13 Comments

  1. This is one of the comments:

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    The real elephant in the room is actually a cow – a sacred cow called negative gearing. Unless there’s a structural change to the incentives that Australians are showered with to over-invest in housing, inflated housing/renting prices are being locked in forever. And high house prices are just paper wealth until one down-sizes.

    In simplistic terms, removal of future negative gearing, or reducing current tax concessions, for existing properties would retain investment in new properties while freeing up that existing housing stock for purchase at reduced prices.

    But who has the courage to slay such a sacred cow any more?
    ————————————————————————————————-

    I couldn’t have said it better myself.

  2. The above comment nailed it!

    The structural changes to NG required are really centred on the premise of a fair go. If we blindly believe in this concept as part of our national identity then certainly we have to be brave enough to engage in the debate.

    Unfortunately the debate is not being had. The commoners are far too busy on the rat wheel to notice. If the debate can be had without the histonics of the various lobby groups there is hope that the veil of ignorance can some day be lifted.

    The inflexion point has approach with the market topped out. The boomers’ rising fortunes have been at their children’s expense and now they see what zero-sum-game means in reality. There is hope that a disenfanchised generation or two will look to the phenomenon of NG’ers are profiting at the expense of ordinary folk and cry enough.

    I’d like to see harsh LVR’s for investment properties and progressive taxation on 2nd and subsequent property coupled with some serious laws around longer duration tenancies. That should sort the investors from the speculators.

  3. @AverageBloke I think that post got moderated LOL.

    That article is hilarious, retail blaming real-estate….Seems like there are lots of people who are not surprised (judging by the posts) except of course the retailers…

    Prediction #1 is well underway “unemployment will jump”.

    Where is Marty, give us some positive spin on this one…PLEASE!!

  5. @BotRot

    I’m afraid it is.

    If you take a look at, this is Australian EXTERNAL debt and financial institutions have liabilities to the tune of $794 Billion (about 1/3 down the first page). So this means a lot of the money our banks get is from overseas (structure products / mortgage backed securities)

    http://www.abs.gov.au/websitedbs/d3310114.nsf/0/1cbac1ab0cca2049ca256d8f0080ec28/$FILE/Table%2031%20Gross%20External%20Debt%20Liabilities%20MQ2011_53020%20March%202011_1.pdf

    If you look at the attached Fitch report, and flip down to page 11.

    http://www.commbank.com.au/about-us/group-funding/articles/fitch-ratings-cba.pdf

    At the top under “ASSETS: Loans” you will see “Residential Mortgage Loans” = $322,226 (million) or $322 Billion USD. Note that this is just for CommBank. Lets do a x4 and we are at approx $1.3 Trillion USD no too far off.

    Just think for a minute what a 1% REAL default (180 days outstanding – declared bankrupt) would do to our banks! That would be a $130 billion hole in their balance sheets divide by 4 = $32 billion each. The commonwealth Bank has about 10 Billion in Cash and Liquid assets (see link below, top of page 96).

    http://www.commbank.com.au/about-us/shareholders/pdfs/annual-reports/Commonwealth_Bank_2010_Annual_Report.pdf

  6. Why won’t 60 minutes or 4 Corners do a proper story on Negative Gearing?

  8. Negative gearing is a stupid distortion, but it’s effect on the housing bubble is minimal. Easy credit is the killer. Housing bubbles are popping all over the world, yet other than NZ, no other country has negative gearing. They all have easy credit. Negative gearing won’t save the housing market — it just blew our bubble a bit bigger than everywhere else.

  9. The reason why there are no expose of the NG ‘Sacred Cow’ is because
    “60 Minutes”/Channel 9 get too much real estate/property advertising and the ABC being government owned know which side it’s bread is buttered. Look at how much they tow the line on the Global Warming/Extreme Weather/Climate Change/Carbon Tax etc
    It’s a cowardly society really, almost everyone lacks the guts to even discuss NG.
    Keep getting those ‘Southern Cross tattoos’ coming and pretend to be a rebel. A rebel without any claws!

  10. Guys, our Aussie banks are all factually bankrupt. A profit is not necessarily a sign of a sustainable business.

    During the GFC (before the final government sponsored borrowing binge) the CBA only required 6% of loans to go bad to completely wipe out the shareholders equity.

    Does that sound like a AAA rated bank? A sustainable operation? One of the top four banks in the world?….Well thats how it’s currently rated……

    And I agree, NG will not save the market, it merely encourages further speculation blowing the bubble bigger. This collapse is likely to make Iceland feel better about itself.

  11. @Free Willly, Fu…[CENSORED]. I wonder if all that debt burden will be pushed on a particular class of people to wear. What will happen if Creditors start calling in their loans? Or even some of them? I don’t even think it needs to come to that for a downturn, no wait, catastrophe. Good find on that info, bad news though.

  12. @BotRot

    You got it!

    The external debt is rolled over (typically) every 2-5 years so that means the $800B USD will be subject to finding parties willing to continue (at the same rate) which is subject to facts like the robustness of our property market and default rates etc basically risk if a risk premiums is factored in the rates we pay increase and this has very little to do with the RBA rate. The following slide deck (see summary slide) as presented by the NAB CEO in 2008 talks about this, of course this was before the PIIGS existed, Ireland, Greece and Portugal needing bailouts etc etc.

    http://www.nab.com.au/wps/wcm/connect/fbcf53804b9d5e3c8fc8cff1eeeae8e9/Cost_of_funds.pdf?MOD=AJPERES&CACHEID=fbcf53804b9d5e3c8fc8cff1eeeae8e9

    As Matty wrote it used to be 6% loan rate failure = annihilation of a big 4 but I reckon its now at 4% due to the 2008-2010 vendors boost. Some parts of Australia (QLD and WA) are already at 2%

    http://www.brisbanetimes.com.au/business/queensland-mortgage-default-rates-worst-in-australia-20110615-1g2i7.html

    OR

    http://www.perthnow.com.au/business/mortgage-stress-rises-in-wa-fitch-ratings-report/story-e6frg2ru-1226075535370

    I reckon they will roll-back the deposit guarantee in preparation for this so that the creditors will have access to deposit accounts (our savings!). The approval of covered bonds has taken us down that road already.

  13. @Free Will,

    Cover Bonds have been approved? I think its’ time someone invented a fire proof, bomb proof, bio-metric securitised, camouflaged, yet very comfortable matress. Then just hope inflation doesn’t go into orbit.

    You bring us fantastic info source Free Will, its’ just really bad news.

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