Face the facts – we are all under the influence

Face the facts – we are all under the influence

And face it we shall! The school holidays are over, the house hunting season is now in “game-on” mode and for all concerned, the pressure is on. We are under the influence of a cocktail mixed with increased interest rates and global financial uncertainties. Perceptions point (oops! we are told) to the possible collapse of property prices. Certainly, the recent announcement by the International Monetary Fund’s “World Economic Outlook” report warns that property markets are about to get much worse, forecasting a 25 per cent (or greater) housing price crash in Australia. This is already happening in many areas and on the flip-side other areas continue to identify positive growth in average prices. There is no doubt that a few prospective purchasers have decided to wait and see – given that they too are feeling the pinch of a global increase in the cost of living.

What this influence can’t calibrate is industry knowledge that when individuals accept debt – they then become indebted to the process that determines the cost of debt. Debt is not an asset as many were led to believe when brokers signed unsuspecting victims based on a misguided theory that the cost of money is cheap. Five years ago, it was. Rates were at 4.25 per cent for those who locked them in. Today, this interest rate has doubled. Property markets that for many are now well under the influence of debt and the significant difference today is that the broker is now nowhere to be seen.

Just as interesting is that today, many real estate agencies have completely removed any association with mortgage lenders from their websites. Therein is a very good clue.

The real estate agencies who invested in technology and key staff and personally funded their business beliefs, will now dominate market share. Property owners today will quickly differentiate between the cheap choices as compared to the smarter choice. We will see a dramatic change in the landscape where the markets will differentiate between property managers and property sales negotiators. The managers of property will sharpen their skills as they have lost the sales market. On the other hand the sales based agencies will acquire the property managers to better run their rental portfolios. How many Mosman agencies are on the market? More than just a few. Every financial market is changing – they are under the influence!

Whilst we have a media focus on a slowing economy it should not be forgotten that inept government policies play a major role with growth. No surprises with the announcement this week that building approvals fell five times greater than market forecasts. Whilst very easy to camouflage these results, the much simpler explanation is that property developers are now concentrating efforts in China and Vietnam. Again, the influence of tax which provides the oxygen for governments and property developers are no longer in the property equation. Just as amazing is that when this crucial data is released more often than not it comes without an explanation as to why? Australia must now be the only country where housing approvals continue to decline with a population that continues to grow.

Our Federal Treasurer Wayne Swan remains dismissive saying that our economy isn’t that bad since he took over the watch. It will be riveting to see how many billions the Federal government amass and the word around town is $20 + billion in taxation receipts. No point in taxing businesses further as all that will achieve is an increase in unemployment because businesses will start trimming overheads. A classic example of “biting the hand that feeds it” which appears to resonate strongly today throughout the entire property industry. Very difficult for property prices to drop too much and it is more than clear that nobody appears remotely interested in building these days. Although it is clear that that when construction stops the next step is to renovate again and there is a very strong argument that today, the entire property industry is well overdue for a complete renovation.

Cheers ^__^

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