Could Virtual Land be the Answer to the Aussie Property Crisis?

With property prices falling fast, a lot of ‘experts’ are starting to come out and say that now is a good time to pick up a bargain.

I don’t know about you, but personally I wouldn’t be too eager to jump in yet.

Whether you’re an investor or a first home buyer, I still think you have the upper hand here if you can stay patient.

After all, a 10% correction after a two-decade long boom is hardly a bargain in my book. I mean, I got a better deal in a Myer’s sale last weekend on a couple of Calvin Klein T-shirts.

And I’d want to see similar 50% discounts on Aussie property before I’d start salivating too much.

Despite all the hand-wringing (mostly from property-owning baby boomers), it appears to me that Australian property has just gone from being ridiculously expensive to slightly less ridiculously expensive.

A step closer to reality but not ‘blood-in-the-streets’ type falls yet.

Free report: Aussie stock picker, Sam Volkering (with gains as high as 1,431% in the last 18 months) reveals what he believes are his next four big potential winners.

Why you shouldn’t rush in to the Aussie property market

Check out the chart to see Australian property growth over the past 25 years:


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Source: Core Logic

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And before you just think that’s just the normal way of things, check out that property price growth compared to other countries:


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Source: Core Logic

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Can you see that huge and growing gap opening up between Australian and the rest of the world?

Bubble, anyone?

There’s no doubt, we’ve a fair way to go before we land back down to property prices anywhere near what can be considered ‘normal’.

Unless for some reason you think Australia is a uniquely special place…a powerhouse economy that thrives off its own steam, controls its own destiny and leaves other economies in its wake…

Alas not I fear…

The truth is we’re only one Chinese recession away from a total meltdown in our terms of trade. Which will have severe financial repercussions for the unprepared. And cause a complete meltdown in property prices.

I’m not saying that will happen soon, but it’s a real and growing risk.

With signs we’re on the brink of an economic crash, or at least a correction, now is probably not the time to jump into a property purchase and saddle yourself with a 30-year debt.

And even if the economy doesn’t go down the gurgler, I don’t think there’s any harm in taking a wait-and-see approach for a while longer yet.

The way I see it, there’s downward pressure on property prices coming from all sides, no matter what.

Banks have tightened up on credit, interest rates are sneaking back up, and there’s a conga line of baby boomers who will soon be looking to offload an investment property or two to fund their imminent retirement.

Those river cruises don’t pay for themselves!

And if a Labor government get in next year and change negative gearing laws, and it’s highly likely, there’ll be one more reason for property prices to fall further.

Lastly, if you need any more proof that all is not so rosy for many people currently slaving away to pay off their mortgage, check out this chart…


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Source: APRA

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Even today with employment high and interest rates low, we’re actually at 2008 — GFC — levels of mortgage stress.

So, if you’re thinking of buying a property to take advantage of the recent falls, I’d say don’t be in too much of a rush. If you really want to buy — after all, a family home is a great thing — then bargain hard and stick to your guns.

That’s my opinion, anyway…

I recently bought what I think could be a property bargain. A purchase of land for the princely sum of $841.

This land was a bit different from most though…

How can virtual land have any value?

So where did I buy this ultra-cheap plot of land, you ask?

Well it wasn’t actually a real piece of land.

It was a virtual piece.

Through the Decentraland project I bought one of only 90,000 10m x 10m plots.

Decentraland is a cryptocurrency project aiming to build a completely virtual world.


MoneyMorning

Source: Decentraland Promo Video

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It’s a bit like Second Life which you may have heard of. Except in this case, the virtual land owners own the land and anything they decide to ‘build’ on them.

In this case ‘build’ means getting a computer developer to code something for you. Not so unlike a real property development really.

Like I said, I have full control over what I decide to build on my virtual block. As does every other land owner in Decentraland.

I might build a games centre, a live music venue, an art gallery or maybe just a place to hang out and meet people in the virtual world.

Now I know what you’re thinking. I’ve just thrown away $841.

After all, how can virtual land have any value? And I’ll acknowledge this is a hugely risky investment. Decentraland is still very much in the early stages of development and it could take years for it to really take off.

Or it might even fail.

But I’m not so stupid — or so rich — that I can afford to throw away $841 on a whim. I did do some due diligence on this.

For example, I looked up recent sales to see the state of the market. Signs there were good.

Being a blockchain-based project, all sales prices are completely transparent and you can look them up at nonfungible.com. It appeared $841 was an OK price over the short-term compared to recent prices for comparable blocks.

I also noted a few blocks of land had gone for astronomical sums. The highest being close to $200,000!

I then found out some of the biggest names in blockchain venture capital are into it heavily too.


MoneyMorning

Source: Twitter

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Reports say that Barry Silbert’s Digital Currency Group has allocated 5% of its total portfolio to Decentraland. Last I checked they were managing around $2 billion in crypto assets.

My $841 doesn’t look so crazy now does it!?

Anyway, this piece sort of sums up my central investing thesis right now, especially for anyone under the age of 50: Aussie property bad, blockchain property — the right cryptocurrencies — good.

You’ll have to make up your own mind on whether I’m crazy or prophetic…

Good investing,

Ryan Dinse,
Contributing Editor, Money Morning

PS: The growing Chinese middle class could translate into a massive investment opportunity for Australians. Get the details here.


Ryan Dinse is an Editor at Money Morning. He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle. Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.  


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