Over Valuations and the GFC

What have you been reading this summer?
Creative Commons License photo credit: rsepulveda



The property industry lobby’s reliance on ‘friendly valuations’ is often a source of contention in the valuation industry. The Australian today raises issues with Experts Question Boom Lending

Property analyst Michael Matusik yesterday joined the chorus against the proposal yesterday.

He said it was unreasonable for taxpayers to be forced to bail out property developers — many of whom had made enormous profits during the boom.

“Property development is a risk,” he said.

“What has happened in global financial markets may have been unforseen but it’s still an element of risk.”

Prominent property researcher Bill Morris, author of the Midwood Investment Report, said the proposal was “throwing good money after bad” and could further exacerbate an acute oversupply of commercial property.

This is the big sleeper! With over $2.6 trillion in goodwill on US balance sheets, one wonders how much investment property has also been over-valued to assist balance sheets and leveraging. Friendly valuations enable moguls to borrow more money to buy more land. Now these blue sky predictions have turned sour and developers have stretched themselves to breaking point, we the TAXPAYER, are asked to bail them out.

How those committed to market principles can turn so quickly to assist those who donate such huge amounts to their campaigns is astounding. Lobbyocracy is threatening the existence of both the financial and environmental life support systems we so rely on.

The point of contention is that the property market has over-supplied, based on inaccurate figures aimed at marketing scarcity to provide what is really pursued in property – capital gains rather than sustainable yields.

Land prices need to fall back to affordable levels before the economy will kick start again. Bailing out those with massive commercial properties lying dormant will only constrain the economy further. Funding them to build even more property is a short term solution to a long term headache.

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https://prosper.org.au/2009/01/29/over-valuations-and-the-gfc/