John Hempton, a renowned Sydney based hedge fund manager, has doused fuel onto the property bubble debate. In an article published by Fairfax, Hempton shares details of an expedition undertaken to explore the 'underbelly' of Sydney's property market. The gory tale of empty apartments and dodgy lending has created some serious hype. The suggestion is that fraudulent mortgage lending practices are endemic - leaving the 'Big Banks' dangerously exposed. Marcus Padley believes the claims are self-serving and overstated. "My reaction is that these are a couple of guys that have seen too many films and are trying to do something smart and raise their profile... The core is fabulous. But there are spikes. There are parts where the apartment markets have gone nuts or where Chinese have bought in to a particular suburb and it has shot up." In this candid interview Padley explains why he thinks a more measured approach is justified.”
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It is difficult to argue that Australian property in general is not very expensive, or that Australian investors and our economy are not overexposed to Australian property. Should investors really be doubling their bets by not only owning a house but also owning more leveraged plays on housing, such as investment properties and Australian banks? Any prudent investor would recognise this is a gamble and not prudent portfolio management, regardless of valuation. And yet there is also increasing recognition of the extreme valuations and vulnerabilities of Australian property...Experienced advisers should - in my view - be encouraging investors to look elsewhere to diversify their risks from the obvious, not pacifying them. (Too much of the broader industry is already in the "passive, imprudent, and pacifying" camp. This approach might work for some in the industry (personally I doubt it), but it certainly won't work for investors with real capital long term.)
In general agree with your sentiments. I also think there has been some commentary about property markets that was drummed up by the press and would have been extremely alarming and probably quite terrifying for many people. Moving to the extremes of being either too complacent or overly pessimistic is unlikely to result in people making rational decisions.
You cannot ignore the facts-we are in a huge bubble.Australia is not IMMUNE and there will be many that will end up in tears.At the end of the day bubbles are created by greed.No one learnt anything from the GFC,and unfortunately history will repeat itself again.Has anyone taken notice how the price of iron ore collapsed?Do you remember when it was trading over $150 per tonne?I feel extremely sorry for those that have over borrowed thinking that the value of their home/investment property will double again in 7-8 years.The next GFC will teach us a harsh lesson and the consequences are dire.There is still time to exit the property market because the carnage in Melb/Sydney hasn't even begun............
Assume you have the view that the housing market will not crash. (ie greater than a 5-10% correction in prices over the next year or two). It begs the question then would you be better buying the banks or property. I would feel on current yields the banks would be the better play. If you took this line have a look at MVB which is a EFT covering the banks. It would spread the risk across the whole sector rather than taking a bet on one particular bank. For myself I would be neutral at the moment but the recent falls are making this sector a lot more interesting.