Editors Comments
One of my 10 predictions I made in January of this year was that Australian real estate would fall significantly this year after rising feverishly the last five years.
Anyone who is following real estate news in Australia
is well aware that that prediction has come true.
I also predicted
that Bali real estate would be the amongst the hottest Real estate markets
in the world because it had dropped so dramatically during the
pandemic.
That prediction is also coming
true and you can read about that after this article in Forbes magazine.
Updated: Aug 15, 2022, 12:11pm
Jason Murphy Contributor
Editorial Note: Forbes Advisor may earn a commission on sales made from
partner links on this page, but that doesn't affect our editors'
opinions or evaluations.
The most important fact in the economy at the moment is not record low unemployment or even record high inflation of 6.1%.
It is housing prices, which, as the below chart shows, are suddenly falling. The RBA’s aggressive interest rate rises
have made mortgages much more expensive and people are reacting by
retreating from the housing market, especially the Sydney housing
market.
The Sydney property market was the first to tumble.
It was also the first place to record house price falls in 2017-18, the
last time the Australian property market went into a correction.
Melbourne is hot on Sydney’s heels. In both cities the house price falls
are the biggest in the expensive segment of the market, which is the
exact pattern we saw last time: falls began in the priciest parts of the
market and then spread.
As CoreLogic research director Tim
Lawless said in May this year: “Historically more expensive housing
markets tend to lead the upswing, but also lead the downturn. If we get
the same pattern as last time, falling housing prices will spread from
expensive suburbs in Melbourne and Sydney across the country.
Australian property prices matter
It
would be easy to get the wrong impression about property prices. They
can be framed by some commentators as important only insofar as they are
socially divisive, providing fodder for population debates or the
generation wars, pitting baby boomers against millennials, who complain
they are priced out of the market.
But there’s more to house
prices than the headlines let on. They are a giant moving part in our
economy, and the first to be hit by any changes in interest rates. As a
result, the RBA must watch property prices intently because of the way
it extends influence over other moving parts of the economy.
Recently,
new housing loans have skyrocketed in size, meaning new borrowers are
especially sensitive to rising interest rates. As the next chart shows,
loan sizes have changed dramatically in the last two years as interest
rates plunged. The average owner-occupier home loan starts at more than
half a million dollars in Australia now, thanks mostly to Sydney’s
incredible property market:
It
is these new borrowers that have the most left to pay off, and will
suffer the most from rising interest rates. What’s more, new borrowers
who had a minimal deposit have the highest chance of ending up under
water when house prices fall, i.e. owing the bank more than the house is
worth. Even if you had a 20% deposit, if the market value of your new
home falls by over 20%, you’re under water. And some purchasers start
with even smaller deposits.
Australians are inclined to keep paying off their home loans when they owe more than the house is worth,
RBA research has found. We don’t tend to default, unlike US borrowers
when they get into trouble. This means the banks are fairly safe even if
house prices fall. With one exception: If there’s also a big economic
calamity that sends a lot of people out of work, that can change
Australian borrowers’ tendency to keep paying down the mortgage.
The
combination of being under water and losing your job is enough to
trigger defaults. This is the other key reason house prices matter so
much.
Falling house prices can trip up the whole economy
The
domestic economy is made up of 24% investment (buying machines, putting
up new warehouses, laying new roads) and 76% consumption (paying
dentists and lawyers, paying for cleaning and deliveries, plus
consumables like fuel, food, etc) . House prices are an important driver
of both, but they drive consumption first and fastest.
There
are two main ways this works Consumption effect. Property trading causes
consumption. When you sell a property you might pay a painter and a
landscaper to spruce things up. When you buy a property, you pay real
estate agents, mortgage brokers, conveyancers and moving companies. Then
you will often get some tradies in to fix a few little aspects of your
new place. And finally you will often get some new furniture. When a lot
of houses trade hands it makes the cash registers ring at Harvey
Norman.
When property prices are rising, people trade more
properties: sellers are keen to come to the market, places stay on the
market for a short period, and people want to buy before prices go up
more. The reverse is true when house prices are falling. So rising house
prices cause consumption in a very direct way.
However, while
the consumption impact is strong, it only applies to the small share of
people who buy or sell a house each year. There’s another, even bigger
effect, called the wealth effect, that applies more broadly. Wealth
effect. When people’s homes go up in value, they feel richer, and so
spend more. The effect is larger the more wealth people have, and so the
wealth effect applies most strongly to older households. They’ve been
in luck recently, but that luck is now turning.
The RBA is, as I
mentioned earlier, terrified of how falling house prices can crash an
economy. A big downturn in house prices causes a big wealth effect that
squeezes consumption. That in turn can make unemployment rise, which, of
course, makes it even harder for people to pay back their home loans.
Interest Rate Rises: How Much is Too Much?
The interest rate hikes the RBA is unleashing
at the moment need to be very carefully calibrated. The perfect amount
of rate hikes will cause inflation to retreat and house prices to merely
modulate. But too much could cause house prices to spiral downward and
take the economy with it in a descent that is hard to reverse.
Especially when the Federal Government has a lot of debt and is less
likely to come to the rescue with spending.
Interest rate
hikes take a long time to have their full effect on the economy, so this
year’s cuts will still be dampening things in 2023. Will the RBA go too
far and inadvertently crush the Australian property market and the
economy with it? Time will tell.
Information provided on Forbes
Advisor is for educational purposes only. Your financial situation is
unique and the products and services we review may not be right for your
circumstances. We do not offer financial advice, advisory or brokerage
services, nor do we recommend or advise individuals or to buy or sell
particular stocks or securities. Performance information may have
changed since the time of publication. Past performance is not
indicative of future results.
Forbes Advisor adheres to strict
editorial integrity standards. To the best of our knowledge, all content
is accurate as of the date posted, though offers contained herein may
no longer be available. The opinions expressed are the author’s alone
and have not been provided, approved, or otherwise endorsed by our
partners.
Jason Murphy Contributor
Jason Murphy is an economist first and foremost. He began his career
with the Australian Treasury and later shifted to journalism at the
Australian Financial Review. He has written for a range of Australian
and international publications.
Editors Comments:
I thought I would share with you my predictions for Bali for the first half of 2002 which are our 100% accusrate.
Also I want to explain why I believe recent government decisions regarding "Special Economic Zones" in Sanur including medical tourism may create the "Hottest Rental and Sales Market in History" in Sanur
Here are major excerpts from our First Half 2002 Report to the Owners of our PT. Bali Luxury Villas
Attn: Owners of Leases for Bali Emerald Villas
Tuesday, August 9, 2022
We hope all is well with you and your families and that either you have visited us recently or have a visit planned so we may meet again in person.
In this First Half 2002 Update:
1. 100% accurate on 2022 Predictions
2. Prediction of 70 % of Normal Occupancy Came True
3. G20 Conference Godsend in Nov.
4. Sanur designated as special economic zone.
5. Sanur Real Estate is the Hottest in 23 years:
100% accurate on 2022 Predictions
I am happy to say that I have achieved what even I could not believe. 100% accuracy on my ten predictions I made at the beginning of the year regarding the pandemic, stock markets real estate markets in Australia etc. and especially return of international tourism Bali.
Frankly International tourist arrivals and rentals occupancies have been even better than I expected for the first month when the international airport opened.
I was surprised with 73% occupancy of the villas that we have under management.
This is right up there with the best years ever.
It certainly caused major pressure on us to bring everybody back to full working conditions.
I would guesstimate that 50% of the hotels and villas in Bali were not ready at all.
Many testimonials about poorly run or poor conditions at hotels and villas are all over social medias.
Not only did we survive but thanks to my spouse and Partner Azizah we obtained the CHSE certificate from the Govt which at the time we received it I was told there was only 1 Villa Complex in Sanur that had it.
Wife, Partner, Notaris Azizah |
I have been saying for the last two years as soon as those international gates opened demand especially from Australia would be better than most expected.
I was surprised when June
dropped back to below normal as news of flights costing 50 % to 150% more than
pre-pandemic and long waits at airports keep travelers from coming here.
The US dollar that is 10%
20% higher than before the Russian invasion also is taking a toll.
Last month there was plenty
of news on the Australian press about hoof and mouth disease and the
possibility that the Australian government would close the borders to anyone
from Indonesia. That did not come to fruition. Thank God.
Prediction of 70 % of Normal Occupancy Came True:
Back in January I predicted that we would have 70% of normal occupancy by July and 110% in December.
In July 2019 before the pandemic, we had 84% occupancy. Seventy percent of 84% would be 59%. We enjoyed 62 % Occupancy in July therefore I am happy to say that my prediction of 70 % of normal July occupancy came true.
Slow Down in August:
I am not sure what is happening in August but there has been a slowdown.
The constant Australian press headlines about hoof and mouth disease in Bali and rising COVID-19 cases is causing some change of travel plans.
G20 Conference Godsend in Nov.
I am not
worried because in a few months we will have leaders of the greatest twenty
nations in the world come to Bali with tens of thousands of entourages, press
etc.
Every hour on CNN the world will catch views of Bali on CNN, BBC, and most major international and local Networks.
This will be the best publicity for Bali so far this Century.
“Best publicity for Bali so far this Century”
Although were not expecting a huge number of rentals from the G 20 I do expect that they will fill up all the hotels in Nusa Dua and Southern Bali. That will push potential renters from those hotels into our areas.
Sanur Real Estate - Hottest in History:
Anybody that has ever attended one of my seminars, listened to my radio program or read my blogs is well aware that I have been saying “Bali real estate is demand is directly proportional to Bali tourist demands”.
“Bali real estate is demand is directly propotional to Bali Tourist Demand"
I have also been predicting that Sanur would be the place that a percentage of 25% of the population of the world that are Baby Boomers would live.
I named our first Villa Complex Golden Villas because of the Golden Age people who would be attracted to them.
Right now, we only have one villa for rent in the whole of the Golden Villa complex.
The rest are owned or occupied full time by Baby boomers from around the world.
Sanur designated as Special Economic Zone.
Just a little over a week ago Pres. Jokowi the President of Indonesia announced here live that over 40 Hectares of land including the Grand Bali Beach Hotel will be designated as a Special Economic Zone
What is really exciting is that this special economic zone is within walking distance of our three Bali Luxury Villas complexes
It will be mostly used for medical tourism, primarily for the elderly from around the world.
Boomers from around the world will come here and be
treated for everything from a facelift to cancer treatment at a fraction of the cost in their country.
The famous Mayo Clinic has decided to be part of this complex.
Everybody wondered if it would really happen.
If you drive by there right now you will see buildings going up like crazy.
I am sure they want to show this economic miracle to G 20 leaders and associates when they come here.
Biggest Real Estate Boom in Sanur History:
I have been predicting for years that there would be a real estate boom in Sanur from Baby Boomer Demand.
It is happening right now.
I have never seen more demand for Sanur Villas, Homes and even million-dollar 100-million-dollar hotels than in my 23 years living here.
For example, yesterday I had a call from one contact who has an owner from Jakarta looking for a hundred million dollar plus hotel in Sanur.
Later that day I had another contact call me and tell me that he would like to share with me a development plan that is taking place on the Southern Beach of Sanur which will include hundreds of beachside expensive villas and a first-class marina. Boomers Moving from Crazy, Gridlocked Southwestern Areas
Then just last few days ago during a private Bali Hai cruise one person after another told me that they want to move away from Canggu, Kerobokan and even Seminyak because it has just gotten crazy over there with grid lock traffic and a dramatic rise in crime.
Some of our Villa owners are reporting extraordinary rental prices right now for long-term rentals.
I am receiving one or two requests every week for long-term rental villas.
Couple with that there has been a large number of improvements in Sanur restaurants, grocery marts etc. and Sanur is the place to retire as I predicted.
I personally along with a bunch of seniors have been playing tennis twice a week at the new first class Liga Club which has a gym, six tennis courts, Pool, and other facilities.
Summary- 2022-2025 Hottest Rental and Sales Market in History
We Hope that you enjoyed this first-half update and join me in being enthusiastic about Bali’s future, especially Sanur.
There is no question in my mind that Bali will continue to be one of the most sought-after destinations in the world.
If you read TripAdvisor’s report in January of this year, we are ranked fourth.
I believe we will move up in
rankings thsi year because if you look at our competition, London which is suffering
through drought and 40 C Temperatures and Cancun which is almost shut down
right now due to Covid-19 we certainly look better.
Noatrais Aziah & Husband Lawrence |
I will go on out on a limb with a Nostradamus Moment and Predict that for the next 2-5 years Sanur will be one of the top three or five hottest real estate markets of Bali, Asia and even the world as it returns to the 2014 prices for real estate.
Very sincerely.
Lawrence B. M. B.
President Director
PT. Bali Affordable Lifestyles International. Since 2004
DBA Best Bali Real Estate & PT. Bali Luxury Villas
No comments:
Post a Comment