Could Australian property go backwards in 2017?
I won't get bogged down in an argument for or against it, you'll find that anywhere on the net. But the bottom line is, anything is possible.
3 ways to short sell Australian property
I recently covered the ins and outs of short selling, here. Basically, it is borrowing something in the hope of buying it back at a lower price later on. You make money if the asset (e.g. a share) falls. But short selling Australian shares are not the only way to make money from falling Australian house prices.
Here are three ways you could do it:
- Buy put options. If your online broker allows you to, you could buy a put option on Australia's big bank shares, like Westpac Banking Corp (ASX: WBC) or National Australia Bank Ltd. (ASX: NAB). A put option makes money if a stock price falls below a pre-agreed price (called the strike price). Options have a limited life. For example, right now, you could buy a $29.07 put option on NAB shares, which would start profiting when the share price fell below that level. It would expire in December 2017 and cost you about $2.50 per contract, which is 103 shares.
- Short sell property developer shares. Your broker may even allow you to short sell shares in a property developer, like Mirvac Group (ASX: MGR). It'll cost you a few percent, maybe, 10% per annum, to do it. But you could short sell one of Australia's biggest property developers quite easily. You could also short sell a real estate investment trust (REIT). Given this strategy may offer exposure to commercial property it is not a perfect play on falling house prices. The SPDR S&P/ASX 200 Listed Property Fund (ASX: SLF) is an exchange-traded fund (ETF) that invests in a diverse basket of property funds. If Australian property was about to fall you could short sell units in the ETF like any other share.
- Use CFDs. Contracts for difference (CFDs) are a contract between you and your broker. They can be highly levered (e.g. you can enter a position using just 5% of your own money), which maximises your losses or gains. You could sell a CFD on bank shares, the Australian dollar or an index. However, this is an extremely high risk way to invest (read 'gamble').
Australian property appears priced to perfection, in my opinion. Of course, high property prices are concentrated in Sydney and Melbourne, but so to are the activities of the banks, developers and REITs that finance projects in and around these cities.
Shorting is a risky business and can require a lot of capital, a high risk tolerance, timing and skill. Personally, I do not think any of these three options is a bona fide way to make money over time and should be used sparingly by experts.