“Another high-risk property development group has collapsed, leaving 18,000 investors facing the loss of up to AU$450 million and taking total losses in the beleaguered sector to more than AU$1.3 billion in the past 18 months,” reports Anthony Klan in today’s Australian.
Fincorp, Westpoint, Australian Capital Reserve, and now you can add Bridgecorp to the list of investments that were just too good to be true. We’ve been looking for a subprime- like calamity in the Australian housing market. But it turns out we were looking in the wrong place. In the States, it was the mortgage lenders and brokers in residential real estate that juiced the boom by extending credit to people who would have been better off without it.
The Australian version of the property boom/lending fraud is a little different. Here, the public didn’t invest directly in residential real estate. Instead, given the promise of a high yield, it loaned its money to property developers who then did the necessary job of speculating on real estate for which there is now no demand, at least not at these prices.
“Australia is fast approaching peak debt. By 2016 we will spend so much of our discretionary income on mortgages there will be nothing left for putting food on the table. We will be paying 15 times our yearly income to buy a home, if wages, debt and house prices keep growing at the present rate. That’s what I call really living beyond your means,” writes Michael McNamara in today’s Sydney Morning Herald.
But we thought everyone was richer today than they were before the boom began. Today’s Age reports that the Bureau of Statistics “estimates that Australia’s national income is now almost twice what it was in 1991. National income has grown by 91 per cent in real buying power, the volume of goods and services we produce has grown 75 per cent, and even disposable income per head has grown by 57 per cent.”
Well, everyone certainly looks richer. We went to the footy this weekend at the MCG and felt self conscious in our ten-year-old t-shirt, three-year-old blue jeans, and plain blue trainers. Everyone else looked…so trendy. And so rich. Is it all a fraud, financed with borrowed money?
Markets and Money