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Top End Property Bubble?

November 21, 2017

Speculation runs are perfectly normal in Real estate and other investments.  Although in the new world of communication and social media, false information and fake news has as much chance of creating and influencing financial events as the truth has.

 

The most notable property bubble in recent times is that of the US.  No one seemed to be able to accurately predict it at the time. The majority of bankers, economists, policy makers, politicians and social commentators missed the signs. The perception was good, so the homebuyers kept over-investing.

 

The major contributions to the US Property Bubble included –-

 

  • Policies and state contributions encouraging home ownership even for people who quite arguably should not have owned homes.

  • Additional Mortgage securitization that broke the link between the mortgage originator and the recipient of payments.  Mortgage originators lost all incentives to ensure borrowers were capable or able to repay their loans.

  • Financial engineering that allowed for extremely low interest rate loans, no-interest personal loans, that would eventually reset at much higher rates.

  • The realization of the market that there was not a shortage of land for new dwellings.

  • A massive construction boom that created a glut of new homes that eventually led to a sharp drop in prices.

  • A public and private media propaganda machine preaching a belief that real-estate prices would continue to rise. People bought because they thought they could sell later at a higher price.

 

Does any of the above information share any resemblance to activities in the Northern Territory over the last 2 decades?

 

Some innovations that occurred in Australia during the last depression seem to have been entirely ignored by our current political and economic analysts.

 

Innovations like –

 

  • The creation of a state/territory home loan bank system modelled on the reserve bank system. (remember the old TIO Bank)

  • The use of a federal or state arranged Real estate valuation office. (The old Australian Valuation Office) or a newly created Territory Valuation Office.

  • The creation and partnerships of various helpful institutions and local government departments – NT housing, Aboriginal Housing, The REINT, a local NT deposit Insurance corporation, NT Financial counselling resources.

 

The reality is for Darwin to avoid the massive individual and institutional debts and crisis that will occur from bad financial advice and decisions there will need to be active participation in the local economy from bureaucratic departments whose aim over several years was Austerity, but whose actions have led to a regressive economy and a smaller tax base.

 

There will be the need for Bailouts. But these need not be for large corporate entities or companies.  It has been demonstrated that these entities do not re-invest these funds into greater employment and greater risk assessment, but have continuously funnelled the money into managerial bonuses and payments schemes and eventually without exception in the US, gone into liquidation or been purchased by other entities.

The best results for the public historically have been the liquidation of larger entities and the creation of the many smaller entities from the larger one. This increases employment, opportunity and investment into the community.

 

Bailouts and debt forgiveness works best when it is in the creation of more creativity, for example. building and construction grants for home improvements and maintenance which has been a successfully implemented program by our current government.

 

“Leaving the victims of bad policy to fend for themselves and bad banking practices would be heartless and erode trust in society and increase disengagement.”

 

“The government needs to invest in greater maintenance and infrastructure employment to re-engage the public’s confidence and belief in the Territory.”

 

Greater powers and size need to be granted to Consumer protection agencies such as Consumer Affairs and the NT Civil Administration tribunal to ensure that predatory lending and credit techniques are discouraged. To also ensure that the policy decisions are regulated to ensure there is not a proliferation of dodgy tradespeople or companies imported from southern states.

 

"Greater investment and marketing contribution into “Territory” Branding and associations will encourage engagement and help Territorians avoid the many of the symptoms of bad financial investments and policy."

 

 

 

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