by tonytran2015 (Melbourne, Australia).
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(Blog No. 158).
#Real Estate, #property market, #bubble, #bursting, #crash, #Australia.
Inevitable bursting of Real Estate Bubbles in Australian inner cities.
As the Central Banks of major countries send interest rates slightly positive, property owners who have not been verse in calculating return and risks may have to carry out fire sales as they cannot afford the interest payment on the mortgage taken to buy those properties.
1. Owners have bought at the top of the market and there are few new buyers.
Figure: A bubble in any Real Estate Market is not much different from the bubbles in Share Markets.
There are reasons to think that Australian Real Estates are currently overpriced:
Some unseasoned owners had been tricked by Real Estate agents that Chinese immigrants would keep coming in, bringing with them gold and fortunes from China to buy up local Australian over-priced properties.
The Chinese government is not stupid to let corrupt officials move their ill-gotten wealth oversea through bank transfer.
Any undocumented money transferred to USA or Australia will be considered drug money by USA or Australia and will be confiscated by USA or America.
There is also a worry of loss of national identities that rises against high influx immigration, this will reduce current very high level of immigration.
2. Properties have been sold at more than economic utility values.
People only buy a property to have a place to rest and sleep and to go for work in the next day. When property prices are too high people don’t buy there, they will just go another extra hour or so to a cheaper area where they live with their families.
New train lines can bring people further from city centers and this lure new home owners into new suburbs opened up by new train lines. This will keep down property prices in the centers of existing cities.
3. Bank interest may go up, triggering the fire sales.
When bank interest was 0.1% or even negative people can borrow any outrageous amount of money with no worry. When interest start rising, they have to do the real work of paying the interest. This is when people have to do a fire sale to get back the money to discharge their mortgage. The problem is worse for people who used LOW DOC loans to borrow more (by overstating their incomes and currently owned assets) than they can actually afford in the long term.
The ones who sell late may lose a lot. There may be quite a rush at selling out all properties bought at outrageous price with borrowed money.
4. Federal Capital Gain Tax is applied with dishonest indexation.
When a property are sold, owners are usually liable to Capital Gain Tax. The index has not been honestly set by governments resulting in property investors having to pay more capital gain tax than on their actual capital gain.
5. Federal government policies to reduce insufficiency of housing.
To make more housing available to the population, the government may have a number of rule:
a. Foreigners cannot buy properties and have to divest from Australian Real Estates.
b. New kind of tax on unused rooms in properties (taxes on empty rooms) has been contemplated.
6. Local governments becoming parasites feeding on property owners.
To make the matter worse, many local governments in charge of day-to-day issues have now fed on property owners like leeches. They have forgotten how to run their main day to day tasks of:
Maintaining local roads, parks
Maintaining primary schools, kindergartens, child health care centers.
The service should only be based on their costs. There is no reason why council rates should be based on property values.
Now the councils (local governments) enjoy imposing outrageous “rates” on property owners to fund oversea trips of councilors, talking on World scale issues (like Global Warming), promoting ideologies (like LGBT campaigning, changing traffic signs to reflect feminist and LGBT promotion).
Councils now pay outrageous salaries to their top employees. The justification for that is NOT due to the quality or quantity of the work done by those employees but by the values of “rates” collected as a percentage of property prices in the councils! This is outrageous.
7. A booming population of parasites feedings on property owners.
A number of properties owners have now offloaded their properties due to parasitic practice against property owners:
a. Some tradesmen now quotes repairs, construction prices not based on their parts and labors but on the value of the property they attend to !
b. Body Corporates of communal housing (which was designed to have low running costs) specializing in giving blown up costs to rip off unit owners (who thought that communal lives bring saving).
c. Real Estate Agents now are not professional but only of flight by night quality. Many now specialize in ripping off property owners with overblown maintenance and management fees.
There will be a scramble for the exit on property ownership. The next bank interest increase may efficiently trigger it.
Added after 2018 Aug 02nd:
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