How to profit from the

coming Aussie property

crash (& banking crisis)?
Warning: Contains uncomfortable facts that you will not
want to hear.

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First, will there ever be a property
crash in Australia?

See the facts for yourself…

2
 Why are house prices in Australia rising far above inflation?

Is this a bubble?

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics
http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/

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Since 2001, house prices are rising much faster than weekly average income

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics
http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/

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Why are house prices in Australia surging much faster
than inflation and wages over the past 10 years?

The reason is NOT housing shortage!

Housing ‘shortage’ is a myth!

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Hometrack (www.hometrackaustralia.com), the Australian branch of the
UK housing intelligence research group says,
…the widely quoted views of many property market commentators who believe that Australia’s current building
levels are not enough to meet the future demand for housing, may be based on inaccurate data calculations.
“Our analysis indicates Australia may already have an excess of housing. We estimate there are at least 10
million dwellings in Australia compared with ABS data showing occupied dwellings of 8.3 million. The extra one
to two million dwellings consists of a mixture of housing awaiting sale or development, vacant dwellings, second
homes, and abandoned homes,” he said.
He went on to say that the ABS method for calculating the ratio of people per dwellings is based on ABS census
data which in turn is based upon occupied dwellings. However, he said, Hometrack analysis which is based on
postal address data indicates that Australia’s current level of housing relative to its population is in line with
other Anglo economies.
Following on from this, Darcy said that when looked at in the context of population growth, total residential
building approvals have been running above demand.
“This points to a build-up of excess stock of housing over the past six years, despite the gap between building
approvals and demand narrowing over recent months,” he said.

Source: Press release at http://www.brokernews.com.au/news/breaking-news/hometrack-we-have-enough-houses/34665

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Respected economist Professor Ross Garnaut – yes, the same economist
charged by this Federal Government to lead our response to Climate
Change – described our current housing market in his recent book The
Great Crash of 2008.
In his book, Prof. Garnaut stridently argues against the typical hype
surrounding our housing market.
1. He is unequivocal in his view that Australian house prices have been
driven primarily by speculation; and
2. Garnaut is skeptical that there is any actual shortage of housing.
By many measures, the housing bubble in Australia is much more extreme
than it was in the US before it burst.

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Except for first quarter of 2009, Australia is building homes faster than
population growth

Source: Steve Keen’s Debtwatch No. 33 April 2009: Lies, Damned Lies, and Housing Statistics
http://www.debtdeflation.com/blogs/2009/04/06/steve-keens-debtwatch-no-33-april-2009-lies-damned-lies-and-housing-statistics/

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 If the housing ‘shortage’ is an
illusion, then there must be a lot of
vacant homes not available for rent.

Where are they?

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Map of vacant homes in Sydney from 2006 census data

Source: Sydney Morning Herald, “Empty homes now for all to see”
http://www.smh.com.au/news/national/empty-homes-now-for-all-to-see/2008/05/26/1211653939197.html

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Largely vacant and overpriced apartment block in Parramatta, Sydney

Source: Bubblepedia
http://bubblepedia.net.au/tiki-browse_image.php?imageId=71#

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 There was a housing ‘shortage’ in
UK too . They had lots of
1

immigrants too!
Yet, house prices crashed in the UK.

1Do a Google search with "housing shortage" site:uk and see for
yourself the housing ‘shortage’ situation in UK.
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 There was a severe housing
‘shortage’ in crammed full Hong
Kong1.
Yet, Hong Kong property crashed in
1997.
1http://www.hku.hk/hkcer/articles/v42/wong.htm

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 There was a housing shortage in
California up till 2006 before the
housing crash…
On February 2006, The Acord Online reported1,
“The Californian Building Industry Association (CBIA) continues to express alarm
over what it calls an ongoing housing crisis in Southern California. Alan Nevin, the
association’s chief economist, projected in a 2006 CBIA Housing Forecast that only
185,000 to 205,000 building permits will be granted this year, far short of the
240,000 new homes needed each year. Southern California has been experiencing a
massive population boom in recent years and it’s believed that 6 million new
residents will be living in the region by 2020. The population increase, coupled with
the housing shortage, has the CBIA worried that it will be increasingly difficult for
first-time homebuyers to find a moderately priced unit.”

1http://www.toacorn.com/news/2006-02-09/Front_page/005.html
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 There was a housing shortage in
Ireland too before the housing crash
in 2008…
On February 2003, BBC reported1,
“A severe shortage of housing is predicted if the planners do not release more land, a
leading Northern Ireland builder has warned.”

1http://news.bbc.co.uk/2/hi/uk_news/northern_ireland/2759581.stm

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RBA Governor, Glenn Stevens can’t understand
how can there be a housing shortage in Australia!

“How is it that in a country this big in area and this small in numbers of
people we can't manage to make the marginal price of a dwelling lower
than it is? It seems to me quite high.”

November 6 2009
http://www.abc.net.au/am/content/2009/s2734826.htm

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 So, who profit from high and
rising property prices?

I wouldn’t go into that. You and I know who are

the winners and losers.
Think: tax, corruption, speculation, incompetence

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So, how can you profit from the
inevitable property crash in
Australia?

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 Be prepared to short the banks!
In particular, CBA and Westpac.
“For the investors in the nation's banks - particularly the Commonwealth
Bank and Westpac, which are the most exposed to the housing market - the
prospect of a correction in prices is nerve-racking.”

Sydney Morning Herald, “Investors fear housing bubble will pop”, http://www.smh.com.au/business/investors-
fear-housing-bubble-will-pop-20100310-pz8q.html

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Let’s compare the banks’
balance sheets

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'Rotten' UK and US Balance Sheets

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'Healthy' Commonwealth Bank Balance Sheet

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 How safe is Australia’s banking
system?
1. 50% of Australia’s mortgage market is held by CBA and Westpac, 25% are held
by ANZ & NAB (see CoreData’s Australian Mortgage Report Q1 2010)
2. As at December 2009, 60% of CBA’s lending books are mortgages. 50% of
Westpac’s lending books are mortgage.1 Both figures are set to continue to grow.
3. Look at CBA 2009 annual report—Leverage ratio is almost 20 times (total assets
of $620.4 billion against $31.4 billion of equity). Of $620.4 billion of assets,
$473.7 billion are loan assets. If around 6.6% of CBA’s loans go bad (any loans,
not just mortgages), 100% of its shareholder equity will be wiped out!!2
4. Australia’s banks have $13 trillion of off-balance sheet liabilities, according to
RBA’s figures!3
1http://www.theage.com.au/business/argus-pays-out-on-big-banks-20100324-qwvo.html

2http://cij.inspiriting.com/?p=1217

3http://www.rba.gov.au/statistics/tables/xls/b04hist.xls
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 What if one of the Big 4 fails?

In 2008, The Australian reported1,

The Reserve Bank of Australia has a dark worry about our

banks: they get 90 per cent of their cash from each other. If
one bank gets into trouble, the Australian financial system
could be snap-frozen overnight.

1http://www.theaustralian.com.au/business/fast-rise-of-round-robin-lenders/story-e6frg8zx-1111116954669
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Will the government bail
out the banks American-
style when there’s a
banking crisis because of
property crash?
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Do you know how freaking expensive
bailouts will be?
Australia’s budget deficit will soar!
Foreigners who lend money to us will stop lending!
Fact 1: Australia’s net foreign debt is AU$648 billion on December 2009.
Fact 2: Australia’s personal debt is AU$1.2 TRILLION

Consequence: Australian dollar will tank because

unlike America, it is NOT A RESERVE CURRENCY!
Australia will have twin budget and current
account deficits & banking crisis!
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 What happens if the Australian
dollar tanks?
Inflation will soar because Australia imports than it
exports!
Bank for International Settlements warns in the 79th
Annual Report that “Particularly in smaller and more
open economies [e.g. Australia], pressure on the
currency could force central banks to follow a tighter
policy than would be warranted by domestic economic
conditions [e.g. falling house price].”
That is, Australia will have rising interest rates, rising
unemployment, rising inflation and falling house prices!
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Which means to protect yourself, you
need to diversify your saving out of
Australian dollars!

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Of course, the government will want
you to believe that it will never ever
happen.
Maybe it won’t happen.
But if it does (touch wood), most
Australians will be stuffed big time.

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 What can you do?
Don’t go into debt!
Especially mortgage and credit card debts.

Diversify your savings into foreign currencies (open a

bank account overseas, for goodness sake) and physical
gold and silver.

If you are a cowboy, be prepared to short the banks.

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 There will be too many vested
interests who hates what you are
reading now.
They will continue to saturate the media with
propaganda (e.g. China will save Australia,
property always double every 7 years, housing
‘shortage’)
Even the government are either held hostage by
them for fear of upsetting the applecart. Or
perhaps the government (especially state
governments) is complicit? 31
 Ask yourself: who benefits from
rising house prices and rising debt
levels?
Will you benefit? Will your children benefit? Will
future generations of Australian benefit?

Soon, the property bubble will burst.

Will you rather benefit from it?
Or would you rather be the victim?
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