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6 Months Later, The Australian Crack Shack Sells For $60,000 More
Six months ago, we wrote a story about an Australian first-time home buyer, Doi, who duked it out with six others at an auction to secure his first home in Sidney's inner-city suburb of Surry Hills. Doi said of his purchase "it's a beautiful little house." It wasn't: it was a crack shack, but Doi still paid $840,000, $140,000 over the reserve, for his first "home."
This is what we said in our first take on "Mortgage Regulation Australian Style":
63 square metres of the Australian dream. 1 bedroom and an external laundry and bathroom to remind you of colonial times. The good news is, despite Sydney property prices tearing upwards 14% in 2013 and another 12% in 2014, after the Reserve Bank cut interest rates 1.25% in 2012 and another 0.5% in 2013, in February this year, the RBA saw fit to cut another 0.25% into this lunacy without any lending restrictions in place. But this is totally cool because in their words, "the Bank is working with other regulators to assess and contain economic risks that may arise from the housing market."
Today, courtesy of The Idiot Tax, we follow up on what has happened to said shack in the past 6 months.
Mortgage Regulation Australian Style, Part 2
Just over six months ago, up a Sydney alley way that looked like a urine thoroughfare, a young man named Doi bought his first house. Over the next few days the internet gasped with horror. Doi, assisted by mother, Gina, paid 840k at auction. 140k over the reserve to secure what he termed at the time "a beautiful little house." Online real estate listing site Domain termed it "derelict". Anonymous internet respondents screamed "shithole". And those were the diplomatic assessments.
You be the judge.
It was 63 square metres of the Australian dream. 1 bedroom and an external laundry plus crapper. Yep, drink one too many beers during a storm and you'd need to pee in the kitchen sink. As the agent said, "The kitchen along with the combined living & dining area are the neater parts of the home but ready for the next transformation. Joining the laundry bathroom to the home is a cute but quaint central paved courtyard." A fixer upper, you could say.
Externally it looked like this.
Yesterday Doi and Gina were back at 7 Little Bloomfield Street, Surry Hills. Their fingers crossed for greater fools because Doi was keen to offload his March purchase. The reason? Like most of us who've bought $800k crack shacks, Doi had a healthy dose of buyers' regret and came to his senses "after realising just how small the property was he decided to sell."
How lucky was Doi? This is Australia! Doi found a plumber willing to go 60k higher than he'd paid six months earlier. Below the auction reserve, but supposedly covering Doi's arse.
The $900,000 sale price was cause for relief, not celebration. After paying $840,000 Mr Kim spent $34,000 on stamp duty, $6500 on obtaining development approval to add another level, $3000 on painting . He also had other rates and fees. "I broke even,” he said after the auction.
A 2% sales commission meant Doi likely would have lost a few bucks, but that's neither here nor there under the circumstances.
With backing from his mother, Gina Lim, he has since bought a larger terrace around the corner on Crown Street.
As noted back in March, the orgy that has drawn in momma's boys and plumbers, while leaving the rational scratching their heads, can be laid at the feet of Australia's financial regulators. Sydney property prices ripped upwards 14% in 2013 and another 12% in 2014, after the Reserve Bank cut interest rates 1.25% in 2012 and another 0.5% in 2013. In February this year, the RBA saw fit to cut another 0.25% into this lunacy without any lending restrictions in place, the result was another 12.6% gain in Sydney prices by July 30, 2015.
But this was totally cool because in their words, "the Bank is working with other regulators to assess and contain economic risks that may arise from the housing market." Back then all we knew of Australia's mortgage regulation was by December 2014 APRA or the Australian Prudential Regulation Authority had used all of their authority to write Australia's banks a letter.
While plumbers might be unaware as yet, some lending standards and bank capital requirements are finally being implemented. Only years too late. This week we found out from APRA head buffoon, Wayne Byers, that APRA was either asleep at the wheel or a financial terror organisation that had for years recklessly ignored Australia's mortgage standards, turning parts of Australia's real estate market into a speculative casino for highly leveraged property investors.
The banking regulator has criticised the mortgage lending standards some banks had in place before it stepped up scrutiny of the sector earlier in 2015, saying some standards had fallen to "horribly low levels" that lacked "common sense". The chairman of the Australian Prudential Regulation Authority, Wayne Byres, also conceded that the regulator would have liked to uncover the poor lending standards earlier than it did.
APRA's partner in crime, the RBA, after a four year interest rate slice and dice, also finally figured out that cheap money with little regulation in place has unintended consequences. Namely sleazeballs shoveling money out the door to maniacs who have no hesitation borrowing nearly 100% on interest only terms to lose rental money so they can speculate on housing capital gains.
The Reserve Bank of Australia has cracked the whip at banks, saying their lending standards have not been sufficiently robust and that as a result the mortgage market presents a "higher than average risk" to the stability of Australia's financial system.
In an unusually tersely worded bi-annual financial stability review, the RBA said investigations by regulators revealed lending standards had been weaker than thought and in some cases breached prudential standards. Several banks had under-reported the amount of lending to property lenders and in some cases banks had breached consumer lending laws aimed at ensuring people only borrow as much as they can afford. "In particular, poor documentation and verification by lenders in many instances suggests that some borrowers may have been given interest-only loans that were not suitable for them," the RBA said.
Yeah, you know that douche in your Facebook friends list who was talking about buying a house and bragged he used his credit card to front the deposit. It was probably true. Significant interest rate cuts that provoked a viagra like response in investor lending didn't raise any concerns from APRA for several years.

And while the crackdown has come, banks raising capital, some expecting higher deposits, many independently jacking interest rates, first on investors, then this week across the board a second time on all borrowers, APRA is left sheepishly kicking the dust around the stable door while the RBA wonders if the horse will come home of its own volition. That's what the RBA calls, "working with other regulators to assess and contain economic risks that may arise from the housing market."
As macrobusiness, who've been calling for macroprudential policies for the past four years so this situation might be avoided, put it:
It is APRA’s job to be “interventionist” and prudently manage risk. This necessarily involves preventative policies rather than the types of reactive policies we are experiencing currently, which are inherently pro-cyclical and risk exacerbating the downside as the Great Australian Housing Bubble bursts.
Finally, the speculative incentive that turbo charged this whole mess, negative gearing, was given a kick this week. Australian politicians usually line up to defend the madness of investors putting as little down as possible, taking an interest only mortgage because rent still won't cover their costs and claiming a tax deduction on that loss at the end of the financial year with the eventual hope that capital gains make up for those rental losses, but not this week. Like all brave heart Australian politicians, future ambassador to the US, Joe Hockey lined up to hit negative gearing when the word "former" became part of his official title. Former Treasurer, Joe Hockey:
In that framework, negative gearing should be skewed towards new housing so that there is an incentive to add to the housing stock rather than an incentive to speculate on existing property
Echoing the words of most unconflicted or half-way intelligent people. Shamefully, Hockey, a fat bastard who had 70% of his stomach removed to lose weight instead of walk around the block, spent years defending and lying about negative gearing. Scaremongering multiple times on the potential impact on rents were it removed, and consistently asserting that negative gearing was primarily used by middle income earners when the top the top 40% of income earners held nearly 80% of all investor mortgage debt.
With the ability to regularly lie through his teeth then completely change his tune when he longer needed to shill for votes, Joe should be right at home in Washington. Importantly he won't be around to sweat bullets when the whole thing comes apart.
The final word to Doi, who has noticed belated regulation has caught up to Sydney's real estate market four years too late.
When asked if he could go back six months would he do it all again he promptly responded “no”. “The market is getting too slow,” he said.
And thank god for plumbers.
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Hopefully, he can roll some of the proceeds into tulip bulb speculation........
There's never been a better time to invest in a crack-shack. I ask you, would you rather roll $900k into, say, a piece of art by a middling 19th C. painter, or something you can LIVE IN? It's a no-brainer, truly.
Sign here and here and here.
How to make sensible people homeless and bankrupt:
Lend money to idiots.
Idiots keep borrowing and bidding up prices. Sensible people must either borrow to compete or do without. But as long as you keep lending to idiots, prices can go even higher. Eventually the sensible people have to either go into debt or starve.
The herd tramples you before it stampedes over the cliff.
The first question is how to avoid being trampled by the herd.
The second question is how to redirect the herd to trample the "farmers" who caused the stampede in the first place.
Not just idiots. There's also that segment of market players who stand to profit from rising prices, or who just need a place to park hot money.
In the meantime, for people who just need a place to sleep, keep their stuff, and hang out, well ... .
So where's a picture of these MoFo's so we can get a looksie at what Pure Genius looks like?
Crowd madness
It is a nice little house in a GOOD NEIGHBORHOOD. Just look at iron-bars on all windows and iron-doors.
"" I ask you, would you rather roll $900k into, say, a piece of art by a middling 19th C. painter, or something you can LIVE IN? ""
The ART Market continues to Soar... You can't buy Van Gogh paper Futures on the crapex, unlike our GOLD...
Buy A good house and fill it with Art (and GOLD), and you will preserve your Money...
What do you hold, Virtual Digits in a bank computer storage, or Real Hard Assets ???
Perhaps some of our Aussie participants might explain precisely WHY Australian property prices haven't tanked together with the (China-focused) commodity-based economy? Yes the AUD has dropped 40% or so in real money (Gold: Get it now?) terms it is down by that amount BUT still, how can these ludicrous property prices still be held up? Is it all part of the Ponzi scheme that Western Bankers have put in place whereby everyone is broke BUT their home is woth a Gazillion Dollars and you can't sell because of a) The mortgage, b) I can't afford the costs to move and c) a new house in a new location would cost even more and I couldn't now finance it because I don't have a job and/or the multiple of my salary which I can get a mortgage for would not buy anything? What happens with the next generation? Not that anyone thinks further forward than 10 minutes these days anyway, I suppose subscibing toe Keynes' view that "In the longer term, we are all dead"?
The last excuse I heard was "Chinese buyers" but that makes little sense in macro terms? And if our Governments truly want to serve we the people, why do they allow foreigners to buy landed property anyway?
Ladies and Gentleman, it's called mis-allocation of capital
or
Bubble economics cooked and served Greenspan/ Bernanke Style.
Money must be priced for risk and that price is the interest you pay.
The Dumb fucks keep pushing on a string when the problem is we can't afford any more debt.
Well if there're two things Australia has a never ending supply of, flies and idiots. Might be a good time to by a crack shack. Aus banks will never stop lending to idiots; "how many zeros do you want with your usury?"... they only stop lending to developers to reduce available stock.
For the young ones, there is no point in trying to buy a house. They should not rent either. Both buying and renting only feeds the beast that enslaves them.
Either buy a car, a tent or find an empty foreclosure and squat. Do not buy. Do not rent. Your land has been stolen from you.
Forget the "If only I work harder then ..." bullshit. Forget the Ponzi Finance. Your land has been stolen from you. Why pay for stolen goods?
I lived in a tent for years. About 35 or 40 years ago, long before it was fashionable. Florida during the winter and Maine during the summer.
Nice tent it was. Big ol' Coleman with real canvas. I installed a small wood stove.
I was as well off as if I were rich. Got up when I wanted. Did what I wanted. Read the Harvard Classics. Practiced guitar 6-12 hours a day (actually memorized all 15,000 of Ted Greene's chord forms).
Takes a special kind of woman, though, I think, to embrace that lifestyle. Too, not sure if it could be done long term with children, especially older and more than one.
But for someone single or with an adventurous spouse, it really is a viable option, and makes a hell of a lot more sense (to me) than squandering thousands of dollars every month on housing alone.
Not a nice choice for people who like to own "things."
At the moment comes with a bad social stigma.
But I cannot see any other way.
Live in a tent so that you can stick it to the man? Are you fucking serious? Do that and he'll be sticking it to you every night.
As long as you are buying or renting, you're feeding the beast.
Maybe you can squat in an empty foreclosure.
Or do you have any other ideas?
You should meet the plumber's mom.
Gold Bitchez.....I pick up pennies
There are a whole generation of bankers and home flippers that have contributed to making homes across the world "affordable" for the masses...what a crowning achievement.
S/
Should be written on every T-Shirt and car bumper. If you still have paper ballot papers then instead of voting, just write on it:
"DEBT is NOT AFFORDABLE"
All brought to you by government intervention
When they didn't like the laws, they lobbied the govt and got the laws changed. Hell, you could even argue that was "democracy in action".
Start here:
http://www.booktopia.com.au/liar-s-poker-michael-lewis/prod9780393246100...
http://www.thenile.com.au/books/Michael-Lewis/The-Big-Short/978014104353...
With the CBers it's all about inflating larger asset bubles each time.
Exactly, each successive bubble must be larger than the last or it does not work.
Are the bars on the windows included?
This overpriced joint is a perfect purchase for money launderers from the Middle Kingdom who will buy anything to get their laundry "clean."
But the RBA here is aiming for steady growth in the money supply and stable economic conditions. It has many characteristics of a Ponzi scheme but a well-managed ponzi scheme such as this one can go on indefinitely. Fiat is not a great store of value, but with its "official" value regularly being compounded away by way of inflation, even at the rate of 5% P.A, it was never meant to be. It's vital role is as a means of exchange and the sale of this crack house reflects this. i.e people still have faith in its use because people do not readily perceive any real threat to currency values, other than your average ZH'er. Fiat can easily be supplied to pump each successive bubble larger, fiat is not a problem and with compound inflation doing god's work, in a couple of decades today's debts will be a distant memory of a time when people worried quite unnecessarily.
That motherfucker dodged a bullet. I hope he learned a lesson from this and appreciates that he was 1 step away from (likely) being the apex fool.
Yeah, he dodged it and let the sucker behind him take it.
He didn't 'dodge' anything... he bought another house, nicer, 'around the corner'... he probably doubled down on his bet that home prices only go one way..
DSM IA - 10.24.2015 - 7000 at a Bernie rally, featuring...Bernie....also that same day...'several hundred' at the Clinton rally that featured Bill Clinton and KATY PERRY! I bet Hillary was fuming when that embarrassment ended.
Hill and Bill kept them away from katy. Now that's a good story. ha ha
$840k Australian dollars is $606k USD, for 680 square feet.
Buyers remorse? That's an understatement.
Let's see, assuming 26 weeks, 4% interest, 25 year loan, he's paid ten grand off the principal plus 16 grand interest, so knock an extra 26k off the net "gain". Or feel free to show us more accurate figures. (esp. since my calcs neglect any deposit. Was there a deposit?)
Sometimes it works out. Here's my real world example from California.
Bought 910 sq ft 185K USD, Sold for 430K...
Standard Disclaimer: That square footage included the garage.
Works until either:
Banks stop lending to idiots.
or
People stop "being idiots" (or desperate).
If you are a house flipper you are no better than the bankers. You are not part of the problem, you ARE the problem. Not to mention going completely off topic so you can crow about your miniscule 'achievement', Lord that is pathetic...
Episode 5 of Million Dollar Listing LA...the Altman Brothers sell a Walter Neff house circa 1948. The land was bought for $13,500 in 1948(?). So let's assume they had $150K in the house. It sold for $10.5M (to a developer) which equates to a $12K return every month since 1948.
Yeah, but how much of that went to Uncle Sammie to fund the rebels in Syria and keep the FSA in good ole USofA ensconced on their couch?
Z SNAP and EBT, Obamaphone, and free TV, #blacklivesmatter and smoke some crack, section 8 housing and your baby daddy won't be back, what up nigga and snitchin's for fools, polar bear huntin and rapn's my game, gimmie dat and I didn do nuffin.
Had to look up "polar bear huntin."
No ghettos near me, thank goodness.
Yea, but Syndey is so charming this time of year.
What the fuck is wrong with these people?
Nothing wrong with these people... they're smart... get your money out of China NOW or kiss it ALL goodbye when the government confiscates it in the coming crash and 'bail-ins'.
I'd paint that hobbit house for $3000. It would probably take me all day, but I'm old and rickety.
Give that man a Bells ... the original owner who paid $200k
The world gave china dollars for crap products... and now china gives the dollars back for crap homes... karma is a bitch.
Yep and it is completely clear after 6 interest rate cuts since November of 2014 - that the China central banksters aren't worried at all about "overheating" of the China economy. Hence Australia could be heading into a bit of a chilly summer. At least they will save on their air conditioning bills for their crack shacks.
Wow, thats a bargain compare to Vancouver. with nirp around the corner, that could be a good deal. Crazy mofos
Yeah, I did the math. It's 678 square feet, and that price works out to about $850k CAD. That would be a good deal in Vancouver, regardless of how much of a dump it is.
the San Francisco crack shack that was posted on zh recently - it sold for $408,000 last week, above the $350k i think it was listed for.
The realtor said the seller was in tears of joy to get that $$ amount.
They don't own water rights......and there's plenty of land and wood in Australia.....why is housing so expensive?
Are all the building contractors making $500k a year?
Or is there some craven housing cratel?
Based on my experience in Canada I bet they have some tough zoning and building code regulations making it impossible to build a house unless you either pay a fortune for a building lot or buy some cheap land and spend 10 years jumping through hoops to get a building permit.
In Australia, as in Canada, when you have massive amounts of vacant land, building materials, and unemployed labor yet you have a housing shortage - that is a political achievement.
what's with all the window and door bars....for those prices it should be a safe neighborhood
it was before they took the guns
It's 63 square metres and has TWO front doors? I'd love to see the floor plan. Two front doors for efficient, high volume, crack house traffic flow? Please tell me this isn't a duplex!
Totally fucking asinine.....truly....a sign of our times....fucking lunacy
Nothing says "home" quite like having metal bars over the windows and/or door(s). I guess they will come in handy during the zombie apocalypse.
Who the hell has 840.000 dollars for his first home?
And how does a plumber get that kind of money?
With $3000 painters, God only knows how much a plumber's time is worth over there..
Obviously you never heard the one about the plumber who fixed the leaky faucet in the psychiatrist office.
Scanning the bill the Dr. declared ,"That is more then I make as a psychiatrist!"
The plumber replied, "Yeah, it's more then I made as a psychiatrist to!"
He borrows it. In a country with super low interest rates and whoopee! lending policies it's a cinch.
"Who the hell has 840.000 dollars for his first home?
And how does a plumber get that kind of money?"
He borrows it. In a country with super low interest rates and whoopee! lending policies it's a cinch.
Amazing because the PM and energy price collapse has hit Australia badly.
the question i have is...did the guy ever make a mortgage payment? bet he didnt. this will eventually end in a foreclosure when the last fool cant see the property. anyway how is this news? this was the us housing bubble...?!