Housing market at risk as the bet on China falters - Australia

It's just simple logic that China can't go on building ghost cities forever in a bid for never ending growth. Apartments in China are already hugely oversupplied and vastly unrealistic in their pricing. Whilst the average earner can't get anywhere near one because of the expense, the apartments remain empty. Only bought by investers who don't live in them.

Sounds familiar doesn't it.....

In short the Chinese mining boom for Australia is over, and likely never to be repeated. We bet our very houses on China, and now the house of cards is starting to unravel. Australia, convincing the world that China and therefore Australia was the safest of bets, has become awash with foreign money. Flowing in to seek something better than a zero interest rate in some places.

This money has washed into the housing sector. With the aid of bad gov policy, it has fueled over investment in high priced apartments un-affordable for many average wage earners. The money has fueled the speculators, with property prices becoming investments rather than a basic human need. Much of it with said foreign money.

Now Australia finds itself with nearly the highest private debt in the world. As does China.

As of the second quarter of 2015, China’s household sector debt was a moderate 38% of GDP but its booming private non-financial business sector debt was 163%. Added together, it gives a total of 201% and its climbing rapidly. This may well be a conservative figure, given it is widely acknowledged the central government has overstated GDP growth.

Australia, though it frequently features high on lists of the world’s most desirable locations, currently has the world’s second most indebted household sector, at 122% of GDP, soon to overtake Denmark in first place. ombined with private non-financial business sector debt, Australia has a staggering total of 203%, vastly larger than public debts at all levels of government. The Guardian

Ship of fools.

We now must await to see what happens. It all may end in tears.

As well as hitting Australia hard, the mining export-driven states and territories (Western Australia, Queensland and the Northern Territory) will suffer the most. Population growth rates are falling in these regions, growth is softening and underutilization (unemployment and underemployment) is steadily rising. Spillover effects into the other states are likely, which could impact the country’s largest and most leveraged asset class: the housing market.

This may leave little desire for international wholesale lenders to provide credit to the banking and financial system in the future as Australia’s economic prospects deteriorate. It is becoming obvious both domestically and internationally that the country is beset with a massive housing bubble, driven by debt-financed speculation. Without Australia’s lenders importing an ever increasing sum of credit, the overleveraged and overvalued housing market will run into trouble. 

Government and industry have managed over the last decade and a half to instill severe complacency in Australia, hoping policymakers’ two big bets on the finance, property and mining sectors would continue to pay dividends far into the future. While these bets paid off in the short-term, genuine productivity-enhancing policies which would diminish the incredible and mostly unearned wealth millionaires and billionaires have siphoned off could then be ignored. 

With the Chinese economy beginning to falter, the fear is Australians must now figure out where their economic future lies for the next generation who have been brainwashed into believing that digging up rocks and flipping houses by accumulating a gargantuan mountain of private debt is how a modern western country builds its future. The results will not be pretty. The Guardian