Australian Investors Mistakenly Buying American Real Estate

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Two notes on Australia’s infatuation with property. First, unlike a tender first love or a smouldering romance, this housing love affair is causing financial stress. “The number of Australians under financial stress from housing costs has soared to a historic high, with more than a million households now spending at least 30 per cent of their income on loan repayments or rent,” reports Nasssim Khadem in today’s Age. “Census figures show that the number of households officially declared under “mortgage stress” has almost doubled in five years – to 547,054.”

Love hurts.

Not content with suffering housing pain at home, Australians are cruising for a housing bruising in American commercial real estate. You’d think Aussies would be warned off by that other great re-valuing in the world, the marking down of subprime-backed bonds from the sloppy and deflating US housing bubble. But noooooo! Aussies can’t get enough American property risk.

“Spurred by the falling US dollar,” reports David Levitt in today’s Sydney Morning Herald, “surging superannuation fund inflows and the need for secure, high-yielding assets, Australian investors have widened their lead as the biggest international buyers of US real estate. Australian purchases this year amount to $US7.7 billion ($9 billion) so far, or $US2.2 billion more than in all of 2006, according to New York property researchers Real Capital Analytics.”

Madness. As an asset class, American property has already had its tremendous bull run. Buying American commercial property on the threshold of a mega consumer bust is like buying pets.com in 1999, just before the tech wreck. Australian companies with regrettable exposure to American property: Macquarie Bank (ASX:MBL), Westfield (ASX:WDC), Record Realty (ASX:RRT), Centro Properties (ASX:CNP) and ING.

Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. A very correct summation Dan. Every day I see the real impact of people struggling with their mortgages. Its a double barrelled assualt really, in fact more like a gattling gun assualt on families with mortgages.

    First the banks lend to much and inappropriately and then when people get in trouble the actual cost of buying and selling adds to their woes.

    Home ownership used to be the pride of the nation but is quickly becoming an ancient artifact.

    Reply
  2. It is so false to keep perpetuating this myth that everyone owned their own home in Australia in the past. It is utter BS. The percentage of people who own their home is higher now than ever before and people thinking it is their entitlement to own their home are the ones getting themselves in trouble. And that has happened before – in every generation.

    Painting false pictures of entitlement and ‘the Australian dream’is not helpful. Saying that we aspire to is something else – while we might aspire – we may never get.

    The last couple of generations with their ‘instant gratification’ mode on full may well come a cropper -and it is just par for the course.

    Getting sick of all these people whining about mortgage stress – because they are largely all ‘have to have it all right now’ generation people. Get over yourselves and try thinking about all the people who never have and never will own their own home – people who have a disability, on pensions etc.

    Stop with the me me me stuff.

    C M B Drive
    October 14, 2008
    Reply

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