All over red rover? “I don’t think property can go up from here” – Banker

It has been a busy day on the news front today.

After reports of a First Home Buyers Strike and the claim that First Home Buyers have been priced out of the market, there was the announcement this morning that Prime Minister Julia Gillard will not only re-instate the first home buyers boost effective from midnight tonight, but also triple it. The new grants will give first time buyers $21,000 of free money on top of the current $7,000 to help starve of a housing crash in Australia. Then after lunch there was another announcement from the office of the Prime Minister. This time, effective the 1st of July 2011, negative gearing will be abolished to help create a fairer and more equitable housing market.

Today, is off course the first of April.

But on a more serious note, National Australia Bank’s chief financial officer Mark Joiner has said the Australian property market was fully valued and is likely to languish.

“I don’t think property can go up from here, It’s at the top of the range on affordability. It’s well out of line internationally.”

“Eventually people are going to realise that taking a 2 per cent pre-tax yield from renting a house that isn’t going up in value doesn’t make any sense, if you’re paying 7 or 8 per cent for the associated loan,”

His comments will come as a major blow to highly leveraged, negatively geared property investors. Negatively geared property investors fork out extra money each week to make up the shortfall between the rents obtained from their investment properties and interest payments on the loan. While the loss on the property each year reduces tax, they only help subsidise renters on the premise that they yield large capital gains at the end. Any notion, that house prices is fully valued and will no longer increase could make them head for the exit in droves. Worst still, if prices start falling, not only are they subsiding the renter, they are also taking a capital loss on the property – a shore way to loose your shirt.

Most countries don’t have negative gearing with the exception of Australia, New Zealand and Canada. While negative gearing helps speculators bid up housing on the upside, the consequences on the downside is unknown on the scale of our bubble.

ยป House investors to lose interest – The Herald Sun, 1st April 2011.


  1. BOOOOOOOOOOOOOOOOMMMMMMMMM! Told you to sell last year!!!! Now it;s toooooo late.

    I think the words UNDERWATER, POP and CRASHED will be used a lot in the coming months!!!!!!

  2. And now that all the fools have just started to see the truth of how over prices houses in Oz have become the fear will follow soon! Prices will continue to fall and fall and fall……. we have reached the end game ๐Ÿ™

  3. I had a couple of houses negatively geared in the 70’s but hated being a landlord. I was getting a kind of ‘chase every last dollar’ mentality and I don’t think that’s good for you. Dealing with RE agents and tenants wasn’t much fun and neither was repairing damage. I sold them into a boom a long time ago.

    There are many better ways of investing and making money. Even buying and selling out of your own property, at the right times, can be far better than negative gearing returns. Look at the return in cash, no tax, if you have the ability to time the market and don’t have to immediately buy a new principal place of residence. Such a time is now, if you sold at the last peak, May 2010, and can ride out the fall which is in progress now. Selling privately adds heaps to your return as does a FHB scheme.

    Being a BB and a grey nomad is a great option, as is renting.

  4. I dont want to be a kill joy, but I dont think the Australian real estate bubble will burst yet. An increasing population with a decrease in building starts can only lead to even higher prices!!! The Town Planners are ensuring a never ending under supply of land, ensuring that demand exceeds supply thereby leading to even more price increases. I am a small builder and I simply cannot buy reasonably priced land. I am investing my money elsewhere

  5. Fred, isn’t the reason why building approvals are plunging is because no one can afford to build?

    The shortage of houses in isolation to cost and finance issues is something the RE lobby groups also use. They assume if there was just five houses left in Australia, and they were $10 billion dollars each that they would have no problems selling them, and as others come up for sale they can demand $15 billion.

    I think the problem today is if Australian’s can actually afford to buy houses and service their mortgages with enough left over to spend/contribute in the domestic economy to keep jobs. If I remember correct, a lot of other countries all had shortages, then they had crashes.

  6. Fred
    What a paradox , you said prices will go up because of increasing population but then you state that you are not going buy. So .. why should someone else , if they cant afford it, and if no one can afford it and no one is buying , how are prices going to grow?

  7. I agree with Tom. The number of building starts is as much an indicator of demand as it is supply: builders only build when they have someone to build for. The fact that many builders currently can’t offload their pre-built stock is indicative of low demand, not restricted supply.

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