Invasion of the Aussie property morons

Now that brain dead Australian property investors have pumped up their house prices to 50% over valuation – the most overvalued houses in the Western world, they are doing the same to property in New Zealand.

According to the Real Estate Institute of New Zealand, the national median price for residential property hit $300,000 for the first time in November, shrugging off the NZ Reserve Bank’s attempts to dampen property prices. The November New Zealand median price is now 53%
up on the same month in 2002.”

This over valuation is being driven by foreign investment – mainly Aussies.

According to The Age in “Property shines in land of the long white cloud“:

“AMID concerns that the
Australian property market is overvalued, local investors are
increasingly turning to New Zealand, to take advantage of its more favourable tax regime.

New Zealand agents and market participants say there has been a surge of Australian interest in New Zealand residential property, particularly in the bigger cities, as well as holiday destinations.

“The apartment market in Auckland has been pretty closely followed by the Australians, as has Queenstown,” says Howard Morley, national president of the Real Estate Institute of New Zealand.

Other destinations to attract significant Australian interest include Wellington and Christchurch, while Morley says some New Zealand developers are so keen to attract Australian investors that they are marketing exclusively to investors in Sydney and Melbourne.

The heightened interest in New Zealand property comes as an Organisation for Economic Co-operation and Development report this week found Australian property to be the most overvalued in the Western world, in relation to rents.

But while that may have concerned investors, the OECD report also found New Zealand property was overvalued, just a little less.

“The New Zealand market is a bit like the Australian market, but two years behind,” says Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors.

While there are some concerns about the New Zealand market, this hasn’t stopped Australian investors. “New Zealand (for Australians) is like what Spain is for the Brits,” says OzForex managing director Matt Gilmour. His foreign exchange business has found that around seven out of 10 of its clients who want to buy property overseas are investing in New Zealand.
In the past year the number who have transferred money to New Zealand to buy property has increased by between a quarter and a half, he says.

Others have observed similar trends.

Becton executive director Barry Shepherd has noticed more Australian property investors are buying into New Zealand. “They are saying I can hedge my bets and protect my basket of property investments by investing in a variety of places,” he says.

Similarly, realestate.com.au managing director Simon Baker says the company’s recently launched New Zealand website had around 20 per cent of its enquiries coming from Australia. He says there is strong interest from Australians about New Zealand property. Baker says the internet — as well as cheap air travel — was allowing Australians to invest overseas more easily. “It’s now easier to research a number of countries with the click of a mouse button.””

Perhaps it is time the NZ government looked at capping the levels of foreign property investment in New Zealand, so that New Zealanders can afford to buy property in their own country? Piss off Cher and Shania!

Anway, back to Aussie house prices being a whopping 50% over valued, David Koch, financial journalist, writer and and front man for Seven’s
morning Sunrise program says in the Sun-Herald:

All investment markets ride a boom/bust cycle but in property a bust can be followed by a long period of stagnation. Think about this:

* The Economist magazine’s property index shows that Australian house prices are overvalued by 50 per cent; that the last property boom was bigger than the dotcom bonanza of the late 1990s; and that the global housing market of developed countries has been on the same roller-coaster.

* Japan went through a similar housing boom in the 1980s, which triggered a bust that has lasted for the past 14 years and prompted a 40 per cent drop in values.

* An International Monetary Fund survey of house prices in 14 developed countries between 1970 and 2000 identified 20 property busts when real prices fell 30 per cent. Of these 20 busts all but one led to a recession.

The ripple effect of a major property bust is enormous. For example, we’re currently seeing a major softening in retail sales because of the property downturn.

In the US, 90 per cent of its economic growth over the past four years is attributable to the housing market. In Australia it wouldn’t be that high but it would still be significant.

If the housing market is in trouble,the economy is as well.

Remember John Howard’s masterstroke of the late 1990s? The only reason we didn’t follow the US and parts of Europe into recession was because of the doubling of the first home owners’ grant, which kept the housing market going and fuelled retail sales.

It may need Howard to play this card again to protect the economy from a hard landing.

As we’ve said before, the damage will be done in the residential
investment property market. Owner-occupied home values may stagnate for the foreseeable future but they rarely crash because owners will generally hold on to their property rather than sell during a downturn and crystallise a loss. It’s human nature.

This creates a stock shortage and underpins values. But investors could be forced to sell as financiers express concerns with values heading towards loan limits.

The fact that some banks are reducing variable home loan rates independently of a cut in official rates shows their concern at the weakness in the housing market. Banks make profits from lending and home loans are a big market for them. If new property buyers dry up, so do the new home loans and so do the
profits.

There are a lot of vested interests in the health of the housing market: the economy, banks and owners.

It’s a time to be careful.”

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