about the speculative bubble in real estate.Specifically, he is very worried about a world that is sustained by
American consumer spending which is in turn 1/4 sustained by a
property bubble. He predicts that 20 million people could lose their
homes once the property bubble bursts.Even more worrisome, he thinks central banks around the globe out of
desperation will try to re-inflate the world economy with more
liquidity that will create an inflationary spiral unseen in the
economic history of mankind.“Where does it end?”, Insana asked Robertson. “Utter global
collapse,” he answered. But not just economic collapse … collapse
of epic proportions. Collapse and disintegration of all
infrastructure, including government. Inflation will run into the
double and triple digits. “Food production will fall. People will be
carrying around U.S. dollars in wheelbarrows like Germany,” he said.There will be “total collapse of public infrastructure. Total
collapse of medical care systems. All public pension plans, Social
Security will collapse. All corporate pension plans will collapse.”“The American consumer is effectively now supporting the rest of the
planet,” he continued. “Consumption rates in all other nations are
falling, have fallen to the point that the tax revenues to
governments, that the business and industries those nation states are
providing is now a net negative number relative to total debt service
and public cost, that this exists in virtually every nation state on
the planet now.”And for much of this “doom”, interestingly, he blames the Bush-
Cheney “regime”.“They have now consolidated power and money on the planet to the
maximum extent possible. The planet’s net liquidity, that is its, net
free cash flow. Is now a negative number. The planet is not simply
sinking into a sea of red ink; it is already sunk. The people just
don’t realize it yet,” he said.According to Robertson, “the Bush-Cheney regime is preparing the
nation for transition from democracy into dictatorship because a
dictatorship will be necessary to control, in 5 years time, food and
water riots.” He said “the federal government, that part of Patriot
II Act, the internal exile, that the government is going to have to
build now huge detention compounds on federal lands, probably in the
West where the land is available, to potentially house 50 million or
more citizens that will be in financial ruin.”In 10 years time, whoever is left will be effectively starting again,
he said.“More importantly, and I’m trying to think how we imply this or how
we express this to the people, what extraordinary times we are living
in and how the destruction of the planet has been engineered by the
Bushonian Cabal from 1980 to 1992, and then from 2001 to present,
which has effectively destroyed the economic liquidity of the
planet,” he said.Robertson ended the interview by saying that he hopes he is not alive
to see this.“The lucky ones are the ones who are my age now,” he said.
Guys,
I have found the following links to information which you may find useful.
1. Robert Kiyosaki predicting a property crash (Thanks Steve McKnight)
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/07/24/REGKEDRPF11.DTL2. CPA Australia predicting a minor down turn
http://www.cpaaustralia.com.au/cps/rde/xchg/SID-3F57FEDF-8EF7A826/cpa/hs.xsl/724_15238_ENA_HTML.htm3. Pam Woodall, Economics Editor at the world’s most venerable financial journal, The Economist. She predicts that house prices are going to plunge in Australia
http://www.abc.net.au/worldtoday/content/2004/s1058123.htm4. Jenman article entitled “THE COMING PROPERTY CRASH”
http://www.jenman.com.au/NewsNews1.php?id=60Hi,
I’m most worried about the following issues:
1. Negative Savings
As nations, Aust and the US (incl. our governments) spend more than they earn. At a household level, this is only sustainable once the credit card has gas and then, once maxed out, life becomes a lot harder.
We have been inching closer to our credit limit for a while now and I fear that we are using one credit card to pay off the other rather than solving the spending problem through controlling our desires.
2. Retained Wealth
Following on, it seems to me that the recent property boom changed the mix in the way that households held their wealth from ‘realised’ to ‘unrealised’ means.
That is, previously households had wealth in the form of cash or ‘real’ equity in the form of homes with low debt.
Now however, after a property boom, a lot of wealth is tied up in unrealised property appreciation that is underpinned by high equity redraws where the funds have been used for consumption.
This is again not sustainable given falling property values will expose over borrowings and result in a net asset deficit situation.
In summary, instead of owning ‘real’ wealth, people have ‘perceived’ wealth held in a notional sense.
I don’t know if a crash will occur, but the conditions are such that our available credit won’t last forever.
What should we do then:
1. Try to change the way we structure our portfolios away from a highly leveraged position into a more moderate position (well under 80% LVR)
2. Monitor world events very closely
3. Avoid enmasse long-term buy and hold positions in property given the uncertain times.
My final comment is that it is okay to predict doom and gloom, but you must also try to assist people to find safety.
Oh, and very finally, it won’t be an event that causes a crash, it will be the panic reaction to the event that causes widespread financial losses.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi melbdude26
Everyone has a view and mine is the opposite to steve.
I explain to my people the view that there is nothing wrong with debt.
debt is not bad if you have the following.
A. A tennent or borrower that can service the loan with all charges taken into account.
B. An item(this doesn’t just work for property)that grows in value at a rate above the cpi ( and in your agreement you put in cpi increases)
C. You have a ready market to dispose of the item if need be.
If you have all of the above then I would look at multiple millions in debt.
I agree with the consumption problem and that will become a very large problem for some house holds.as for.
3. Avoid enmasse long-term buy and hold positions in property given the uncertain times.
I would be looking at the opposite if the above is gained and you find a property that is doing the above.
I have never worked on the pull down the shutters and wait idea.
I swim against the waves its a lot more successfull and use these properties that are similar to above to leverage to the next level.here to help
Interesting comments Steve … I agree
We know that over spending is a problem however we are doing nothing about it …
We are living in an age of toys – temptation – and easy credit or free finance stratagies to make company sales. This i believe is sucking people into debt.
Our mums and dads learnt to GO WITHOUT but us no way, we WANT IT NOW, who cares we will be dead one day anyway?? – where did this attitude come from.
We are made (marketing) to feel that we are loosers if we don’t have the latest gadgets. We don’t go the auctions and buy a good cheap car cash, we put a 500.00 deposit on a nicer car and finance this rest to look good.
So my suggestion is, get real don’t get sucked in pay cash or not at all. Get a second or third jod and save save save. If you study the imigrants coming into Aus they work their guts out and buy property – the local Aussie is getting lazy and getting into huge debt.
Phil
Another article to add to the mix.
http://www.economist.com/cities/displaystory.cfm?story_id=4079027&fsrc=nwl
have you read the post on what cars we drive, who’s NOT going without.
Seems most property investors live in neglegted homes and drive beaten up cars.
We buy properties in Adelaide. Immediate Cash Settlements, No Real Estate Agents, No Fees.
[email protected]
phone 0412 437 582If you plan for a crash now, you can be geared up to pick up lots of property cheap when it happens!!!
We buy properties in Adelaide. Immediate Cash Settlements, No Real Estate Agents, No Fees.
[email protected]
phone 0412 437 582and thats just it dr.x! i say bring it on. for those of us that live without credit cards and expensive consumer debt, are well placed to take advantage if the proverbial hits the fan. but as nation we are in dire straits if we don’t address the issues that steve’s has so rightly mentioned.
Dr X,
This was the point I was attempting (probably unsuccessfully as usual!!) in another recent post about Panic Selling in Sydney who are experiencing a crash of sorts. If you are prepared and can get cash, wouldn’t now be the time look at opportunities?
cheers
Jan
So to me the obvious question is how much do you want it to drop before you buy. I’d like to buy a waterfront in Hunters Hill SYD for 1 million dollars but i just can’t see that happening – da
Or we could cash up and move to NZ with change in the bank – what about the U.S Steve buoght 30 properties there for a lazy million, lets go!!
Phil
if the end of our economy as we know it is nigh I really don’t think any of us will be in a positon to buy real estate, much less care.
I dont buy this whole line that depriving and beating yourself up will make you rich. loosen up guys, you ahve to live a little along the way.
http://www.megapropertygroup.comINVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
I too am concerned at my risk exposure in the future property market. Something has to give to chill the market. I don’t know what, but I have a feeling that if my LVR and serviceability are ordinary, then I won’t like it.
For myself, I have been selling off the mould and keeping the gold. Meaning I sell the problem properties, be they excessively negative or fraught with high vacancies/maintenance and using the profits in realised capital gains to pay down the loans on the gold ones I have left.
Proverbs 22:7 “The rich rule over the poor, and the borrower is servant to the lender.
I have no wish to be servant to my lender via maintaining and tenanting IP’s with them owning 80% and me doing all the work and only owning a mere 20% share.
Cheers Brenda[biggrin]
If you want to get out of a hole, first stop digging.
I thought that you guys might find the following article interesting
http://www.investopedia.com/features/crashes/crashes4.asp
The Florida Real Estate Craze
When: 1926
Where: FloridaThe amount the market declined from peak to bottom: Land that could be bought for $800,000 could, within a year, be resold for $4 million before crashing back down to pre-boom levels. The prices were so inflated that to buy a condo-style property in 1926, you would’ve had to pay the same as you would now have to pay for a luxury home in the guard-gated communities in Miami ($4,500,000)–without adjusting for inflation!
Synopsis: In the 1920s, the United States of America was chugging along like the British Empire of the 1700s, and it was only natural that people were beginning to believe such prosperity was infinite. But it wasn’t the stock market that was the recipient of a bubble. It was the real estate market.
In 1920, Florida became the popular US destination/residence for people who don’t like the cold. The population was growing steadily and housing couldn’t match the demand, causing prices to double and triple in some cases, which was not exactly unjustified at this point. But, news of anything doubling and tripling in price always attracts speculators. So, once people began pumping huge amounts of money into the real estate market it took off. Soon everyone in Florida was either a real estate investor or a real estate agent.
Unfortunately, the rules are the same whether you pay too much for a stock or for a piece of land: you have to make that much more to claim a profit. This did happen for awhile, and land prices quadrupled in less than a year. Eventually, however, there were no “greater fools†to buy the disgustingly overpriced land, and prices began to adjust ever so subtly. Speculators realized there was a limit to the boom, and began to sell their properties to solidify their profits while they could.
Then everybody simultaneously saw the writing on the wall, and panic selling ensued. With thousands of sellers and very few buyers, prices came down with a sickening thud, twitched a bit, and then crawled down even lower.
Hi Brenda – just to follow up on your point “Proverbs 22:7 “The rich rule over the poor, and the borrower is servant to the lender.
I have no wish to be servant to my lender via maintaining and tenanting IP’s with them owning 80% and me doing all the work and only owning a mere 20% share.”
note that they don’t own 80% of your property – all they own is the right for you to pay them back what they have lent you – an amount that is fixed and does not adjust for inflation. otherwise we would all be getting rich by leaving cash (ungeared) in a term deposit account – which we know simply won’t happen. as inflation erodes the value of th mortgage and property continues to grow in value (unlesss the earth explodes of course) then you will see your wealth grow.
http://www.megapropertygroup.com
INVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT
hi AUSPROP
just afoot note and if you cpi increase in your rental and leases.
Then it must grow quicker then the cpi because The return is the same at all times.here to help
The Julian Robertson interview sounded like a hoax and it was:
http://www.andongkim.com/articles/2005/07/cnbcstoryjrobertsonandongkim.htmA WHOPPING 80 per cent of Australians believe houses are overvalued and more than half expect prices to drop over the next quarter, according to a survey.
http://finance.news.com.au/story/0,10166,16053135-14302,00.html
Originally posted by Dr.X:have you read the post on what cars we drive, who’s NOT going without.
Seems most property investors live in neglegted homes and drive beaten up cars.
I did a search but cant find the thread on cars. Can someone post a link please?
More stuff on the voigtstr at http://users.bigpond.net.au/voigtstr
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