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Have you ever knowingly purchased a home that could fall apart during a storm?
I know the answer.
No one in their right mind would do such a thing.
And yet, I’ve just read about an example of this thing occurring, in Australia of all places, where it’s a national past-time to flip properties to one another.
Here is the headline of the news story on the Australian ABC News website earlier this month.
Source: ABC News
So, what gives?
Well, not only is this a great example of the dangers involved in purchasing a house that’s not up to code, but it’s also a key component of the later years of the real estate cycle.
Not just in Australia, but across the globe.
You can 100% guarantee that stories like this will become more prevalent from here.
It’s something you need to be aware of. Particularly if you plan to buy a new property yourself in the next few years.
Read on and discover why.
Read that fine print!
Let’s look at the background to this story.
No one in their right mind would buy a faulty house, right?
Well, on paper no, but this is what’s occurred in this case. Recently the Northern Territory government issued an order to dismantle a number of homes that were found to be non-compliant with relevant regulations.
So bad were the violation of the building codes that the government had to issue a warning to owners that in the event of a cyclone they should immediately leave these homes and seek suitable shelter!
From the ABC news report.
All of the homes had been built by the same builder, using the same design and as part of the same government-backed affordable housing scheme in the Palmerston suburb of Bellamack.
However, instead of experiencing the great Australian dream, many of those who moved into the homes watched anxiously as their properties became increasingly riddled with problems.
What started as cracked tiles, rusting fittings and water infiltration later became so serious that the government began demolishing some of the home slate last year.
Affordable housing, right! This is what happens when governments try to shape a market.
But I digress.
Ok then, so the government has stepped in and attempted to fix things up?
Fine, but how does one then explain this?
With an asking price of about $400,000, it looked to Kevin Pattemore like a worthy investment for what would be his first home. “I went and had a look and checked it out and I was pretty much sold on it,” the 39-year-old said.
“I’d expressed my interest that I was going to make an offer.”
However, as Mr. Pattemore contemplated signing a contract, he had no idea about the cyclone evacuation advice issued to residents.
His experience, and that of an investor who recently went ahead and purchased one of the Bellamack homes, has raised questions about whether the government has done enough to warn prospective buyers about its knowledge of potential safety risks in the building sector.
Oh dear! So, there are people out there still buying these defective homes.
But then again, how can you know any different if the very body you rely upon for impartial and accurate advice isn’t doing its job?
Here is your takeaway though.
Believe it or not, this very situation is supposed to happen!
And the reason why is explained by the way the 18.6-year Real Estate Cycle develops.
It can’t be any other way.
Right now, millions of properties are being built around the world.
Of all types, residential, industrial, commercial, you name it.
I have written to you about this now for years. The biggest building boom in human history.
And according to the real estate cycle property clock on the Property Sharemarket Economics (PSE) website, it’s the correct time in the cycle for this to be occurring.
However, it’s that same clock and my understanding of history that allows me to make the statement above.
Yes, the build quality of all these buildings will deteriorate.
It’s supposed to happen, indeed it must.
But why?
This part is critical. Please re-read it if you don’t get it the first time.
Peel back the individual experiences like those of these Australian investors buying non-compliant investment properties.
When you do, you’ll see that right now all the gains that are manifesting as the world’s economies come out of their COVID related lockdowns are being captured by the land.
And so, land prices around the world are exploding.
So much that property developers in certain locals are finding that their profit margins are getting squeezed. The inevitable response is that they have to cut costs.
Business as usual is not feasible.
More and more credit needs to be secured to afford the raw land for development.
And if you ignore for a moment the current supply side issue, most building materials are relatively the same costs wherever you go.
It’s the price for land that means developers must continually ramp up their leverage to afford it.
The higher the price of land goes up, the worse the quality of newly built homes and properties.
A classic sign that the second more speculative half of the cycle is upon us.
As you can see here, it’s already becoming a problem for both buyers and governments.
Make sure it doesn’t become your problem though.
If you are planning on expanding or indeed beginning to build your own property portfolio, do you think being aware of this problem before you buy is a good idea.
What about knowing with absolute certainty when these developers are about to max out their leverage and the enormous cost of land becomes so high that shoddy work turns endemic?
The amount of credit you’ll need to invest in land as the cycle hits its peak will dwarf all before it, I think a small amount of your valuable capital used to educate yourself is a wise decision.
Start here, with a membership to the Boom Bust Bulletin.
It will teach you the history of the 18.6-year Real Estate Cycle, why it continues to repeat regularly and show you how best to take full advantage of the opportunities it presents.
Make no mistake, there is a time coming soon where the single worst thing you could do for your own financial future is go all in on properties that may have these types of problems.
Let us show you when that time is about to happen and guide you to avoid the very worst.
All this for just $4USD a month! Incredible value.
Best wishes,
Darren J Wilson
and your Property Sharemarket Economics Team
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This content is not personal or general advice. If you are in doubt as to how to apply or even should be applying the content in this document to your own personal situation, we recommend you seek professional financial advice. Feel free to forward this email to any other person whom you think should read it.