The Crane in Brisbane Stays Mainly in the Plain
According to the Rider Levett Bucknall Crane Index, there are 586 cranes in operation across Australia’s three largest cities. 350 in Sydney, 151 in Melbourne and 85 in Brisbane. 80 per cent or 470 of these cranes are focused on building apartments.
UBS believes around one-third of these cranes in Australian cities are in postcodes with “restricted lending”, because the inhabitants have bad credit ratings.
In his recent essay entitled “House of Cards”, Matt Barrie, CEO and Founder of Freelancer Limited (ASX: FLN), says “Rider Levett Bucknall counts less than 175 cranes working on residential buildings across 14 major North American markets that it tracked in 3Q17, which is half the number of cranes in Sydney (350) alone”.
Given cranes generally appear at least 18 months after developers/ owners have gone through the planning, permit and excavation steps, they can be a backward-looking indicator.
And when the median price for a house in Sydney and Melbourne is 13X and 10X, respectively, the average pre-tax wage, and Australian household debt is approaching 200 per cent of yearly disposable income and real wages are growing at their lowest level in three decades, any shock to the Australian housing ecosystem will be very disruptive.
What do I mean by that?
- 60 per cent of Australian Banks loan books are dedicated to residential mortgages; this is double the figure of the US banks and triple the figure of the UK banks;
- The Australian Banking Sector accounts for nearly 30 per cent of the Australian share-market. (This is attributable to our Banks performing extremely well over recent decades and the Australian market being very “thin” in many strongly growing industries including technology and healthcare); and
- Due to the tax system including franking credits, Australian investors are overweight the Australian share market, and by definition, the Australian Banks and thus the Australian mortgage market.
If you are yet to be convinced in investing some of your hard-earned Australian Dollars in overseas funds, including the Montgomery Global Fund, please consider pouring yourself a stiff G&T and settling in for Matt Barrie’s thought provoking essay, which you can find here.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
simon
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Matt Barrie needs to work on his share price instead of writing some distraction jibberish about the economy
Gino Torin
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how long did it take in the USA – 12 months – from the beak. our bubble is twice theirs. and in time, will make theirs look like a pimple.
I am soiling my pants for the afterthought
this is big one, the big kahuna of all bubbles, nearly 20 years in the making
at least, the next generation of MBA students will have a case study to work on
Gino Torin
:
Mark my words, November 8, 2018. You will remember the words of Gino Torin, the oracle
full blown recession
Sydney property market down by at least 30-40 % if not more
critical mass of mortgagors in default most of them out of a particular country that cannot be chased hence bad debt that has to be written off by the 4 majors
mass unemployment
these are not dire predictions but excesses built up over 17 years coming home to roost
anyone who thinks we are going to have a soft landing is brain dead !!
jimbo james
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I posted this article on the later Brisbane apartment post, but chart 5 is a must see in the context of what you’re saying. Incredible stuff. Even more incredible is the fact that it is written in one of the nation’s most property dependent newspapers. Are they trying to encourage more transactions through a fear of not getting out (as opposed to FOMO on the upside)?
http://www.theage.com.au/business/the-economy/australia-faces-housing-hangover-twice-the-size-of-the-gfc-subprime-era-20171123-gzrwn4.html
David Buckland
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Thanks Jimbo. This article was headlined by Bloomberg and I have received a number of emails on it from friends based overseas. The problem most Australian’s forget is if we get say 25% declines, then that only takes prices back 2 or 3 years.
Andre
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Hi David,
The key historical difference is the increased population which is driven by both the natural birth rate and net immigration. An additional, 200,000 people will start to call Australia home every year. This means that we need to be building the equivalent of a major regional city every year just to keep up and that doesn’t capture any uplift in birth rates. Australia is on the cusp of a major population boom and market imbalances which are a consequence of the constant ‘boom and bust’ development market needs to be addressed.
David Buckland
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Very good point Andre. Given the “major regional city every year”, its such a pity we are at least two decades behind in terms of the required infrastructure upgrades. (Increasing pressure on roads, schools, public transport, public land, health, hospitals, energy, sewage, water). And with the exception of that great Australian, Dick Smith, there seems to be virtually no debate on the “big Australia population targets”.
Gino Torin
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It gonna blow up the big time the bust has begun it has 12 months to run
jimbo james
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I reckon you’re right on the bust. Not sure about the short timeframe.
Let’s consider some history of mining boom funded housing bubbles e.g. the last two. The mining boom of the 1970s peaked in 1971 – the home price index according to Stapledon peaked three years later in 1974. Prices did not recover until the early 80s. The next mining boom peaked in 1983, followed by another housing boom peak in 1988. If you bought in 88 you waited until 98 to get your money back.
The trend is housing peaks about 3-5 years after the mining peak, which in this cycle was 2013. As is playing out perfectly before our eyes we expected a housing peak somewhere between 2016 and 2018. You’ll find we won’t recover here until at least 2028. Ireland, Spain et al saw 6-8 years for peak-trough in housing values in their last housing bubbles.
The great unknown variable with Australia in this cycle is the mining boom was 250% larger than any previous boom we’ve had. Housing was similarly (and coincidentally) about 250% larger than any previous boom, so does that make for a longer and larger bust?? Time will tell.
Roger Montgomery
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The toxicity of a bust is directly related to the amount of leverage used to inflate it.
David Buckland
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Excellent context Jimbo – going back to the Poseidon bubble – $0.80 in October 1969 to $280 in February 1970 (350X in 4 months) is Bitcoin like.
jimbo james
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Why anyone would touch an Aussie bank with even a 40ft barge pole is beyond me.
Q. What is the national bird of Australia?
A. A Crane.
Those Cranes look like large Canaries to me.
David Buckland
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Thanks for your thoughts Jimbo.
Rex
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Interesting article and great essay that you have linked. Thanks for sharing.
David Buckland
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My pleasure Rex.