Investors ignore signs and pile into property
Peter Martin
June 16, 2010 - 1:00AM
AUSTRALIANS are diving into negatively geared property even as the Reserve Bank signals that another interest rate rise could be only weeks away.
Figures from the Bureau of Statistics show that while lending to buy homes in which to live fell a seasonally adjusted 10 per cent in the first four months of the year, lending to property investors rose 11 per cent. In the past year lending to investors rose 30 per cent nationwide, and 20 per cent in NSW.
''These investors aren't concerned about interest rates,'' said a BIS Shrapnel analyst, Angie Zigomanis. ''They can see prices rising and real estate looks a safer bet than the stockmarket.''
While some of the new real estate investors were taking money out of the sharemarket, most were using funds they had been keeping on the sidelines.
''You've got people who have still got their jobs and have been fiscally conservative - and potentially money is burning a pocket,'' he said.
''If you stick money in a term deposit it faces tax. A lot of people are averse to putting it in the sharemarket, given how it's been going, and residential property has bottomed out and been climbing for 12 months. That's given people confidence to jump back in.''
Mr Zigomanis said a key factor for some would have been the government's decision not to move against negative gearing after the Henry tax review.
Tax Office figures show a record 1.2 million investors said they spent more money on their rental properties than they earned in 2007-08. One in every 10 taxpayers owned negatively geared property.
Reserve Bank figures released yesterday show that in other respects we are being more careful with our money. Credit card cash advances are down 5.5 per cent over the year and the proportion of those withdrawing cash from their bank's ATMs rather than another banks' has risen to a record 62 per cent.
The minutes of the Reserve's board meeting this month suggest it will leave rates on hold next month but consider lifting them in August in response to inflation figures to be released next month.
The minutes identify international developments and the outlook for inflation as the key drivers of rates and, unusually, nominate the next month's figures as the ones to watch.
The Reserve's deputy governor, Ric Battellino, told a conference he was unconcerned about household debt, noting that since 2006 it had stayed steady relative to disposable income.
Claims that house prices were high compared with income did not differentiate between city and regional salaries.
This story was found at:
http://www.watoday.com.au/business/investors-ignore-signs-and-pile-into-property-20100615-ydds.html
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Showing posts with label australian houses. Show all posts
Showing posts with label australian houses. Show all posts
Saturday 19 June 2010
Monday 22 March 2010
Housing at these prices will leave us all a heavy debt to bear
March 23, 2010
Average buyers can't compete with rich, tax-subsidised investors.
SYDNEY'S Sunday Telegraph was breathless with joy. ''IT'LL BE WORTH DOUBLE'', its headline screamed. ''Sydney is on the verge of becoming a city of suburban property millionaires as house prices soar,'' it frothed, ''in many cases, doubling in value over the next 10 years.''
In Perth, The Sunday Times was euphoric over similar predictions there. Here the Sunday Herald Sun was more restrained, but its figures showed a similar result. Even in Keilor, Reservoir and Upwey, median house prices in 2020 were forecast to reach $1.1 million.
If that proves right - and these are just forecasts, done by Australian Property Monitors for the Murdoch tabloids, apparently assuming that past price trends continue for another decade - it would put home ownership out of reach for millions of younger and lower-income Australians. It would complete our transformation from a nation of home owners to one of landlords and tenants.
But it won't happen. Melbourne house prices have trebled since 1997, not because our incomes trebled, but because we paid those prices by a massive increase in debt. In the 20 years to January 2010, household debt to the banks grew 10 times over, from $118 billion to $1224 billion. As a share of our disposable income, they more than trebled, from 45 per cent of what we earn to 156 per cent.
If we want house prices to keep growing at that pace, we'll have to keep going deeper into debt at that pace - to more than $4 trillion by 2020, or more than three times our income. Any volunteers?
Yes, house prices are now soaring at double-digit rates. Agents report 87 per cent auction clearance rates, with many properties sold well above their reserve price.
But those projections are duds. We won't take on debt like that again. As I pointed out last week, it is an illusion to think that rising house prices increase our net wealth. For we buy in the same market that we sell in. Rising house prices mean we get more when we sell - but we pay more when we buy.
If you are an aspiring first home buyer, rising house prices raise the bar and put home ownership out of reach. If you are upgrading to a better home, rising house prices widen the gap between what you get and what you pay. The only people who benefit from rising house prices are people downgrading to a smaller home - and investors.
From 1995 to 2007, the Bureau of Statistics reports, home ownership among people aged 25 to 34 shrank from 52 per cent to 43 per cent. Among people aged 35 to 44, it shrank from 73 per cent to 65 per cent.
Flinders University academics Joe Flood and Emma Baker have examined these trends from census data. Between 1986 and 2006, they report, home ownership in Melbourne among people aged 25 to 44 on middle incomes fell from 68 per cent to 57 per cent. In Sydney, the fall was even steeper: from 60 per cent to 45 per cent.
House prices have soared because of a widening gap between supply and demand. The supply of new homes has barely grown in 40 years, averaging 154,500 over the '00s. Yet demand has soared, for two reasons. Population growth has doubled, to almost 500,000 a year. And 40 per cent of lending to people buying established homes now goes to investors.
It wasn't always like that. Before Labor restored the tax break for negative gearing in 1987, investors took only 8 per cent of lending for established homes. Most of their borrowing was to build new homes, such as apartment blocks. And most landlords made a profit from renting.
But not now. Tax Office figures show 1.1 million Australians declared negatively geared property investments in 2006-07. They claimed total losses of more than $10 billion, which probably cut their tax bills by about $4 billion. In effect, that $4 billion then falls on other taxpayers.
What's the point of running a rental business that loses money? Because your losses - assuming they're real - are more than offset by the capital gain when you sell the property. And thanks to John Howard, you pay only half as much tax on capital gains as you pay on the income you earn from working.
Few countries offer housing investors such a generous tax deal. In most, you can write off your losses against rental income, but not against income from other sources. That's what we need to do here, where the scale of negative gearing is now so massive that housing cannot become affordable to young and low-income buyers competing with so many richer, tax-subsided investors.
Consider this: in the 13 years to 2006-07, landlords as a group went from declaring net profits of $399 million to net losses of $6.4 billion. Those reporting profits grew by 36,000. Those reporting losses grew by 594,000.
The problem is not landlords: I've been one myself, and they will always have a vital role in supplying housing for those who lack the means to buy.
The problem is our tax laws, which have overturned the proper balance between home owners and investors and have led 1.1 million people to become landlords who make losses in order to reap the tax gains. That flood of investors has upended the balance between supply and demand, driving up prices and denying millions the chance to own their own homes.
You can see why the politicians don't want to touch it. But because it is so large, we can't make housing affordable until they do.
Tim Colebatch is economics editor.
Source: The Age
Monday 2 February 2009
Australian House Prices Fall, More Rate Cuts Coming
Australian House Prices Fall, More Rate Cuts Coming
Topics:Banking Interest Rates Inflation Economy (Global) Australia & New Zealand
Sectors:Banks
By: Reuters 01 Feb 2009 11:58 PM ET
Australian house prices fell last year as tightening credit conditions and a sharp downturn in the economy put paid to the double-digit growth enjoyed in 2007, dealing a further blow to household wealth and pointing towards more rate cuts.
Government data out on Monday showed prices of established houses fell 3.3 percent in the fourth quarter compared to the same period in 2007, when they were running hot at 14.0 percent.
The drop in wealth, already undermined by sliding equity and pension values, only added to expectations of another big cut in interest rates when the Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday.
Investors are pricing in a cut of 100 basis points in the key cash rate to a record low of 3.25 percent, bringing its easing since September to a massive 4 percentage points.
"The news has been so dismal that they almost have to cut by 100 basis points, and an even bigger move can't be ruled out," said Michael Workman, a senior economist at Commonwealth Bank. "That won't be the end either," he added. "The market's already pricing in rates under 2 percent."
The Australian government is also expected to announce a second package of fiscal stimulus measures, perhaps as soon as this week, in an attempt to limit any rise in unemployment.
Prime Minister Kevin Rudd on Monday told a news conference the government would "move heaven and earth" to support the economy even as the global recession blew a hole in its tax take.
Warning of a return to budget deficits after years of plenty, Rudd said tax revenues over the next four years were expected to be lower by a staggering A$115 billion ($73 billion). That is equivalent to over a third of annual tax revenues, or 10 percent of gross domestic product.
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"But this government will leave no stone unturned when it comes to taking all necessary measures to continue to support growth and jobs," he said.
The depth of the trouble was illustrated by a monthly survey of 200 manufacturers, which showed activity contracted for the eighth straight month in January.
The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) edged up a seasonally adjusted 2.9 points to 36.6, but remained far below the 50 threshold separating growth from contraction.
Relatively Resilient
The steep cuts in interest rates seemed to be offering some support to house prices as the pace of decline slowed on a quarter-to-quarter basis.
Prices dipped a smaller-than-expected 0.8 percent in the fourth quarter, compared to the third quarter when they sank 2.4 percent.
In any case, the annual losses of 3.3 percent in Australia are relatively modest compared to declines of 15 to 20 percent suffered in the United States and Britain.
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This was partly thanks to still high levels of skilled migration and a rising population. There are also far fewer unsold homes in Australia, which had never gone though the huge building boom that left so much stock in the United States.
Monetary policy was having more of an impact as the main variable mortgage in Australia is benchmarked off the central bank's cash rate, unlike in the U.S. where the most popular fixed rate mortgages are tied to Treasury yields.
Rory Robertson, interest rate strategist at Macquarie, noted that the headline variable mortgage rate had fallen to around 6.85 percent, from 9.6 percent before the central bank began easing.
"Big RBA-driven mortgage rate reductions obviously have provided major support for local home prices through recent global gloom and doom," he said.
Should the central bank cut as expected on Tuesday, the mortgage rate could drop to 6.0 percent or less, near its lowest since 1970.
"House prices will come under further pressure as unemployment trends higher," Robertson added. "But mortgage rates will continue to be reduced to new generational lows, providing great support to most homebuyers."
Copyright 2009 Reuters.
http://www.cnbc.com/id/28971613
Topics:Banking Interest Rates Inflation Economy (Global) Australia & New Zealand
Sectors:Banks
By: Reuters 01 Feb 2009 11:58 PM ET
Australian house prices fell last year as tightening credit conditions and a sharp downturn in the economy put paid to the double-digit growth enjoyed in 2007, dealing a further blow to household wealth and pointing towards more rate cuts.
Government data out on Monday showed prices of established houses fell 3.3 percent in the fourth quarter compared to the same period in 2007, when they were running hot at 14.0 percent.
The drop in wealth, already undermined by sliding equity and pension values, only added to expectations of another big cut in interest rates when the Reserve Bank of Australia (RBA) holds its monthly policy meeting on Tuesday.
Investors are pricing in a cut of 100 basis points in the key cash rate to a record low of 3.25 percent, bringing its easing since September to a massive 4 percentage points.
"The news has been so dismal that they almost have to cut by 100 basis points, and an even bigger move can't be ruled out," said Michael Workman, a senior economist at Commonwealth Bank. "That won't be the end either," he added. "The market's already pricing in rates under 2 percent."
The Australian government is also expected to announce a second package of fiscal stimulus measures, perhaps as soon as this week, in an attempt to limit any rise in unemployment.
Prime Minister Kevin Rudd on Monday told a news conference the government would "move heaven and earth" to support the economy even as the global recession blew a hole in its tax take.
Warning of a return to budget deficits after years of plenty, Rudd said tax revenues over the next four years were expected to be lower by a staggering A$115 billion ($73 billion). That is equivalent to over a third of annual tax revenues, or 10 percent of gross domestic product.
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Current DateTime: 01:43:09 02 Feb 2009LinksList Documentid: 28967073
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Wall Street Looks To Stimulus After Bad January
Banks Sought Foreign Workers As System Crashed
More Asia Pacific News
"But this government will leave no stone unturned when it comes to taking all necessary measures to continue to support growth and jobs," he said.
The depth of the trouble was illustrated by a monthly survey of 200 manufacturers, which showed activity contracted for the eighth straight month in January.
The Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index (PMI) edged up a seasonally adjusted 2.9 points to 36.6, but remained far below the 50 threshold separating growth from contraction.
Relatively Resilient
The steep cuts in interest rates seemed to be offering some support to house prices as the pace of decline slowed on a quarter-to-quarter basis.
Prices dipped a smaller-than-expected 0.8 percent in the fourth quarter, compared to the third quarter when they sank 2.4 percent.
In any case, the annual losses of 3.3 percent in Australia are relatively modest compared to declines of 15 to 20 percent suffered in the United States and Britain.
More From CNBC.com
Wall Street Looks To Stimulus After Bad January
South Korea Suffers Record Fall in Exports
Wen Sees Signs of Chinese Economy Reviving
Rio Tinto Is Talking with Chinalco, No Deal Yet
More Asia Pacific News
This was partly thanks to still high levels of skilled migration and a rising population. There are also far fewer unsold homes in Australia, which had never gone though the huge building boom that left so much stock in the United States.
Monetary policy was having more of an impact as the main variable mortgage in Australia is benchmarked off the central bank's cash rate, unlike in the U.S. where the most popular fixed rate mortgages are tied to Treasury yields.
Rory Robertson, interest rate strategist at Macquarie, noted that the headline variable mortgage rate had fallen to around 6.85 percent, from 9.6 percent before the central bank began easing.
"Big RBA-driven mortgage rate reductions obviously have provided major support for local home prices through recent global gloom and doom," he said.
Should the central bank cut as expected on Tuesday, the mortgage rate could drop to 6.0 percent or less, near its lowest since 1970.
"House prices will come under further pressure as unemployment trends higher," Robertson added. "But mortgage rates will continue to be reduced to new generational lows, providing great support to most homebuyers."
Copyright 2009 Reuters.
http://www.cnbc.com/id/28971613
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