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Monday, November 02, 2015

Australia faces property crash - taking the economy with it - if luck doesn't hold, Professor Steve Keen

Letter of Invitation: I would be available to answer any queries regarding best suburbs to integrate socially, just to let you know 21 suburbs of South Australia which are red-flagged by Australian banks. I am happy to provide detail answers to any questions with reference to Property Investment, Subdivision, Development, Buying/ Selling Residential, Commercial, Rural Properties and Businesses. I am available in person (Tue/Thu at 1289 South Rd, St. Marys, SA 5042 12 to 5 p.m) or on cell to answer any questions, and concerns you have to decide about your Real Estate. (Cell: 0431 138 537, Email: Saqlain@Dukesrealestate.com) Click here to invest in South Australian Residential Commercial, Rural Properties, Schools & Businesses. ========================= RBA leaves cash rate unchanged at 2% in November 2015; The outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent. The global economy is expanding at a moderate pace, with some further softening in conditions in the Asian region, continuing US growth and a recovery in Europe. Key commodity prices are much lower than a year ago, in part reflecting increased supply, including from Australia. Australia's terms of trade are falling. The Federal Reserve is expected to start increasing its policy rate over the period ahead, but some other major central banks are continuing to ease monetary policy. Volatility in financial markets has abated somewhat for the moment. While credit costs for some emerging market countries remain higher than a year ago, global financial conditions overall remain very accommodative. In Australia, the available information suggests that moderate expansion in the economy continues. While GDP growth has been somewhat below longer-term averages for some time, business surveys suggest a gradual improvement in conditions over the past year. This has been accompanied by somewhat stronger growth in employment and a steady rate of unemployment. Inflation is low and should remain so, with the economy likely to have a degree of spare capacity for some time yet. Inflation is forecast to be consistent with the target over the next one to two years, but a little lower than earlier expected. In such circumstances, monetary policy needs to be accommodative. Low interest rates are acting to support borrowing and spending. While the recent changes to some lending rates for housing will reduce this support slightly, overall conditions are still quite accommodative. Credit growth has increased a little over recent months, with growth in lending to investors in the housing market easing slightly while that for owner-occupiers appears to be picking up. Dwelling prices continue to rise in Melbourne and Sydney, though the pace of growth has moderated of late. Growth in dwelling prices has remained mostly subdued in other cities. Supervisory measures are helping to contain risks that may arise from the housing market. In other asset markets, prices for commercial property have been supported by lower long-term interest rates, while equity prices have moved in parallel with developments in global markets. The Australian dollar is adjusting to the significant declines in key commodity prices. At today's meeting the Board judged that the prospects for an improvement in economic conditions had firmed a little over recent months and that leaving the cash rate unchanged was appropriate at this meeting. Members also observed that the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand. The Board will continue to assess the outlook, and hence whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target. ================================================= Seven things stopping young people from getting on the property ladder career (and 12 ways to overcome them) By Michael Yardney | Yahoo7 Finance – Thu, Nov 5, 2015 8:39 PM AEDT Houses are unaffordable aren’t they? Just open any paper and you’ll read how hard it is to get a foot up the property ladder these days, particularly for those who are not yet in the fortunate position of owning a home. So today I’d like to discuss seven things that stop many young people from getting on the property ladder… and suggest 12 practical ways to overcome the affordability barrier and kick-start a property investment career or get into your first home sooner. Sure it can be challenging to break into some of the popular inner city postcodes in Melbourne and Sydney, but it’s really no different to 40 years ago when I first got into property and felt property cost a lot of money too. Also read: Where are Chinese investors buying property in Australia? But I had to learn how to compromise. The point I’m trying to make is that our perception of price and cost is somewhat relative. If you have a good salary, then a $1.5 million home in Bondi won’t ruffle your feathers too much. On the flipside, if you’re struggling from paycheck to paycheck, you’re likely to see the same property as an unattainable fantasy. The home ownership ideal is changing While many social commentators are busy telling us how impossible it is for today’s first home buyers to break into the housing market, an interesting new trend is emerging among twenty and thirty-somethings. Many young ‘Millennials’ are establishing a life that involves renting where they want to live and investing where they can afford to do so. Also read: Making money in volatile times Why don’t more young people take the plunge into property investing? For some, it's a matter of their personal circumstances that keeps them from buying a property, things like limited employment opportunities and a lack of financial capacity. But for others, the list of excuses is more about the so-called ‘trappings’ of youth. However unless you work to overcome the barriers and kick start your own property investment career at a young age, you could find yourself a slave to money rather than its master for much of your adult life. Here are seven obstacles you might be facing as a would-be first time home buyer or investor… 1. Poor money habits The ‘want it all yesterday’ mentality isn’t necessarily the fault of younger generations, but it probably impacts on how you manage (or mismanage) your finances. If you’re in the habit of spending money that isn’t really yours in the first place (using credit or store cards) to buy ‘stuff’ that won’t further your life’s ambitions, then this is something you need to address, because what you’re really doing is borrowing tomorrow’s money today and paying interest for the right to use it. 2. Poor credit Spending money you don’t have means you’re trying to sustain a lifestyle you can’t realistically afford. Put simply… you’ll never get rich owing people money While credit card debt might not seem like a big deal as a young, single worker bee, what happens if your life takes a turn you weren’t expecting and you lose your income for a period of time? Or what if you overextend yourself to the point where you can no longer afford your credit habit? These issues can result in black marks against your personal credit file, which may prevent you from securing a home or property investment loan. 3. Lack of life experience O.K. I thought I knew it all as a teenager and I definitely knew even more in my early twenties We all like to kid ourselves that we’ve got this thing called life ‘in the bag’ as we enter adulthood, but the fact is we’re only just beginning to learn. 4. Lack of investment peers It’s unlikely that those in your current social circle spend lots of time talking about the liquidity of shares versus the relative illiquidity of property as an asset, over Friday night cocktails. Starting up the property ladder can be a lot more problematic when you’re surrounded by people who don’t really care too much for real estate, or more importantly, what you intend to do with it. Also read: Why the Aussie dollar will move higher 5. Expectation Here we are, back at the ‘want it all yesterday’ mentality. Many on the verge of leaving their cosy family nest often expect to live in a property similar to what took their parents over forty years of hard work to acquire While it’s not surprising that Gen Y’s raised on modern day marketing are impatient consumers, problems arise when you set yourself unrealistic and unattainable property ownership goals. 6. The affordability barrier According to a report from Deloitte Access Economics, the affordability barrier is very real for younger generations. The 2015 Deloitte Mortgage Report found that Australian housing remains some of the most expensive in the world, with property prices increasing up to five times faster than salaries in select areas. You see… while wages are trending at a growth rate of just 2 per cent per annum right now, some of the more sought after postcodes around Melbourne and Sydney are experiencing dwelling price rises in the region of 10 per cent plus. So how can you ride the property investment wave to wealth? Despite the seemingly long list of obstacles that might be preventing a large number of young people from thinking about securing their financial future through direct property investment, as the old saying goes, where there’s a will there’s a way. So here are 12 ideas to get you started… 1. Do what you can with what you’ve got Energy, motivation and ambition…most young people have these traits in spades; yet tend to waste them in pursuit of trivial experiences (that usually cost money). As age starts to catch up with us though, so too does a sense of complacency and we start to settle on our perceived ‘lot in life’. Use that youthful drive to identify and define your future financial objectives, then chart a course to get you there. It’s called planning and it works a treat alongside motivation. 2. Use that tech brain to your advantage Knowing how to use the Internet, social media and spreadsheets makes you an investment force to be reckoned with…you just need to know which resources to use. Your parents didn’t have the modern day advantage of real time access to market data and information with which to build their investment portfolio. Make every minute you spend online count (literally). Hit Google and get started! 3. Work out if property as an asset meets your expectations. If you’re after a quick road to riches, then I’m afraid you’re venturing down the wrong path with real estate. Sure, the current market has produced some amazing capital gains, but it’s not always this way – the market moves in cycles So while it’s unlikely that you’ll strike it rich overnight in property, in my opinion when it comes to long-term stability, security and returns, you won’t do better than well-selected residential housing. 4. Be realistic about your budget. Unless you earn a lot more than the average 25 year old, it’s unrealistic to think you can spend half a million plus on your first foray into property, be it for a home or investment. Aside from the fact that most sane lenders will likely turn you down, this would represent a significant financial commitment. Remember, if this is your first home, it’s unlikely to your last so be realistic with your expectations. And as a property investor, your budget may only allow you to buy a one bedroom apartment. But that’s O.K. – the way we live today makes a well designed smaller apartment a great long term investment. 5. Learn the ropes. There’s such a wealth of information at every investor’s fingertips these days, ignorance is no longer an excuse for losing money in the property game. The problem is there’s too much information out there and it’s hard to know who to listen to with so many people calling themselves property experts. Seek out a mentor who has personally achieved the type of success in real estate you aspire to and pick their brain as much as possible. You can learn incredibly valuable lessons from other people’s mistakes…without paying for them yourself! 6. Save, save and save some more. While credit might be relatively cheap right now, it’s also getting more difficult to come by for property investors, due to tighter lending restrictions recently imposed on the financial services sector. Lenders have certain criteria you must fulfil in order to obtain a mortgage, with a clearly documented savings history at the top of their list. Establishing a good savings habit will hold you in good stead for securing future funding. Aside from that, you’ll always be ahead of the game. Also read: Aussies overpaid, hard to fire: economist 7. Keep your credit history clean. Ignoring creditors doesn't make them go away, so whenever possible pay on time and if it’s just too hard, make the effort to arrange an alternative that suits everyone in order to prevent a default that could count against you with lenders. It might not seem like a big deal in the immediate here and now, but credit glitches can remain on your credit file for up to five years. 8. Consider a ‘joint venture’ or guarantor arrangement. Co-investing with friends, siblings, aunties, uncles, cousins and/or parents is becoming increasingly common, as more young people realise that owning a share in something of value is better than owning nothing at all. Alternatively, you could ask your parents if they’d be prepared to use the equity they’ve built up over the years in their own home to go guarantor, so you can secure a mortgage and get a foot on the first rung of the property ladder. I call it “bringing forward your inheritance.” 9. Do your research. Learn the importance of careful and considered asset selection, based on the type of tenant and owner-occupier markets your investment must appeal to, in order to generate consistent capital growth and cashflow. Buying an investment grade dwelling when you start out will make your ascent up the property ladder a lot more successful than it might be if you end up with an underperforming asset. Acquire the best possible property your money can buy in a proven high growth location or better still, an area that’s being gentrified and is on an upward trajectory. Something that gives you the capacity to manufacture equity through minor renovations – such as an older apartment or unit – in an area with good established infrastructure is ideal. 10. Maintain a cash buffer. Keep aside a cash reserve when you buy your first investment property, adding to it as you accumulate further assets and grow your portfolio. This will act as a buffer that you can access as needed for maintenance costs, or to manage the mortgage repayments should you find yourself without sufficient rental or personal income for a period of time. Maintaining a ‘rainy day’ account in an offset facility will also help to reduce any non-tax deductible debt you may have, such as the mortgage on your own home. 11. Keep saving. While some people think it’s best to direct any spare money into reducing the debt against their property, this isn’t necessarily the case when you’re actively accumulating a real estate portfolio. Remember, you want to take full advantage of investment related negative gearing benefits. But it’s about achieving the right balance. Save surplus money in the mortgage on your own home - possibly in an offset account so you can access it if you need to. This will minimise your non-tax deductible debt. 12. Rent and invest. While the Great Australian Dream might be changing, research suggests young Australians still value the ideal of purchasing real estate. Now though, it’s more about buying as a property investor rather than a homeowner. Renting is considered a lifestyle choice these days, offering the flexibility and convenience of being able to relocate relatively easily and live in areas that might otherwise be unattainable as a homebuyer due to prohibitive property prices. But why should becoming a tenant stop you from accumulating wealth through real estate? Even though affordability might be an issue for today’s young Aussies looking to get a foot up the proverbial property ladder, there are always opportunities if you’re prepared to think just a little outside the square. I admire today’s young investors for not being swayed by the negative press around affordability and housing. Rather than giving up on the dream, they’re doing it bigger and better. Good on them! ============================ Click here to invest in South Australian Residential Commercial, Rural Properties, Schools & Businesses. Borrowers are confused on what is a good interest rate November 6, 20152:15pm Mortgage customers are confused by what is a good interest rate deal. Sophie Elsworth,News Corp Australia Network HOME loan deals are a dog’s breakfast as the gap widens on the different interest rates each borrower is paying. The constant massaging of interest rates by the banks has left many home loan customers confused as to what is a good rate. FIND the best home loan deal Out-of-cycle rate moves in recent weeks by many financial institutions saw owner occupier loan deals increased, and the continuous moves by lenders has meant rates range anywhere from just under four per cent to more than six per cent. IS NOW the perfect time to fix your home loan interest rate Home Loan Experts’s managing director Otto Dargan said it was becoming more complex for mortgage customers to decipher whether they are on a competitive deal. “Borrowers don’t know what a good rate is anymore,’’ he said. “They’re charging more for investors, more for interest only and because of the confusion they’re better than ever at gouging their most loyal customers.” Expert advice ... Home Loan Experts managing director Otto Dargan said many borrowers are confused on whether or not they are paying a good interest rate on their home loan Expert advice ... Home Loan Experts managing director Otto Dargan said many borrowers are confused on whether or not they are paying a good interest rate on their home loanSource:Supplied He said any borrower with a home loan more than two years old should be contacting their bank or a mortgage broker and reviewing the deal they are on. Analysis by financial comparison website RateCity shows on a $300,000 30-year loan the best variable rate is 3.79 per cent, while the best three-year fixed rate is 3.89 per cent. The site’s spokeswoman Sally Tindall said there are plenty of hot deals available for borrowers particularly owner occupiers. “For someone living in their own home you should be able to get a rate of four per cent and under for a basic no frills loan,’’ she said. “If you are investor you are looking in the high fours.” The big banks all declared they would be lifting their interest rates on owner occupier loans this month, except ING Direct which is the only large institution not to hike rates. Firm grip ... ING Direct is the only big bank that has increased its owner occupier variable rates in recent weeksSource:Supplied ING Direct’s head of products Tim Newman said while the mortgage market was “confusing” for homeowners, they needed to be proactive in ensuring they were on a competitive deal. “It’s the perfect time for homeowners to check their mortgages for rates, conditions and fees and do a bit of a comparison,’’ he said. “Many homeowners are opting to split their mortgages 50/50, fixed and variable.” The Reserve Bank of Australia board will meet again next month and there are predictions the cash rate could drop from two per cent either in December or early next year. sophie.elsworth@news.com.au BEST DEALS FOR A $300,000 30-YEAR LOAN VARIABLE 1. Mortgage House, Summer Home Loan Discount Variable 1 year, 3.79 per cent 2. Homestar Finace, Basic Refinance, 3.86 per cent 3. Reduce Home Loan, Rate Buster Offset Fee Free 3.9 per cent 4. Yellow Brick Road, Rate Smasher 3.91 per cent 5. Homestar Finance, Owner Occupied Property Loan, 3.98 per cent FIXED 1. Greater Building Society, Ultimate Home Loan Package, 3.89 per cent 2. Newcastle Permanent, Residential Fixed, 3.89 per cent 3. Qld Police Credit Union, Residential Discount Fixed, 3.89 per cent 4. Bankwest, Complete Home Loan Package, 3.95 per cent 5. SCU, My Life Residential 3.95 per cent Source: RateCity ================ How falling house prices could end up making us rich November 7, 20159:27am This 3 bedroom house at 17 Walkom Ave, Forestville, NSW recently sold at auction for $1.67 million. That’s nearly double the $825,000 it sold for in 2012. Which could be why housing, rather than business, has been such a popular investment over the past decade. Jason Murphy | news.com.au MY MATE is a brilliant engineer. He’s got a good job but he wants to get rich. The other night as we stood round at a barbecue, he was telling me about his plan to buy another house — or maybe a flat — in the suburb he lives in. I smiled and said ‘awesome!’ But later I kept wondering about his choice. It makes me worry about this country. In another kind of Australia, an engineer wouldn’t aim to get rich by owning property. He’d be investing in an engineering business. The lesson of the last 30 years is that the best, safest, smartest way to get rich is to buy a property. A whole generation has grown old with rising property prices elevating them into the wealthy classes. Now, they are passing that lesson on to their children. Get a foothold, they implore. Get a loan. Their kids are buying investment properties even while they are still renting. Evolution of Sydney's property prices since 1980 We all like to talk about grand business ideas after a few drinks. But too many great Australian business ideas are never even tried. They remain just a dimly remembered conversation or — at best — a business plan saved in a .doc file that hasn’t been opened in years. Some of them would have been world-beaters. The next Uber, the next Nike, maybe the next Tesla. But they never had a chance. To see the trade-off between house prices and entrepreneurialism, check out the last 10 years. In 2003-04 brave Aussies opened well over 300,000 business. Fast-forward a decade and we’re frightened. Even though the population was bigger and interest rates were lower, we opened well under 300,000 businesses (The orange line in the graph below). As house prices rise, business start-ups fall. As house prices rise, business start-ups fall.Source:Supplied Why are we slowly turning fearful? The red line helps explain it. Why invest in a risky business when you can get huge returns by just owning a flat? As far as entrepreneurialism goes, land-lording is the number one kind. There are even investors whose confidence in getting a capital gain is so great they don’t bother renting their property out. They just leave it vacant. And there are the inevitable stories of the young go-getters who own dozens of properties and seem utterly oblivious to the fact that owning something that already got built actually adds nothing real to the economy. The top brains at the RBA reckon the rise in house prices is just a big money-go-round. “Much of what is gained on the one hand is lost on the other,” the Deputy Governor said recently. “The main impact of higher land prices is not really to increase our national wealth, but to change the distribution of that wealth.” The trend for investment housing has been huge in Australia. In 1990, we invested around $10 billion each year. About 25 years later we are ploughing in $500 billion a year. This graph shows the ratio of business investment to housing investment lines over the last 25 years. This graph shows a scary trend. From investing $20 in businesses for ever dollar housing in 1990, down to just $1.40 in 2015. This graph shows a scary trend. From investing $20 in businesses for ever dollar housing in 1990, down to just $1.40 in 2015.Source:Supplied Australia used to invest $20 in businesses for every $1 that went to being a landlord. Now it’s $1.40. No wonder our economy is all about housing and I can barely think of an Aussie start-up that has come good recently. The relative collapse in business investment is a sad indictment on a nation that was once all about the pioneer spirit. We are a nation where property owning and profitmaking is now so mainstream we make TV out of it. Could The Block have been invented in any other country? The tax system is definitely part of the reason here. Negative gearing makes housing investment more attractive. You can negatively gear a business too, of course. But nobody expects a business that makes a loss to appreciate in value. Why do they expect a loss-making patch of land to appreciate? Only because they always have. Until now. The end of an era of ever-rising house prices is probably upon us. It will be uncomfortable and a lot of people — including those smiling young ingenues whose property portfolios are as vast as their debt — will lose money. But the lack of a safe path to riches should pose no problem for the current crop of Aussies. We are brave. We are smart. If we put our money where our mouths are and actually invest in opening businesses we could discover something — Australia’s economic potential is far more than owning a few flats. Jason Murphy is an economist. He publishes the blog Thomas The Think Engine. Follow him on Twitter @jasemurphy. ================================ Australia has set itself up for a classic property crash - and potentially take the economy with it - if our luck doesn't hold, the expatriate Professor Steve Keen has forecast. Chinese buyers had given Australia's debt-booze-addled gamblers a possible out. "Australians are now gambling on whether the fallout from China's crash will prick their own bubble, or inflate it once more," he suggested. "In everywhere but Australia, I'm famous for predicting the 2008 crash," the UK based former Sydney professor told his recent Irish audience ahead of a conference next month. "In Australia, I'm famous for being wrong about house prices - they rose after the crash, when I expected them to fall." He says he partly got the cause right, but the direction of the cause wrong with his 2008 forecast. "As the Irish know only too well, what really causes house prices to rise rapidly is too much mortgage debt, rising too quickly. "House prices exploded here in the "Celtic Tiger" days, only to collapse when the mortgage bubble burst - bringing the economy down with it," he wrote in the Irish Independent. Keen wrote that Australians avoided the nasty hangover "by the classic Antipodean method: they went for the 'Hair of the Dog' cure. "Whereas the rest of the world unwound its mortgage debt, Australians piled into it - first in 2008 when the government turbocharged the market by doubling the grant it gave to first-home buyers, and then since 2012 when falling interest rates encouraged Baby Boomers to throw their so-called retirement savings into the housing market casino. he said the Australian hangover cure worked, but at the expense of mortgaging Australia to the hilt (To the limit; completely). When the crisis hit in 2008, Australian mortgage debt was already higher than in the USA: mortgage debt peaked at 72pc of GDP in America then, but Australia's level was 10pc higher again. "Today, mortgage debt in the USA has fallen to 53pc of GDP-what wimps! "The hard-drinking Australians now have a mortgage debt level of 91pc of GDP and rising." "As any fan of the 'Hair of the Dog' cure knows, it only works if you keep drinking. "So can Australians maintain their record for insobriety (Lack of sobriety; intemperance, especially in drinking.) and keep imbibing from the Bar of the Banks? (To absorb or take in as if by drinking: . To receive and absorb into the mind: ") Left to their own devices, I have little doubt that my ex-countrymen could keep knocking back the 4X of mortgage debt forever. But as 'Hair of the Dog' devotees also know, one danger of this cure is that the bartender will eventually refuse to serve you. "And that seems to be happening in Australia now ....with the policeman (the "Australian Prudential Regulation Authority") finally awoken from his slumber, and is now insisting on less alcohol in the brew-otherwise known as a lower loan to valuation ratio. Kenn says these moves seem to be have blown the froth off the Australian market. In the boom days, more than 80pc of properties were sold at auction, and frequently for well over their reserves. Steve Keen noted the auction clearance rate appears to be heading further south. "Prices are still rising, but the rate of price increase has slowed. As fans of rugby will appreciate, Australians can win on luck as well as talent. "But it's only luck now that is keeping Australia from tasting the bitter brew that Ireland was forced to sip when the myth of the Celtic Tiger was exposed as a debt-drunkard's delusion. "Australia has set itself up for a classic "Marsupial Tiger" crash. "As the growth rate of mortgage debt slows, the market will come down and potentially take the economy with it. "But Australians are relying on their other secret weapon: luck. "Chinese buying of Australian real estate-partly as insurance against things going bad in China, partly to buy blue skies, which can't be bought in China for love nor money - has given Australia's debt-booze-addled gamblers a possible way to walk away from it all and appear sober rather than sozzled. (Addled: To cause (someone) to think unclearly; confuse: "My brain is a bit addled by whiskey" ) "However, China itself is going through its own property market crash, and there's no external force that will rescue its speculators from that fate. "So Australians are now gambling on whether the fallout from China's crash will prick their own bubble, or inflate it once more." Professor Steve Keen is just one of the many big names from the world of economics appearing at Kilkenomics, called Davos with jokes, in two weeks' time. ======================= Tents pitched on a balcony and in the corner of a living room are being advertised to renters from $390 a month in one of the more outrageous signs of Melbourne's desperate rental market. The listings were posted on two classified websites in recent weeks. One of the tents, advertised for $130 a week, is part of an apparent illegal boarding house at the Lacrosse building in Docklands, the apartment tower currently at the centre of a flammable cladding controversy. The Korean-language listing said the two-bedroom apartment at 673 La Trobe Street was shared between six people. Photos show part of the living room cordoned off into a bedroom space with a red screen and, in another area, a yellow tent next to a desk and what appears to be a fabric wardrobe. "Room space is comfortable," the advertisement said. "It is a very cool (refreshing) house in the summer." When Fairfax Media called the advertiser last week she said the space in the tent had already been taken. The new tenant will have access to the apartment and building facilities, including the gym and outdoor swimming pool. There is also a tent for rent for $90 a week near St Kilda Road in Melbourne, installed on an upper balcony of newly built tower The Emerald. "The tent is very comfortable. It has electricity and proper thick mattress bed inside, [with] heater provided as well," the Gumtree advertisement said. There are no local planning or building laws preventing people subletting apartment space or sleeping in a tent on private property, a Melbourne City Council spokesman said. Read more: http://www.theage.com.au/victoria/multiple-tents-found-pitched-in-melbourne-apartments-and-rented-out-20151029-gkm20g.html ========================================================= GST rise would add $15,000 to new home build | Updated Nov 2 2015 at 3:37 PM Raising the GST to 15 per cent would add $15,000 to the average new home. Raising the GST to 15 per cent would add $15,000 to the average new home. Erin Jonasson Share on twitter by Joanna Mather Increasing the GST to 15 per cent would add an extra $15,000 to the cost of constructing a new home, says an equity research note by investment bank Credit Suisse. The government is preparing a tax reform package that could include increasing the GST from 10 per cent to 15 per cent. Credit Suisse said such an increase could "severely distort" the timing of building activity, which occurred when the goods and services tax was first introduced in 2000, and hurt building materials supply companies. "Raising the GST when the housing cycle is slowing could have a material adverse impact on new home construction," the note said. "Based on the average cost of a newly constructed detached home – $300,000 excluding land – a 5 per cent increase in the GST to 15 per cent would add $15,000 to construction costs. "Lending requirements are tight and with housing affordability already stretched, a GST-led increase to house prices has the potential to amplify dwelling construction volatility and create a shock in one particular year." Fresh speculation about a GST rise emerged over the weekend and senior government ministers have not ruled out the change. In the 12 months prior to the GST's introduction, dwelling commencements increased by 15 per cent to 172,000 before falling to a record low of 115,000 the next year. In financial year 2002, commencements rebounded to 165,000. Despite the volatility, the dwelling commencement average over the three years from financial year 2000 to financial year 2002 was 150,000, which was in line with the long-term average. "This implies that the absolute number of new homes built did not change over that three-year period but the timing of the activity was severely distorted," the note said. Nevertheless, the result was a "double whammy shock", it said. "While building product volumes significantly fell post the introduction of GST, the impact to company earnings was exacerbated by a lack of price growth as the market, including home builders, adjusted to the new environment." For example, over the three-year period Boral's building product divisional revenue fell 33 per cent, while earnings before interest and tax (EBIT) was down by 47 per cent. For CSR, building product divisional revenue fell 15 per cent with EBIT down 30 per cent. Read more: http://www.afr.com/business/construction/gst-rise-would-add-15000-to-new-home-build-20151102-gkog1j#ixzz3qdvpj5fI Follow us: @FinancialReview on Twitter | financialreview on Facebook ============================== ActewAGL CEO Michael Costello has infuriated the building industry with the new charges. Photo: Andrew Sheargold Canberra builders fear they will be left thousands of dollars out of pocket on domestic and commercial construction jobs following ActewAGL's​ introduction of new fees for electricity meters and increased charges for other services. There was no direct charge for the power meters, which are the "point of sale" for power consumed inside a residence or business, until July 1 this year. New meters now cost $500, regardless of whether they are for a large unit block, apartments or freestanding homes, the ACT branch of the Master Builders Association said. ActewAGL is under financial pressure but has rejected claims it is inefficient. ActewAGL is under financial pressure but has rejected claims it is inefficient. ActewAGL is under financial pressure with a shortfall of $26 million a year over the next five years in the wake of an efficiency review of its operations by the Australian Energy Regulator. Advertisement The MBA said the power meter fee alone would raise at least $2 million a year at the expense of builders and their clients. Additional revenue would be generated from increases of up to 400 per cent in some existing fees and the creation of new ones MBA deputy executive director, Michael Hopkins, said. In a strongly worded letter to ActewAGL chief executive, Michael Costello, dated September 24, 2015, the MBA's executive director, Kirk Coningham, said the construction industry had been "shocked" by the charges. "Prior to the increase, there was no charge from Actew to haul cable and connect the [three phase] meter for greenfield sites. The new fee is $806.86," he wrote. "Prior to the increase, fees for knockdown rebuild projects were $761. The new fees total $2892. "The fee to move a point of attachment [single visit] cost $270 prior. Now the cost is $744." Mr Coningham​ said ActewAGL had also introduced a $779.95 fee to upgrade a power supply from single phase to three phase. Mr Hopkins said the lack of consultation about the changes, which the MBA said took effect with only two weeks notice, had put builders who had signed contracts before the new financial year in a difficult position. "These significant additional costs could not be included building contracts," he said. "It is extremely difficult [but not impossible] for builders to pass on these costs to their clients, leaving most to absorb these costs from already thin project margins." Mr Hopkins said the MBA was still waiting on a response to its letter to Mr Costello. Actew AGL's energy networks general manager, Stephen Devlin, said the speed of the changes had been beyond his organisation's control. "After the AER released its ActewAGL Distribution Final Energy Determination on April 30 [this year] ActewAGL analysed the determination's impacts on its operations and [then] calculated their 2015-2016 annual tariffs and charges," he said. "[We] submitted this to the AER on May 21. The AER approved the pricing proposal, including the connection charges, on June 12. This only gave a very small window of opportunity to undertake consumer engagement." Mr Devlin said the changes had been foreshadowed at a meeting of the Energy Consumer Reference Council on May 14 but that the MBA had not been represented. "They were in the process of changing representatives [at the time]," he said. Mr Devlin said ActewAGL had responded to the MBA's letter on October 27. "It took some time to prepare a response as the claims made by the MBA required some scrutiny," he said. None of the money being raised through the new fee structure will be used to offset ActewAGL's cash shortage. "Previously the cost of connection services were being subsidised through the electricity network tariff structure," Mr Devlin said. "The user now pays the cost upfront to reflect the efficient cost of providing the connection service." ActewAGL, which has also increased its fee for meters for rooftop solar power installations from $65 to $500, has rejected the "inefficient" tag with Mr Costello describing it as a "load of rubbish" in April. Read more: http://www.smh.com.au/act-news/canberra-builders-say-new-actewagl-will-cost-them-thousands-20151104-gkqp07.html#ixzz3qfQU309C Follow us: @smh on Twitter | sydneymorningherald on Facebook ================================== NAB has released a list of suburbs where it identifies higher risk of loan default on dwellings. See how a 'risky' suburb performs, and view the full list of suburbs here... What Does a Risky Suburb Look Like? Author: Eliza Owen Source: Onthehouse.com.au National Australia Bank has released a list of suburbs where it identifies higher risk of loan default on dwellings. As a result, the lender has announced limits to the amount of money it will loan to home buyers as a percentage of what the dwelling is worth. This is known as putting a cap on the loan to value ratio (LVR). Adelaide (CBD) (B: 80%, $370K) Olympic Dam, Roxby Downs, Roxby Downs Station (A:70%, $559K) Boddington Dwellings – Annualised Capital Growth, 1995-2015 The highest risk suburbs identified, classified by NAB as ‘Group A’, will have a LVR cap of 70%. Of the 91 suburbs identified in this group, 58 suburbs were in Western Australia while 20 were in Queensland. The rest were spread across Tasmania (9), South Australia (3) and the Northern Territory (1). Many of the suburbs in this high risk group – such as Boddington (WA), Emerald (QLD) and Olympic Dam (SA) – are actually mining towns. It is unsurprising to see these towns on the list. Suburbs such as these, where employment is largely reliant on one sector, are subject to higher risk from global economic shocks. It is the local economy equivalent of putting all your eggs in one basket and then sending that basket down some white water rapids. Related Article: Bad News for the Australian Economy? Take Boddington as an example. According to Mining Australia, the main commodities extracted from Boddington Mine are gold and copper. At February 2011, the copper price averaged US $8,823 per dry metric tonne and gold averaged US $1,568 per troy ounce. ABS Census data showed at this time that 36.8% of the working population in this suburb were directly employed in metal ore mining. A further 10.9% were employed in the related sectors of land development and preparation, and engineering construction. That’s approximately half of the Boddington workforce who live in the suburb employed in mining projects. In September this year, copper averaged just US $5,718 – a fall of 35%. Gold has since fallen 25% in the same period. So, what does the risk in Boddington property look like? Graph 1 shows the boom and the bust of the house and unit markets in this town. Graph 1: Boddington Dwellings – Annualised Capital Growth, 1995-2015 Source: Onthehouse.com.au The Graph displays the annual rate of growth in houses and units at every month between 1995 and 2015. The highest annual growth rate was 54% in houses, in the year to October 2006. In this year, house values increased from $214,000 to $331,000. Fast forward to 2013 when the mining construction boom began to wind down. Unemployment in the region increased and it became more difficult for once wealthy workers and investors to repay loans that were taken out at the peak of the boom. Slowdown in the growth rate of China’s GDP has greatly exacerbated the situation. China demands approximately 50% of Australia’s metal ore exports. Couple with a drop in metal ore prices and it is no wonder the banks are nervous. Suburbs classified as ‘Group B’, which have slightly lower risk than ‘Group A’ suburbs, will have a LVR cap of 80%. In other words, the bank will not provide more than 80% of what the house or unit is selling for. What has many people spooked is that a high majority of the 90 suburbs identified in ‘Group B’ are in New South Wales. Unlike the mining towns in Group A, Group B saw more diverse employment areas such as most of the major capital city CBD’s and metropolitan suburbs including Glebe, Chatswood and Darlington. Related Article: Sydney Median Passes $1 Million While Resource States Contract Further Among the risky factors of a record low cash rate, record high dwelling commencement figures and home loans for investors outstripping owner occupiers, employment diversity tends to be overlooked when characterising risky dwelling investment. In fact, many heralded the real estate boom as absorbing unemployment from the mining sector. In 2014, approximately 14% of GDP was made up of just the buying and selling of real estate. However, the safe suburbs are likely to be ones where residents can sustain their mortgages once the market moves into down swing, and developers stop building. =============================== Don’t be fooled by housing market’s mixed signals ANALYSIS: The data may be murky, but one thing is certain: negative gearing is getting risky. housing suburbNovember's housing data is all over the place. Photo: Getty Housing market data released on Monday paints one of the foggiest pictures of the market we’ve had for some time. On the one hand, the month-on-month changes in prices for the two ‘bubble’ cities of Sydney and Melbourne look alarming – down 1.37 per cent and 3.45 per cent respectively, according to Core Logic-RP Data. The other three major markets – Brisbane, Adelaide and Perth – show increases of 0.44, 0.69 and 0.33 per cent respectively. • A new way to spend your kids’ inheritance • We show you a refreshing way to cut your tax bill • The effects test war that just won’t go away But hang on – isn’t Perth going through an extended mining-related correction, down more than 4 per cent in the past year? Confused? Well the picture gets foggier still… houses suburb launceston The housing data is a bit foggy. Photo: Getty The Australian Prudential Regulation Authority’s (APRA) attempts to choke off investor activity in the housing market seem to be working, with growth in investor loans returning to under 10 per cent per annum – APRA’s so-called lending ‘speed limit’. But … but … borrowing by owner-occupiers has increased sharply, reaching a growth rate of 6.1 per cent. And total borrowing for housing is now back to a peak last reached in 2009, when both federal and state governments were trying to pump up the market with generous first homebuyer grants. So what’s going on? Why so many mixed messages? The first answer is that the Reserve Bank, which publishes the data showing how much has been borrowed, has massaged into its numbers a whopping $44 billion in loans that have been reclassified since July. That has skewed the investor/owner-occupier data somewhat. The second answer is that Treasurer Scott Morrison has been talking tough about prosecuting illegal foreign buyers of Australian housing. A partial amnesty for such investors to turn themselves in expired on Monday, but Mr Morrison’s tough guy act had probably already chased a number of buyers out of the market, particularly at the high end, and particularly in Sydney. A third answer is found in the mix of high-end and low-end properties on the market, which may be causing some of the volatility in the media house price figures themselves. housing suburb The market may be headed for a crash, but it’s too early to tell.Photo: Getty When wealthy buyers and sellers are more active (such as in previous bursts of activity from overseas buyers), the median price of a house rises. When they are less active, the median price falls. However, through such volatility, mid-market dwellings could easily be selling at steady prices. There is, however, one solid conclusion to be drawn from this week’s data. Sydney’s auction clearance rate is way down – it’s dropped to 56.3 per cent from a much healthier 70.6 per cent a year ago. If any bubble is bursting, it’s there. While the monthly price fall mentioned above is from a volatile data set, Sydney looks to be in a lot more trouble than Melbourne, where a record number of properties was offered on the weekend, and still sold with a clearance rate of 65 per cent. Stephen Koukoulas, principal of Market Economics, said that it’s hard to draw firm conclusions from such a wild set of signals. “Then again,” he told The New Daily, “if next month’s data pulls in the same direction then we can be lot more certain about what’s going on.” In the meantime, gross rental yields in most capitals are at historic lows – many hovering around 3 per cent. And crash or no crash, you’d have to ask many investors what they’re doing holding a risky asset for a 3 per cent yield, when many housing investments offer very small or even negative capital returns in the years ahead. The answer in previous years was that they were there for the negative-gearing profits – healthy rebates from the tax man, and even healthier capital gains. Well, in the absence of capital gains, negative gearing has a different name. It’s called losing money. Source: thenewdaily.com.au

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