Australia Faces Its Demons

[ccc]

I have my investments spread across shares, bonds, P2P, Premium Bonds, cash deposits. My wife said isn't it inconvenient having all those small sources of income.

I need to educate on the benefits of not having all eggs in one basket.

Be careful - she may head out and find a few other husbands. You could be a male concubine before you know it.

[Sancho Panza]

I have my investments spread across shares, bonds, P2P, Premium Bonds, cash deposits. My wife said isn't it inconvenient having all those small sources of income.

I need to educate on the benefits of not having all eggs in one basket.

Absolutely.

All a lot of people under 45 have known is rising or at least steady house prices.

Noone really talks or points out the pitfalls of investing in a property.For me,it's more sensible to find proxies for house prices eg builders shares/banks and trade them.

One guy at work has 1 BTL and has two episodes of non payment in four years.He deeply regrets the venture but he's clinging on in there on the grounds that over 25 years to 2036,the underlying asset will rise in value.I'd figure his return thus far has been 0% in capital growth(it's a rough bit of the west mids) and minus £10k + in cashflow.

He's an extreme case though.

[Venger]

Absolutely.

All a lot of people under 45 have known is rising or at least steady house prices.

Noone really talks or points out the pitfalls of investing in a property.For me,it's more sensible to find proxies for house prices eg builders shares/banks and trade them.

One guy at work has 1 BTL and has two episodes of non payment in four years.He deeply regrets the venture but he's clinging on in there on the grounds that over 25 years to 2036,the underlying asset will rise in value. I'd figure his return thus far has been 0% in capital growth(it's a rough bit of the west mids) and minus £10k + in cashflow.

He's an extreme case though.

And many of those <45 year olds, still priced out renter-savers, with only humble outlook of owning one home - but vs bubble prices, out of reach. With 1 in 5 UK homes a BTL/rental. So.... for all the pitfalls of those with own homes + BTLs???????????

It's so difficult to work out isn't it, for all the property investor/BTL side. Naive innocence of the BTL side. Cuddles. Perhaps the BTL side convince themselves that other people love to rent.

Priced out of homeownership tenants are 'nice people' / 'ordinary people' as well.

katefaulkner ‏@katefaulkner 9h

UK landlords aren't 'greedy' armchair investors, they are just ordinary people doing ordinary jobs!

And BTL isn't a job. Not a trade at all.

No point having a breakdown for BTLers at this point. Had it for years and prices up 35%+ around here. For all we know could be 2036 party party for BTL guy. All market participants.

I work with some unwitting LL's and the stories are sad because they're nice people who were just naieve.

For some,it's worked out well. For the ones who've had non payers who've wrecked the place,each tenancy has cost them £5000+ in legal fees and repairs without more than a months rent coming through the front door.

Brutal.

Brutal is having to put up with BTLers in the first place - intervention, and new peaks each year in my area, kicking up rent to BTLers. Anyone giving it 'brutal' sympathy for the renter-saver side?

"Deserves got nothing to do with it."

Edited July 29, 2016 by Venger

[Silverfinger]

Quite - I was on 220K until the middle of last Month.

Good while it lasted (2.5 years)!

Why is there such a discontinuity? Couldn't they offer you 110K part-time, or say 220K for two years? I don't know this industry, but it somehow makes no sense to me if employment is flexible enough to be terminated, but inflexible enough to make no salary adjustments.

Edited July 29, 2016 by Silverfinger

[Sancho Panza]

Why is there such a discontinuity? Couldn't they offer you 110K part-time, or say 220K for two years? I don't know this industry, but it somehow makes no sense to me if employment is flexible enough to be terminated, but inflexible enough to make salary adjustments.

Problem is that then you'd have people doing the same job on markedly different rates.

[Sancho Panza]

Priced out of homeownership tenants are 'nice people' / 'ordinary people' as well.

And BTL isn't a job. Not a trade at all.

No point having a breakdown for BTLers at this point. Had it for years and prices up 35%+ around here. For all we know could be 2036 party party for BTL guy. All market participants.

Brutal is having to put up with BTLers in the first place - intervention, and new peaks each year in my area, kicking up rent to BTLers. Anyone giving it 'brutal' sympathy for the renter-saver side?

"Deserves got nothing to do with it."

Point taken.

I'm 45 and I rent.I get frustrated with BTLers buying houses and sourcing taxpayer funded mortgages at 3%-4%.

Having said that I do feel sorry for 45 year old blokes with families like my colleague who are up poop creek sans paddle.And you know what,if I actually knew any Countrywide EA's on a personal level,I might even feel sorry for them when the Plc goes t1ts up.

I've been on this board in one form or another since 2007.I feel worn out by it all.

[Kurt Barlow]

Why is there such a discontinuity? Couldn't they offer you 110K part-time, or say 220K for two years? I don't know this industry, but it somehow makes no sense to me if employment is flexible enough to be terminated, but inflexible enough to make no salary adjustments.

I, along with numerous other contractors offered large day rate cuts and going part time. The problem is the European HQ go through the books with a red pen and send a list saying get rid of X,Y,Z employees.

I offered to halve my day rate and go to 3 days a week (would have worked well with my wife going back FT on Monday) but my boss had no flexibility. I suspect long term aim is to sell off whole Oz operation so this type of slim down is gettingt he books look as relatively rosy as possible.

[Kurt Barlow]

http://www.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154

[Silverfinger]

Thanks for the insight. I figured it was something like that. IMO not a good way of running a business.

[canbuywontbuy]

Australia's credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70 per cent and unemployment to rise sharply, Professor Steve Keen says.

I hope so. I am an Aussie passport holder, and I remember the 90s when I was over there - cheaper cost of living and accommodation than the UK, and the UK was relatively cheap (to today) to live in back then anyway. Now by all accounts Australia is nightmarishly expensive. I wonder even if a 50% crash would constitute value for money to be honest (within the cities)?

Edited July 30, 2016 by canbuywontbuy

[Bloo Loo]

http://www.abc.net.au/news/2016-07-29/australia-headed-for-recession-next-year,-professor-keen-says/7674154

The Government is not like a household. A government is like a bank. And a government running a balanced budget is like a bank that simply lends back as much as it gets in repayments, therefore the money supply never grows and without that, you don't have a growing economy," he said.

MMT Bullshine. GDP is the god for these idiots, they do not beleive deflation is the natural consequence of efficiency by improvement.

Also they forget that credit doesnt require government FIAT to increase..

[Kurt Barlow]

Absolutely.

All a lot of people under 45 have known is rising or at least steady house prices.

Noone really talks or points out the pitfalls of investing in a property.For me,it's more sensible to find proxies for house prices eg builders shares/banks and trade them.

One guy at work has 1 BTL and has two episodes of non payment in four years.He deeply regrets the venture but he's clinging on in there on the grounds that over 25 years to 2036,the underlying asset will rise in value.I'd figure his return thus far has been 0% in capital growth(it's a rough bit of the west mids) and minus £10k + in cashflow.

He's an extreme case though.

I seem to have supressed the wifes BTL urges for the moment.

I sat down and worked out our annual interest / dividends from Aussie investments (cash and shares) and it came to $650 pcm gross. This is only $180 less than here gross return on her unit.

So I said you want to swap that $650pcm positive cash flow for a unit that we will probably end up renting out, with a 300K mortgage and taking less in rent than the repayments?

[Sancho Panza]

http://www.abc.net.au/news/2016-08-02/interest-rates-should-be-zero-in-wa-over-4pc-in-nsw/7681744

'Reserve Bank interest rates should be zero in recession ravaged WA, over 4pc in booming NSW

'Conditions are so depressed in Western Australia after the mining boom that an appropriate central bank interest rate would be zero or below, while booming NSW needs a rate above 4 per cent to rein in the bubble driving home prices sky-high.

That is the finding of an economic analysis by Dr Andrew Charlton, formerly economics advisor to prime minister Kevin Rudd and now director of the consultancy Alpha Beta.

"Western Australia is going backwards very significantly and has conditions that you would describe at a state level as being consistent with a deep recession," he told the ABC.

"In NSW, where the interest rate is too low for prevailing conditions, the impact of that is to inflate asset prices including the housing market."

The latest CoreLogic home price data highlight this divergence between fears of a Sydney bubble and the reality of a Perth correction.

While prices in Sydney surged 9.1 per cent over the past year, with Melbourne not far behind, values in Perth dropped 5.6 per cent.

Dr Charlton said this two-speed housing market is a symptom of monetary policy that is inappropriate for both extremes.

NSW is receiving more than 200 basis points of additional economic stimulus.

"That is why you are seeing house prices going up, cranes in the air, and a lot of excess froth right through the NSW economy.

"But the Reserve Bank can only apply one interest rate for the whole country and at the moment it faces a tremendous challenge of imbalance between the south-eastern states of NSW and Victoria, which are growing strongly, and Queensland and Western Australia which are contracting."

NSW and Vic boom, while Qld and WA contract apace

There are no complete official statistics on economic growth for the different states.

But using state final demand from the ABS national accounts as a rough proxy paints a stark picture of the mainland states' varying economic fortunes.

The NSW economy is growing by close to 4 per cent; Victoria by 3.2 per cent; South Australia barely growing at all at 0.5 per cent; Queensland contracting by 1.8 per cent; and WA in a severe downturn of -4.2 per cent.

"Think of a thought experiment where Western Australia could set its own interest rate rather than having one that's applied to the whole country," Dr Charlton said.

Conditions in Western Australia are consistent with an interest rate that is around zero, or even below zero.

"If you think of NSW as an economic unit with its own interest rate and its own currency, you'd be expecting an interest rate, consistent with the inflation and economic growth conditions in NSW, of above 4 per cent."

On most measures, household debt in Australia is at world record levels, and getting worse thanks to the borrowing fuelling the south-eastern housing boom.'

The challenge of the two-speed economy is amplified by the formula used to divide up the GST revenue collected by the Commonwealth between the states.

"Horizontal fiscal equalisation" divvies up the revenue based on a states' service costs and ability to raise revenue, but the formula operates with a lag.

At present WA and Queensland are receiving revenue calculated when these mining states' economies were stronger, and NSW and Victoria a revenue share based on a time when the diversion of economic activity to resources-based states was squeezing their economies.'

[TheCountOfNowhere]

Any excuse to boost the rich mens asset prices.

[Fairyland]

TheGuardian: Reserve Bank may resort to more rate cuts and 'even quantitative easing'

Link: https://www.theguardian.com/australia-news/2016/aug/09/reserve-bank-may-resort-to-more-rate-cuts-and-even-quantitative-easing

The Reserve Bank of Australia could be forced to cut the cash rate to 1% in the next 12 months and even resort to US and European-style monetary easing if global headwinds continue to weigh on the economy, experts have warned.

Despite already cutting the rate twice in 2016 to unprecedented levels, the central bank faces a scenario where a deteriorating economic outlook brings at least two more reductions.

After that the bank might have to resort to quantitative easing the unconventional monetary policy of printing money to buy up government bonds used by central banks in the US, Japan, UK and Europe in response to the global financial crisis, National Australia Bank economists warned on Tuesday.

Releasing its monthly business survey on Tuesday, NAB said that the short-term outlook was upbeat but longer-term risks for Australia were becoming more apparent as resources exports levelled off and housing construction slowed.

The chief economist at NAB, Alan Oster, said: Against these headwinds, the economy may require additional policy action to support growth, especially if the RBA hopes to see inflation return to within its 2-3% target band.

Edited August 9, 2016 by Fairyland

[Crumbless]

TheGuardian: Reserve Bank may resort to more rate cuts and 'even quantitative easing'

Link: https://www.theguardian.com/australia-news/2016/aug/09/reserve-bank-may-resort-to-more-rate-cuts-and-even-quantitative-easing

Its insane, the amount of money that has poured into Australia for their minerals/and petrochemicals in the last decade and they have to print money.

Must keep the property ponzi going i suppose, can;t have workers being able to afford property with wages can we.

[Kurt Barlow]

Its insane, the amount of money that has poured into Australia for their minerals/and petrochemicals in the last decade and they have to print money.

Must keep the property ponzi going i suppose, can;t have workers being able to afford property with wages can we.

Surprise surprise - Australia no more the Land of the 'Fair Go'

http://www.abc.net.au/news/2016-08-09/australia-is-land-of-the-fair-go-no-more/7703818

[FrankCostanza]

They spent $450 million on the census and the website crashed on census night.Has been down for 24 hours as i type.

What an absolute disgrace.

I doubt they will be able to even use the information this time round after all the scandals (You must include your name and address now, information kept for 4 years up from 18 months) have eroded confidence in the system so much that we will see record numbers or people refusing to do it at all or filling it out with incorrect information.

The head of the ABS is on more than the prime minister.$705,000.How is he still in a job? This has been an absolute disaster from start to 'finish'.

[Crumbless]

Surprise surprise - Australia no more the Land of the 'Fair Go'

http://www.abc.net.au/news/2016-08-09/australia-is-land-of-the-fair-go-no-more/7703818

Australia likes to copy and then beat England, they certainly have out done us on the property bubble.

[Kurt Barlow]

Australia likes to copy and then beat England, they certainly have out done us on the property bubble.

The 'Land of the Fair Go' has a similar ring to it as the 'Religion of Peace'.

You can apply for dozens / hundreds of jobs in say the mining sector and meet all the JD & PS requirements and never even get an interview. There is one reason for this - you need a mining sector godfather.

[spyguy]

The 'Land of the Fair Go' has a similar ring to it as the 'Religion of Peace'.

You can apply for dozens / hundreds of jobs in say the mining sector and meet all the JD & PS requirements and never even get an interview. There is one reason for this - you need a mining sector godfather.

All commodity based economies turn into corrupt tin pot 3rd world countries, which then fail.

[Will!]

And now the scam of shared ownership arrives to make things worse...

Could shared ownership help Sydney's housing affordability crisis?

[TheCountOfNowhere]

And now the scam of shared ownership arrives to make things worse...

Could shared ownership help Sydney's housing affordability crisis?

It seems the same con men are all over the world.

[Sancho Panza]

http://www.abc.net.au/news/2016-08-26/apartment-glut-looming-in-2017-citi/7789864

'Global banking giant Citi believes time is nearly up on Australia's apartment building boom, with a glut of supply over the next two years likely to trigger a drop in prices.

The bank's research team is predicting that, unlike many previous housing cycles, it will be oversupply, and not a rise in interest rates, that brings the boom to an end.

"Housing cycles usually end with monetary policy being tightened. But this monetary policy easing cycle is longer than normal with the latest rate cut only this month," the bank's economists observed.

Settlement risk looms large for developers, banks

The main threat for developers, and also a big worry for banks, is settlement risk - that is where an off-the-plan apartment buyer who has put down a deposit does not complete the purchase when construction is finished.

Even though developers can chase off-the-plan purchasers for the full contract price of the unit, with many buyers located overseas there is great uncertainty about how successful these pursuits will be.

Photo: Mirvac sales by buyer origin, with 27pc sold to overseas purchasers.

If a glut of apartments is sending prices downward, it is possible developers, and potentially their lenders, will be left out of pocket.

With oversupply a key element in triggering the price falls that would increase settlement risk, Citi has identified some hotspots of concern.

It said Brisbane is already in oversupply, especially in and around the CBD, while Melbourne is well on the way, with the risk of oversupply concentrated near the city.

Photo: Sydney has a lot more apartments in the pipeline and relatively less under construction. (Citi)

While Sydney as a whole is less at risk of seeing supply exceed demand, Citi warned that the Botany council area is in particular danger of excess supply, with Auburn, Lane Cove and Ryde also at some risk.

Citi said that oversupply is seeing rents stagnate or even fall, and may result in home prices following.

"The combination of large rises in house prices over the past few years in Sydney and Melbourne and gradually increasing housing supply relative to demand has seen rising vacancy rates, softer rents and record low rental yields," the analysts noted.

"At some point a correction in house prices could follow."

However, the bank said low interest rates, more restrained detached house building and solid population growth should mean any home price falls are moderate.

Likely to be 12-24 months before unit prices fall

It is also expecting any price declines to be a little way off.

"There is a 12-24 month lag to completions and so far the level of dwelling completions is only about half the level of starts across the three eastern states," Citi observed.

"This suggests that the peak in new supply wouldn't occur until late next year.

"It will be then that the downward pressure on apartment prices should become more apparent."

While low interest rates are likely to soften any blow to home prices by propping up demand and reducing the level of forced sales, perversely, Citi said those low rates are contributing to the weak inflation that they are supposed to be boosting.

"Rental inflation is around multi-decade lows and could ease further as dwelling completions have a long way to rise yet," the bank noted.

"In addition, new dwelling purchases costs in the CPI [consumer price index] are not rising as fast as might have been expected given the surge construction activity."

Aside from companies affected by settlement risks, and property buyers who see the value of their purchase slide, Citi analysts warn that hotels could end up being the big losers out of the inner-city apartment glut.

With the rise of Airbnb, many of the CBD apartments struggling to find buyers or tenants may end up as short-term and holiday rentals, competing for business with traditional hotels.'

[wherebee]

I do think that the oversupply is coming, but seriously, unless you stop the wall of chinese money, it's not going to pop.

We've discussed it before - safe haven, not investment.