Archive for the ‘Property’ Category

What to do for potential first home-owner?

Tuesday, December 1st, 2009

Recently, we had a conversation with a young bloke who is currently renting. He has a strong desire to buy a house that he can call it his own home. In other words, he is a potential first home-buyer.

But seeing that house prices are very expensive in Australia and that they are artificially inflated by easy credit and favourable tax laws for property ‘investments.’ Furthermore, he sees the corrupt State Governments’ land release policy as the cause of land ‘shortages’ in Australia. Furthermore, he believes that politicians, with all the powers and capabilities that they have, never allow property prices to crash, perhaps even encouraging further property price inflation (see What goes in the mind of the Rudd government as it extends FHOG?). With governments all over the world resorting to stimulus, bailouts and money printing, he can see that they are all hell-bent on the policy of monetary inflation.

In other words, he distrustfully and cynically sees that the property market is rigged against him. But what can he do? Should he just take the plunge and buy a property, be a debt slave and should he lose his job, hope that the government will engage in moral hazard to bail him out? Or should he wait for the house price crash that may not happen? In any case, he sees that his wages is not going up any time soon, which means he greatly fears missing out.

What should he do? It’s da*n if he do, da*n if he don’t situation.

This is an example of the harmful effects of inflation on society. The beauty of inflation for politicians is that it is a kind of invisible tax on workers. Instead of increasing tax on your salary (which is exceedingly obviously), inflation erodes the purchasing power of your wages and you degrade your standard of living through higher debt burdens and prices. As we wrote in How to secretly rob the people with monetary inflation?,

The common people on fixed salaries and who do not own any ?assets? will have to bear the brunt of price inflation. … A redistribution of wealth from the last ones in the queue to the first one in the queue! Usually, the latecomers are the most vulnerable members of society.

Unfortunately, our friend is one of the latecomers. Generation Z will be the laggards too.

The problem with inflation is that it penalise those who work hard and save. In the US, with interest rates below the rate of price inflation, the government is forcing people to speculate (and risk their savings) in order to merely stand still. As we wrote in Harmful effects of inflation,

With inflation, there is less incentive to be productive and more incentive to hoard, speculate and gamble. This in turn will reduce productivity and increase price inflation, which further increase the incentive to be less productive.

This is what one of our readers has to say,

I lived in Russia during the hyperinflation of late 80s-early90s. It was exactly as you say: people and businesses were not interested in producing goods. The only path to success was speculating. God save Australia from such times!

If property prices are going to be more bubbly in future, the only way for young people to have any chance to own a property is to speculate. If the government is committed to inflation and moral hazard to solve economic problems, young people will see that there is no point in working insanely hard to save up to buy a house. They will see that the only way will be to speculate in stocks, commodities, gold, silver, foreign currencies, CFDs, options, etc than to work hard. They will chase whatever that is liquid and goes up in price and if they are more aggressive, short whatever that is coming down in price. Some may even turn to speculating in property itself with leverage.

Monetary inflation makes it far more profitable to speculate than to work hard. That’s why our friend is saying, “I’m learning to speculate.”

Does rising house prices imply a housing shortage?

Thursday, August 27th, 2009

There is a common argument that Australia has a housing shortage because prices are rising. The flawed reasoning goes like this: “Under the ‘irrefutable’ law of demand and supply, if prices rise, it must be due to demand outstripping supply i.e. shortage situation.”

This flawed reasoning has its roots in the mainstream Neo-Classical school of economic thought. Under this school, the market is assumed to be in equilibrium. As we wrote in Soft landing hope built on faulty framework assumptions

But this is a very erroneous assumption built into the framework of mainstream neo-classical economic thinking. Does the economy always have to return to equilibrium the way an elastic band spring back into its previous relaxed state? Can there be other forces that can pull the economy further and further out of equilibrium until a breakdown occurs?

In Neo-Classical reasoning, equilibrium is when the supply curve meets the demand curve. If prices go up, and the market has to be in equilibrium as assumed, then it has to imply that the supply curve had shifted left and/or demand curve had shifted right. Subsequently, prices had to rise to ease the demand-supply imbalance. With rising prices, many of these housing ‘experts’ then go hunting for reasons (that suits their vested interest) to explain the ‘shortages.’

In the real world, the market need not necessarily be in equilibrium. In fact, it can go out of equilibrium and remain so for an extended period of time, independent of the housing shortage/surplus situation. In Australia’s housing market, we have identified two major factors:

Price rise expectation
The first factor is price inflation expectation. As we quoted Ludwig von Mises in What is a crack-up boom?

He who believes that the prices of the goods in which he takes an interest will rise, buys more of them than he would have bought in the absence of this belief: accordingly he restricts his cash holding. He who believes that prices will drop, restricts his purchases and thus enlarges his cash holding.

This observation is true for generic commodities that can be purchased with cash alone- in contrast, houses are almost always purchased with debt. The belief that prices will always go up forever and ever can create its own artificial demand. The insidious thing with this belief is that it is a self-fulfilling prophecy- belief leads to increased ‘demand,’ which in turn leads to higher prices, which reinforced the belief, which in turn leads to increased ‘demand’ and so on and so forth. When this happens, higher prices lead to even higher ‘demand.’ Such artificial demand can act as a sink-hole for whatever quantity of supply until money runs out in the financial system (which is not possible under today’s a fiat credit system). The Dutch Tulip Mania (which burst in 1637) is an example of the power of belief. Indeed, there must a ‘shortage’ of tulips at that time, according to Neo-Classical supply-demand ‘fundamentals.’

This is the same dynamic working in hyperinflation, where everything (not just houses) rises in prices. It was just last year that there’s talk of food shortages (see Who is to blame for surging food and oil prices?). Today, we hardly hear of food ‘shortages’ after deflationary Panic of 2008.

Availability of credit
As we all know, almost everyone borrow money to buy houses. Very few buy them with cash. What if banks decide to withdraw all credit in the economy? Obviously, people’s purchasing power of houses will fall as they can only rely on their cash savings to buy houses. Consequently, the ‘demand’ for housing will collapse immediately. As we said before in Another faulty analysis: BIS Shrapnel on house prices,

Where is the housing ‘demand’ going to come from as credit becomes more expensive? The only way for most people to buy a property is to borrow money. If credit becomes more expensive (i.e. harder to borrow money), obviously the ‘demand’ for properties will fall as well.

Conversely, when there’s more and more easy credit are available, more and more borrowed money can be used to bid up house prices. This can go on until the debt servicing burden becomes too big to bear.

How the two factors interact with each other
People’s expectation that prices will rise (abetted by belief that there’s a housing ‘shortage’) will lead to higher prices. Unlike the Dutch Tulip Mania of the 17th century, today’s financial system can spew out more and more credit continuously (see Marc Faber vs Steve Keen in inflation/deflation debate- Part 1: Steve Keen’s model). This means that self-reinforcing artificial demand can be fuelled by more and more credit, which helps prices to rise.

Then, through the principle of imputed valuation, increase in house prices at the margins will result in every other house to be re-valued upwards. As we said before in Spectre of deflation,

One thing many people fail to understand is that values of financial assets can vanish as easily as they are created in the first place. It is a fallacy to believe that just because money has to move somewhere from one asset class to another, the overall valuation in the financial system cannot contract. The very fact that all the money in the world cannot buy up all capitalisation is proof of that fact. This leads us to the next question: how do financial assets derive their value?

As we mentioned in The Bubble Economy, we have to understand the principle of imputed valuation. Suppose you have a house which you bought for $100,000. What happens if one day, your neighbour decide to sell his house (which is similar to yours) for $120,000? When that happens, your house would have to be re-valued upwards to $120,000 even though you had done absolutely nothing. The same goes for stocks. All it needs for a stock to increase in value is for a pair of buyer and seller to transact at a higher price. As long as the other shareholders do absolutely nothing, that higher price will be imputed into the values of the rest of the stocks. Thus, when asset values rise, all it takes is a handful of them to trade at higher prices in order for the rest to be re-valued upwards. If assets can ?increase? in value that way, it can ‘decrease’ in value that way too.

What is more worrying is that assets of such imputed values are used as collaterals for further borrowing, which becomes the borrower’s liability.

When the values of the houses sold at the margins are imputed to the rest of the houses, it result in higher valued collateral for more granting of even more credit. More credit adds another round of self-reinforcing feedback loop.

Pre-requisites for a substantial house price fall in Australia
All we need for house price to fall substantially in Australia is (1) a reversal of house price rise expectation and/or (2) tighter credit and/or critical mass of debt servicing failure (which can be caused by rising unemployment- see RBA committing logical errors regarding Australian household finance). When that happens, the self-reinforcing feedback loop for higher prices will become a self-reinforcing feedback loop for lower prices.

Look at UK…
There are many ‘experts’ who argued that house prices are falling in the US due to ‘over-supply’ and that Australia’s housing ‘shortage’ will prevent a house price fall. These experts conveniently failed to look at the UK. Just do a Google search on “housing shortage” site:uk and you will find many reports of a housing ‘shortage’ in the UK too.

We all know what happened to the UK housing market.

What goes in the mind of the Rudd government as it extends FHOG?

Tuesday, June 2nd, 2009

As we all know, the Rudd government recently extended the increased First-Home-Owner-Grant (FHOG). The FHOG grant in itself is so controversial that even government advisers are questioning the wisdom of that scheme (see Rudd advisers criticise home buyers grant). Government propaganda hailed the FHOG as a means to help young Australians achieve the Great Australian Dream of home ‘ownership.’

Sadly, a lot of young people fell for that propaganda. One of the first tools of propaganda is to subtly twist the meanings of words.

For example, when a person borrows money to ‘buy’ a home, he/she do not really own that home in the first place. Instead, what happened was that the home ‘buyer’ had basically entered into a financial lease contract with the bank. The home ‘owner’ may have more freedom than a renter, but he/she has more responsibility in return. A large part of that responsibility includes financial accountability and trust to repay debts. There are many anecdotal reports that many first home ‘owners’ are not acting very responsibly.

There are also many applause that housing has never been more ‘affordable’ than before, due to record low interest rates. But the vested interests who gave the applause forget why interest rates are so low in the first place. The whole point of the RBA slashing interest rates is to reduce the debt servicing burdens of Australians (in the face of forecasted rising unemployment), not to encourage them to gouge on more debt. The FHOG, by its very nature, defeats this purpose by encouraging young Australians to go further into debt. Most worryingly, when interest rates are at record low, most of these first home owners are not hedging their gamble by fixing their mortgage rates. When the time comes for raising interest rates, many of these ‘affordable’ homes will become unaffordable.

Obviously, the Rudd government’s FHOG policy is a bad policy that will do more harm to Australia in the longer term. We are sure the government knows this. Yet, why did they go ahead with that foolhardy scheme, knowing that it is foolish in the first place?

Well, our theory (or rather, speculative guess) is that the real reason is not as stated in the propaganda (i.e. ‘helping’ young people achieve that ‘dream’). Instead, the true reason is to prop up (and if possible, blow a bigger price bubble) property prices for as long as possible, until China comes to rescue us. Why should property prices be artificially propped up? Let’s take a look at this chart:

Housing share of total private debt

As you can see, for the past 20 years, housing loans take up a larger and larger portion of the total private debt in Australia. At its peak in January 2005, housing accounts for 55.6% of debt. As in March 2009, it is slightly down to 53.1%.

At the same time, every mainstream economist are forecasting significant rise of unemployment rate. And as we said before in RBA committing logical errors regarding Australian household finance,

Given Australia?s high household debt (see Aussie household debt not as bad as it seems?), prime debt can easily turn sub-prime when unemployment rises. As unemployment rises (which all mainstream economists in the government and private sector are forecasting), it will eventually reach a critical mass of prime debts turning sub-prime. Once this critical mass is reached, the deterioration in the Australian economy will accelerate (see what?s happening in the US and UK today).

Rising unemployment will result in rising number of housing loans going bad. With housing loans taking up more than half of all debts in Australia, the sheer number of bad debts will threaten the stability of Australia’s banking system (bear in mind the amount of leverage in Australia’s banking system. See Small loan losses can wipe out banks). Unless…

What if the government succeeds in propping up the ‘value’ of the collaterals (homes) under-pinning the bad debts? In that case, the banks can take over the homes (and not liquidate in a distressed market), replace the bad debts in asset column of their balance sheets with homes with values that were artificially propped up (with the FHOG). We can imagine the Rudd government introducing some kind of scheme in which the banks rent the home back to the former home owner.

In addition, the government can implement another scheme to let the bank’s unemployed debtors to go on a repayment holiday (while interest payments get capitalised). That way, there wouldn’t be forced mortgagee sales to deflate house prices and coupled with FHOG to prop up the ‘value’ of homes, the accounting losses in the banks can perhaps be minimised?

Once the banking system goes down, the government will have to fork out up to AU$1 trillion in money (see Australian government?s contingent liability to exceed AU$1 trillion), which most likely mean Australia will have to print copious amount of money. Should that happen, the Australian dollar will be trashed and the government bonds will become junk bonds.

The question is, will this gamble succeed?

RBA committing logical errors regarding Australian household finance

Tuesday, March 31st, 2009

Ric Battellino, the deputy governor of the Reserve Bank of Australia (RBA) gave a speech today. Regarding Australia’s household finance, he said,

We continue to believe that the market here will hold up better than overseas. There are a number of reasons why this is likely to be so, but perhaps the most important is that we did not have the same deterioration in lending standards that occurred elsewhere. By and large, the great bulk of Australians who took out housing loans have been able to afford the repayments. Notwithstanding some rise over the past year, the 90?day arrears rate on housing loans is only 0.5 per cent, which is broadly in line with its long?run average and well below that in countries such as the US and UK.

As he said that, we imagine he was thinking somewhere along the line like this:

  1. US sub-prime loans resulted in bad debts
  2. Bad debts busted the US economy
  3. A busted US economy led to higher unemployment
  4. Higher unemployment led to more bad debts
  5. And so on…
  6. Because Australia has very little sub-prime debt
  7. Therefore Australia’s economy is not likely to be as busted as the US

If this is what he’s thinking, we think Ric Battellino has made a very grave error in logic. He’s mixing up cause and effect.

No doubt, in the US, it’s sub-prime (which by the way is yesterday’s story) that triggered the bust in the US economy in 2007. But for Australia, it’s the deterioration of  the global economy that will trigger the bust of the Australian economy. The effects of a bust will be rising unemployment, followed by bad debts, then debt deflation and then finally falling asset prices. In other words, the triggers are different, but the effects will be the same because Australia has the same debt disease as the US and UK.

Given Australia’s high household debt (see Aussie household debt not as bad as it seems?), prime debt can easily turn sub-prime when unemployment rises. As unemployment rises (which all mainstream economists in the government and private sector are forecasting), it will eventually reach a critical mass of prime debts turning sub-prime. Once this critical mass is reached, the deterioration in the Australian economy will accelerate (see what’s happening in the US and UK today). This is the point we made in March 2007 at Can Australia?s deflating property bubble deflate even further?,

In Australia?s case, with her towering levels of debt, any external shock can easily tip her over to a recession, which can lead to further asset (e.g. real estates and stocks) deflation.

By now, it should be clear that whatever the external shock is not the issue?the point is that Australia is highly vulnerable.

To make matters worse, the First Home Owners’ Grant (FHOG), while giving housing sector a temporary boost, are increasing the proportion of potential sub-prime loans in the financial system.

The fact that those at the helm of the RBA are committing such logical errors does not engender our confidence.

Tumbling rents in inner Sydney

Sunday, December 7th, 2008

Back in May 2007, in Australian property good investment? Part 4?rising rent good reason to ?invest??, we said that

Rising property prices are fuelled by rising debt. What fuels rising rents? The answer is income! Renters do not borrow money to pay for rents?they pay rents out of their own disposable income. Therefore, with the current pathetic rental yields, do you think it is realistic for rents to rise (in the absence of income growth) to the point of making property a worthwhile investment?

In November 2007, in Myths on the Australian housing/rental crisis & its implications, we said that

… when property prices deflate sufficiently, renters who previously could not afford to buy their own homes can now do so. This in turn will shrink the rental pool and thus, reduce overall rental demand. This will put further downward pressure on rent prices, which will further put pressure on property prices, resulting in a vicious feedback cycle.

Today, we find this article, Rents tumble in inner Sydney, in the mainstream media:

Rents on apartments across the lower North Shore and eastern suburbs are tumbling as the finance sector sheds jobs, existing renters reach breaking point and lower interest rates make buying a property more attractive.

The managing director of SQM Research, Louis Christopher, said landlords had stretched renters to breaking point, despite rising vacancy rates in inner Sydney.

Renters were also taking a more cautious approach to budgeting.

Assuming that the coming economic storm in Australia is just at the beginning stages, what’s happening in the property market will just be the beginning too.

If property prices follow long-term inflation, will prices not fall in the long-term?

Monday, October 20th, 2008

Back in Do property price always go up?, we have looked into a Dutch study, which found out that in a period of more than 300 years, property prices ultimately follow the general price levels. In other words, in the long-run, property prices are flat in real terms.

For today’s discussion, let us suppose that this is true.

Does this mean that it does not matter when one purchase the property (assuming that one is only concerned about real capital preservation) because in the long-run, it will always preserve your wealth by tracking the price inflation rate? If one thinks that the answer is yes, then one has fallen into a mental pitfall called Lazy Induction. Back in Mental pitfall: Lazy Induction, we explained that

The trouble starts when the sample that we used for our observations is drawn from our own personal bias. Then, from the observations of the biased sample, we make generalisations based on our flawed observations. Lazy Induction allows us to prove anything that we want to be true. All we have to do is to pick a sample of observations that conforms to our bias and then generalise from there.

The error in the logic of that answer lies in the crucial fact that one implicitly assumes the long-term price appreciation starts on the day that one bought the property. To explain this point more clearly, we will use Professor Steve Keen’s graph of property prices relative to CPI:

ABS Established Home Price Index vs CPI

Source: Rescuing the Economy or the Bubble?

This graph shows that property prices have been tracking CPI till around 1998, after which it took off.

Now, let’s imagine that you have a time machine and travel forward 300 years. Let’s say that our assumption that property prices follow long-term inflation rate still holds true in 300 years. What will we see? Assuming that long-term price levels follow a nice gentle rise (i.e. no hyper-inflation), we will see that the prices from 1998 to, say 2008, is part of a small blip before returning to the long-term price levels.

So, what is the implication of this? If surge in prices over the past 10 years (1998 to 2008) is a huge aberration away from the long-term up-trend, then it will have to fall in due time in order to follow the long-term price levels. That is, property price can still fall a lot in real terms if it has a prior huge run-up in real prices. If price inflation is relatively benign, then this will mean a fall in nominal terms too.

Unknown unknowns trips up many turkey forecasters

Sunday, October 12th, 2008

As we explained in our previous article, Real economy suffers while financial markets stuff around with prices, the massive deflationary forces from the free market is being (and will continually be) counteracted by government attempts at inflation (see our guide, What is inflation and deflation?). The result will be great volatility in prices, which will undermine business calculations and long-term planning by the free-market.

At the same time, many economic forecasters will have their forecasts and ‘predictions’ completely stuffed up, which will mean that their credibility will be severely undermined. Many of these forecasters simply fail to see that the ground has been shifting as they make their projections. The recent deterioration of the global financial system will cause many of them to back-flip on their views. Those who cling on stubbornly on their previous (and erroneous) positions will have their credibility rubbished by history. Simply put, these forecasters completely failed to see turning points at the economic cycle. We really marvel at the fact that some of these forecasters are paid highly to produce expensive reports that turned out to be wrong. How could they possibly not see such an obvious looming financial disaster? It really takes a special effort to put on the blinkers in order NOT to see it coming. We are so marvelled that we have to write up a guide (Why are the majority so wrong at the same time and in the same ways?) to explain why.

As you will have heard the news by now, Prime Minister Kevin Rudd announced that the Australian government will guarantee all (a change from the $20,000 guarantee last Friday) bank deposits for 3 years. Also, there is other bad news in that announcement as this news report says,

Prime Minister Kevin Rudd has warned that economic growth and job security could be in jeopardy as the global financial crisis entered a “new and dangerous” phase.

As he equated the current financial turmoil to a national security crisis, Mr Rudd today signalled the jobless rate for next year was likely to be higher than originally forecast in the May budget.

`So, unemployment is likely to be higher. That’s just levelling with people … It’s likely to be higher than has been projected. We don’t have numbers on that.

Associate Professor Steve Keen believed that the unemployment rate could reach around ten percent range or more. The economic implication for this is very ugly. As we explained back in March last year (2007) at Can Australia?s deflating property bubble deflate even further?,

In Australia?s case, with her towering levels of debt, any external shock can easily tip her over to a recession, which can lead to further asset (e.g. real estates and stocks) deflation.

By now, it should be clear that whatever the external shock is not the issue?the point is that Australia is highly vulnerable.

The global financial crisis is an example of an external shock that we warned back then.

As we further explained in June 2007 at What can tip Australia into a downward property price spiral?,

With the Australian debt levels so high, a recession (with an accompanied increase in unemployment) will result in more distress property sales and further downward pressure on property prices. In such a scenario, what is happening right now in Western and South-Western Sydney can be extended to the rest of Australia.

The Australian economy is very highly leveraged towards the residential property sector. Rising unemployment will exert a downward pressure on property prices (due to the high leverage of the household sector), which along with that will expose the weakness in the Australian banking system (it has been said that mortgages made up of 50% of Australian banks’ loans- you may want to check up on that figure). A major weakening of the banking system will result in a major tightening in credit standards, which can even result in the deflation of credit growth (credit growth is already slowing down significantly in Australia). This will then feedback into the economy as a sharp drop in consumer spending, which along with the ongoing de-leveraging process (see De-leveraging in the real economy- mortgages), will put a major pressure on the retail sector (in addition to the financial sector already under a serious stress). This in turn will feedback into rising unemployment, resulting in another round of vicious cycle.

Now, let’s take a look at some of the economic forecasters and have some humour along the way.

In this news report, Bad day for house sales as jitters spread,

Angie Zigomanis of BIS Shrapnel said people were increasingly worried about their future: “If you don’t think your job is secure then no matter how low mortgage rates go, you are not necessarily going to enter the market.”

Remember BIS Shrapnel? Back then, they were writing forecast reports with erroneous and nonsensical logic (see Can lower interest rates re-inflate the property price bubble? and Another faulty analysis: BIS Shrapnel on house prices). It looks that they are beginning to back-flip on their views.

Let’s take a look at the views of a perennial bull, Craig James senior equities economists of CommSec,

Mr James said the recent report from the International Monetary Fund stressed that the Australian housing market would not experience the same dramatic falls as the US and Britain because of the nation’s strong population growth, fuelled by immigration.

Oh really? Strong immigration will help to keep upward pressure on housing demand in Australian? Well, let us take a read at another news report, Aust rethinks immigration boost as global financial crisis buffets economy,

Australia said on Friday it will re-think a large boost to immigration as the global financial crisis buffets the economy and places a brake against years of strong growth.

Mr James fails to understand that:

  1. Immigration tends to be very cyclical along with the economic cycle.
  2. In the face of rising unemployment and slowing economic growth, new migrants will put additional on the Australian economy. That is the reason for the government re-think on immigration.

It is obvious that extrapolation of current immigration figures into the indefinite future is flawed.


The ruction in the global financial system will put a spanner in the works of many forecasters. In the months and years to come, we will see the rise and fall of many forecasters as reputations are made and destroyed and credibility gained and lost. The first shall be the last and the last shall be the first.

Interviewing Michael Yardney for the upcoming property forum debate

Thursday, October 2nd, 2008

In Upcoming forum debate: ?Property 2009: Crash, Boom or Stagnate?!?, we announced that for the upcoming property debate on 15 October 2008, we will be ?inviting the various high-profile experts to this debate.?

We had already introduced Associate Professor Steve Keen in Interviewing Steve Keen for the upcoming property forum debate. Today, we will introduce an expert who is on the opposite side of the fence- Michael Yardney. Michael is a successful property developer and property investor as well as director of Metropole Property Investment Strategist. To get to know more about Michael, today?s article feature our short interview with him.

Please note that we do NOT take responsibility nor endorse his views. Therefore, if you have any disagreement with what he says, please take them up to him at the debate on 15 October 2008.


What are you currently doing in your line of work?

I am CEO of Metropole Property Investment Strategists, which has offices in Melbourne Sydney and Brisbane. I am still an active property investor and developer and as a property commentator my thoughts are frequently quoted in the press.

I am an author of 3 books and also publisher of Property Update an e-magazine with 40,000 subscribers

So, can you share a bit about your life journey that brings you to what you are currently doing?

I bought my first investment property in my early 20?s without a deposit and not really understanding the rules of the game. Then I built a multi million dollar property portfolio – in my spare time – property by property. In the 1980?s I got involved in property development.

If you were to give a concise advice to budding property investors today, what will it be?

Educate yourself but be careful who?s advice you listen to. Have hey achieved what you want to achieve? Have they invested in more than one property cycle? Do they have a vested interest in the advice they are giving you?

How will the current state of the economy affect property as an investments?

My view of the property market could be summed up simply as follows:

  1. I have very strong positive views on the property markets in most capital cities in the medium to long term.
  2. I am certainly aware of potential short term problems related to the credit crisis and poor market sentiment which means that…..
  3. You should be looking for a property at the right price, in the right location, with the right rental income.

Remember…as a long term investor, and that?s the only way to look at property as an investor, you can buy a property at any time in the property cycle as long as the fundamentals of the deal are sound. This year may be a good time to buy property – I have always found it a good time to buy when everybody tells you that property is a bad investment. Now is the time to get set for the future.


Property 2009: Crash, Boom or Stagnate?!

Interviewing Steve Keen for the upcoming property forum debate

Thursday, September 25th, 2008

In Upcoming forum debate: ?Property 2009: Crash, Boom or Stagnate?!?, we announced that for the upcoming property debate on 15 October 2008, we will be “inviting the various high-profile experts to this debate.”

Today, we would like to announce that Associate Professor of Economics and Finance from the University of Western Sydney, Dr. Steve Keen, will be one of the special guests in this forum debate. For those who have yet to know about him, we have conducted a short interview with him:


What are you currently doing in your line of work?
Currently, I’m revising a paper on how money is endogenously created by the financial system for the journal Physica A- the journal of interdisciplinary physics, where the so called “econophysics” school has evolved.

Once that’s done, I will start work on my magnum opus “Finance and Economic Breakdown”, a book-length development of Hyman Minsky’s “financial instability hypothesis” which will be published by Edward Elgar Publishers.

So, can you share a bit about your life journey that brings you to what you are currently doing?
I began as a believer in conventional neoclassical economics while doing my undergraduate degree and then had my confidence in this theory shattered by exposure to Lancaster’s “theory of the second best” in my first year at Sydney University. This theory, which shows that a move closer to the neoclassical nirvana of competitive markets everywhere may actually reduce welfare, made me aware of the theory’s fragility and I then embarked on my own learning odessey to work out why.

In the process I started the Political Economy movement at Sydney University.

After my student days I worked as an overseas aid education officer, a computer programmer, computer journalist, conference organiser, and then finally was employed by one of the Accord bodies under the Hawke Government. The way the Accord was hijacked by conventional economists within Treasury and the bureaucracy in general convinced me that I had to return to academia and take this nonsense theory on on its home turf.

That led to the publication of Debunking Economics, which was commercially successful, and made me a prominent member of the non-orthodox fringe of the economics profession.

It has been noted that your viewpoints on economics are very much different from the mainstream economics. In a nutshell, can you explain how and why they are different?
I reject the equilibrium modelling that dominates conventional economic analysis, and since I did mathematics as an undergrad and postgrad student, I knew how to apply nonlinear dynamic modelling methods to economics–basically using Differential Equations and Systems Theory. I also use Hyman Minsky’s “Financial Instability Hypothesis” as my fundamental model, supplemented with lashings of Schumpeter and a unconventional reading of Marx.

What is your stand on the current state of Australia’s debt levels?
We have reached a level of excess that is historically unprecedented–literally twice the level (compared to GDP) that caused the Great Depression. I have zero confidence in our ability to avoid a serious downturn as the great de-leveraging begins.


We will have another special guest for this forum debate. We will reveal who he/she is next week. Keep in tune!

Property 2009: Crash, Boom or Stagnate?!

Upcoming forum debate: “Property 2009: Crash, Boom or Stagnate?!”

Monday, September 8th, 2008

Note: This is an announcement for an event that we are co-hosting with OurFinanceBlogs:

Property has been a popular route to wealth for many Australians for many years. Buying their own home is often the first investment many people make; purchasing another property may well be the second even before shares and other assets.

It has been said that property prices can be less volatile than share prices though not always and it tends to be regarded as a safe haven when other assets are declining in value. Property has the potential to generate capital growth as well as rental income. In addition, there are the tax advantages associated with negative gearing and capital tax concessions.

No wonder property investing is one of the favourite mainstays of investments for Australians.

But there is the dark side of property as well. Over the past 10 years, property prices have been surging faster than the rise in wages. Consequently, the level of debt that comes with this phenomenon has increased significantly for Australians, putting many of them in serious debt situations. As a result, the Australian dream of home ownership has become an elusive hope as housing becomes more and more unaffordable, along with soaring rents.

Without a doubt, this issue is polarising Australia, as there is an increasing perception that some in the community are benefiting from property at the expense of others. Whether this perception is justified or not, it is a making property more and more into a vested emotional issue for the Australian community. Consequently, with the Australian economy at the turning point after 17 years of uninterrupted growth and the global financial system rocked by a credit crisis, we are seeing conflicting forecasts by various experts on the future of Australian property prices.

So, what is the future for Australian property prices?

It is in such a time that clear thinking is urgently required. And so, on the 15th of October 2008, we are inviting members of the Australian online community to a debate on property at ?Property 2009: Crash, Boom or Stagnate?!? We will be inviting the various high-profile experts to this debate. Stay tuned as we reveal who they are!

Property 2009: Crash, Boom or Stagnate?!