With Australia's raw-material export economy intrinsically linked to China's, and Australian real estate prices (http://www.abc.net.au/unleashed/36294.html) reaching past US valuations at their peak, how much longer before this bubble bursts? AUD/USD prices can't be helping their manufacturing sector, so if China goes, so goes Australia. Lots of risk here. Discuss.
Australia the new real estate, property, commodity bubble?
- Thread starter hedge123
- Start date
Big difference between Aus and the US at its peak is debt. Debt is not out of control in Aus. Yes you might call it a bubble but people are much more conservative now than they were pre 2007-2008. Everyone I know is saving for a rainy day so to speak. And China isn't going to come crashing down over night. They have the cash!
I tend to agree with you, but.. take a look at mortgage debt to GDP figure in the attached chart by Steven Keen, referenced in the article before. According to him, Australian housing debt has eclipsed even that of the United States.
On the other hand, if you trust Wikipedia and the CIA Factbook, Australia has a much healthier public and external debt profile than that of the United States. These need to be adjusted for net-debt (accounting for assets), but nonetheless serve as a rough measure of risk. By these metrics, Australia looks pretty good:
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
So the question is, how do we reconcile these different measures - the ones by Keen, and the ones by Wikipedia. Perhaps Australian banks are the missing puzzle piece. Or is that Chinese cash too?
On the other hand, if you trust Wikipedia and the CIA Factbook, Australia has a much healthier public and external debt profile than that of the United States. These need to be adjusted for net-debt (accounting for assets), but nonetheless serve as a rough measure of risk. By these metrics, Australia looks pretty good:
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
http://en.wikipedia.org/wiki/List_of_countries_by_external_debt
So the question is, how do we reconcile these different measures - the ones by Keen, and the ones by Wikipedia. Perhaps Australian banks are the missing puzzle piece. Or is that Chinese cash too?
You don't reconcile them.
Fundamentals being out of wack is not normally enough by itself - the market can remain irrational etc.
An event is required to tip the market. In my experience we don't seem able to see it coming or see what it will be. Or when, exactly - read the stories of those who were shorting the US housing market bubble and note how their timing was off. But when it happens the tipping point is reached.
I still fancy China given that it is the 'story' that props Australia up. But I don't expect to be right really.
Fundamentals being out of wack is not normally enough by itself - the market can remain irrational etc.
An event is required to tip the market. In my experience we don't seem able to see it coming or see what it will be. Or when, exactly - read the stories of those who were shorting the US housing market bubble and note how their timing was off. But when it happens the tipping point is reached.
I still fancy China given that it is the 'story' that props Australia up. But I don't expect to be right really.
just want to mention that the economist ran an article this week about property valuations, and AUS was in the top 3 most overpriced RE markets in the world, along with hong kong and i think singapore? i think AUS was somewhere around 40+% overvalued.
as an aside, US RE valuations are looking relatively good. between 4-10% overvalued-this is great, considering that there were only 1 or 2 countries listed as undervalued.
as an aside, US RE valuations are looking relatively good. between 4-10% overvalued-this is great, considering that there were only 1 or 2 countries listed as undervalued.
manufacturing?????.......mmmm what manufacturing?
mining,banks real estate thats it mate cost of living is getting expensive in syd cant see how one would manage without at least 60-70k p.a half of that would straight away go in mortgage/rent...how does this compare with london/nyc by the way 60-70k in basic suburbs nothing flash so a flat in basic suburb costs 450-500 house 800+(if you overlook a park add 150-200k) rba very reluctant to hike rates as people go crazy just in their mindset its been a long bull run ...catalyst?hard to say i see aud going to 120 probaly higher china thing has years to play out problem for exhorbitant housing is that it is diff for younger people to get in creats large imbalences in community
mining,banks real estate thats it mate cost of living is getting expensive in syd cant see how one would manage without at least 60-70k p.a half of that would straight away go in mortgage/rent...how does this compare with london/nyc by the way 60-70k in basic suburbs nothing flash so a flat in basic suburb costs 450-500 house 800+(if you overlook a park add 150-200k) rba very reluctant to hike rates as people go crazy just in their mindset its been a long bull run ...catalyst?hard to say i see aud going to 120 probaly higher china thing has years to play out problem for exhorbitant housing is that it is diff for younger people to get in creats large imbalences in community
China is not going away, but at some point it's growth path is going to be categorically different from that of the past whether Beijing likes it or not. Estimates (http://finance.fortune.cnn.com/2010/11/17/chanos-vs-china/) put the Chinese economy at 60% fixed-capital investment, 25% of which goes directly into real estate. Compared to the peak housing boom years, that figure stood only at only about 15% in the U.S. With reports of cities built for 1.5 million in Inner Mongolia going completely empty, and residential housing units in Beijing and Shanghai being held indefinitely with no occupants, there is arguably already too much housing capacity on the Chinese market. Even more so than their export sector, China's economy is addicted to construction. They already produce 50% of the world's steel output, and under the communist system that steel needs to go somewhere. So all the construction, including public works, dams, roads, bridges, etc. In order to keep growing at the rate they have been doing, they will either have to build another Shanghai this year, or somehow transition their economy away from fixed capital investment. The Chinese government realizes this, and if you look at their recent Hall of the People speech, they are trying to re-tool the economy more towards consumption and away from investment.
All of this spells bad news for Australia's copper, iron ore, etc. exporters. China is simply going to run out of stuff to build. I'm not saying tomorrow, but the growth rates are just not sustainable. Another commenter pointed out Australia lacks much of a manufacturing base. So if resources go, so goes the rest of the economy. I call that a risk.