The Australian Housing Gravy Train – a Hard Dish to Swallow

Growth in Real Estate with Magnifying Glass

The housing market in Australia continues to boom and more and more families see this as a one way path to wealth creation. In a sign of how crazy things are getting, the Weekend Financial Review reports  that:

‘Financial advisers are being offered “no course, no examination, 100 per cent success rate” real estate qualifications that could provide big commissions from investors wanting to plunge into booming property markets.’

At a time when commissions in the financial planning industry are under threat, the gravy coming from the property market is just too good too pass up. As if Australia needed to direct any more of its scarce capital into the property market! Now, by incentivising financial planners, property as an ‘investment’ will receive endorsement over most other forms of productive investment.

The last thing we need is to have more spruikers in the industry. Especially like the one we saw on Saturday. We were on the way back from taking our girls to the park when we noticed an auction about to get underway (in Melbourne).

The spruiker, previously known as an auctioneer, spent five minutes extolling the virtues of the neighbourhood and the surrounds. Fair enough. But then he launched his ‘fear of missing out campaign’, a hyperbolic rambling designed to panic bidders into going as far as possible to ‘get in’.

We’re paraphrasing here, but the gist of the final pitch was this:

Bid strongly today folks, because prices will only keep going up and up. If you’ve been listening to your parents lately, and they’ve been telling you that property is overpriced, then THEY’VE LOST YOU MONEY. They should be shot [seriously] for dishing out such dud advice. They’re wrong. Get in now because this market is hot and you won’t get another chance.

Seriously…that was pretty much what he said. Is this industry not regulated? Does it not have some sort of code of conduct that is at least loosely adhered to?

We weren’t the only ones shocked. A number of residents had come along to check out the proceedings and were rolling eyes at some of the comments. They’ve owned property through a number of cycles; they know how it works. They know we’re near the top of another one now. 

By the way, someone took the bait. The shoebox sold for $1.1 million, about $300,000 over reserve. It would be lucky to rent for $650/week. It’s just as well that prices never go down. And it’s just as well that return on investment (either implicit or explicit) doesn’t matter anymore.


Greg Canavan+
for The Daily Reckoning Australia

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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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2 Comments on "The Australian Housing Gravy Train – a Hard Dish to Swallow"

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Justin King
Justin King
2 years 6 months ago

As the world begins to experience a sovereign crash, wealthy people will want to migrate to the relative safety and clear skies of Australia.
Prices will go down for awhile during the brunt of the crash, but will rise again as worlwide demand will get stronger than ever.
Relativity of safety and lifestyle will keep the pink rock afloat.

2 years 6 months ago

When the crash comes is will be fast and brutal. No time for an orderly move to a ‘nicer’ place. Countries will put in place capital controls, etc.

Recall that during the 2008 crash the critical points were single days. Days on which the global financial system could have seized up.

The notion that there will never be decline in asset values in the ‘always up’ economy of Australia is not supportable.

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