In a few days, you might read a newspaper column about the coming property Armageddon with somebody else’s name in the byline. They get paid for the column, and I get paid for the content. That’s the way my world works. Here’s the guts of it:
If you’re thinking of investing in property, forget it. You’re too late. Yes, some of your friends have probably got rich by loading up on interest-free debt and buying something they didn’t need, and couldn’t afford. They got lucky, for a while.
They’re about to get their financial arses kicked, and kicked hard.
The apartment market will be the first to collapse. Already, 60 per cent of recently built apartments in Melbourne and Brisbane are selling below their purchase price.
Average loss? 15 per cent, not taking into account buying and selling costs. Let’s say 20 per cent all up.
That’s with interest rates at the lowest they’ve ever been, and foreign interest in Aussie real estate the highest it’s ever been.
Within three years, the ‘value’ of Melbourne and Brisbane apartments (based on the inflated price people have paid) will fall around 40 percent.
Sydney will fare a little better; perhaps down 30 per cent.
As we know, the property investors you read about all the time don’t just buy one property.
They buy three, ten, 27. Most politicians own multiple rentals. One owns 47. This is why you only hear mumbling in parliament when changes to negative gearing are mentioned.
So when the bank comes knocking for more money because apartment prices have shat themselves, the houses hocked to the bank will be the next to go.
It’s like dominoes. Once you’re in trouble with the first mortgage, it doesn’t take long before house number six is underwater.
House prices won’t drop like apartment prices. Houses are more useful. You don’t have to move your furniture up and down the elevator for a start. You also own the land, unlike a flat where you just own the air between the walls.
Still, if you’ve just bought a rental property in Sydney or Melbourne, you’re in for a tough decade. Chances are you won’t see any real growth until 2027, when Tony Abbott will still have a bad combover, and still be trying to get his old job back.
If you’ve seen the movie The Big Short, you know what comes next. Don’t buy bank shares. Don’t buy shares in property companies.
Don’t invest in any business propped up by the property bubble. This includes the likes of Harvey Norman. When people are broke, they can’t redraw the mortgage and go shopping.
All this is before interest rates start rising in earnest. In the last week the banks have started testing the waters, pushing up investor loan rates. That’s only the beginning.
The good news? If you’re cashed up, there will be bargains to be had. In a few years that is.
Until then, don’t buy property. Please don’t buy property. The last in get burned the most.
Share this if you like. Pin it on your fridge. Just don’t buy property.
*Jarvis Cocker is a finance specialist
A LITTLE HISTORY ... June 12, 2015 ...