Why IMHO Aussie property is long overdue for crash -
1) Globally considered one of most overvalued
2) Property value much higher than other countries compared to income
3) Australian property barely had a correction during GFC and instead rose much more after that whereas several countries had sharp corrections / crashes in property during GFC
4) Australia has been too reliant on commodity super cycle and mining boom which made property also rise dramatically. Commodity bust could similarly cause property crash
5) During the mining boom, people working in the mining industry received astronomical salaries. This especially caused a sharp rise in property value in WA and Perth due to FIFO workers, etc. With a mining bust, these values may not be sustainable
6) Mining bust - much lower salaries, slashing of jobs, cost cutting on every front. All these could lead to lower property values in WA and Perth mainly and also all over Australia
7) Housing is a basic necessity but has become a tool of speculation. Imagine the outrage if people similarly speculated in other basic necessities like food and water and pushed the prices artificially higher.
8) As mentioned above, housing is not going up due to pure demand from end users but due to cash rich investors pricing out first home buyers, and consequent desperation of public
9) Negative gearing - this is an Aussie specific factor which contributed to boom and scrapping seems more than likely sooner or later
10) Foreign investors - It is not just investors but foreign investors pushing up prices. This might become a political issue in years to come
11) Chinese slowdown - Chinese slowdown has lead to decline in commodity values and the impact is being felt globally. Australia is too reliant on commodities and China, and this could hit property
12) Chinese housing slowdown - Several property investors are rich investors from China and other countries. China has already seen a sharp property price fall this year. There are several talks of Chinese ghost towns, with no inhabitants. When the Chinese property market crashes bad, Chinese investors could lose their faith in property as an investment and sell property worldwide
13) Investment cycle - Property has had a huge run since what seems like an eternity. All investments have their cycles. A sharp correction sooner or later is long overdue. What goes up sooner or later must come down at least partially
14) Rush for exit - Anyone falling iron stocks can see the spectacular crash this year in junior miners (85 to 90% fall). Several investors sitting on large profits often rush for the exit at the same time when the tide turns. The result is a spectacular crash.
15) Weak global economy - The global economy is heading towards weakness. There are talks of a second GFC which will make the 2008 one seem like a picnic. If this happens, Australia would be hit bad, too. Australia was saved the last time around due to strong Chinese demand for commodities but this may not happen this time around
16) Liquidation to pay debt - If another GFC style financial crisis were to come about, investors would probably look to first liquidate the most profitable investments (at that time). People hate making a loss and would not mind liquidating other investments which have yielded even a small profit. Property is the prime contender
17) Hot money - Massive money printing over the last few years by central banks in several countries have led to inflated asset values globally. The tide could turn...fast!
18) Lucky country? - Last but not the least, can Australia be called the lucky country when rapidly escalating home prices have lead to first home buyers being priced out. People cannot afford a basic roof over their head due to cash rich investors taking over the entire "inventory". Is this fair in the short and long run and is this really sustainable? Like I said earlier, imagine the outrage if cash rich investors took over the food and water supply!
All IMHO only. Please DYOR, and please do not take anything personally. Good luck to all - home buyers, sellers, investors, etc. Wishing everyone the very best! Merry Christmas and a happy 2015! Take care.
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