China is Outpacing Europe and the US but its Economy is a Bubble

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Boom, Baby, Boom…

What’s going on in China?

That’s what we’ve come here to find out. We paid a visit to China 25 years ago and haven’t been back since. More on China in just a minute…

Let’s look at what is going on in the West, first.

Yesterday, the Dow rose slightly – after taking a beating last week. Gold settled at $1,228.

Dear Readers are out of stocks. So we’re not particularly worried. But we’re deeply interested. Has the bear market/Great Correction resumed – as we said it would? Or is this just more ‘noise’ – with no particular meaning?

We don’t know. But we intend to be in cash and gold when we find out.

Back to the Middle Kingdom…

First impression: this is not the same country it was a quarter of a century ago. The last time we were here there were almost no private cars. Everyone dressed in drab grey outfits and rode bicycles. There were no shiny new buildings. There were almost no restaurants. And if you saw a truck, it was likely to be broken down beside the road, with a couple legs sticking out from beneath it.

Second impression: wow! So many daring new buildings…such broad streets…so many construction cranes…so many fancy cars…so many electric bicycles…

..there is no doubt that China is far outpacing Europe and the US in many respects…that the 21st century will be defined by what happens here, not what happens in the West.

Third impression: China is in trouble.

“Stocks dive on housing fears,” says the headline at China Daily.

The Shanghai Composite index suffered its biggest drop of the year yesterday – down 5% after losing 20% since January.

According to the papers, the market has been spooked by the government’s efforts to restrain real estate speculation. The Chinese have a lot of money. And Chinese investors have relatively few places to put it. They tend to buy real estate…or stocks. This has pushed up property prices by as much as 100% in some areas, over the last 12 months. And it has caused the government to worry about a bubble.

Is the Chinese economy a bubble? Most likely – yes. Will it blow up? Again, most likely, yes. In fact, it seems to be blowing up right now. After leading the world in the bounce phase, it now may be leading the world in a return of the Great Correction.

In a nutshell – China’s economy is unbalanced…with far too much weight given to exports. Typical of successful export-oriented Asian economies, it has built too much capacity.

The last big economy to run into this problem was Japan. After the big boom of the ’80s, Japan had too many factories…and too much capital invested in the export sector. When the stock market realized it, a big sell-off began. That bear market lasted at least until 2009 – 19 years. For all we know, it’s still not over.

Stock markets are always discovering what things are really worth. Right now, they’re realizing that China’s companies are not worth quite as much as they thought a few weeks ago.

Will the sell-off continue? We don’t know. But most likely – yes. Because a big boom is typically followed by a big bust.

But wait a minute. How can we reconcile Impression #2 with Impression #3? How can China be the country of the future and still face a big financial upheaval?

Well, that is the future!

Much the same thing happened in the US after 1929. The US faced a tough period of adjustment – made worse by the efforts of the Hoover and Roosevelt administrations. Instead of letting the problem take care of itself – as they did during the 19th century – the feds intervened heavily. In effect, they were trying to keep the future from happening.

You can slow the future… You can make it more painful. You can drag your feet and shut your eyes…but the future is going to happen, whether you like it or not.

As it came about, the future for the US was bright. It just had to live through the Great Depression and WWII first.

China must be facing its own tests and challenges. Maybe they will be political. Maybe they will be only economic. But they are bound to be monumental…

And the events in Thailand show us how they can be bloody too.

“Thai street battles escalate,” says today’s Financial Times.

As of this morning, 29 people have died. More than 230 have been hurt. And a quarter of the country is locked down in a ‘state of emergency.’

Thailand’s troubles look less and less like street protests and more and more like a civil war. Who’s right? Who’s wrong? Who are the good guys? Who are the bad guys?

Who knows? As in most civil wars, it’s probably a shame that both sides can’t lose.

But it shows what can happen….

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Comments

  1. Yes Bill, i think the world has no idea about China other than they are the engine room and they are important to our economies but there is a veil of ignorance attached to the reasons why. Admittedly i am under this veil but i did watch a very interesting program on an Australian program called foreign correspondent that interviewed a manager of a government owned ship yard and then interviewed what we would consider villagers or the blue collar workers and both situations were quite disturbing.

    The ship yard manager said he had gotten instructions from the government to build and do so on a large scale. I can’t remember the exact figure but was around 3 times his normal production. This meant he was hiring 3 times more people and purchasing 3 times the amount of steel, he suggested that the up swing at the end of 2009 meant that some of the oversupply he has was being sold but most wasn’t. He also warned that if the current crisis in Europe spreads and orders stop or are cancelled the problem would be grave, the oversupply he would have would be crippling and the business would not survive.

    They then interviewed blue collar workers in a near by village of Beijing and it was clear that the governments plan of internal stimulus was not working. The government had asked citizens to buy products that other economies have pulled back on to help the manufacturing sector stay afloat. Now that government stimulus has stopped the villagers are extremely cautious about buying anything outside of non essentials and in a bid to cushion any future downtimes they are more inclined to save than spend.

    I think China and Australia are showing the cracks in the foundations now that the free money has dried up, they are now at the cross roads of throwing more dead money at it or just letting it fall apart. The realization we can’t just plod along is dawning on many in governments and it is going to be full throttle UP or ful throttle DOWN from here.

    Either way it will be painful for many.

    Reply
  2. Our yes, and i neglected the fact that the link to Australia was quite profound, the ships that are not sold are being used by the government to pick up iron ore from Australia. So it was literally a matter of building the ship sending to OZ to pick up the Iron ore, build another ship and then send it to Australia to pick up the iron ore and so on and so forth.

    They also mentioned that these ships are bringing is a surplus of iron ore on a scale so large it has a stock pile of 60-80 million tons annually and growing. These ships are running flat out to bring in more steel than they can even use at a break neck speed.

    Reply
  3. “These ships are running flat out to bring in more steel than they can even use at a break neck speed.”

    You mean they’re _steeling_ it, Minn?
    (Sound of panting tramp steamer jogging and breaking-neck in the background.)

    Biker Pete
    May 19, 2010
    Reply
  4. I’m an American, but it seems to me that the Aussie economy is highly levered to the boom in China. When China goes poof, and commodity trading volumes and prices fall, how bad will the fallout be for Australia? How quickly will the RBA move from a tightening stance to neutral to cutting rates?

    Reply
  5. Probably two months, Steve. How quickly did your rates drop when the US went poof?!~

    Biker Pete
    May 20, 2010
    Reply
  6. “This test is existential and it must be overcome …
    if the euro fails, then Europe fails,” Angela Merkel, 19th May 2010

    “We’ll save Australia
    Don’t wanna hurt no kangaroo
    We’ll build an All American amusement park there
    They got surfin’, too

    Boom goes London and boom Paris
    More room for you and more room for me
    And every city the whole world round
    Will just be another American town
    Oh, how peaceful it will be
    We’ll set everybody free
    You’ll wear a Japanese kimono babe
    And there’ll be Italian shoes for me… ”

    Randy Newman, 1972

    Reply
  7. John, you shouldn’t scoff at Americans’ deeply abiding interest in advising others, particularly when their own playpens are awash in Bondi Cigars. :)

    Biker Pete
    May 20, 2010
    Reply
  8. Bondi Cigars? Didn’t get it until I consulted the Urban Dictionary, BP:

    “…there is a large market for the extreme-sport of “Hunting the cigar” where thrillseekers track the cigars and break them up (usually by squashing them with their hands)… ”

    Are you suggesting that Steve is an American thrillseeker?

    Reply
  9. Well, US sociologists and psychologists _have_ taken a remarkably unhealthy interest in Americans’ fascination with ‘dropping the kids off at the pool’. (And we think the Brits are a little potty?!!~)

    Think we should drop this one, before it sinks into oblivion, excrementally speaking as Merkel might say?

    Biker Pete
    May 20, 2010
    Reply
  10. Definitely. Not as funny as the Chinese ships running on water. Do you think ‘Realist’ meant they do a kind of Galilean-like-Miracle, or have the Chinese perfected H2-based shipping, do you suppose?

    Reply
  11. Beat Smee, as Captain Hook once shouted. Probably around now they’ll slip us another poisoned cookie, John. Hijacking a Crash Alert Thread is a CATastrophic offence… . Back to sealing driveways. The fumes are quite wonderful!~ ;)

    Biker Pete
    May 20, 2010
    Reply
  12. Well, they have to remember that Yankee Steve started it, with his:

    “I’m an American, when China goes poof… how bad will the fallout be for Australia?” comment, BP. (I thought you bikers all wore masks?)

    Reply
  13. “I thought you bikers all wore masks?”

    Only the ones heavily into property, John.
    (Fiendish cackles as the old bloke gleefully cartwheels down the wet driveway… .)

    Show’s over folks. Cirrus biz before the rain starts.

    Biker Pete
    May 20, 2010
    Reply
  14. I hadn’t realised you Aussies had a tobacco industry. How much is a Bondi Cigar?

    Reply
  15. The biggest loser if China goes pop will be the government, as all that mining revenue erodes back leaving behind a larger deficit. The miners will carry on as usual, mines will close, production will scale back etc etc. Painful yes but we have been through this before.

    Reply
  16. Here is one for prozac. http://www.zerohedge.com/article/cds-traders-refuse-shift-focus-away-uk-and-france , also the recent view on the UKP-EUR cross vs the UK export figures is not good, they can’t kickstart production to take advantage and another lesson in not believing in self adjusting J curves if you destroy a place structurally backing city financial services against all else. On the capital side I’m not so sure, investments abroad have been the buffer of the past. Interesting to read early colonial Australian history which is like a venture capital window back into Uk banking.

    Reply
  17. “I hadn’t realised you Aussies had a tobacco industry. How much is a Bondi Cigar?”

    How much you got, wadjela?

    Reply
  18. The cost of CDS protection on Australian banks widened in early morning trading, mirroring activity in the stock market, which saw shares in Australian banks fall sharply. CDS spreads on National Australia Bank widened to 102.4bp from 91.8bp on May 14, ANZ Bank also stood at 102.4bp from 92.2bp, Westpac widened to 97.8bp from 88bp and Macquarie Bank widened to 148.7bp from 134.4bp.

    http://www.risk.net/risk-magazine/news/1648804/eurozone-sovereign-cds-spreads-widen-amid-continuing-contagion-fears

    AUD LIBOR rates might be worth watching http://liborated.com/current_libor_rates.asp

    Reply
  19. Ross,

    I’ve never said things are great! They are most certainly not. 13 years of Labour over here has seen to that!

    The UK still wont default….. maybe Labour might have toyed with the idea!

    The Conservatives are in power (sort of) now and you’ve never seen budget cuts until you’ve seen the Tories in full swing!

    Labour expanded the role of the state to ridiculous almost communist levels. Its all change now and the UK will be better for it.

    It might just be a little tough medicine to get to a nice place….

    Reply
  20. Biker Pete and John, I think you took my comment the wrong way. It wasn’t meant to disparage Oz or the RBA. I have a great deal of respect for the RBA which seems more concerned with sound money than the Fed. In the states, its assumed that the Fed will slash rates and slash them hard as soon as markets or the economy turn a bit south. I’m curious as to how folks feel the RBA will react. Will the recent turndown in markets and the apparent slowdown in China cause the RBA to change from tightening to doing nothing to easing, and how quickly folks think this might occur. Disclosure: I am long June 11 and Sept 11 Aussie 90 day bank bill futures. :)

    Reply
  21. Steve’s quote of the day

    “Australia the land of the sheeple”

    Reply
  22. The RBA doesn’t always get it right, Steve. Even as the ASX was falling out-of-the-sky, Stevens & Co were raising rates. Suddenly it dawned on them that things were going to get really bad here (they didn’t, but the share market crashed 55.4%) so they put interest rates into a sharp nose dive, from which they’re only now recovering.

    What is curious at the moment is that I can refinance a couple of mil cheaper on _fixed rates_ than I can on variable rates, for twelve months. I’ve heard several views about why that may be happening. My initial supposition was that the ANZ Bank believed rates were going to fall. It may instead be that they’re simply seeking a larger market share. This view is supported by the fact that they’ve reversed an earlier policy decision, which required 25% equity… . They now want just 5%. That’s a pretty dramatic reversal!

    My view on future RBA movements? I think they’ll watch the NH situation closely, watch inflation and housing, then raise rates in the third quarter of the year. I’m a little cynical about their actions… . Stevens himself has inferred that theirs is a blunt instrument… and at times I think they swing it blindly.

    Mixed signals here. I continue to expect inflation. But having said that, a large retail chain (Rick Hart) just went bust here; and the receivers refused today to let me pick up an expensive dishwasher I’d fully paid for over a month ago.* One of Woolworths regional managers told me last week he thought the price cuts we’re seeing during the supermarket wars would probably disappear next year. Wonder what he knows that we don’t?!~

    * Just as well I bought it using Platinum Visa. Totally insured. :)

    Biker Pete
    May 21, 2010
    Reply
  23. Just for the record, there’s some other guy named Steve here throwing of idiot one-liners. That’s not me.

    Reply
  24. The RBA wouldnt have raised rates if the Housing market hadnt gone so hot. They know that monetary policy is a blunt tool . but the government who has a more pointed tool (fiscal policy) wouldnt touch it even with a barge pole to do what it takes to control the growth of housing prices. In hindsight it would seem the housing market would have grown irrespective of a boosted First Home Owner Grant. The government really misjudged that one, I bet the RBA hated this.

    Reply
  25. “In hindsight it would seem the housing market would have grown irrespective of a boosted First Home Owner Grant.”

    That was my foresight, if you go back through my posts. No-one would agree at the time… and many will still disagree. There were several positive outcomes from the FHOGs… and a couple perhaps not so positive for those hoping Keen was correct.

    Not claiming immunity here. We mistimed one buy at the top of the market… and have only recently recovered that paper loss in the last twelve months. I’m aware that a few hopefuls are waiting for the next housing correction. It’s a possibility… and an opportunity for those ready to act on it. :)

    Biker Pete
    May 21, 2010
    Reply
  26. Every blogsite has its Resident Idiot, Steve. He and I take turns… . :)

    Biker Pete
    May 21, 2010
    Reply
  27. 90 day bill futures are now pricing in no more hikes in rates. Big move over the psst couple of weeks. As recently as a month ago, they were pricing in an additional 100 basis points of hikes.

    Reply
  28. Maybe we should wait a little longer before ‘locking in’… !

    I’d be interested to see how / if / when our other banks follow the ANZ’s lead… .

    Biker Pete
    May 21, 2010
    Reply
  29. Just for the record, there’s some other guy named Steve here throwing of idiot one-liners. That’s not me.

    Ohh your a yank Steve “G’Day Mate go and throw another shrimp on the barbie for ya”

    There is another idiot one liner for you.

    With all due respect you do not know the issue that I am talking about, Australians are sheeple because they pay prices for a below average property that you could buy you a mansion for in your country

    Reply
  30. New WA Minister wants to flood land market
    The West Australian

    http://au.news.yahoo.com/thewest/a/-/breaking/7276 014/minister-wants-to-flood-land-market/

    Reply
  31. “Australians are sheeple because they pay prices for a below average property that you could buy you a mansion for in your country…”

    Location, location, location, Steve.
    Go have a good look before you pack your bags… . :)

    Biker Pete
    May 22, 2010
    Reply
  32. “New WA Minister wants to flood land market”

    Sounds like a good opportunity for us to pick up some cheap blocks, Roy! :)

    We’ve already had to move our focus well north, to find affordable lots to build on. The state government’s main problem will be that the land they’ll release is _so_ far north and south of the two main cities that weekly fuel bills will be prohibitive for hopeful buyers…. .

    We lack the public transport facilities common on the east coast… and unfortunately the Libs’ commitment to creating same to service the public has been pretty woeful.

    We’ll only buy property which will remain viable during a two-decade peak-oil scenario. We’ve seen what happened to farflung US suburbs and their giant malls when gasoline hit US$4.00+ per gallon. ;)

    Biker Pete
    May 22, 2010
    Reply
  33. Sounds like a good opportunity for us to pick up some cheap blocks.

    The state government’s main problem will be that the land they’ll release is _so_ far north and south of the two main cities that weekly fuel bills will be prohibitive for hopeful buyers.

    You lost me, its a good thing to pick up blocks but they are so far away they are not viable. Interesting logic.

    Reply
  34. “We’ll only buy property which will remain viable during a two-decade peak-oil scenario.”

    Thought that might have helped you, Roy. Any good cheap blocks close to cities will be snapped up like hotcakes. I expect there may be a few of those, if not simply to demonstrate that the state government did honour this commitment.

    Been over to WA? Great state, but very little between major centres, until you get well south… .

    Going on past experiences, one state government promises public transport, flogs off the land, then leaves it to the next mob to deliver the transport. It would be funny if it was not such a disappointment to those brave souls who ventured out into the boonies to build, then wait for a decade or more before their needs are realised… .

    Biker Pete
    May 22, 2010
    Reply
  35. WA:
    Mr Marmion said the Barnett Government’s aim was to “bring house prices down”.

    Does that quote ring the sweet sounds of chimes to your ears Biker?

    Reply
  36. “Does that quote ring the sweet sounds of chimes to your ears Biker?”

    It might if there was a property markeT, Steven. As you know, your preferred location is quite defined. If you want a house for $300K, I can easily find you one. Greg Atkinson explained this to you much better than I could, when he redefined the situation as’property marketS’.

    Our preferred locations are also very defined. We initially bought only right-on-the-beach blocks… absolute beach frontage. That’s a markeT. We moved on to Special Rurals: 7.5 – 10 acres. That’s another markeT. We now build rentals on close-to-the-beach land. (One of the reasons we’ve had so few tenancy issues is that our families are carefully selected; they enjoy homes and facilities we would _ourselves_ enjoy and appreciate… and our rents have been the highest in the area. We just don’t need to raise them, now. That’s a third, very narrow markeT. It has become what we do best, because our own tax-free input can save us up to $100K per year. It’s a niche market we’re just beginning to get very right.

    OK, here’s a new Lib Minister with a passion. His predecessor also had a passion. You’ve probably read the stories and seen the cartoons. The new minister has a very worthy moral stance… to bring down the price of housing. Good timing, as Prem. Col Barnett just launched his first budget… which will co$t all WA families bigtime; but, to his credit, Col maintains a laudable budget surplus. Despite this there has been uproar. No-one really likes the pain of supporting a budget surplus. ;)

    In rides Mr Marmion, shiny armour, white steed and all, to save the day.
    “Cheap land, cheap houses!” he calls to the local yokels. Which markeT is he talking about, Steven? Is this hill land with views? Is it by the sea? Is it near the cities? Or is it w-a-y out yonder, where, indeed, the state government has large parcels of white-sand-and-scrub. No shopping facilities (yet); no public transport (yet); no nearby employment (yet).
    And yes, in time these things will come. My guess? 2015 before land is ready for construction. 2020 before commercial interests will risk their capital that far out. 2025 before a rail link (may) go in. It’s a very, very special markeT. Want some of _that_ action?

    Yes, there will be those who hope that this will cause a markeT drop across the board. They’re as deluded as those who believed it the last time. Remember that in some marketS, Keen almost got it right! :)
    We bought two blocks about 30% off. But in many very, very desirable areas, property actually increased in price dramatically during the same period.

    To sum up, you’re correct about three things. a.) In some places I’d never live if you paid me, houses are dirt cheap. These include many US states; b.) I’d expect prices in farflung sandy wastes far from towns and cities to fall, as more of the same are released. c.) And yes, this rings a bell I’ve heard since I bought my first half-acre beach block at 21*. That bell chimes: “Locat-i-o-n, loc-a-ti-o-n, low-c–a–t–i–o–n!” :)

    *Same price as a TV: $550.00.

    Biker Pete
    May 23, 2010
    Reply
  37. “You’ve probably read the stories and seen the cartoons” LMAO
    No biker I am New South Welsh, how would I know about WA I didn’t even know your Premiers name until I was this, all I did was put in “property prices” into google and it came up.

    Yes Biker when the market is flooded people who may like the sea might start to think hmm I will get better value in the eastern suburbs(it sounds odd saying that because its the other way around here) and will not be as prepared to pay as much for your house by the sea.

    “The state government’s main problem will be that the land they’ll release is _so_ far north and south of the two main cities that weekly fuel bills will be prohibitive for hopeful buyers…. .”

    I just went on google earth and there is free land only 14km from the CBD pfft in Sydney 14km is almost considered inner city.

    2 main cities?? I thought there was only 1 city in WA? whats the other one?

    Reply
  38. Biker
    What is your opinion about the sea erosion of beach front properties or a perceived erosion in the future that may cause government to tighten build of beach front properties. I dont trust the sea , maybe because I trust global warming it a bit more.

    Reply
  39. So many responses needed here:

    Beach erosion: All the _absolute_ beach land we’ve owned was sold before 1990. The exception was a 7.5 acre lot with estuary/beach, which went back in 1997. Yes, I accept that rising sea levels* may take out all the beaches as we know them sometime this millennium. Very few man-made structures persist in time. I’ll advise my great grandchildren not to buy any bridges in Sydney… . * See my final point, below… .

    Preferred markets: The kind of land our housing minister proposes ‘flooding the market with’ is developed in partnership with a well-known WA (and QLD) developer. Trust me… he won’t be giving it away. And I doubt the flooding is more than a strategic, well-timed promise, to pacify angry, p*ssed-off WA voters slugged with high utility charges a few days ago. Could be wrong! Not our markeT, definitely not our niche. Anyone who thinks “…hmm I will get better value in the (outer) eastern suburbs…” is welcome to it.

    Political scene: Type in ‘chair-sniffing’, Steven. Yes, I know that WA is an as yet-unexplored colony of the Great South Land to many over there, but West Aussies follow the political and non-political shenannigans of your state politicos with less-than-parochial interest. Naughty state treasurers are a highly vulnerable species… .

    Available land: “I just went on google earth and there is free land only 14km from the CBD”. Can’t argue with the concept of free land, Steven. Think you’ll find that anything proposed for this plan is much, much further north. Already the talk of rail links (the bait!) is mooted. We’ve heard that one before!~ ;)

    WA cities: Perth, Fremantle, Bunbury, Geraldton. The rest are big towns. The Premier has just flagged his intent to move many government departments south to Bunbury, to make it WA’s second capital. Bunbury is an interesting card, as it has long been said, politically, that “Whoever holds (wins) Bunbury, wins the state election.” After Broome, some Bunbury suburbs enjoyed the highest appreciation in the entire state last year.

    Location, location, location: “…people who may like the sea…” I can see you’re still struggling with the first three rules of property investment here. I’d buy extreme coast even if I was allergic to salt. There’s no emotion here at all. It is simply good business.

    Global warming: I accept your point, Nirvan. Our two main homes are high on a hilltop overlooking our valley. Along our creek I can see where flotsam and jetsom are still deposited in ancient trees, where flooding occurred, perhaps centuries ago. I doubt if I’ll have seaviews or a need for a ferry in my lifetime, but it would be delightful to wake one morning and find myself enjoying island life… !!~ :)

    Biker Pete
    May 23, 2010
    Reply
  40. Hi Biker
    I am not talking about investment which you may sell off in 5 years , I am talking about 20 – 25 year residence. Sea erosion may take 50 years to happen but govt regulations against building by sea may happen in 20 years.

    Reply
  41. May happen, Nirvan. We’d better get ’em all built before 2030. I’ll be 83 by then and I may not care as much as I do now… . :)

    Certainly the melting of glaciers is accelerating rapidly on every continent we’ve visited. Year markers back to the early 1800s demonstrate just how quickly this melt is progressing. Whether it’s a result of man’s industrial activity or part of another 10,000 year cycle, we really don’t know. We’re doing our bit to reduce GHGs in case it is. We know of no other investors installing solar electricity panels on rentals. Most don’t even bother to install solar HWSs or reflective tinting on windows, either.
    Every home we build is solar passive… and we use wind and solar at home.

    The sea will need to rise about 25m before it laps on the doorstep of anything we own… and 40m before I even have sea views from our main property.

    I’m not making light of your beliefs, but my ability to hold back the sea is fairly limited. I’d be genuinely interested to know what _actions_ you’re personally taking… .

    Biker Pete
    May 23, 2010
    Reply
  42. Thanks for your inputs.
    I will be heading off to the hills for residence.

    Reply
  43. Yep, that should work… . :)

    Biker Pete
    May 24, 2010
    Reply
  44. Biker,

    Talking about the ability or inability of Governments to provide transport services. Here in Brisbane, they have been planning to build a rail line to Redcliffe Peninsula, which is about 30kms from CBD, fronting Moreton Bay.
    Planning has been in train (pardon the pun) since 1888!
    And of course, there was that wonderful example of ripping up a perfectly good rail line to the Gold Coast, only to later build a new one some 10kms further inland.
    I’m with you, it’s all about location , location, location. I’d rather be 6kms from the CBD, within walking distance to 3 suburban rail lines, 10 minutes to the airports, 2 minutes to shopping and tons of food outlets and around the corner from the to be completed Airport Link (mid 2012, which is Australia’s biggest infrastructure project at $4.8B).
    My location market is better than some of these far flung markets out in the boonies as you call them, but comes at a distinctly higher price.
    We buy for value for money, the potential to make capital gains, but the quality and convenience factor really makes it worthwhile.
    I don’t often comment, but enjoy your verbal jousts each day with the usual contributors.
    What’s happened to Ned S lately?

    Reply
  45. Ned has gone over to Shareswatch, where there’s a fairly healthy property debate daily, Davo.

    Enjoyed your perspectives on city living. It sounds as though public transport issues are well-developed, despite the long wait for rail to Redcliffe.

    To be honest, we’ve shifted our position on location and public transport, possibly as the oil issues developed.

    1975 – 1990: We purchased within 5 km of CBD(s)
    1991 – 2001: We bought good value everywhere…
    2001 – 2005: We bought within 2km of CBD. That’s something I probably need to explain a little… . My missus went through a stage when she believed
    the only property we should buy must be within walking distance of the PO, a pub, a supermarket, and other services. (She included the elderly!) :)
    2005 – 2010: We now buy within 10km of CBDs.

    Honestly can’t say that any one of these strategies was wrong. They all worked during the time(s) we practised that particular criterion.

    It’s the period 2020 onward which interests me, now. I think technology will change some aspects of the location rule. Note that five years ago, the post office was perceived as a key factor. And EVs may bring distant suburbs closer. Home delivery via internet/EVs may negate the weekly supermarket chore. Already, both my sons’ incomes exceed mine… and both contract from home, on the internet… . Both live in CBDs (Perth and Montreal) and neither contemplates anything but an inner-city lifestyle.

    It may well be that by 2020 and beyond, some of the land now proposed for release may be perceived as great value… but, as my wife noted last night, this new stuff is a satellite community to what was quite recently released as a satellite community… urban sprawl _well_ beyond the urban sprawl…!~

    Biker Pete
    May 24, 2010
    Reply
  46. 2005 – 2010: We now buy within 10km of CBDs.

    10km??? gee thats so far out its almost as far out as where your government wants to release all this land, how on earth are people going to afford the petrol to get to work

    Reply
  47. “The state government’s main problem will be that the land they’ll release is _so_ far north and south of the two main cities that weekly fuel bills will be prohibitive for hopeful buyers.”

    Fuel Bills will be prohibitive for hopeful buyers
    about 15/20/30kms for the Perth CBD

    HAHAHAHA

    What and paying 500K for a house is not prohibitive for hopeful buyers???

    HAHAHHA

    When back in the day you only payed about 180K (relative to inflation) for the same house

    HAHAHA

    And you think they are that concerned about fuel prices when you put it into perspective like that

    HAHAHA

    You make me laugh you fool

    Reply
  48. “When back in the day you only payed about 180K (relative to inflation) for the same house…”

    I paid $32K for a home that sold recently for $650K, Steven.

    (Sometimes I feel like I’m clubbing a baby seal… )

    Biker Pete
    May 24, 2010
    Reply
  49. Now that’s a little unfair to the young bloke, BP. He obviously knows where this new land release is and it sounds like you don’t. What’s the area in which the state government is releasing all that WA land, Steve? Is it that Austin cove release, 82km south of Perth? Surely not. Or is it their Clarkson release, 32km north, where the median was 390K some time back?

    Reply
  50. Hey, c’mon John. This is the same young fella who recently asked me to _give_ him the latest house we’d just completed.*

    He only gets hysterical when I mention my kids, so I guess I must be a little to blame. To be fair, he did call me a fool, mate(!) I imagine he has done his research and has found this land release online. Wouldn’t mind knowing just where it is myself!~ (14km from the CBD…? This would be worth following up. Can’t see it being cheap, though… .)

    * Apparently Steven enrolled at a School For Gifted Children. He thought they were going to give him things…

    Biker Pete
    May 24, 2010
    Reply
  51. Can’t see it being cheap, though… .)

    Well, even 32 km north of Perth, land isn’t cheap, Biker. Have you seen the land prices out there? Crazy, some of them, $250K – 2 million:

    http://aussie.realestate.com.au/cgi-bin/rsearch?a=sp&s=wa&u=clarkson

    Reply
  52. So do you figure that to come in under $250,000, these blocks must be say 40km+ north or more? With no transport??!!

    Don’t think even Steven would be interested… .

    Did you see this one?

    http://www.perthnow.com.au/business/millionaires-row-one-in-ten-perth-homes-worth-1m/story-e6frg2ru-1225869982858

    “…the WA capital now has 1548 streets on which the median property value is more than $1 million….” (And a lot of those houses don’t even have _garages_ …. . :( )

    Biker Pete
    May 24, 2010
    Reply
  53. these blocks must be say 40km+ north

    No, my money is on the stuff down south BP, the Austin Cove release that’s moving very, very slowly. Not sure they’ve even sold any of it. There must be a huge amount of state government money locked up in it and few are buying. There are some good blocks, but they’re well off the main road, well over the 82 kms, maybe 86 kms.

    Where do you think Steve got this 14 km info? Damned if I can find anything. You don’t think he just found a green patch on Google Earth and assumed that the state government was going to give it away? Maybe he did, if he thought you’d give him a house! :)

    Not the sharpest tool in the shed, is he? ;)

    Reply
  54. Whoaaa… just a mint, John. Those AC blocks aren’t cheap! Close to the road… and $225K for 612m2???! Remember, this is well over 82kms from the city, on a road which doesn’t even have a servo!~

    http://www.satterley.com.au/go/residential-estates/austin-cove/land-for-sale

    Steven, share your secret with DReAders. Where is this fantastic land so close (14km) to Perth’s CBD, which the Libs are going to donate to us for under $225K? C’mon, tell this old fool and the rest of us fools in WA! :)

    Biker Pete
    May 24, 2010
    Reply
  55. “Not the sharpest tool in the shed, is he? ;) ”

    Well, Steven’s young, you know, mate? Inexperienced in just about everything. Take that jibe about fuel costs. Hasn’t got a clue about family finances, or running a household. Still lives at home… .

    You have to give these young fellas a decade or two to embrace reality. Had it all handed to them on a plate, all the bills paid by mum and dad… and many of them don’t even chip in a quid for board, even in their mid-twenties.

    OK, my seal-clubbing remark was a little over-the-top, but a good smacking occasionally during his formative years might have helped.

    Never too late! :)

    Biker Pete
    May 24, 2010
    Reply
  56. Go on google earth and you will see that there is land that far away from the Perth CBD where there is nothing built on it.

    Yeah I am sure it is expensive now but thats because the developers release it very slowly.

    If your government is true to its word and floods the market with land releases then guess what happens to prices?

    Reply
  57. Go on google earth to the north east area of Perth, go 20kms out from the Perth CBD that is a huge amount of land they can release

    Reply
  58. I live about 20kms from the sydney CBD and people think I live close to the city.

    Reply
  59. “You don’t think he just found a green patch on Google Earth and assumed that the state government was going to give it away?”

    Yep. That’s what he did, all right, John. HaHa… !!
    He’s a space cadet. :)

    Biker Pete
    May 25, 2010
    Reply
  60. I read in the financial review last week about a property investment group building 1142 homes in the Perth area to be rented to “low income” families ie at least 20% below market value to take advantage of the government tax rebate of up to $9000 for renting at reduced rate to low income earners…

    Stillgotshoeson
    May 25, 2010
    Reply
  61. Certainly very much-needed, Shoes. I see this as a very positive step, addressing the real needs of that group. An even smarter move would be full restoration of the Shared Equity program, which encourages occupants to care for the(ir) home (co-owned with the state government). At present, the trashing of low-cost rentals is a massive burden on the state.

    We looked briefly at the $9K tax rebate offer, but paying minimal tax as we do, it simply isn’t worth the much higher risk… .

    Biker Pete
    May 25, 2010
    Reply
  62. All the above were wrong, the land to be released is 40km West of Perth. Has a slight moisture problem tho.

    Given Karathar sp? way up nth is a booming mining town with very limited land, a severe housing shortage, high incomes (a friend paid 800/week for a unit!) and is surrouned by thousands of hectares of “empty” land, that they refuse to release. Whats the odds of it happening further south?

    Reply
  63. Nice one SBD.
    Years ago here in Brisbane, we had some fantastic land sold to people on some of the Moreton Bay islands (Peel Island comes to mind). Wonderful waterfront land available, even more waterfront at high tide. Pre Google Earth , pre internet in fact, and tons were lapped up by interstate and overseas investors. Just needed a houseboat to live there.
    If I could find a block of dirt for $225K 14 kms from the CBD in any capital city, I’d have to be faster than Usain Bolt to beat the rush.

    Reply
  64. “All the above were wrong, the land to be released is 40km West of Perth. Has a slight moisture problem tho.”

    Love it!!~ Quote of the Month.

    One of our tenants paid nearly two mil for two houses in Karratha, SBD. He gets $2200 and $2400 per week in rent. (Pays me just $450 pw!~)

    The cheap land story didn’t even crack a mention in ‘The Sunday Times’.
    Nor was it in the Top 10 WA News Stories of the Week:

    1. Tony Abbott’s Admission
    2. WA Budget
    3. Michael Johnson Charge
    4. mining Tax Anger
    5. Thailand Chaos
    6. Stock Market Falls
    7. Facebook Killer
    8. Gay NSW MP Quits
    9. Picasso, Matisse Theft
    10. US Oil Spill

    Thinking we might pick up a cheapie, we’ve hunted for details everywhere. Nada.

    Today’s ‘West Australian’ (p.12) basically dismissed the plan, noting it would occur well out; and commenting: “It is well documented that newer, outer suburbs are the least well-served by community facilities, such as public transport and recreation.” What it might also have added is that some communities _within_ 10 kms of our CBDs still lack even a local supermarket or pub! ‘The West’ was scathing in its criticism of the lack of coordination and planning.

    Put into perspective, the state government was attracting massive flak over a budget surplus which hit the pockets of those who could least afford it. With land well out of the cities moving at less-than-snail-pace, what better incentive than to attempt to flog the farflung follies which were flown before the GFC hit?!~ Talk about bread and circuses…! Gotta laugh…. ;)

    Biker Pete
    May 25, 2010
    Reply
  65. “If I could find a block of dirt for $225K 14 kms from the CBD in any capital city, I’d have to be faster than Usain Bolt to beat the rush.”

    Too true, Davo. We picked up a couple during that brief moment when some property markets stalled. A good friend picked up a stunner for $220K, just being in the right place at the right time. Being in Canada, we weren’t! :( We were looking for greener grass… and he found it. _Nothing_ anywhere, since… .

    With blocks regularly fetching $275K – $300K+ over 30km from Perth; and state government reeling in stamp duty hand-over-fist, we really can’t see ‘cheap’ land being opened up, soon. They still need to clear a huge ‘state gov/private developer’ backlog… . What I think we _might_ see is some of the very, very expensive stuff, that’s not selling (due to _extreme_ distance, no facilities, no transport) fall dramatically in price.

    Might pick up one or two for the grandkids… . :)

    Biker Pete
    May 25, 2010
    Reply
  66. I guess he was just BSing, BP? Must admit I was a little surprised, given his long experience buying and selling WA property. ;)

    You weren’t having a dig at the poor, in your comment … At present, the trashing of low-cost rentals is a massive burden on the state….
    were you?!~

    Reply
  67. “Been over to WA? Great state, but very little between major centres”

    As far as I can tell if you head West from Sydney. The first major centre you come to is Cape Town……

    Reply
  68. “You weren’t having a dig at the poor, in your comment… were you?”

    Anything but, John. In 32 years’ renting, we’ve only had two really thoughtless tenants… . In neither case did we have to go to court, because both paid for all repairs before we needed to take action.

    Having said that, a mate of mine decided to specialise in low-cost rentals around 1985 – 1990. The damage, mainly caused by transients, was so great that he quit, vowing he’d never again own a rental. I think the worst aspect of it all was that he was asking so little in rent that he actually believed he was performing some kind of charitable act. These days, in retirement, he works voluntarily in the Red Cross Shop, St. Vinnies and Good Sammies, instead! :)

    I guess the difference here is that when the wealthy trash your rental, you’re more likely to get the repairs done. What is slightly amusing is that the most recent offender, a very wealthy individual, called in Tenants’ Advocacy. After viewing ‘before and after’ photographs, the advocate told this bloke to undertake full repairs pretty smartly… and he did. :)

    While I’m an advocate of Shared Equity, I’m just as strongly opposed to repeat offenders _continually_ being given state housing to trash. It runs into many millions of dollars annually. One example I saw a few years back involved tenants tearing up jarrah floorboards to burn during winter. Why should taxpayers have to bear that kind of expense…?!~

    Biker Pete
    May 25, 2010
    Reply
  69. Why should taxpayers have to bear that kind of expense…?!~

    Why should tax payers have to bear the expensive of making property more unaffordable for them
    and you more rich?

    Reply
  70. “Why should tax payers have to bear the expensive of making property more unaffordable for them and you more rich?”

    Your main problem is that while others _are_ prepared to pay market prices for property (or gold, or shares, food, or any other commodity) you’re not, Steven. I’ve no argument with your refusal to compete in an arena you’ve chosen not to enter. It’s your choice… and I respect your choice.

    Moreover, if you believe that the property market will fail (and you’ve provided a dozen good reasons why it will, during the last year or so) I’m happy for you to continue to wait for that event. Clearly, so are your parents.

    You’ve also decided to live in the most _expensive_ capital city in Australia, which I could never have afforded to do until my forties; so you must be planning to be rather wealthy yourself. Remember too, that I was prepared to buy a home in a country town, to get a toehold in a market I could not have entered otherwise.

    Now I’m aware that your opinion of me can be summed up quite simply, as you’ve done in a previous post: “HAHAHA, You make me laugh you fool”, but pretending to know _anything_ whatsoever about property, let alone WA property, seems a little premature. Your knowledge is that of a dependent son at present. Your life experience is fairly limited. You depend on your parents for your shelter.

    Now to answer your strangely-worded question simply: The government realises that there’s a limit to the number of Aussie mums-and-dads who will patiently suffer the presence of disrespectful little sh*ts in their homes forever. In their wisdom, they choose to subsidise those who will provide alternative shelter, thus sparing said parents this burden.
    Hope that helps. ;)

    Biker Pete
    May 26, 2010
    Reply
  71. “It might just be a little tough medicine to get to a nice place…. ”

    London? Take two of these every four hours and call me in the morning. ;)

    Biker Pete
    May 26, 2010
    Reply

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