Ponzi Borrowers

Extract from The Australian:

"LOCAL property investors have become "Ponzi borrowers" in a market 40 per cent overvalued, according to a Morgan Stanley strategist.

In a bearish note to clients this morning, Morgan Stanley strategist chief strategist Gerard Minack warned Australia's housing "bubble" could be pricked should banks tighten credit or "loss-making" middle-class landlords start to sell.

He argues owner-occupiers are in too much debt and investors are riskily relying on capital gains to repay their loans and interest repayments.

Compounding the problem is "ill-advised policy", such as the government's first home-buyers grant, which has combined to make Australian houses "40 per cent above fair value", Mr Minack says.

"Buying an asset that's over-priced never ends well," he said. "The real return on residential property over the next decade is likely to be negative, in my view."

On the positive side, Mr Minack said the most plausible trigger for a correction in the Australian housing market -- broad-based jobs losses -- doesn't appear likely in the near term. This means big price declines in the near term "seems low".

See The Australian for the full story