A Sign Of The Bubblepocolypse
A reader suggested a topic on the Australian housing bubble. “I want to talk about the craziness going on in Australia right now. Pure hilarity down there. I’ve been entertaining myself watching ‘The Renovators,’ a show currently on TV down under. The market down there is insanely deluded, to an extreme that I think easily meets or exceeds anything we had going on here (except in perhaps the most insane markets like Manhattan or San Fran).”
“For those who haven’t seen it - the show revolves around a group of individuals (Australia’s top renovators) who win keys to one of 6 ‘houses’ and have to renovate and sell them. The team who makes the largest percentage of profit wins the profit of all 6 houses. Where it gets hilarious is when they reveal the homes.”
“Like this one: The Inner City Terrace. It’s a 2 bedroom townhouse that’s completely eaten by termites and literally falling down (no updates since the 1950’s). No indoor toilet, It has an “outdoor bathroom” in the garden under a piece of corrugated metal. Purchased for only 750,000$ (AUS - and remember, AUS/US dollars are basically 1:1 today).”
“These people keep talking about how excited they are at the potential profits and how much money they are going to make on these homes. One insane challenge after another exemplifies the hilarity. One such challenge put both teams in side-by-side townhomes to ‘renovate’ for one day and see who could add the most value to their auction price in a SINGLE day.”
“One team added some paint, ripped out a beautiful quirky kitchen to replace it with an ugly squared-off ‘thing’ from ikea, put grass-matting down over the kitchen tiles, and supposedly added over 60,000$ to the value (which put the total value of the home at 1,030,000$ - for a tiny two story townhouse). I’m certain it’s a sign of their coming bubblepocolypse but damn if it’s not the funniest thing I’ve seen on TV in a long time.”
From Perth Now. “WA’S biggest property players have joined forces with Bankwest to try and reinvigorate the State’s struggling residential housing construction sector. Prospective first time buyers will be able to borrow up to 97 per cent of the value of the property, outstripping the usual 20 or 25 per cent deposit required for some first time home loan products.”
“‘Our research showed it took about four to four-and-a-half years to save for a deposit under a traditional 80 per cent LVR (loan-to-value ratio),’ said Bankwest managing director, Jon Sutton. ‘Under this product, at 97 per cent, that brings that down to about six months, so it does help West Australians get into their house a lot quicker.’”
“Mr Sutton was adamant that lending first home buyers almost the entire value of a property was not irresponsible practice, claiming the bank’s strict lending criteria, including a minimum annual income threshold of $80,000 for the borrower or at least one person in a borrowing couple capped at $500,000 per loan, would insulate borrowers. ‘The product itself is two years interest only, 40 basis point off the standard variable mortgage rate, and there’s a further 10 points reduction for each year up to four years,’ Mr Sutton added.”
The Herald Sun. “Victoria has a property oversupply of about 70,000 dwellings - enough to house a city the size of Geelong, tax reform lobby group Prosper Australia says. The group, which once launched a first-home buyers’ strike, renewed its prediction of a US-style property crash with price falls of 30 per cent across the state’s capital. ‘Melbourne will be the epicentre for foreclosures and price falls because we have overbuilt by so much,’ Prosper Australia spokesman David Collyer warned.”
“Australian Bureau of Statistics data shows Victoria has built a new dwelling for every 2.15 people in the 15 years to last year, while the occupancy rate per household stands at about 2.5 people. Residex chief executive John Edwards said Melbourne was oversupplied, but would avoid a crash. Mr Edwards, who has monitored the country’s property market for more than 20 years, estimates Victoria had an oversupply of about 24,000 dwellings.”
“Australia’s strong economy, low unemployment and absence of non-recourse mortgages, which were widespread in the US, would limit price falls, Mr Edwards said. ‘Unless unemployment climbs, there will be no need for the people who live in Melbourne to sell up and take a loss, and if they don’t have to, they won’t,’ he said.”
The Brisbane Times. “If there were a Logie for making something out of nothing, The Block grand finale would be a shoo-in for having crafted two hours of ‘event’ television from an auction at which three out of four houses failed to sell. Josh Densten and Jenna Whitehead provided two of the evening’s biggest surprises. First, Densten got down on one knee to propose to Whitehead. Second surprise was the performance of their house. Though it had been considered the most likely to secure a significant margin above reserve, it failed to sell. In fact, it failed to attract even a single genuine bid.”
“For close to 20 agonising minutes, auctioneer Ruth Roberts of Woodards tried to elicit an advance on the $900,000 vendor bid with which she had kicked things off. Someone from the floor offered a desultory $750,000, to which she replied, ‘I’d like to play with you but I can’t.’ Finally, buyers’ advocate Frank Valentic offered an apparently genuine $901,000, at which point the house was passed in.”
“Josh and Jenna were on a big screen at the front of the hall, the thrill of engagement having given way to the shock of defeat. At the back of the hall, the remaining contestants looked stunned. As the night wore on it became obvious this was no aberration.”
‘All the reserves were set before the renovations began and presumably based on the $3.6 million (including stamp duty) production company Watercress paid for the four derelict Victorian properties on Cameron Street in Richmond at the height of the most recent boom. Since then, a second storey has been added to three of the houses, all four were restumped, rewired, replumbed and re-roofed, and each has had $100,000 spent on it by the contestants.”
“Nine (network) has emerged a massive winner anyway with The Block averaging 1.336 million viewers a night for the past nine weeks. The finale is likely to have come close to doubling that figure – not a bad result in a market like this one.”
