23/01/2007 - 22:00

Property hits a pivotal point

23/01/2007 - 22:00

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Perth’s overdue residential property price correction, which promises to prune 20 per cent off the value of most homes, also promises to be memorable for two other reasons – it is likely to be the fastest downward slide in real estate ever, and it will probably go too far.

The reason we are likely to experience a high-speed crash, and 20 per cent is a crash, can be directly tied to the way in which the flow of information has become so much faster, thanks totally to the internet revolution.

If anyone doubts this prediction from Briefcase, consider how the property market functioned at the start of the latest housing boom, and how it functions today.

Back in the dark ages of, oh, about five years ago, most property buyers and sellers relied on price data collected by government and private dealers on a monthly, or quarterly basis to see how values were moving.

On top of that there were the weekly real estate pages in local newspapers, and word of mouth, as mechanisms for judging whether prices were going up, or down.

In other words, the information flow was relatively slow, and not as accurate as it should have been, and the market moved in what might best be called a gentleman’s leisurely pace; none of the helter skelter seen in places like the stock market, where overnight value adjustments are commonplace.

Today, as Briefcase watches people playing the property market, their first point of call is an assortment of websites such as www.aussiehome.com or www.realestate.com.au. After that comes a property inspection, and perhaps a chat with an agent.

The key to the modern process is the speed with which buyers and sellers are put in touch, and the speed at which prices are adjusted. In some cases the market can almost be seen at work as an old price is left in one advertisement and a new, reduced, price appears elsewhere.

Over the past few months, Briefcase has watched a friend house hunting, and watched the psychology of the hunt take a remarkable turn.

Until late last year there was mood of “let’s buy something, anything, before we’re priced out of the market”.

Almost overnight, thanks to the evidence available on the net, the mood changed. Power switched from seller to buyer – as fear and greed swapped places and prices started to fall under the power of rising interest rates, and frightened speculators who suddenly realised that last year’s 40 per cent hike in prices was completely unsustainable.

But, if fear of missing out was a prime factor on the way up, the new market moving force on the way down will be fear of not being able to get out.

This worry for speculators can already be seen as they attempt to cut and run, taking their profits out of Perth and re-allocating them into the hot new area for property, those old favourites of Sydney and Melbourne. The problem for the sellers is that the internet has cut off their exit.

Everyone can now see the market. People are looking, but not many are buying. They are waiting for a signal that the bottom is near, and the bottom from a 40 per cent upward hike is a long way down.

Price information, which was once the power that real estate agents held over buyers and sellers, is now public domain. Everyone can see what’s happening.

It is the way in which the property trading process has been opened, and speed at which pricing reaches buyers and sellers, that will almost certainly ensure that we will soon be watching the reverse of boom.

A year ago, prices shot sharply higher as buyers panicked. Now, it’s the sellers who will panic, especially over-stretched investors.

•••

On the question of change, it has been the view of Briefcase for many years that Kim ‘Bomber’ Beazley will be remembered as the best prime minister we never had.

But, when Bomber suggested that the next federal election would be do or die for both major parties, someone had to say that, on this prediction, he’s wrong.

Labor has little to fear whatever happens, it has entrenched support and roots that go back almost 120 years.

The conservative forces have much more to fear because their support is much more fragile, and because they are closely associated with what is fast becoming a very ugly face of capitalism.

For young readers the original ugly face was a colourful chap called “Tiny” Rowland. He was the man who did more than most to bring down Alan Bond with a damaging dossier titled “a hero from zero”, but who was himself tagged by one-time British prime minister, Edward Heath, as being a somewhat unsavoury character.

Today, the ugly face of capitalism is the greed we are seeing in would-be management takeovers, such as those proposed for Qantas and Alinta.

Gamekeeper turning poacher is nothing new, but in both of these cases the bidding party has knowledge of the target far beyond that held by most gamekeepers.

For anyone to argue that these issues are manageable, as former Wesfarmers boss, Michael Chaney, did last week is skirting around the central issue of how much information should a bidder have, and should it be more than the current owners of a business.

Average shareholders of Alinta are obviously less well informed than the board members who are paid to run the business, and who now want to buy it.

To test that claim ask this question: why do board members of Alinta (or any other big company) get presented with inch-thick dossiers on the company’s affairs before each meeting?

What’s in those dossiers?

And if it’s good enough for someone wanting to bid for the company surely it’s only fair that the current owners see precisely the same information – and right now, not in a couple of months’ time when it’s all too late.

It is this sort of ugly capitalism, which is nothing more than greed running riot, that will cost the conservatives dearly. Not that the precious few rich people who run conservative politics can see the issue because they’re into it up to their necks and they, not anything John Howard does, will bring their period of national political rule to an end.

•••

As a final thought for the week, and to achieve a degree of balance, Briefcase was amused to see that state Labor premiers want to strike a deal to peg wage rises. What a hoot!

If they were a bunch of businessmen talking about pegging the price of anything they would be hauled before the anti-monopoly busters at the ACCC – or perhaps even the CCC.

•••

“It is always with the best intentions that the worst work is done.” Oscar Wilde

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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